Page 120 - Sustainable On-Site CHP Systems Design, Construction, and Operations

98 CHP B a s i c s

role has increased somewhat over the past decades as energy policy has increasingly
been viewed as a national issue from an economic, security, and environmental
perspective.
As noted in Chap. 1, in the United States, after the energy crisis of the 1970s, federal
regulations became a significant influence on large-scale CHP plant development due to
enactment of the Public Utility Regulatory Policies Act (PURPA) of 1978. This legislation
created a nonutility power market by forcing utilities to purchase power generated by
PURPA qualified facilities while exempting these facilities from the need to actually be a
utility. It allowed the CHP plant access to the wholesale power market and also required
the utility to provide backup power service at a reasonable cost. To become a qualified
facility, the CHP plant needed to generate both electric power and at least 15 percent use-
ful thermal energy from a single fuel source and the total power output plus one-half of
the thermal output had to be no less than 42.5 percent of the total fuel input on an annual
basis when using oil or natural gas. This in essence allowed large thermal energy users to
build CHP plants to meet thermal needs and sell the excess power generated in the pro-
cess to the utilities at a rate that made these plants economically viable. Recognizing that
electric power market deregulation in effect opened the market to all power suppliers
including nonutility facilities, the Energy Policy Act of 2005 (EPACT 05) removed the
requirement for utilities to purchase power from PURPA qualified facilities in regions
where the electric power market had been deregulated. The removal of this requirement
has resulted in the many of the CHP plants that operated as PURPA qualified facilities to
now become economically nonviable through most of the year based on the wholesale
price of electric power and the cost of transporting the power from the CHP plant to the
wholesale market. As pre-EPACT 05 contracts expire many of these CHP plants have
been forced to either shutdown completely or operate as peaking plants that supply
power to the grid only in times of high demand when power prices on the wholesale
market can justify operating expenses. These plants can therefore no longer meet the
thermal needs of their former clients and no longer function as CHP plants.
While the change in policy toward PURPA qualified facilities has reduced the
viability of CHP plants designed to export power, the general trend in federal legisla-
tion has been to open the market for CHP, recognizing its beneficial impact on fossil fuel
use and reduced greenhouse gas emissions. Further, sustainable on-site CHP that meets
the base load or a portion of the facility’s load is often economically viable. The Energy
Policy Act of 2005 did add some momentum to the growth of CHP by providing a
30 percent tax credit for fuel cells and a 10 percent tax credit for microturbine-based
power generation systems and extending federal energy procurement contract authori-
zation to 10 years. It provided funds for further study on energy efficiency benefits,
technology, and integration of power generation with the grid. It also provided for
improvement of natural gas supply (the most common CHP fuel) through clarification
of federal authority on liquefied natural gas facilities as well as transmission lines and
amended some tax laws to help incentives distribution system construction.
Late in 2008, the passage of the Energy Improvement and Extension Act of 2008
contained some additional incentives for CHP including a 10 percent investment tax
credit for CHP through 2016 as well as allowing a 5-year accelerated depreciation schedule
for CHP systems. The act also extended the EPACT 05 tax credits for fuel cells and
microturbines through 2016.
The federal government also has significant impact on the development of CHP
through its environmental policies and in particular through its air emissions regulations.