2.1 Benefits of CHP

CHP provides many benefits compared to separate heat and power production. These benefits include increased energy efficiency, operating cost savings, and reduced air pollution and global warming. This section describes and quantifies these benefits for the existing and remaining CHP potential. There are additional benefits for industry including increased reliability, power quality, and higher productivity. The electric power industry and its customers can also benefit when industrial CHP capacity is used to support and optimize the overall power grid.

2.1.1 Energy Benefits

Power generation systems create large amounts of heat in the process of converting fuel into electricity. For the average central utility power plant, approximately two thirds of the energy content of the input fuel is converted to heat and wasted. As an alternative, an end-user with significant thermal and power needs can simultaneously generate both its thermal and electrical energy in a CHP system located at or near its facility. CHP can significantly increase the efficiency of energy utilization as shown in Figure 2-1.

Figure 2-1: Example of CHP Energy Savings

The figure shows that a typical CHP system can reduce energy requirements by close to 40 percent compared to separate production of heat and power. For 100 units of input fuel, CHP converts 80 units to useful energy of which 30 units are electricity and 50 units are for steam or hot water. Traditional separate heat and power components require 163 units of energy to accomplish the same end use tasks.

2.1.2 Environmental Benefits

By increasing energy efficiency, CHP significantly reduces emissions of criteria pollutants such as NO x and SO 2 , and non-criteria greenhouse gases such as CO 2 . CHP is an option that can provide environmental benefits as part of an economically attractive investment. Figures 2-2 and 2-3 show NO x and CO 2 emission comparisons respectively by power generation technology and fuel type conducted in 2000. Nationwide and California utility emissions are shown for reference. While reductions in both NO x and CO 2 result by switching from solid and liquid fuels to natural gas, the figures show the added reductions due to efficiency. CHP technologies can significantly reduce emissions and compare favorably to advanced low emission central station technologies such as gas-fired combined cycle systems.

Figure 2-2: NOx Reduction Benefits of CHP

Source: USCHPA, DOE, CEC, AGA, Onsite Energy

Figure 2-3: CO 2 Reduction Benefits of CHP

Source: USCHPA, DOE, CEC, AGA, Onsite Energy

2.1.3 Economic Benefits

The primary economic driver for DG and CHP is the production of power at rates that are lower than the utility's delivered price. Figure 2-4 demonstrates how power prices from DG and CHP units compare with traditional central station generation combined with the cost of transmission and distribution (T&D). This was based on the same 2000 analysis referred to above. However is does use gas price assumptions lower than current gas prices.

Figure 2-4: Comparative Retail Economics of CHP

Source: USCHPA, DOE, CEC, AGA, Onsite Energy

It can be seen that the cost for electricity production from a CHP system using an industrial-sized gas turbine, including fuel, capital and operation and maintenance (O&M) expenses, is less than $0.05/kWh for a base-loaded operation. This cost compares favorably to a base-loaded central-station combined-cycle plant at the busbar even before adding T&D costs. As shown in Figure 2-4, CHP can compete against large simple cycle gas turbine plants for intermediate duty and peaking power after adding T&D costs. The cost of such power from CHP varies by application, technology, and grid circumstances, but as this example illustrates, the economic fundamentals will frequently favor CHP. In a restructured power market, end-users may place significant economic value on the stand-by capability and increased reliability that CHP can provide, further enhancing the potential economic benefits of CHP. For many areas of the U.S., the economics of CHP are often compelling when compared against retail power prices.

2.1.4 Ancillary Benefits

In a restructured power market, DG, CHP and other on-site generation options can offer grid support to the local distribution utility. On-site generation can offer ancillary benefits to the grid including:

•  Voltage and frequency support to enhance reliability and power quality

•  Avoidance or deferral of high cost, long lead time T&D upgrades

•  Bulk power risk management

•  Reduced line losses, reactive power control

•  Outage cost savings

•  Reduced central station generating reserve requirements

•  Transmission capacity release