The Role of Financial Incentives in Promoting CHP Development

Nate Kaufman, Research AssistantAmerican Council for an Energy-Efficient Economy

Co-Author:R. Neal Elliott, Ph.D., P.E., Associate Director for Research

Presented to the Industrial Energy Technology ConferenceMay 21, 2010New Orleans, LA

The American Council for an Energy-Efficient Economy (ACEEE)

• Non-profit 501(c)(3) dedicated to advancing energy efficiency

• Focus on end-use efficiency in:• Industry• Buildings• Utilities• Transportation• Federal and State Policy

• Funding from foundation and government grants, specific contract work, conferences and publications

Encouraging CHP: Policies Needed

• CHP has been primarily consumer-driven• High energy costs• Concerns about reliability• Concerns about environmental harm

• Utilities have concerns about adding CHP to their systems, for technical and financial reasons

• Environmentalists have concerns about CHP’s emissions

The Policy Arena

Main take-away: CHP faces a number of barriers that could be reduced with good policies, including:• Interconnection standards• CHP-friendly standby tariffs• CHP-directed financial incentives• Output-based air regulations• Eligibility in RPS/EERS/other energy portfolios

What should states focus on: Removing regulatory barriers or providing financial incentives?

Images: http://www.thalmann.com/largeformat/images/Barrier.jpg, http://www.dbtechno.com/images/Medicare_e-prescriptions.jpg

Assessing energy efficiency policies by state: ACEEE’s Annual Energy Efficiency Scorecard

• Ranks states on a variety of energy efficiency practices, policies and programs

• CHP a targeted category due to potential to achieve great efficiency savings

• Calls out specific leaders and best practices • 2010 version will be released this fall

State Regulatory Environments for CHP

• Interconnection standards• Utility tariffs for supplemental, backup, and standby power• CHP eligibility in an EERS, RPS, or other portfolio standard• Output-based air emissions regulations

• Note: Net metering is currently not factored into ACEEE’s scorecard, but likely will be in future iterations

Regulatory Environments for CHP: State Scorecard Rankings (2009)

WA

OR

CA

NV

ID

MT

WY

UT CO

AZ NM

TX

OK

KS

NE

SD

NDMN

IA

MO

AR

LAMS AL

TN

FL

GA

SC

NC

VAKY

IL

WI

MI

INOH

PA

NY

ME

Rank 1-10

Rank 11-20

Rank 21-30

MA

NJ*RICT

DE

DC MD

VTNH

WV

Rank 31-40

Rank 41-51HI

AK

Financial Incentives for CHP: State Scorecard Rankings (2007-2009)

WA

OR

CA

NV

ID

MT

WY

UT CO

AZ NM

TX

OK

KS

NE

SD

NDMN

IA

MO

AR

LAMS AL

TN

FL

GA

SC

NC

VAKY

IL

WI

MI

INOH

PA

NY

ME

Rank 1-10

Rank 11-20

Rank 21-30

MA

NJ*RICT

DE

DC MD

VTNH

WV

Rank 31-51

HI

AK

Incentives vs. Regulatory Environments: State Examples

Regulatory Environment

Good Bad

Incentives

Good CT, OH, OR, NY AK, FL, ID, VT

Bad IN, ME, MA, TX GA, LA, VA, WY

State Leaders, New Installed CHP Capacity, 2005–2009

State Capacity (MW)

Number of New Sites

(2005–2009)

Avg. Capacity of New Sites

(MW)

Average ACEEE Scorecard Incentives

Score(2007-2009)

(Max 5)

Average ACEEE Scorecard Regulatory

Policy Score (2007–2009)

(Max 5)

Texas 380.8 8 47.6 0 5

Connecticut 181.9 61 3.0 4 5

California 113.0 137 0.8 2 5

New York 98.8 94 1.1 4 3

Washington 97.6 8 12.2 1 3

Wisconsin 83.0 20 4.2 2 4

Nebraska 70.0 1 70.0 1 1

Pennsylvania 50.9 24 2.1 3 3

Ohio 48.6 7 6.9 5 5

Alabama 47.0 3 15.7 3 0

State Leaders, Number of New CHP Installations, 2005–2009

State

Number of New Sites

(2005–2009)

Capacity (MW)

Avg. Capacity of New Sites

(MW)

Average ACEEE Scorecard

Incentives Score(2007-2009)

(Max 5)

