Meeting 100209 Hedman

8/3/2019 Meeting 100209 Hedman

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CHP: The State of the MarketCHP: The State of the MarketU.S. EPA Combined Heat and Power PartnershipU.S. EPA Combined Heat and Power Partnership

2009 Partners Meeting2009 Partners Meeting&&

NYSERDA CHP RoundtableNYSERDA CHP Roundtable

Bruce HedmanBruce HedmanICF InternationalICF International

October 1, 2009October 1, 2009


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Acknowledgements

Based on work supported by:

EPAs Combined Heat and PowerPartnership

DOEs Industrial Technology Program


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CHP Market Status

Where have we been?

Where are we now?

Where are we going???


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CHP Is a Significant Resource for the US

82% Manufacturing 5% Other Industrial

13% Commercial/Institutional

9% U.S. GeneratingCapacity (MW)

12% Generation (MWh)

CHP Growth 1970 to Present

0

20

40

60

80

100

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Cumul

ativeCapacityAdditions

(GW)


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Over 32 GW of New Capacity Has BeenInstalled Since 1995

Capacity Additions, 1995 to Present

40

50

60

70

80

90

100

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Cumula

tiveCapacityAdditions(GW)

Source: CHP Installation Database ORNL/DOE


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But Growth Has Slowed Since 2005, andSome Existing Capacity Has Been Retired

Net Capacity Growth, 1995 to Present

40

50

60

70

80

90

100

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Cumula

tiveCapacityAdditions(GW)



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New CHP Capacity Additions Have BeenBelow 1 GW/Year Since 2006

Annual Capacity Additions, 2000 to Present

0

1

2

3

4

5

6

7

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

AnnualCapacityAdditions(GW)



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But the Number of New CHP System AdditionsHas Remained Steady

Annual System Additions, 2000 to 20091

0

100

200

300

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

AnnualCapacityAdditions(GW)



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Non-Traditional Users Are Growing

6%Other Industrials

42%Manufacturing

52%Commercial/Institutional

7%Other Industrials


27%Manufacturing

2000-2009: 1,374 sitesUp to 1999: 2,585 sites



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But Industrials Drive Capacity Additions

7%Other Industrials

82%Manufacturing


3%Other Industrials


82%Manufacturing

2000-2009: 24.8 GWUp to 1999: 63.0 GW



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Industrial States Installed the Most Capacity

7,498 MWTexas

3,085 MWLouisiana

1,969 MWAlabama

1,372 MWCalifornia

1,361 MWOregon

805 MWNew York

7,910 MWRemaining States

CHP Capacity Additions: 2000 - 2009

755 MWIndiana



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But Other States Have Active Markets

60 SitesNew Jersey

54 Sites

Texas

64 Sites

Massachusetts

337 SitesCalifornia

83 SitesConnecticut

217 SitesNew York512 Sites

Remaining States

CHP System Additions: 2000 - 2009

47 SitesIllinois



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Heavy Steam Users Dominate IndustrialApplications

7,285 MWRefining

1,957 MWPaper

1,062 MWFood Processing

7,693 MW

Chemicals

700 MWOther Industrial

898 MWOther Mfg

1.466 MWFabrication

CHP Capacity Additions: 2000 - 2009Source: CHP Installation Database ORNL/DOE


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Universities and District Energy Represent TwoThirds of the Commercial/Institutional Capacity

1,060 MWUniversities

601 MWUtilities

101 MW

WWT

1,333 MW

District Energy

477 MWOther

125 MWHospitals

CHP Capacity Additions: 2000 - 2009Source: CHP Installation Database ORNL/DOE


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Market Development 2000 - 2009

Early capacity additions driven by large

merchant plants with industrial steam hosts Growing deployment in commercial and

institutional applications

Development stalled by high natural gasprices and growing economic uncertainties

Significant retired and idled capacity


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CHP Market Status

Where have we been?

Where are we now?



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Policymakers Appear to be Getting theMessage about CHP

CHP is a critical energy efficiency resource

CHP can quickly and cost-effectively reduceCO2 emissions

CHP can enhance economic competitiveness


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$234 billion private sector

investment

Nearly 1 million new jobs

Reduces fuel use and CO2

emissions

Source: ORNL

What If CHP Represented 20% of US GeneratingCapacity in 2030?


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20% CHP Could Reduce Projected Increasesin CO2 Emissions by More than 60%

Source: ORNL


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Energy Independence and Security Act of 2007

Title IV, Section D, contained provisions designed toimprove energy efficiency by promoting CHP, waste

energy recovery and district energy. Called for EPA to establish a Waste Energy Recovery

Registry to identify the quantity and quality of recovery

potential Authorized funding of regional Clean Energy

Application Centers (not appropriated)

Authorized a Waste Energy Recovery IncentiveProgram (not appropriated)

Production incentive of $10/MWh during first three years

of operation


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Energy Improvement and Extension Act of 2008

Provided a 10% investment tax credit (ITC) for the first15 MW of CHP property

Systems


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American Recovery and Reinvestment Act of 2009

Provides refundability to investment and production tax creditsthrough a grant program within the Department of Treasury

