Cogeneration: The Right Technology at the Right Time
Cogeneration – also known as combined heat and power (CHP) – is expected to grow, according to a study released in October by Grandview Research. It’s not surprising: The technique, which uses one process to generate electricity and heat, is clean and efficient. That puts it right in line with the desire of energy managers, their bosses and society at large.
Grandview found that the global market, which it valued at $6.25 billion last year, is being driven by increasing demand at both the commercial and industrial levels. Drivers include increasing limits on carbon emissions and low prices and abundance of natural gas, the fuel most often used in cogeneration.
There are trends within the cogeneration/CHP sector. Experts say use of coal is expected to slow and biomass is expected to grow. For example, a 25 MW biogas-fueled cogeneration plant currently under construction will provide all of the steam and electricity to Los Angeles’ Hyperion Water Reclamation Plant, according to WaterWorld. Exelon Generation subsidiary Constellation is the developer of the plant, which will generate 173 million kWh of electricity annually and as much as 70,000 pounds of steam per hour.
Grandview notes that cogeneration is divided into large and micro/small scale segments. Large scale dominates, but micro/small scale is growing in its overall size and proportion compared to the entire segment: It represented about 15 percent of the market last year — and will add more than 8 percent from this year to 2022. Overall, North America cogeneration is expected to have a compound annual growth rate of 3.5 percent from this year to 2022.
The drivers of cogeneration are significant. Russell Ray, the Editor-in-Chief of Power Engineering and Chairman of POWER-GEN International, makes the case for CHP. Actually, he uses a LinkedIn post to make two. The first is that the centralized power industry is increasingly troubled: Costly regulations are proliferating and revenue is stagnant. The second case is that CHP – which he points out has been a reliable source of energy for generations – is being supported by the Obama administration, which sees it as a prudent approach to decentralizing and distributing power generation. The bottom line is that the industry has a powerful friend:
The Obama administration wants to boost CHP capacity by 40,000 MW, or 50 percent, by 2020. That was the goal established in an executive order directing several federal agencies and departments to encourage more investment in CHP projects through existing programs and policies.
It’s not smooth sailing in Washington, however. The fate of legislation in Congress will have a big impact on CHP and waste to power (WHP), a related segment. Patricia Sharkey and Susan Brodie – from the Midwest Cogeneration Association and The Heat is Power Association, respectively – in a letter to the editor of The Belleville News-Democrat described the benefits and drawbacks of the technologies.
The key drawback is high capex. The problem is that federal tax incentives of 10 percent for CHP (WHP gets none) simply is not enough. There is hope, however: The Power Efficiency and Resiliency (POWER) Act (H.R. 2657 in the House and S. 1516 in the Senate), which would give both CHP and WHP 30 percent investment tax credit, the same as other low- and zero-emitting technologies, according to the letter.
The writers say that prospects for the legislation are good. Brodie, in response to emailed questions from Energy Manager Today, sounded upbeat but concluded that the prospects are uncertain:
“The POWER Act has gained significant momentum this year, approaching 50 bipartisan cosponsors (26 Republicans, 17 Democrats),” she wrote. “It’s part of the discussion as Congress considers a year-end tax deal, although prospects for enactment this year are uncertain. If it’s not included, we will continue the push in 2016.”
There is a separate initiative for WHP. “Meanwhile, legislation that would add waste heat to power (WHP) to the existing 10 percent investment tax credit (ITC) is poised to be included in the year-end tax package,” Brodie wrote. “The bill, S. 913, is co-sponsored by Senators Carper and Heller, and was reported from the Senate Finance Committee early this year by voice vote.”
It is not a monolithic segment. Companies shopping for CHP systems face a choice of whether to buy customized or packaged systems. A story at Cogeneration & On-Site Power Production which features vendor Veolia does a good job of describing the benefits of the packaged approach. A packaged system a simple installation – almost certainly easier than that of a customized system – but there are space requirements to which attention must be paid. The story quotes a Veolia executive in the United Kingdom who says that “a vast majority” of commercial CHP systems, especially those bound for new buildings, are packaged.
The future looks good for cogeneration. “Demand for distributed generation and clean energy options continue to grow as customers seek more control over how their energy is produced and supplied to meet budget, resiliency and sustainability goals,” wrote Gary Fromer, the Senior Vice President of Distributed Energy for Constellation in response to emailed questions from Energy Manager Today. “Some customers may require very high resiliency for their specific mission, a critical sewage treatment plant like LA Sanitation’s is a good example.”
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