Can Combined Heat and Power Make a Comeback?

The draft energy plan calls for 1,500 megawatts of CHP, but funding for the technology is in short supply

In the debate over a draft energy master plan, there was pretty much a consensus among many speakers: New Jersey should be doing more to encourage the building of combined heat and power systems.

CHP, as is it sometimes called, was touted as the lowest-cost way of providing additional power generation, as well as helping the state achieve reductions in greenhouse gas emissions by reducing carbon dioxide production.

Those are no small benefits given the state’s ambitious goals for shrinking its carbon footprint and strong desire to get new power plants built to bring down sky-high electric bills for consumers and businesses. They also raise the question: Why isn’t the technology being more widely exploited in New Jersey today?

The draft plan retains the original target of generating 1,500 megawatts of CHP set by the Corzine administration. CHP systems save energy by recovering heat while generating power, usually through natural gas, and using the thermal energy for heating or cooling nearby facilities.

Federal Funds

The systems have been promoted before in New Jersey. At one point, the state legislature set aside $60 million in funds from a special surcharge on electric bills paid by businesses to help develop CHP systems, but that money was diverted to help balance the state budget in the first year of the Christie administration. Since then, the state has relied on federal stimulus money to help promote a handful of combined heat and power projects.

Taking advantage of federal policies that required utilities to buy power from CHP systems in the 1970s, there were many plants built in New Jersey. Today, there are more than 250 such plants; the bulk were built under contracts requiring utilities to purchase power at higher than market rates (above what consumers normally pay).

With natural gas prices again low compared with other fuels, there again is much promotion of the technology. The systems are popular with hospitals, schools and factories because their plants are generally more efficient and less expensive than conventional fossil fuel plants.

Ed Graham, chief executive officer for South Jersey Industries, described CHP as ideal for reducing energy costs at campus centers, hospitals and data centers at the first energy master plan hearing in Newark.

That view was echoed by Michael Egenton, senior vice president of the New Jersey State Chamber of Commerce. Backing the goal of 1,500 megawatts of CHP, he noted that natural gas prices have dropped by 50 percent in the last four years, a decline that has made the technology more attractive.

But according to a market analysis prepared for the Mid-Atlantic Clean Energy Application Center, an arm of the U.S. Department of Energy (DOE), there are numerous impediments to widespread CHP deployment — including high capital costs, lengthy air permitting processes, an inability to raise capital compounded by uncertainty about federal and state regulatory policies.

“Strong and sustained signals from New Jersey government are required to move the industry forward and overcome a decade of high natural gas prices, regulatory issues and unclear policy signals, assuming the government recognizes the economic, environmental and job benefits offered by CHP,” the analysis concluded.

Earlier this year, the sector made a pitch to the Assembly Utilities and Telecommunications Committee to push for a program that would lock the state into building a set amount of CHP facilities each year. They recommended creating an Alternative Energy Portfolio Standard, somewhat similar to a Renewable Portfolio Standard (RPS) New Jersey and many other states have set up to promote the development of solar and wind power. A CHP portfolio standard would require power suppliers to ramp up the amount of electricity purchased from combined heat and power systems each year.

The revised energy master plan remains silent on that issue, but does endorse promotion of CHP systems.

“The high capital cost of developing cogeneration and CHP facilities, combined with the difficulty of raising capital in the current economy, is a continuing industry challenge,” the report says. “Therefore, implementation of these projects would require support from state incentives, including loans and loan guarantees, as well as a streamlined permitting process.”