JUICE: Fostering Cogen

By Published On: April 19, 2013

California wants to stoke up combined heat and power technology to reduce greenhouse gas emissions. This technology efficiently uses fossil fuel because it provides energy for two purposes: generating electricity and creating heat for industrial processes or heating and cooling buildings. The California Air Resources Board and California Public Utilities Commission want the state’s investor-owned utilities to purchase 3,000 MW of additional power from combined heat and power (aka cogen) facilities by 2020. They calculate that would reduce the state’s annual greenhouse gas emissions by 4.8 million tons, about 3 percent of what’s needed by then under the state’s climate protection law, AB 32. On the surface, their goal seems worthy, modest and easy enough to achieve over the next seven years. Yet, the CPUC’s expected rejection of two agreements for power generating capacity from cogen facilities operated by Calpine shows how the path to achieving the state’s goal remains covered with obstacles. An April 18 commission vote was postponed. The nation—particularly California—embraced combined heat and power technology after the energy crisis of the 1970s in an effort to reduce reliance on imported oil. Congress required utilities to purchase the power from new combined heat and power facilities to incentivize their construction. After its initial spread, cogen maxed out due to a complicated set of reasons that eroded its economic advantage. To revive it in California—particularly given its promise for energy efficiency and the associated greenhouse gas reductions—in 2010, the CPUC approved a settlement agreement under which the utilities would again begin purchasing additional power from these plants to meet the greenhouse reduction goal. The settlement also aims to allow purchase of that power under terms more favorable to combined heat and power plant operators. In a separate effort aimed at boosting the technology, the Air Board later this year plans to exempt many combined heat and power plants from its carbon cap-and-trade program. Air pollution regulators are concerned that the expense of complying with cap-and-trade may impede efforts to advance the technology. But will it all be enough? There are mounting indications that the policies the state is pursuing to date may not effectively promote increased use of combined heat and power. The past year has seen the closure of some cogen plants, including small biomass plants in northern California where the source of fuel has dried up with the decline of the state’s timber industry. The closure of Campbell’s Soup in Sacramento is forcing the Sacramento Municipal Utility District to relicense its cogeneration plant—which has provided steam to Campbell’s for food processing since 1993—as a sole purpose power generating facility. Campbell’s is not the first industrial plant to shut down. There’s been quite a bit of “industrial flight” from California, notes Steven Kelly, Independent Energy Producers Association, policy director. Even oil refineries—a bastion of combined heat and power technology—face potentially diminishing prospects. Gasoline consumption in California and across the nation is declining due both to economic factors, fuel economy standards, and a growing preference for urban living and use of public transit. Ultimately, to achieve the state’s standards calling for an 80 percent reduction in greenhouse gases by 2050 through moving almost entirely to electric cars, many of the refineries, if not most, face eventual closure. Their only market opportunity would be exports. Consequently, there are two potential growth areas for combined heat and power. One is in the commercial building sector—such as hospitals, hotels, colleges, and office park complexes. The other is in enhanced oil recovery, in which the steam is used to pressurize and melt remaining oil in largely depleted oil fields. As Kelly observes, arranging cogen deals in the commercial sector—where the waste heat from generating power is used to heat and cool buildings and energy is not a primary concern of building owners—is complicated. It takes a lot of time to find a complex where it can prove economical. In addition, convincing the complex owner to move to combined heat and power is an uphill struggle. Using combined heat and power in the other potential growth niche—enhanced oil recovery—raises questions about whether it really would reduce greenhouse gas emissions if it’s used simply to produce and burn more oil that otherwise would be left in the ground or at least produced and consumed at a slower rate. Meanwhile, under the commission’s 2010 settlement, utilities are to issue requests for offers from combined heat and power facility operators. The promised CPUC rejection of the two recently proposed deals would be in response to the first request for offers under the 2010 settlement. There are to be two more requests for offers before 2015, when the pricing terms are to be further revamped. Though the pending duo of deals meets the letter of the settlement, the commission is expected to reject them for failing to meet its spirit (Current, April 5, 2013). The problem is that since the deals are capacity agreements, they would not necessarily have cut any greenhouse gas emissions, regulators reasoned, which was one main intention of the settlement. Consequently, the commission is apparently contemplating changes to the settlement. As the commission decides, it seems that nothing short of steering more money from electric utility ratepayers to combined heat and power—or sudden growth in heavy industry—promises any revival of the technology and achieving the planned greenhouse gas reductions. Simply put, the settlement and its government mandates for combined heat and power have not changed the market fundamentals, which remain sluggish at best. The question now shaping up for policy makers appears to be how much to tap ratepayers to subsidize their policy goals. Just leaving cogen alone and looking elsewhere for the emissions reductions could be a cheaper and easier alternate.

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