Editor's Note: To learn more about the future of U.S. energy policy and hear from FERC Chairman Jon Wellinghoff be sure to check out VERGE@Greenbuild this fall, November 12-13, in San Francisco.
Last week, President Obama signed an Executive Order establishing a national goal of deploying 40 gigawatts (GW) of new industrial combined heat and power (CHP) and waste heat recovery (WHR) by the end of 2020, a 56 percent increase from 2010 levels.
The actions outlined by the order will help spur investment in U.S. industrial energy efficiency, which will reduce greenhouse gas emissions, create jobs, and strengthen manufacturing competitiveness by decreasing energy bills.
This executive order reinforces domestic energy market and regulatory developments that are converging to make conditions for CHP investments more favorable than they have been for decades. Key contributing factors include federal environmental regulations and rapidly changing energy economics, particularly regarding U.S. shale gas development.
As a result of converging resource, economic, and regulatory circumstances, U.S. base-load power generation capacity is projected to drop just as manufacturing facilities with older boilers are considering compliance options for reducing toxic air emissions. Under the right policy conditions, this confluence of factors can facilitate deployment of natural gas-fired industrial CHP/WHR.
The Oak Ridge National Laboratory estimated in 2008 that CHP amounted to 8.6 percent of U.S. electricity generation capacity and 12.6 percent of electricity generation, compared to Denmark’s CHP utilization of more than 50 percent of electricity generation. Reports estimate that the U.S. has approximately 64 GW of remaining industrial CHP technical potential. Within the U.S., the Midwest has particularly large opportunities for increased CHP utilization.
While there is large potential, the ambition of President Obama’s 40 GW goal is illustrated by its juxtaposition with the current Department of Energy Annual Energy Outlook 2012 reference case forecast for industrial CHP. As illustrated below, the new CHP goal is 13 percent higher than the reference case forecast for 2020 installed capacity. Achievement of the 2020 CHP goal would result in 56 percent growth of U.S. industry CHP capacity compared to 2010 levels.
The Executive Order aims to help address persistent regulatory, policy, and institutional barriers that have long-prevented proven efficiency technologies from being more fully utilized in the United States. While recent conditions have become more favorable, key barriers to investment have included unfavorable market prices for energy, electricity sector rate structures that discourage utilities from supporting end-use efficiency and self-generation, and high up-front costs that may be viewed as risky to manufacturers concerned about future economic conditions.
It also facilitates increased industrial energy efficiency investment through interagency coordination and convening of national and regional stakeholders.
Industrial companies, policy makers, and regulators are encouraged to identify, develop, and implement state best practice policies, as well as technical assistance programs and public education programs. For example, the U.S. Department of Energy has established eight regional Clean Energy Application Centers that provide information, education, and technical assistance in the application of CHP.
This Executive Order also builds on a recently established pilot program initiated by the Department of Energy in Ohio. The Ohio program helps assess the economic feasibility of using CHP technology investments to cost-effectively comply with pending regulations that would limit toxic air emissions from industrial sources. (For more discussion of the Ohio pilot program, see our related blog post).
Graphic of industrial laser cutter provided by sspopov via Shutterstock
Next page: How to address barriers?
To effectively address the regulatory, policy, and institutional barriers, successful convening efforts with local and regional stakeholders will be critical. For example, states have primary jurisdiction over utility market regulatory structures.
Meanwhile, electric utilities have significant influence with state public service commissions, who are primarily charged with balancing customer interests with the interests of utility company shareholders.
U.S. Industrial CHP Capacity (2009-2020). Image credit: EIA, AEO 2012Industry is the largest energy-using and greenhouse-gas-emitting sector in the U.S. in end-use terms. By facilitating industry energy efficiency improvements, the White House is helping to move the U.S. economy toward a lower-carbon emissions growth path while reviving manufacturing competitiveness. Sustained policies are needed to achieve the full energy, economic, and environmental benefits of industrial energy efficiency in the U.S. This White House Executive Order is a great first step in the direction of more comprehensive policy on U.S. industry energy use and emissions.
Editor's note: Earlier this year, GreenBiz published an article by R. Neal Elliott, the associate director for research at the American Council for an Energy-Efficient Economy, who questioned if a new business model was needed for the U.S. to generate a more robust market conducive to investments in combined heat and power (CHP) systems. Read more GreenBiz coverage about CHP with a story detailing one California grower's challenge to get his CHP system online.
This post originally appeared on the WRI Insights blog and is reprinted with permission.