Allows bonus depreciation for CHP: 50% of depreciation value can be taken in the first year

Remainder over the following four years

Allows CHP tax credits even if projects are financed with localdevelopment bonds

Allows biomass projects to claim a 30% investment tax credit

Provides some $100 billion of additional government-backed loan

guarantees for clean energy projects

Potential funding for shovel ready projects

$156 million of cost-share grants for CHP, waste energy recovery, districtenergy, and industrial-efficiency projects (DOE ITP FOA44)


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CHP Eligible for Similar Benefits asother Clean Energy Technologies

EnergyProperty

2007 2009

45PTC

45ITC

RefundableITC

45PTC

48ITC

RefundableITC

CHP - - - -10% of

1st 15 MW10%

Biomass open loop

$20/MWhfor 10 yrs

- -$20/MWhfor 10 yrs

30% 30%

Wind$20/MWhfor 10 yrs

- -$20/MWhfor 10 yrs

30% 30%

Solar - 30% - - 30% 30%

Geothermal$20/MWhfor 10 yrs

10% -$20/MWhfor 10 yrs

10% 10%

If a technology is eligible for both PTC and ITC, then one of the two types oftax credit must be selected


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Proposed Tax Enhancements

Increased ITC of 30% for highly efficient CHP

Increase ITC eligibility from 15 to 25 MW forprojects of unlimited size

Remove prohibitions against cofiring inbiomass PTC


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State Initiatives

Thirteen states include CHP or waste energyrecovery in portfolio standards Nevada, Oregon, South Dakota, North Dakota ( B.C. and

Saskatchewan) -waste heat recovery projects equivalent to otherrenewable electric generation resources

Specific incentives for CHP New York

Connecticut

New Jersey

Massachusetts

California

Texas

Midwest Governors Association


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New York

CHP technology demonstration and fleet program Energy Efficient Power Systems

Existing Facilities Program pay for performance

Multi-family Facilities Program pay for

performance RPS

Anaerobic Digesters under customer-sited tier

Fuel cells


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Connecticut

An Act Concerning Energy Independence, June2005

Customer CHP and DG Incentives

$450/kW, additional $50/kW in congestion area

Utilities receive $200/kW (down to $50 in 2011) Low interest financing

Natural gas distribution cost rebate

No back-up power for new systems

More than 80 applications representing 300 MWbetween 2006 and 2008


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New Jersey

Clean Energy Program supports increased energyefficiency and installation of clean energy

technologies Calls for 1,500 MW of CHP as part of state energy plan

Provides $450/kW incentive (first $70 million offeringrecently closed)

Utility-based Energy Efficiency Incentive programs

PSE&G announced $190 million program $450/kW rebates for CHP in hospitals

50% of design costs


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Massachusetts

MA Alternative Energy Portfolio Standard CHP iseligible technology

250 MW by 2020

$20/MWh equivalent

CHP credit includes electricity and thermal

Metered power output and useful thermal reportedquarterly with independent verification

Gas and Electric Rebates for CHP Green Communities Act directs utilities to purchase all

cost-effective efficiency and makes CHP eligible

MicroCHP eligible for Renewable Trust


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California

CARB set a target of 4,000 MW of new CHP by2020 in response to AB 32

AB1613 calls for feed in tariffs for excess powerfrom CHP systems < 20MW

CPUC considering must-take contracts for excesspower from large CHP (>20 MW)

Bill to reinstate Self Generation Incentive Programfor fossil-fueled CHP on Governors desk

$600/kW for first 1 MW, systems up to 5 MW

Waste heat recovery projects not regulated as GHG

sources


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Texas

Active Texas CHP Initiative

State emergency preparedness bills include CHPprovisions

State and local government buildings that must operatebefore, during and after major events and >500 kW

Mandated to evaluate CHP before construction and majorrenovation

Consider implementing if payback is less than 20 years


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Midwest

Midwest Governors Association to announce carbonreduction plan

Doubling amount of CHP by 2030

Increase current 10.4 GW to 21 GW

Increase CHPs share of generating capacity from 4.3% to7.1%

City of Chicago considering its own target

Increasing current 117 MW to 317 by 2019

N CHP C it Additi H B


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New CHP Capacity Additions Have BeenBelow 1 GW/Year Since 2006

Annual Capacity Additions, 2000 to Present

0

1

2

3

4

5

6

7

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Annu

alCapacityAdditions(GW)


O 1 800 MW f N CHP C it I


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Over 1,800 MW of New CHP Capacity IsCurrently in Construction or Engineering

Annual Capacity Additions, 2000 to 2010/2011

0

1

2

3

4

5

6

7

200

0

200

1

200

2

200

3

200

4

200

5

20

06

20

07

20

08

20

09

2010/11

AnnualCapacityAdd

itions(GW)



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Market Development - Current Conditions

Most activity in states with favorable regulatorytreatment and/or specific incentives

Natural gas CHP in areas with supportable sparkspread (Northeast, Texas, California)

Biomass and opportunity fuels in Southeast, Midwestand Mountain

Hot applications: universities, hospitals, waste watertreatment, food processing

Growing interest in waste heat to power applications

Increasing interest in carbon reduction and in power

reliability benefits of CHP


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CHP Market Status

Where have we been?

