The Role of State Policy and CHP Development

chp development
Gita Subramony for Zondits, May 20, 2015. Image credit: Fletcher6 | Licensed by CC 3.0

Every year the ACEEE publishes its State Energy Efficiency Scorecard, and among the criteria for assessing a state’s efficiency environment is examining its policies aimed at promoting combined heat and power (CHP), also known as cogeneration. However, just because a state has excellent policies to promote CHP does not necessarily mean that buildings will adopt CHP technologies at a higher rate.

CHP systems can be really useful for promoting resiliency and reducing overall carbon emissions, but these projects are significantly more complicated to install compared to replacing fluorescent lights with LEDs, for example. Buildings that are interested in using CHP must analyze the financial benefit of generating electricity on-site. In markets where electricity prices are very low, CHP might not result in much of a financial benefit and would not be worth the effort to install. In areas where electricity prices are high, CHP might result in greater cost savings for a building owner or operator.

In response to this discrepancy, the ACEEE has released a CHP favorability index to see where CHP projects are most feasible given electricity and gas prices and to visualize how those states stack up in terms of pro-CHP policies. Take a look to see where your state stands.

Navigating the Clean Power Plan: A Template for Including Combined Heat and Power in State Compliance Plans

Assessing favorability for CHP deployment in your state

ACEEE, January 8, 2015.

Here at ACEEE we are big fans of combined heat and power (CHP). It’s energy efficient, it helps with resiliency, and it could be a key strategy for complying with carbon pollution reduction requirements. Each year, as part of the State Energy Efficiency Scorecard, we rank states on policies that encourage deployment of CHP. With each iteration, we review our scoring methodology and collect information on the environment facing CHP developers. As with all of our metrics, scoring of CHP in the State Scorecard focuses on states’ policies, which is only one element that influences the favorability of a state to CHP development.

In a recent blog post, we looked for a correlation between 2014 CHP State Scorecard scores and actual new CHP installations as a simple way to examine the overall relationship between policy and deployment. While the results indicate a moderate correlation between scores and deployment, some inconsistencies exist in states where CHP installations have stayed low despite numerous supportive policies being on the books for many years.

We know that state policies are only a piece of the puzzle when it comes to CHP. A variety of economic factors influence deployment—most importantly, the financial attractiveness of individual CHP investments to host facilities. One of the biggest factors influencing economic attractiveness is the retail price of energy. In states with very low electricity prices, it is often more economical to buy electricity from the grid than to generate electricity onsite with CHP. By contrast, higher electricity prices can make the case for onsite generation with CHP more favorable. Similarly, lower and more stable natural gas prices offer cheaper fuel costs that can improve the economics for CHP.

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