CHP Proposal Would Build Plants Without Burdening Ratepayers

Long-term loans from utilities could sidestep diversion of clean energy funds earmarked for CHP

With clean energy funds shrinking, the state is floating a proposal to help spur the development of combined heat and power (CHP) plants — a cleaner, more efficient way of producing electricity while potentially lowering energy bills for all customers.

A straw proposal developed by the New Jersey Office of Clean Energy suggests using a long-term financing mechanism to achieve the goal outlined in the state’s Energy Master Plan: building 1,500 megawatts of CHP plants by 2020.

The proposal is the latest initiative by both lawmakers and the Christie administration to promote CHP plants, a goal that has been given new urgency in the wake of Hurricane Sandy. The storm left many critical public facilities without power, sometimes with dire results.

CHP is viewed as a way to “harden’’ the grid and reduce widespread outages, particularly at essential facilities like hospitals, wastewater treatment plants and other public facilities.

Dubbed a “smart’’ portfolio standard, the straw proposal would require the state’s utilities to purchase a set amount of energy from CHP facilities, much as suppliers are now required to buy a specific amount of electricity from renewable energy sources, such as solar.

The straw proposal, however, claims CHP would have no impact on ratepayer bills, unlike the hundreds of millions of dollars in costs borne by customers to support the state’s solar program, which mandates that a set amount of electricity be purchased from solar arrays.

Instead, the technology would be entirely financed by loans from natural gas utilities to CHP developers, a portion of which would be repaid to the utilities and ratepayers over time, based on the positive cash flow from the energy savings of the project. To further reduce the impact on ratepayers, the proposal also would lower a few surcharges on customers’ bills.

Michael Winka, a senior policy advisor for the BPU, said the proposal aims to ensure ratepayers do not absorb new costs to promote CHP. “We need to do this in the most cost-effective way,” he said.

CHP is a technology embraced by many in a state burdened with some of the highest energy bills in the nation. Its development, however, has been thwarted, in part, by repeated diversions of state funds targeted to promote CHP.

The straw proposal aims to avert that appropriation by having utilities loan the money to build CHP plants, instead of the state funding clean energy projects through ratepayer subsidies, which have often been shanghaied in the past.

Under the straw proposal, public facilities would be placed at the top of a priority list to receive funding for CHP, followed by private facilities with both environmental and economic benefits.

“If you want to get out on the street quickly, you might as well pick public facilities,’’ Winka said at a stakeholders meeting on the straw proposal yesterday.

Some of the hardest-hit public facilities suffered major damage during Hurricane Sandy. For instance, hundreds of millions of gallons of raw sewage spilled into waterways from the Passaic Valley Sewerage Commission when it was flooded.

The agency’s proposal differs in some important aspects from bills now pending in the state Legislature. Perhaps, most importantly, it would confer on CHP projects the sole designation as an energy efficiency portfolio standard, dubbed in BPU terms as a CHP-PS standard.

In bills sponsored by lawmakers, the state would establish an energy efficiency portfolio standard — requiring utilities to reduce energy use by a set amount each year, primarily through projects that cut energy consumption by employing more efficient lighting and boilers and by promoting other energy efficient appliances. Those bills do, however, include a component to promote CHP.

In the current state clean energy program, $30 million has been set aside to promote CHP projects, both large and small.