INDUSTRIAL ENERGY EFFICIENCY. Massachusetts Alternative Energy Portfolio Standard Promotes Combined Heat and Power NITED STATES OF

Transcription

1 INDUSTRIAL ENERGY EFFICIENCY Massachusetts Alternative Energy Portfolio Standard Promotes Combined Heat and Power NITED STATES OF

2 MODEL SAVES ENERGY, INCREASES EFFICIENCY, REDUCES POLLUTION Electricity and heat production from a single system When the U.S. State of Massachusetts passed the Green Communities Act of 2008 to promote greater energy efficiency, deliver energy savings, cut the state s dependence on imported fuel, create local jobs, reduce pollution that threatens [the state s] health and causes climate change, and make buildings more comfortable, it made particular reference to combined heat and power (CHP). 1 With CHP instead of generating heat in a boiler and buying electricity from the electrical grid, electricity and heat can be produced together for greater overall efficiency. A CHP plant can capture thermal energy that would otherwise be wasted when generating electricity, or it can generate electricity with waste heat from industrial processes. Besides improving efficiency by reducing waste, CHP offers a number of benefits, including cost savings, improved manufacturing competitiveness, job creation and maintenance, reduction in greenhouse gas emissions and other environmental impacts, and improvements to the robustness and security of the electrical grid. Any generation or industrial process that produces heat, no matter the fuel, may be a candidate for a CHP system. Although relatively high electricity prices in Massachusetts (average retail price of USD per kilowatt-hour in 2010, compared to a U.S. average of USD 0.098) help make CHP generation more attractive, this is offset somewhat by high natural gas prices (an average industrial price of USD per thousand cubic feet in 2010, compared to the U.S. industrial average of USD 5.49). 2 To meet its energy-efficiency goals, the state needs policies to encourage broader and more rapid deployment of CHP and energy efficiency in general. Massachusetts supports expansion of CHP though a regulatory requirement and financial incentives. The Alternative Energy Portfolio Standard took effect at the beginning of 2009 to complement the state s existing Renewable Portfolio Standard and is heavily oriented toward CHP. This effort is supported by a rebate-based incentive program, Mass Save, which provides rebates for investments in a range of efficiency-related technologies, including CHP. CREDITS, REBATES PROVIDE INCENTIVES The Alternative Energy Portfolio Standard requires electric utilities to meet part of their load with certain alternative, mostly non-renewable, technologies. Although flywheel storage, coal gasification and some efficient steam technologies are also 1

3 eligible for the standard, CHP accounts for nearly all the electricity generated under the program. Massachusetts also has a separate, complementary standard that requires utilities to use a certain percentage of electricity generated from renewable sources. The credit earned by CHP systems under the Alternative Energy Portfolio Standard is based on the amount of energy saved by combining heat and electrical generation, not on the full amount generated. A facility earns credits based on the reduction in energy use compared to what would have been required to produce the same thermal energy while drawing electricity from the electrical grid. Electricity providers then buy these credits from the owners of CHP systems to meet the requirement. In Massachusetts deregulated electricity system, utilities that serve end-use customers usually do not own generation facilities. CHP generation systems are more often owned by industries or large commercial facilities. Metering is required to determine the useful thermal and electrical output and fuel input, though metering requirements are somewhat less stringent for smaller systems. The Alternative Energy Portfolio Standard began by requiring electricity suppliers to meet 1 percent of their 2009 sales with the purchase of credits generated from alternative sources. To facilitate compliance when the program began, CHP installed as of 2008 may be eligible for use in certain circumstances. The target rises incrementally each year, reaching 5 percent by This is equivalent to about 27 MW of new CHP capacity each year until 2014 and about 13.5 MW each year after that, assuming the target is met with new CHP capacity. In theory, this would result in aggregate installation of 261 MW of CHP by Because an electricity supplier can pay an Alternative Compliance Payment to the state if it is unable to meet the target with actual alternative generation, the actual installation of CHP and other alternative energy sources may be less than the portfolio standard mandate. In 2010, the Alternative Compliance Payment was USD 20 per megawatt-hour. It is adjusted annually to reflect changes in general prices across the economy. Figure 1: Massachusetts Alternative Portfolio Standard Minimum Standard and Cumulative CHP Demand* Estimated Installed CHP (MW) % 7% 6% 5% 4% 3% 2% APS Minimum Standard (%) Year 1% * Cumulative CHP demand assumes 100 percent compliance via CHP and no use of Alternative Compliance Payments Source: Adapted from Breger, Dwayne. 2

