Page 123 - Sustainable On-Site CHP Systems Design, Construction, and Operations

Regulatory Issues 101

method lowers the emissions rate for a given system and makes it easier to comply with
local air quality standards.
Issues such as energy costs, electric power grid reliability, and air quality are of
significant concern to individual state governments and impact in-state industrial com-
petitiveness, job growth, as well as health costs. The benefits offered by CHP in all of
these areas are recognized by many state governments and have led to the creation of
incentive programs by some states to try to encourage wider implementation of CHP.
These programs vary in nature but are typically based on providing capital grants, tax
credits, or production payments over a specified period. The major requirements for
obtaining such incentives are that the CHP plant meets local air quality standards and
that the plant also meets a predetermined efficiency rate typically calculated on an
annual basis (e.g., 60 percent efficiency based on the sum of electric plus useful thermal
output divided by fuel input). Such investments by the state are typically paid for using
levies on electric power rates which are reinvested in CHP systems in an effort to offset
power grid infrastructure improvement costs as well as reduce power costs which are
often related to regional power transportation congestion. Having CHP plants built in
congested areas reduces the demand to bring power to the area resulting in lower power
costs in that particular area.
Another area of change from a state policy perspective is the growth in require-
ments by in-state utilities to provide a portion of their power from renewable or clean
sources which in some cases include CHP. North Carolina allows up to 40 percent of the
renewable energy portfolio to be met with energy efficiency including CHP. In other
cases there is a portion of the renewable or clean energy portfolio set aside for CHP.
Growth in the desire of states to impose requirements for clean energy supply com-
bined with the recognition that CHP offers a very cost-effective way to provide clean
power have led to more emphasis being placed on CHP as a way to meet emissions
reduction goals at a reasonable cost.

Non-U.S. Policy
Many countries have long embraced CHP for district heating and cooling applications.
While the United States leads the world in terms of total CHP power output, many
countries in Western Europe have a significantly higher portion of their electricity pro-
duced from CHP. Denmark leads the world in CHP penetration with over 50 percent of
its power produced from CHP according to the International Energy Agency (IEA).
This high penetration is facilitated by a high urban population and the related presence
of district heating and cooling systems many of which are publicly funded and owned.
Germany is similar to the United States in having most of its CHP installation base in
the industrial sector. Eastern Europe also has a relatively high portion of its power pro-
duction coming from publicly owned CHP systems tied into thermal distribution sys-
tems. In China a significant portion of district heating systems are supplied by CHP
resulting in approximately 13 percent of power production coming from CHP accord-
ing to the IEA. Figure 6-1 shows the percentage of power provided by CHP for the G8+5
countries as reported by the IEA.
European CHP-related policy varies by country and include subsidy payments for
CHP plants that feed into the utility grid, preferential priority in order of dispatch,
mandatory use of CHP for generating power to exemption for a building from the
requirement to purchase renewable power if a CHP system is installed.