CHP Won’t Come Cheap, If It Comes at All

Senate panel says combined heat and power plants need subsidies, but still uncertain what form incentives would take

The Legislature is debating yet another bill (S-2651) that would promote a cleaner way of producing electricity by having utility customers foot a portion of the cost.

In this case, the state would establish a new requirement that a certain amount of the electricity sold in New Jersey comes from combined heat and power (CHP) plants or facilities that use fuel-cell technology.

The measure, debated by the Senate Environment and Energy Committee earlier this week but not acted on, is the latest effort to promote CHP, which typically runs on natural gas and simultaneously produces electricity and heat.

But the bill is igniting concern that the state is once again relying on ratepayers to subsidize a well-regarded technology while they pay some of the highest energy costs in the nation.

Widely viewed as a more cost-effective and cleaner way of producing electricity than conventional power plants, CHP is a top priority of the Christie administration, especially in the wake of Hurricane Sandy.

The state’s Energy Master Plan has set a goal of developing 1,500 megawatts of CHP by 2020, a target that seems increasingly elusive because funding for the projects has been repeatedly diverted by lawmakers and the administration.

CHP advocates say that without some kind of incentives, the technology is not economically viable. What form they would take is not yet clear. The bill debated by senators earlier this week — identical to the one that came out of the Assembly Telecommunications and Utilities Committee in February — would give developers incentives similar to the ones now in place for 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 are available, the suppliers would have to make a compliance payment to the state.

The Christie administration appears to be taking a different approach. A straw proposal developed by the New Jersey Office of Clean Energy suggests using a long-term financing mechanism through 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.

The idea of using CHP to make the grid more reliable gained wider currency after Hurricane Sandy, which left hospitals, nursing homes and, wastewater treatment plants without power, some with dire consequences.

“We just can’t afford to have these types of facilities out,’’ said Fred DeSanti, a lobbyist who is a strong advocate for CHP. “Distributed generation [plants supplying power locally] will play a critical role here.’’

Others argued, however, that it is not appropriate to establish a so-called portfolio standard, which usually applies only to renewable energy technologies, to promote a fossil fuel. Essentially, a portfolio standard requires power suppliers to purchase a certain amount of their electricity from prescribed sources — solar systems, offshore wind farms or even, in some cases, CHP facilities.

“It is important to remember that every portfolio standard and certificate program raises rates,’’ said Division of Rate Counsel Director Stefanie Brand in written testimony submitted to the committee. “Like the renewable energy portfolio standards, this program could involve significant costs to ratepayers.’’

Those costs already are steep, according to business lobbyists. The bulk of the money from a surcharge on customers’ bills goes to support the state’s clean energy programs and a low-income energy assistance program, as well a few other initiatives.

Even those who supported the bill noted the cost of the surcharge on customers’ utility bills. In the last 10 years, the surcharge has raised $2.5 billion from ratepayers, according to Hal Bozarth, executive director of the Chemistry Industry Council of New Jersey.

Still, he thought the bill made sense because, like others, Bozarth said he believed CHP could lower bills both for facilities that deploy it and by reducing congestion on the power grid, which tends to spike electricity prices for all customers.

“Better this, than spending on solar,’’ he said.

Jeff Tittel, director of the New Jersey Sierra Club, argued that credit programs envisioned for CHP should be limited to renewable energy.

“Even though it’s more efficient, you’re still burning a fossil fuel,’’ he said.