4 The state s Mass Save CHP incentive program provides a rebate of up to USD 750 per kw, to a maximum 50 percent of the installed cost of a CHP system. Eligibility is based on the project s cost in relation to its capacity, the amount it actually generates and the timing of the generation (mainly if the generation is available at peak periods). There are two tiers for determining the value of the rebate: smaller systems get the flat USD 750 per kw, but calculations for CHP systems greater than 150 kw consider additional factors. Only more efficient CHP systems are eligible for the Mass Save incentives, which require a combined electric and thermal efficiency greater than 60 percent. Mass Save s rebates are not limited to CHP, but cover a wide range of energy-efficiency technologies applied in a variety of market sectors, from LED exit signs to industrial process upgrades. Funding for these rebates comes from a small charge added to all electricity bills, supplemented by revenues from allowances auctioned under a regional greenhouse gas emission trading program. PROGRAM IS COST-EFFECTIVE By October 2012, 61.7 MW of new or existing (as early as 2008) CHP capacity was approved or being reviewed in the Alternative Energy Portfolio Standard program. Just over half was in academic institutions and 38 percent was in manufacturing facilities. At current prices, revenue from the sale of credits is frequently great enough to cover a CHP plant s annual operations and maintenance costs, making the financial outlook for a CHP project much more favorable. As of 2010, the last year for which compliance reports are available, the supply of alternative generation did not meet demand, so much of utilities compliance (62 percent) came from Alternative Compliance Payments rather than actual CHP or other clean energy sources. These payments totaled approximately USD 7.8 million, which went to a fund used to further the commercial development of alternative generation by investing in earlystage clean energy companies and projects to implement renewable energy and energy efficiency. 3 The state Department of Energy Resources is currently estimating greenhouse gas savings from the program. Within the Mass Save rebate program, CHP has provided more than 9 percent of recent commercial and industrial sector energy savings. CHP has also been among the most cost-effective measures (in terms of dollars per kilowatt-hour generated) eligible for the rebate, which has been well received despite criticism about the complexity of the rebate system. 4 An analysis by the American Council for an Energy Efficient Economy found the Alternative Energy Portfolio Standard to be effective and straightforward. Adding to the program appeal, utilities serving customers can petition state regulators to recover revenue lost because of decreased electricity sales due to these programs. This feature enhances support among utilities by assuaging their revenue concerns, making them more likely to promote energy efficiency and distributed generation projects. 3

5 REFERENCES Massachusetts Executive Office of Energy and Environmental Affairs. RPS and APS Program Summaries. Web. October 31, < renewable-energy/rps-aps/rps-and-aps-program-summaries. html> Mass Save. Mass Save For Your Business. Web. October 31, < Massachusetts Energy Efficiency Advisory Council. July Efficiency as Our First Fuel: Strategic Investments in Massachusetts Energy Future. ENDNOTES 1 Massachusetts Energy Efficiency Advisory Council. July Efficiency as Our First Fuel: Strategic Investments in Massachusetts Energy Future. 2 Energy Information Administration Massachusetts State Profile and Energy Estimates. Web. November < 3 Commonwealth of Massachusetts Department of Energy Resources RPS & APS Annual Compliance Report for Web. November < eea/docs/doer/rps/rps-aps-2010-annual-compliance-rptjan pdf> Figure References Figure 1: Massachusetts Alternative Portfolio Standard Minimum Standard and Cumulative CHP Demands Berger, Dwayne, Alternative Portfolio Standard and the Energy Efficiency Rebates. Center for Clean Air Policy Climate Policy Initiative Dialogue, October 18-19, 2012, Washington, DC. 4 Chittum, A. & Kaufman, N Challenges Facing Combined Heat and Power Today: A State-by-State Assessment. American Council for an Energy Efficient Economy (ACEEE). 750 First Street, NE, Suite 940 Washington, DC p CCAP CENTER FOR CLEAN AIR POLICY