Average ACEEE Scorecard Regulatory

Policy Score(2007–2009)

(Max 5)

California 137 113.0 0.8 2 5

New York 94 98.8 1.1 4 3

Connecticut 61 181.9 3.0 4 5

Massachusetts 32 36.7 1.1 0 4

Pennsylvania 24 50.9 2.1 3 4

Wisconsin 20 83.0 4.2 2 4

New Jersey 18 14.1 0.8 2 4

North Carolina 13 17.6 1.4 3 3

Oregon 10 38.8 3.9 5 3

Vermont 10 3.2 0.3 4 2

State Leaders, Average Capacity of New Installations, 2005–2009

State

Number of New Sites

(2005–2009)

Capacity (MW)

Avg. Capacity of New Sites

(MW)

Average ACEEE Scorecard

Incentives Score(2007-2009)

(Max 5)

Average ACEEE Scorecard Regulatory

Policy Score(2007–2009)

(Max 5)

Nebraska 1 70.0 70.0 1 1

Texas 8 380.8 47.6 0 5

Alabama 3 47.0 15.7 3 0

Florida 3 43.9 14.6 5 2

Washington 8 97.6 12.2 1 3

Missouri 1 10.7 10.7 0 2

Arizona 2 16.3 8.1 0 1

Ohio 7 48.6 6.9 5 5

North Dakota 4 23.0 5.8 1 1

Iowa 3 16.9 5.6 0 0

State Leaders, Capacity of New Installations normalized by state population, 2005–2009

StateNumber of New Sites

(2005-2009)

Capacity (MW)

Avg. Capacity of New

Sites (MW)

Average ACEEE Scorecard Incentives

Score(2007-2009)

(Max 5)

Average ACEEE Scorecard Regulatory

Policy Score(2007–2009)

(Max 5)

Connecticut 61 181.9 3.0 4 5

Nebraska 1 70.0 70.0 1 1

North Dakota 4 23.0 5.8 1 1

Montana 7 23.3 3.3 0 2

South Dakota 3 16.5 5.5 0 3

Texas 8 380.8 47.6 0 5

Washington 8 97.6 12.2 1 3

Wisconsin 20 83.0 4.2 2 4

Oregon 10 38.8 3.9 5 3

Alabama 3 47.0 15.7 3 0

State Leaders, Number of New CHP Installations normalized by state population, 2005–2009

State

Number of New Sites

(2005-2009)

Capacity (MW)

Avg. Capacity of New

Sites (MW)

Average ACEEE Scorecard Incentives

Score(2007-2009)

(Max 5)

Average ACEEE Scorecard Regulatory

Policy Score(2007–2009)

(Max 5)

Connecticut 61 181.9 3.0 4 5

Vermont 10 3.2 0.3 4 2

Montana 7 23.3 3.3 0 2

Rhode Island 7 1.6 0.2 0 2

North Dakota 4 23.0 5.8 1 1

Massachusetts 32 36.7 1.1 0 4

New York 94 98.8 1.1 4 3

Wyoming 2 0.4 0.2 0 0

South Dakota 3 16.5 5.5 0 3

California 137 113.0 0.8 2 5

States with the highest-ranked regulatory policies

State

Number of New Sites

(2005–2009)

Capacity (MW)

Avg. Capacity of New Sites

(MW)

Average ACEEE Scorecard

Incentives Score(2007-2009)

(Max 5)

Average ACEEE Scorecard Regulatory

Policy Score(2007–2009)

(Max 5)

Texas 8 380.8 47.6 0 5

Connecticut 61 181.9 3.0 4 5

California 137 113.0 0.8 2 5

Illinois 8 26.8 3.4 2 5

Ohio 7 48.6 6.9 5 5

Wisconsin 20 83.0 4.2 2 4

Massachusetts 32 36.7 1.1 0 4

Maine 10 4.5 2.2 0 4

New Jersey 18 14.1 0.8 2 4

Indiana 8 2.2 0.3 0 4

TOTAL 301 891.7 Avg: 7.0

States with the best financial incentives

State

Number of New Sites

(2005–2009)

Capacity (MW)

Avg. Capacity of New Sites

(MW)

Average ACEEE

Scorecard Incentives

Score(2007-2009)

(Max 5)

Average ACEEE Scorecard Regulatory

Policy Score(2007–2009)

(Max 5)

