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IECA Urges Congress to Extend CHP Business Investment Tax Credit

March 28, 2016 By Cheryl Kaften

The advocacy group, Industrial Energy Consumers of America (IECA), sent a letter on March 15 to the chairmen and ranking members of the U.S. Senate Committee on Finance and the U.S. Committee on Ways and Means, urging them to extend the combined heat and power (CHP) business energy investment tax credit (ITC) set to expire at year-end 2016.

Last year, in the omnibus bill, H.R. 2029, the “Consolidated Appropriations Act of 2016,” solar and wind ITCs/production tax credits (PTCs) were renewed for another five years, while CHP was not.

“CHP facilities should have more comparable tax treatment to that which has been extended to wind and solar,” wrote IECA President Paul Cicio to Finance Chairman Orrin G. Hatch (R-UT), Finance Ranking Member Ron Wyden (D-OR) Ways and Means Chairman Kevin Brady (R-08-TX), and Ways and Means Ranking Member Sander Levin (D-o9MI).Specifically, Cicio said, this comparable treatment should allow the use of the CHP ITCs at the date of “commenced construction,” versus [those systems already] “placed in service.”

In addition, he urged the legislators to remove the megawatt (MW) capacity cap on the CHP ITC – which, he stated, “has greatly limited the value and use of the tax credit” – and to include industrial waste heat to power (WHP) as a “qualified facility” because WHP facilities produce power without any emissions.

It is important to distinguish Congressional tax incentive support for industrial CHP/WHP from incentives for wind and solar facilities, Cicio noted, because CHP has several more benefits – among them:

  • Wind and solar facilities are in the business of generating and selling power. Industrial companies do not build CHP/WHP facilities to sell power, although excess power is sometimes sold into the wholesale market or to the local electricity utility at the electric utilities’ avoided cost.
  • Wind and solar projects incur transmission and/or distribution costs that are included in project costs and eventually are paid for by the consumer. Industrial CHP/WHP facilities pay for the cost of connecting to the grid and any transmission/distribution costs. These costs are not passed onto the other electricity consumers.
  • Industrial CHP/WHP electricity produces power 24/7, which means it provides a higher quality of power, including power production when customers need it most – at peak demand periods. Wind/solar are intermittent and operate at a less than 50 percent capacity factor.
  • Once a solar or wind facility is installed, it stops generating new jobs. Industrial CHP/WHP facilities are the backbone of the manufacturing facility and support continuous job creation.
  • CHP/WHP facilities create multiple ongoing economic benefits. CHP/WHP helps the manufacturer to lower its steam and electricity costs which improves competitiveness, increases investment, and exports. The renewable energy ITC/PTC does not have this substantial economic multiplier effect.
  • The taxpayer receives more benefit from the CHP ITC than from the renewable energy ITC/PTC. This is because the industrial CHP facility runs 24/7, which means it produces more power than intermittent renewable resources for the same nameplate capacity on which the investment tax credits are paid. This has the effect of reducing the taxpayer cost per unit of electricity that is produced.
  • Lastly, the CHP ITC is a one-time incentive to support the development of a CHP unit. The PTC on the other hand is an ongoing subsidy that pays the wind energy project on the basis of annual production year after year. The CHP ITC is fairly inexpensive as compared to annual payouts in PTC payments.

Despite the advantages of industrial CHP, the IECA president said, relatively few units are being built. However, Cicio proposed, the CHP ITC and improvements to the ITC could help turn this trend around and create needed middle-class manufacturing jobs. Unlike solar and wind, all of the major equipment needed to build CHP units is built within the United States.

“We urge you to extend the CHP ITC and increase its applicability to support manufacturing competitiveness and domestic jobs,” Cicio concluded. “If you have a hearing on this subject, we would be interested in testifying. We look forward to working with you on this important issue.”

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