Cogen Advocates Seek State Support For Long-Term Contracts
Advocates of cogeneration are calling on utility commissioners to approve long-term contracts between utilities and both combined heat-and-power (CHP) and waste energy recycling facilities, in an effort to support the technology as a method of reducing greenhouse gas emissions and bolstering domestic manufacturing. But the proposal has been met with skepticism from utility representatives, who said CHP may not be sufficiently reliable to fuel a large portion of the grid at low costs.
Thomas Casten, the chairman of Recycled Energy Development, spoke to state utility commissioners at the National Association of Regulatory Utility Commissioners (NARUC) winter meeting on Feb. 19 and detailed his so-called Clean Energy Standard Offer Program (CESOP), which calls for utilities to enter into long-term contracts with CHP and waste energy recycling facilities.
“The CESOP is a way to add no carbon or low carbon generation, avoid transmission lines, avoid line loss, and boost manufacturing,” he said. Casten is urging state commissioners to implement elements of his plan when they review specific case proceedings, and noted that both the Tennessee Valley Authority and Ontario Power Authority are developing similar proposals.
Casten’s plan calls on the commissioners to determine long-run marginal delivered costs of the new base load generation from central plants. This would include the cost of transmission, distribution, line losses, and estimated carbon credits. The commissioners would then request utilities to offer long term contracts to CHP and waste energy recycling facilities at 80 percent of this estimated marginal cost. The plants would have to achieve a minimum 60 percent annual efficiency to be eligible for the contracts.
In his presentation, Casten highlighted the Tennessee Valley Authority’s reasons for supporting such a proposal. The federal power agency “sees clean energy from local waste energy recycling as a way to ease transmission requirements, add clean generation with low or no carbon and risk, and bolster manufacturing throughout TVA’s territory,” Casten noted. Casten argued the approach would help ease rising energy costs on the manufacturing sector.
But David Owens of the Edison Electric Institute expressed concerns with reliance on CHP power. He was skeptical that industrial power producers, whose main business is manufacturing, can reliably serve customer demand and said rates should be adjusted accordingly. “We need to make sure we have firm generation sources that are there when the customer flips the switch,” he said, fearing that customers could be saddled with additional costs.
“[The CHP advocates] are arguing that the rates [paid to CHP plants] are not fair, but I’d argue that there are risks associated with these operations,” Owens said, noting that “standby rates” need to be charged to CHP producers to pay for services that back up the CHP if it were to go down. “A stand by rate is designed to demonstrate whether the entity that is seeking to be a source to the utility is a reliable and sustainable source,” he continued. “To the degree that the utility is reducing demand, the rates are adjusted appropriately.”
Owens also took issue with Casten’s call for carbon credits to be estimated and factored into the contract with CHP plants. With the uncertainty of carbon costs, Owens said, it would be imprudent to factor them into the contracts. “We don’t know what that price is,” he said. “We don’t have the legislation.”
Casten countered by saying that the future price of carbon was too important to omit. “One advantage of recycled energy is we’re going to tremendously lower carbon emissions,” he said. Whether it is $5.00 a ton or $12.00 a ton, he said, the commissioners should use their expertise to factor in the future cost. Casten’s company, Recycled Energy Development, is headquartered in Westmont, IL, and develops and owns waste energy recycling facilities.
Relatedly, NARUC adopted a resolution at the winter meeting to encourage the use of CHP and the recycling of waste energy. The resolution cites DOE data on the available CHP resources that could be tapped, noting that CHP currently provides 85 gigawatts (GW) to the grid but has the potential to contribute and additional 130 GW to the grid. Owens doubted a 130 GW goal was feasible.
The resolution encouraged commissioners to “consider the adoption of regulatory policies that protect consumers while addressing barriers to increased use of CHP.” These barriers include standby rate designs, interconnection rules, and utility revenue recovery mechanisms.
The resolution also refers to other countries, both industrialized and developing, that capture waste heat more effectively than the U.S. “The United States is far behind other industrialized nations such as Germany, Japan, and China in reliance upon CHP and waste energy recovery technologies, which obtain more than twice as much of their total power capacity from such technologies as does the U.S.,” the resolution reads.