The High Price of Taking CHP Completely Off the Grid

State backs away from mandate requiring CHP plants to operate independently of power grid

How critical is it to keep power on at hospitals, nursing homes, and other essential services in the wake of extreme weather?

After Hurricane Sandy devastated much of New Jersey, the Christie administration aggressively pushed plans to build more efficient and smaller power plants to supply electricity to prisons, wastewater treatment plants, and other critical facilities

In the past month, it even set aside $30 million to achieve that goal, using that pot of money to leverage federal dollars coming into New Jersey to address the nearly $3 billion in damages racked up by more than 100 sewage treatment plants during the storm.

The rationale behind the effort is that it’s crucial to keep the power on when extreme storms like Sandy leave much of the state without power — particularly at nursing homes and hospitals where electricity is essential to the health and safety of patients. It also aims to deal with the problem of malfunctioning sewage treatment plants, which dumped hundreds of millions of gallons raw sewage into waterways after they lost power.

But now, the New Jersey Office of Clean Energy is pulling back from a proposal that would require facilities receiving financial incentives to build combined heat and power (CHP) plants that would continue to operate independently — even if the grid goes down and widespread power outages occur.

The original mandate caused huge unease among proponents of CHP, which many advocates say generates electricity more cost effectively and with less pollution than most conventional power plants. Besides lowering energy costs for CHP-powered facilities, the technology also can cut electricity costs for consumers by easing congestion on the power grid, which tends to spike costs.

But if the grid-independent requirement were retained, some energy executives said it would probably make many of the projects economically impractical and jeopardize the state’s efforts to develop 1,500 megawatts of CHP by 2020, a goal outlined in the state’s revised Energy Master Plan.

CHP advocates point out that the technology already needs state incentives to be economically feasible. Enabling CHP plants to operate independently of the power grid generally means investing in new energy management tools and rewiring older facilities, which would drive up costs and make deployments prohibitively expensive.

In the next fiscal year, however, there will be plenty of incentives to encourage the building of CHP plants, with the administration allocating nearly $100 million in funds subsidized by utility gas and electric customers.

Where and how that money will be spent remains a big subject of debate among state regulatory officials and industry executives looking to obtain incentives to make their projects happen.

At this point, the state has yet to identify so-called critical facilities where incentives ought to be targeted. Michael Winka, a senior policy advisor for the New Jersey Board of Public Utilities, said the state agency is working with the Homeland Security Department and state police to come up with a definition.

The agency is also exploring whether to make available additional fiscal incentives to those facilities to ensure that they operate independently of the grid in the event of widespread power outages, according to officials.

Fred DeSanti, a lobbyist representing a CHP developer, agreed, saying the program cannot be “one size fits all.’’

According to DeSanti, “We need a program that will look at each project individually and decide what incentives are necessary to meet the goals we have set.’’

Others, including the New Jersey Division of Rate Counsel, questioned why more CHP power plants have not been developed in the state if they are more cost-effective than traditional plants.

Winka replied that this is probably due to the state offering rebates and grants to building the projects, but pulling them away — an event that has occurred repeatedly — to plug holes in the budget.

Under a straw proposal developed by the agency, the CHP program would be financed by gas utilities, a portion of which would be repaid to the companies and ratepayers over time, based on the positive cash flow from energy savings. For the first time yesterday, Winka also suggested the state may ask electric utilities to fund the program.

The BPU approach differs from one being pushed by legislators who want to establish an alternative energy portfolio standard. This would require utilities to purchase credits from CHP facilities for the electricity they produce, somewhat similar to how the state’s solar energy program works.