UTILITY INCENTIVES FOR COMBINED HEAT AND POWER U. S. Environmental Protection Agency Combined Heat and Power Partnership October 2008 FOREWORD The U.S. Environmental Protection Agency (EPA) established the Combined Heat and Power (CHP) Partnership as a voluntary program that seeks to reduce the environmental impact of power generation by promoting the use of CHP. CHP is an efficient, clean, and reliable approach to generating power and thermal energy from a single fuel source. CHP can increase operational efficiency and decrease energy costs, while reducing the emissions of greenhouse gases that contribute to global climate change. The CHP Partnership works closely with energy users, the CHP industry, state and local governments, and other stakeholders to support the development of new CHP projects and promote their energy, environmental, and economic benefits. The CHP Partnership provides resources about CHP technologies, incentives, emissions profiles, and other information on its Web site at <www.epa.gov/chp>. i CONTENTS About This Report........................................................................................................................... 1 Utility-Initiated Incentives, Policies, and Programs for CHP......................................................... 5 Investor-Owned Gas Utilities ..................................................................................................... 5 Investor-Owned Electric Utilities ...............................................................................................9 Publicly Owned, Municipal, and Cooperative Electric Utilities ................................................ 9 Utility Actions Resulting From State Policies to Promote CHP................................................... 15 State-Mandated Incentive Program Administered by the Utility ............................................. 16 State Incentive Programs Administered by a State Agency; Utilities Assist Customers in Accessing Funding...................................................................................... 17 State Incentive Programs Administered by a State Agency with Limited Utility Involvement........................................................................................................... 17 Case Studies of Utilities Promoting CHP ..................................................................................... 21 City of Sheboygan, Wisconsin, Wastewater Treatment Plant Project...................................... 21 Allentown, Pennsylvania, Wastewater Treatment Project........................................................ 22 Ocean County College Fuel Cell Project.................................................................................. 22 Tools, Services, and Resources for Utilities ................................................................................. 24 General CHP Education and Outreach Resources.................................................................... 24 State Policy Resources.............................................................................................................. 25 Technical Assistance for Candidate Sites................................................................................. 25 Public Recognition.................................................................................................................... 27 Other EPA Resources ............................................................................................................... 28 Appendix—State Public Benefit Fund (PBF) Programs .............................................................. 29 Endnotes........................................................................................................................................ 33 ii ABOUT THIS REPORT As part of its broader outreach and education efforts to expand knowledge of the benefits of and applications for combined heat and power (CHP), the U.S. Environmental Protection Agency, through its CHP Partnership (CHPP) has undertaken targeted efforts to increase CHP use in four market sectors: dry mill ethanol production, casinos/hotels, wastewater treatment facilities, and electric and gas utilities. The CHPP provides sector-specific information about the technical and economic benefits of CHP so that energy users and providers can consider implementing CHP. This report describes the results of EPA’s research and analysis into utility incentives for CHP. It provides information about utility-initiated policies, programs, and incentives for CHP systems, and is organized as follows: • Descriptions of utility policies and programs launched by investor-owned and public gas and electric utilities. • Discussion of utility actions resulting from state policies to promote CHP. • Case studies of three successful CHP projects that resulted from utility-initiated programs to advance CHP. • Tools and resources the CHPP has available to help utilities implement CHP projects. To date, utility initiatives that encourage CHP deployment have taken many different forms. Of the 41 U.S. utility companies researched for this report, 18 provide some type of support for CHP that is not part of a state-mandated initiative; of these, four are gas-only utilities, two are electric and gas utilities, and 12 are electric-only utilities. Eight of the utilities are investor-owned, nine are publicly (municipal- or state-) owned, and one is a cooperative (consumer-owned). Direct financial incentives (i.e., grants or rebates) that are not the result of state policies are not commonly offered; however, at least one investor-owned gas utility (Southwest Gas) and two publicly owned electric utilities (City of Palo Alto Utilities and Sacramento Municipal Utility District) have developed or are developing such programs. Far more common are other types of activities that promote CHP development. Our research identified 16 types of utility actions/programs (shown in the list below) that support CHP development in ways other than offering direct financial incentives for CHP system installation: • Program Funding (e.g., system benefits charge) • Maintenance and Operation - Financial Incentives • Project Management - State Program Funding • Ownership/Joint Ownership • Request for Proposals (RFP) for Supply • Performance Contracting • CHP Research and Development • Favorable Gas Rates (R&D)/Demonstration Projects • Load Curtailment Payments • Outreach (e.g., CHP-specific Web page) • Regulatory Process Advice • Site/Feasibility Analyses • Shared Savings Loans (waste heat recovery) • Design and Engineering • Custom Rebates (waste heat recovery) • Construction and Installation 1 Table 1 provides a summary of the type of incentives offered by each utility contacted by the EPA. By and large, these types of utility-initiated incentives for CHP have resulted in the successful development of CHP projects; however, to date, these programs have led to the development of only a few projects in the utility territory they serve. Utilities have also been involved to varying degrees in state-initiated programs to promote CHP. These state programs—typically funded by system benefits charges (SBCs) levied on customer bills—have resulted in hundreds of operational CHP projects and nearly 200 megawatts (MW) of supply. Utility actions in response to state policies and initiatives to promote CHP range from collecting mandated system benefits charges via customers’ gas and electric bills (e.g., in New York, Vermont), to assisting customers with accessing funding available from the state (e.g., in Connecticut, New Jersey), to administering state-initiated programs (e.g., in California, Minnesota). Utilities also play a prominent role in the National Action Plan for Energy Efficiency1 which has released a Vision for 2025. This Vision for 2025 establishes a goal of achieving all cost-effective energy efficiency by 2025, presents ten implementation goals for states, utilities, and other stakeholders to consider to achieve this goal; describes what 2025 might look like if the goal is achieved; and provides a means for measuring progress. Policies to remove barriers to combined heat and power was identified as an important policy step toward Goal 10, Advancing Advanced Technologies. Progress at the state-level on the supporting utility policies was measured on policies associated with interconnection rules; reviewing combined heat and power as part of the planning process and incorporating it where effective; and standby rates in place that value the costs and benefits of distributed generation. Reviewing this information in the Vision for 2025 may be instructive for utilities in addition to this report. 2 Table 1. Summary of Utilities That Offer Incentives, Policies, and Programs to Support CHP g t g ) Company/Utility men y WHR Advice ( (WHR) (WHR) Fundin Pa Outreach/ Outreach/ Operation Ownership Ownership Installation CHP R&D/ Contractin Performance Performance State Program Demonstration Maintenance & Construction & Construction Type of Utility CHP Web page page Web CHP RFP for Supply Site /Feasibility Custom Rebates Ownership/Joint Ownership/Joint Load Curtailment Regulatory Process Financial Incentives Favorable Gas Rates Favorable Project Management Management Project Shared Savings Loans Loans Savings Shared Design & Engineering & Engineering Design Utility-Initiated Actions Alliant Energy (IA, MN, WI)* IOE, IOG X X X X X X X X X Austin Energy (TX)* P XX Braintree Electric Light Department (MA)P X City of Palo Alto Utilities