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CHP Subsidy Bill Clears Committee, Despite Reservations About Financial Incentives

Tom Johnson | February 11, 2013

Panel splits along partisan lines, raising doubts administration will get behind proposal

Does New Jersey need yet another subsidy to the energy industry to promote new power plants in the state?

That is the question some are asking in the wake of a bill (A-1384) being pushed by legislators to promote a cleaner and more efficient way of producing electricity, a strategy its advocates say will not succeed unless financial incentives are in place to make it economically viable.

The bill cleared the Assembly Telecommunications and Utilities Committee last week despite reservations of some lawmakers and consumer advocates that the measure will only add to energy costs for New Jersey’s electric and gas customers at a time when they are already hard-pressed to pay their utility bills.

None of the Republicans on the panel supported the bill, raising questions as to whether the effort will win support from the Christie administration, a move that surprised its sponsor, Assemblyman Upendra Chivukula (D-Somerset), the chairman of the committee. “It’s a job creation bill,’’ he said after the vote along partisan lines.

There already is no shortage of subsidies utility customers pay to support the development of new power plants in New Jersey, ranging from promoting solar and offshore wind energy to more conventional generating stations fueled by cheap natural gas.

The latest subsidy would promote the development of combined heat and power (CHP) plants, which produce heat and electricity simultaneously and typically at a cheaper cost and with less pollution than typical power plants.

Few dispute that the state should be doing more to promote CHP, but disagreements arise over how far it should go. The Christie administration adopted a state Energy Master Plan, which calls for 1,500 megawatts of CHP by 2020.

But the bill drew opposition from Stefanie Brand, director of the New Jersey Division of Rate Counsel, and others.

“With respect to CHP, these projects should be cost beneficial, and thus they do not need credit-based ratepayer subsidies,’’ Brand told the committee in a letter to legislators on the committee. “The incentive programs that already exist are sufficient to encourage these important projects.’’

Some of those incentives, however, have been chipped away in recent years as the Legislature and Christie administration approved the diversion of $164 million in ratepayer funds earmarked for CHP to help balance the state budget.

Still, the state sets aside about $25 million a year to help finance these projects. And the New Jersey Board of Public Utilities recently approved $11 million to fund 29 megawatts of new projects, the bulk of which involve CHP.

Joseph Sullivan, a vice president of Concord Engineering in Voorhees, said the level of funding falls far short of what is needed to meet the state’s Energy Master Plan, financing only about 40 megawatts a year.

“At 40 megawatts, we won’t get to 1,500 megawatts for a very long time,’’ Sullivan said. CHP plants reinforce the reliability of the region’s power grid, an issue that has come to the forefront in the wake of Hurricane Sandy. In the aftermath of the storm, numerous critical facilities lost power, including hospitals and sewage treatment plants.

But environmentalists argued that the state should only be dedicating ratepayer subsidies to cleaner fuels, which do not contribute to global climate change. By and large, CHP plants are mostly powered by natural gas, a fossil fuel, albeit much cleaner than coal.

Sullivan disputed that assessment. “It’s not a renewable, yes, but it is so efficient that it delivers more value than many of the renewables,’’ he said.

Dennis Wilson, president of the Mid-Atlantic Solar Energy Industries Association, also supports the bill. “The technology is there today,’’ he said. “We don’t have the incentive structures we need to encourage this type of technology.’’

Nevertheless, the bill will probably draw close scrutiny from some, given that New Jersey already has targeted potentially substantial ratepayer subsidies to build two natural gas plants. The state is committed to developing more power plants in New Jersey as a way of bringing down high electric rates for consumers and businesses.

Chivukula’s bill would set up a system similar to the one now used to spur development in the solar sector. CHP plants would be granted financial credits for the power they produce, which would have to be purchased by power suppliers. If not enough credits were available, power suppliers would have to make a compliance payment to the state.

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