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EPA Launches Industrial Combined Heat and Power Initiative

11.02.2012

By Andy Bowman, Attorney, Bingham Greenebaum Doll LLP

On August 30, 2012, President Obama signed an Executive Order establishing a national goal of developing 40 gigawatts of new combined heat and power (CHP) capacity by 2020. The Executive Order directed the Environmental Protection Agency (EPA), Department of Energy (DOE) and other federal agencies to undertake coordinated actions to facilitate and promote investments in industrial energy efficiency (IEE), including providing technical assistance to states. In furtherance of the Executive Order, EPA has recently issued several white papers on CHP, a calculator for comparing carbon dioxide (CO2), carbon dioxide equivalents, methane, sulfur dioxide, nitrous oxide and nitrogen oxide emissions from CHP systems to emissions from a traditional separate heat and power system; a calculator for estimating CHP power production costs and a calculator for determining fuel savings provided by CHP systems. This information is available at http://www.epa.gov/chp/.  EPA and DOE also will be conducting a series of stakeholder meetings in 2013 on the development and financing of CHP projects.

EPA’s Combined Heat and Power Partnership is providing support to industry, states and other stakeholders through project technical assistance, outreach and incentives information.  DOE is also providing support for CHP projects directly to industrial and institutional facilities through its Boiler MACT Technical Assistance Program, http://www1.eere.energy.gov/manufacturing/distributedenergy/boilermact.html, and is currently implementing a CHP Technical Assistance Pilot Program jointly with the Public Utility Commission of Ohio.

In their recently released joint white paper, Combined Heat and Power: a Clean Energy Solution (August 2012), EPA and DOE discuss CHP applications, market and other factors that portend a favorable environment for significant new CHP investments and the benefits of CHP.  This article provides an overview of this white paper and examples of how CHP may be a useful compliance option.

CHP, also known as cogeneration, is a system of integrated technologies that has been in use for several decades.  In a traditional separate heat and power system, an industrial or commercial facility purchases electricity from a power utility and also burns fuel in an onsite boiler or furnace to produce steam or hot water. With a CHP system, the industrial or commercial facility recovers otherwise-wasted thermal energy to produce additional electricity and thermal energy.  According to EPA and DOE, CHP applications can operate at 65-75 percent efficiency compared to an average efficiency of 45 percent for traditional separate heat and power systems.

EPA estimates that CHP systems are currently in use at over 3,700 industrial and commercial facilities and represent 8 percent of U.S. generating capacity.  Almost 90 percent of existing CHP capacity is found in energy-intensive industrial applications, such as chemicals, paper, refining, food processing, and metals manufacturing. The remaining existing CHP applications are in commercial and institutional settings that provide electricity, steam, and hot water to hospitals, schools, university campuses, hotels, nursing homes, office buildings and apartment complexes. Most of these CHP applications use natural gas as fuel; however, biomass, biogas, process wastes and coal also are used.

After seeing new investments in CHP languish since 2005, EPA believes that CHP is poised for a significant resurgence as the result of several factors, including: projections that natural gas prices will remain moderate and stable through 2030 driven by shale gas development; greater recognition of the benefits of CHP by state policy makers; increasing electric prices and retirements of several older electrical plants.

EPA and DOE tout several benefits of CHP, including:

  • Reduced user energy costs
  • Reduced risk of electric grid disruptions and enhanced energy reliability
  • Cost stability in the face of rising power prices
  • Lower greenhouse gases emissions
  • A low cost approach to increasing electricity generation

CHP can be configured either as a topping or bottoming cycle.  In a typical topping cycle system, fuel is combusted in a gas turbine or reciprocating engine to generate electricity. Energy normally lost in the heat exhaust and cooling systems is instead recovered to provide heat for industrial processes, hot water, or for space heating, cooling, and dehumidification.

Topping Cycle CHP System

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In a bottoming cycle system, also referred to as “waste heat recovery,” fuel is combusted to provide thermal input to a boiler, furnace or other industrial process and the heat rejected from the process is then used for electricity production.
 
Bottoming Cycle CHP System

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In addition to energy efficiency and cost considerations, CHP may be a potential option for compliance with output-based air emissions regulations (OBR).  Conventional emissions standards are based on heat input of the fuel burned (e.g., lbs/MMBtu) or concentration of pollutant in the exhaust gas (e.g., parts per million). Conventional input-based emissions limits are met by the use of combustion controls or add-on controls and do not credit emission reductions from improved energy efficiency. OBR, in contrast, base emission limits on electrical energy output as mass per megawatt hour (lbs/MWh) or thermal output (lbs/MMBtu). OBR emission limits allow accounting for emissions reductions achieved through improved energy efficiency to demonstrate compliance with emissions limits.

Certain federal emissions standards are designed as OBR, including the New Source Performance Standards for Gas Turbines, Subpart KKKK, and the proposed National Emission Standards for Hazardous Air Pollutants for Industrial, Commercial and Institutional Boilers (Boiler MACT). These OBR encourage use of CHP by crediting energy efficiency.  For example, Subpart KKKK allows gas turbines to meet either concentration-based or output-based NOx and SO2 limits.  Under Subpart KKKK the thermal output of a CHP system that is not used to produce additional electricity or mechanical output is credited at 100 percent.

The reconsidered proposed Boiler MACT that is pending before the Office of Management and Budget would credit CHP systems for total energy output by valuing the output at the equivalent heat rate of the avoided central power plant at 10,000 Btu/kilowatt-hour. The reconsidered Boiler MACT clarifies that the output-based limits are alternative limits that the source may elect to comply with in lieu of the input-based limits.  The output-based emission limits are an alternative applicable only to boilers that generate steam. The output-based emission limits are not applicable to process heaters that do not generate steam. 76 Fed. Reg. 80656 (December 23, 2011).

Air emissions control strategies will be a particularly important element for compliance with tougher standards or planning industrial and institutional repowering projects.  Facility owners and operators that are facing challenges to comply with new air emissions standards or are considering repowering projects will want to evaluate all options, including CHP, applicability of OBR, fuels or using plantwide applicability limitations or other flexible approaches to facility permitting.  To the extent a facility has the capability of better managing electric loads and providing enhanced reliability benefits to the grid, there may be cost saving opportunities through demand side management, demand response, standby power, and other newly emerging tariffs and rates.

At the August 28, 2012  Indiana Chamber of Commerce Conference on Energy Management, Pete Grills of our firm presented a detailed analysis of the prospects for CHP and identified resources available to facilitate the planning and financing of CHP projects.  If you would like additional information about planning or financing a CHP project, Pete can be reached at pgrills@bgdlegal.com or (317) 968-5402.


To view a complete PDF of the Third Quarter 2012 issue of the Air Quality Letter, click HERE.

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