Ohio 7 48.6 6.9 5 5

Oregon 10 38.8 3.9 5 3

Florida 3 43.9 14.6 5 2

Connecticut 61 181.9 3.0 4 5

New York 94 98.8 1.1 4 3

Vermont 10 3.2 0.3 4 2

Idaho 2 3.8 1.9 4 2

Pennsylvania 24 50.9 2.1 3 3

North Carolina 13 17.6 1.4 3 3

Alaska 1 0.4 0.4 3 2

TOTAL 225 487.7 Avg: 3.6

10 states with the best regulatory environments

Number of New Sites

(2005–2009)

Capacity (MW)

Avg. Capacity of New Sites

(MW)

TOTAL 225 487.7 Avg: 3.6

10 states with the best financial incentives

Number of New Sites (2005–

2009)

Capacity (MW)

Avg. Capacity of New Sites

(MW)

TOTAL 301 891.7 Avg: 7.0

Overlap: Ohio and Connecticut(68 total new sites, 230.5 total new capacity)

Incentives vs. Regulatory Environments: State Examples

Regulatory Environment

Good Bad

Incentives

Good CT, OH, OR, NY AK, FL, ID, VT

Bad IN, ME, MA, TX GA, LA, VA, WY

Good regulations, good incentives…

Good CHP!

61 sites,181.9 MW

10 sites,38.8 MW

7 sites,48.6 MW

94 sites,98.8 MW

CT

OR

OH

NY

Bad regulations, bad incentives…

Bad CHP!

4 sites,2.9 MW

3 sites,0.1 MW

0 sites,0 MW

2 sites,0.4 MW

GA

VA

LA

WY

Good regulations, bad incentives…

32 sites,36.7 MW

3 sites,2.2 MW

8 sites,380.8 MW

2 sites,4.5 MW

MA

IN

TX

ME

A wash… Why haven’t IN and ME seen more CHP development?

Bad regulations, good incentives…

1 site,0.4 MW

2 sites,3.8 MW

3 sites,43.9 MW

10 sites,3.2 MW

Few installations except VT, little capacity except FL…

ID

AK

FL

VT

Examining the anomalies: Florida

FL

• One new site: 36.5 MW

• Other two: 3.2 and 4.2 MW

• Large site, installed by Smurfit Stone Container Corporation at a wood products plant, was a QF under PURPA (sect. 210)

• Able to bypass regulatory processes at the state level

• Other two systems undertaken by municipal utilities—Ocala and Gainesville

• CHP systems installed by utilities are inherently exempt from utility-related barriers, and munis lie outside state regulatory environment

3 sites,43.9 MW

Strong incentives,

weak regulations

VT

• Despite lack of good reg. policies, EE programs, utility energy objectives, & other factors encourage CHP

• Recent energy savings goals• Save 261.7 GWh between 2006 and 2008 (handily beat)

• Efficiency Vermont, the state’s “efficiency utility,” which has its own set of savings goals, provides technical assistance for CHP developers.

• Strong renewable energy goals - Sustainably Priced Energy Enterprise Development (SPEED) program

• 7 of the 10 projects fired by biomass

• Net metering available for systems <250 kW, (3 of the 10)

10 sites,3.2 MW

Examining the anomalies: Vermont

Strong incentives,

weak regulations

Examining the anomalies: Maine & Indiana

Weak incentives,

strong regulations

3 sites,2.2 MW

2 sites,4.5 MW

IN

ME

• Unclear why ME & IN have seen little CHP activity recently

• Always many other factors at play

• Subtleties of regulations

• Education & awareness

• Lack of access to NG

• ACEEE will be exploring these factors in upcoming research

Other factors• Size matters• >20 MW

• At large firms – time, $, staff• Lower relative cost• FERC IC standards• PURPA QFs

• Facilitation by state players• Technical assistance e.g. RACs/CEACs• EE programs e.g. Efficiency VT

• Incentives for renewables (biomass CHP)

Conclusions• Financial incentives are beneficial, but not necessarily

sufficient to create a healthy CHP market• Removing barriers can significantly improve potential

for CHP implementation• System size is key

• Incentives more useful for smaller systems• Larger systems can overcome hurdles more easily

• Path to market transformation: good regulation, coordinated incentives, sufficient education & marketing

• Findings can be applied to other EE systems – look for hidden barriers!

Questions? Comments?

Thanks!

Nate KaufmanAmerican Council for an Energy-Efficient Economynkaufman@aceee.org(202) 507-4026