Where are we now?



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We Seem to be at Inflection Points

Credit and financing

Natural gas prices Technical innovation

Carbon policy Other


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Natural Gas Prices

Henry Hub Prices of $13.00/MMBtu in July 2008and $3.50/MMBtu in September 2009

$13.00 in October 2006 and $5.00 in October 2006

Prices depressed by economic downturn

Long term impact of shale resources New large resource base that will place a ceiling on gas

prices, or

Just enough to offset production declines in conventionalresources


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Recent Natural Gas Production (Bcf per year)

Supply Area 2005 2006 2007 2008

Northern RockyMountainBasins

2,284 2,461 2,700 3,081

MidcontinentShales

652 813 1,265 2,142

Other U.S. and

Canada 22,071 22,433 22,510 21,695

Total U.S. andCanada

25,007 25,707 26,475 26,918

The Market Is Expecting Higher Prices For


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The Market Is Expecting Higher Prices ForNow

NYMEX Natural Gas Futures - 9/30/09

3

4

5

6

7

8

9

10

Nov-0

9

Jan-10

Mar

-10

May

-10

Jul-1

0

Sep-10

Nov-1

0

Jan-11

Mar

-11

May

-11

Jul-1

1

Sep-11

Nov-1

1

Price,$/MMBtu


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Technical Innovation

Higher efficiency engines and turbines enteringthe market

Fuel cells and microturbines both demonstratingrobust performance and evolving toward largersystems

More interest in packaged systems and modularity

MicroCHP entering North American market


42/51

MicroCHP

High efficiency, thermally-based CHP below 10 kW

Over 100,000 systems inJapan; 20,000 in Europe

200 engine-driven systems

installed in the U.S.ECRInternationalfreewatt

Installation

Medway,MA

MarathonEcopower

Installation

NewYork,NY

Pilot programs in New Yorkand Massachusetts

Potential technology for EPAClimate Choice program


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Carbon Policy

How to treat CHP under cap and trade?

Will there be national renewable and energyefficiency resource standards?


44/51

Discussion


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Traditional Power Generation Wastes Energy

Electricity Generation is the Largest Source


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Electricity Generation is the Largest Sourceof CO2 Emissions

Source: RED calculations based on data from Emissions of Greenhouse Gases in the United States 2007;State Energy Data Report; and Annual Energy Review.

0%

10%

20%

30%

40%

50%

1950 1960 1970 1980 1990 2000

CO2 Emissions by theU.S. Electric Pow er Sector

%

ofUSC

O2Emissions


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US Electricity Generation Remains Inefficient

RED | the new green - 47 - www.recycled-energy.com

Source: U.S. Energy Information Agency

U.S. Delivered Electric Eff iciency

0%

50%

100%

1900 1920 1940 1960 1980 2000

Inefficientgeneration

Wastes energy

Inflates costs

Increases pollution


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The Potential for Additional CHP Is Nationwide

Source: ORNL


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The Future Is Smaller, Thermally-Based CHP

Thermally-sized systems providing heat and powerprimarily for on-site use

Almost one-half of the potential is in commercial /institutional applications

Much the potential is in systems below 20 MW in size

Much of the potential is in applications with limitedexperience with CHP

Industrial food processing, fabrication and assembly

Commercial lodging, office buildings, multifamily

Institutional hospitals, schools, government facilities


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40

42

44

46

48

50

52

54

56

58

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Gas Price at Henry Hub

(Nominal$ per MMBtu)

$0

$2

$4

$6

$8

$10

$12

$14

$16

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

The Natural Gas Balance

Relative Price Stability

Price Spike

Winter 2000-01 Rising PricesWinter 2002-03

Source for Historic Data: Platts Gas Daily

Hurricane Ivan

Lower-48 Dry Gas Production Vs. Dry GasCapacity (BCFD)

Hurricane Katrina& Rita

Hurricane Gustav& Ike

The recent downturn in the economy has led to arelatively looser balance between natural gas supply

and demand.


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Henry Hub Natural Gas Prices ($ per MMBtu)

$2

$3

$4

$5

$6

$7

$8

$9

$10

$11

$12

$13

$14

Jan

-05

Apr-05

Jul-05

Oct-05

Jan

-06

Apr-06

Jul-06

Oct-06

Jan

-07

Apr-07

Jul-07

Oct-07

Jan

-08

Apr-08

Jul-08

Oct-08

Jan

-09

Apr-09

Jul-09

Oct-09

Jan

-10

Apr-10

Jul-10

Oct-10

Jan

-11

Apr-11

Jul-11

Oct-11

ICFs Projected HenryHub Prices

Futures Gas Price,Sept. 29, 2009

Historical Henry Hub Pricesfrom Platts Gas Daily

Oil Prices ($/Bbl):

Light Crude Futures 72.92

ICF WTI 79.55

Gas Prices ($/MMBtu):

Natural Gas Futures 6.53ICF Henry Hub 6.10

Average Prices, 2010-2011

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Meeting 100209 Hedman