Finding Financing for Industrial Energy Efficiency and CHP

Gearoid Foley Senior Advisor Mid-Atlantic Clean Energy Application Center gearoid@psu.edu

NGA Policy Academy, Philadelphia, PA March 6 2013

DOE’s  Clean  Energy  Application  Centers

• DOE's Regional Clean Energy Application Centers (CEACs) promote and assist in transforming the market for CHP, waste heat to power, and district energy technologies and concepts throughout the United States.

• Key services of the Regional Clean Energy Application Centers include: – Market Assessments – Supporting analyses of CHP market potential in diverse

sectors, such as, health care, industrial sites, hotels, and new commercial and institutional buildings.

– Education and Outreach – Providing information on the benefits and applications of CHP to state and local policy makers, regulators, energy end-users, trade associations, and others.

– Technical Assistance – Providing technical information to energy end-users and others to help them consider if CHP, waste heat recovery or district energy makes sense for them.

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Overview

• C&I Applications & Owner Benefits

• Evaluating  CHP’s  Impact •Energy, Capacity & Emissions

• Areas for Consideration •CHP Policy touches many issues

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CHP Applications

• Industrial Process Integration, PA

• Food Processing, CT

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• Adding second 50 MW CHP Systems for total installed capacity of 100 MW internal use only

• Total  CHP  plant  will  provide  most  of  the  plant’s  electric and thermal energy needs driven by local Shale Gas.

• Food processing plant gets 100% of its power and 80% of its thermal energy from a 4.6 MW CHP plant with duct burner and HRSG.

CHP Applications

• Office Building, CA

• Hospital, WI

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• 1 MW Reciprocating Engine Plant with 320 Ton Chiller • Reduces grid peak loads with chiller output as well as

generator output. Operates concurrent with grid load • Provides power, space heating and space cooling.

• 2 x 1.5 MW Recips with 430 Ton Chiller • Dual Fuel – Gas & Oil • Continuous Duty & Backup Power

CHP Applications

• Identify projects that: – have a high concurrence of electric and thermal loads. – offset cost of providing new power capacity – can integrate CHP with central plant renovation – benefit from continuous duty backup power – value reduced emissions footprint

• Gas Fired CHP is an important consideration as a compliance strategy for Boiler MACT http://www1.eere.energy.gov/manufacturing/distributedenergy/boilermact.html

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Energy & Capacity Benefits

• Reductions in purchased energy ($/kWh) • Reductions in capacity purchases ($/kW-year) • Lower cost of meeting RPS obligations (reductions in REC cost) • Avoided T&D costs defer/avoid T&D upgrades ----------------(in restructured markets)------------ • Lower energy cost and capacity costs due to lower cost

generators being on the margin Demand Reduction Induced Price Effect-DRIPE

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Demand-Reduction-Induced Price Effect (DRIPE): Reductions in the quantity of energy and capacity that customers will need in the future due to efficiency and/or demand response programs result in lower prices for electric energy and capacity in wholesale markets

……….  Costs  and  Benefits  of  Electric  Utility  Energy  Efficiency  in  MA   Northeast Energy Efficiency Council, Synapse, Aug 2008

Line Losses

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This  utility’s  average  resistive  losses  on  their  distribution  system  are only about 7% over the course of the year. At their system extreme peak, the estimated total losses reached about 11%, one and one-half times the average losses for the year. At that extreme peak, however, the marginal resistive losses – those that would be avoided if load had been a little bit lower if an efficiency measure were installed – were 20%.

…………  Valuing the Contribution of Energy Efficiency to Avoided Marginal Line Losses and Reserve Requirements

RAP 2011

Capacity Offset

• Based on peak load line losses on peak demand days when the ISO capacity obligation is set, every MW of CHP would offset 1.25 MW of capacity with local generation. With cooling from the CHP thermal output an additional 20% demand reduction is possible in peak load times, further reducing the regional generation and transmission capacity obligations.

• CHP offsets grid generation and transmission capacity obligations with reliable and cost effective power. CHP operation allows for aggregation of multiple units to provide reliability equal to the grid.

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Avoided Costs

Exhibit A - 5: Avoided Electric Supply Allocations by Major Cost Component

Avoided Energy Supply Costs in New England AESC - Synapse, Aug 2009

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Major Cost Component % of Total Avoided Electric Supply

T&D1 (Transmission and Distribution) 15.4%

DRIPE (Capacity and Energy) 7.7%

Generation (Capacity and Energy) 76.9%

Note 1: Does not include local distribution

Emissions Benefits

• PJM dispatches Marginal Plants according to Price Signal

• PJM Marginal units are High Emissions

• CHP offsets fossil fuelled Marginal plants – not nuclear or renewables

CO2 Emissions Rates of Marginal Units Versus Average CO2 Emissions Rates

Source: PJM 2010

CHP CO2 Emissions

Displaced Generation

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Hypothetical Power System Load Duration Curve and Dispatch Order

Areas for Consideration

• What is the discount rate used for calculating future years benefits and costs?

• Are hourly marginal costs used for ascertaining benefits or annual averages?

• How are regional cost differences captured in the analysis of benefits and costs?

• In restructured markets are the wholesale energy and capacity market effects of changes in the marginal units serving loads captured? DRIPE

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Areas for Consideration

• Are federal incentives such as accelerated depreciation or Investment Tax Credits (ITC) subtracted from the installed cost basis?

• Are cost reductions due to changes in REC purchases included in the avoided cost calculation?

• Are marginal or average losses used in crediting avoided supply costs?

• What if any non-energy benefits are included in the analysis (other resource savings, improved power reliability/quality, reduced reliance on imports, etc)

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