State May Budget $55 Million for Cogeneration

Office of Clean Energy could jumpstart combined heat and power production

The state Office of Clean Energy is considering setting aside $55 million in its 2012 budget to help finance combined heat and power plant projects, a top priority of both legislators and the Christie administration.

In a straw proposal for how it plans to spend money raised from ratepayers, the office, an arm of the Board of Public Utilities (BPU), would set aside $55 million in its energy efficiency budget to provide rebates, grants, and other incentives to spur development of the technology.

CHP, long touted by its advocates as a cost-effective and cleaner way of producing electricity, is pushed in the draft Energy Master Plan (EMP) developed by the administration. It recommends the state build up to 1,500 megawatts of new CHP capacity.

Although the technology is backed by a wide array of business groups, the state has fallen short of its goals to build the power plants, which produce electricity and heat simultaneously. Funding set aside for the projects was diverted by lawmakers and the administration to plug a big deficit in the state budget. CHP, sometimes referred to as cogeneration, uses what otherwise would be waste exhaust heat to efficiently generate electricity and useful heat.

The money for the CHP projects would come out of a program financed by ratepayers, which raises funds for clean energy and energy efficiency projects. Of the $75 million set aside for energy efficiency projects, $55 million would be used to provide incentives to help developers of combined heat and power projects, a prospect that thrills advocates of the technology.

“I think it’s great,” said Fred DeSanti, managing director of MC2 Public Affairs LLC, a lobbyist who talked about the state’s plans to develop a cogeneration plant at Essex County Community College and nearby county buildings. Speaking after a meeting in Essex County, DeSanti said, “There’s a lot of projects out there that could take advantage of this: Camden is looking at this, Essex County, too.”

With $55 million set aside for the technology, DeSanti projected it could fund between 110 megawatts and 120 megawatts of cogeneration. One megawatt is enough to power about 800 homes.
“That would create a huge amount of work,” said Joseph Sullivan, vice president of energy policy and development for Concord Engineering, a big proponent of CHP. In addition, the other benefit of funding that many CHP projects is that it would put a huge amount of distributed energy in place, a strategy that would reduce congestion on the power grid and lower electricity costs for ratepayers, according to Sullivan.

Others were not so enthusiastic about the proposal, saying that while combined heat and power plants do have their benefits, the money to finance their development should not come from funds set aside for energy efficiency.

“If you put $55 million into energy efficiency, you wouldn’t need CHP,” said Jeff Tittel, director of the New Jersey Sierra Club. “CHP is a good thing, but energy efficiency is better. For some reason, they don’t get it that energy efficiency is the most cost-effective way to deal with green energy.”

The administration, however, is moving to make it easier for CHP plants to navigate the state’s permitting systems. The state Department of Environmental Protection (DEP) is streamlining its permitting process to expedite small projects.

The funding for such projects, however, has largely run dry. At one point, businesses paid a surcharge on their energy bills, which had been set aside by legislators to fund CHP projects, but the state’s budget deficit in Gov. Chris Christie’s first year in office led him to divert $164 million. Since then, the surcharge has been eliminated and the state has relied on a much smaller pot of money available in federal stimulus funds to help promote CHP projects.

Taking advantage of federal policies that required utilities to buy power from cogeneration plants in the 1970’s, more than 250 CHP plants were built. With natural gas prices low, there is a big push to get new plants built, especially for hospitals, schools and factories.

In addition to funding CHP projects, the proposed Office of Clean Energy budget would set aside $20 million in new financing for energy efficiency projects. It also would fund $20 million in renewable energy projects that connect directly to the power grid and another $8 million for offshore wind. The state also plans to give the Economic Development Authority $52 million for its programs to encourage green energy and energy efficiency.