Yesterday, President Obama signed an Executive Order establishing a national goal of deploying 40 gigawatts (GW) of new combined heat and power (CHP) and waste heat recovery (WHR) by the end of 2020, a 50 percent increase from 2010 capacity 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.
A Substantial Target
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.
What Is Combined Heat and Power (CHP)?
CHP is a set of cross-cutting efficiency technologies for facilities with substantial on-site demand for electricity and heat. Rather than generating steam and electricity through separate, inefficient processes, CHP involves cogeneration of both, resulting in significant efficiency gains. Both CHP and WHR systems capture heat that is normally wasted in combustion processes and use it to generate electricity or useful thermal energy. Due to its utilization of waste heat, CHP uses approximately 40 percent less energy than conventional production of heat and electricity. CHP technologies have the potential to reach energy efficiencies of 70 percent to 85 percent when used on applicable industrial plants.
What Are CHP's Benefits?
Increased CHP utilization provides energy, economic, and environmental benefits. The Department of Energy estimates that achievement of the 40 GW CHP goal together with a 2.5 percent per year reduction of industry energy intensity could bring about savings of 10 quadrillion Btu (approximately 10 percent of total U.S. 2010 energy use) by 2020. The White House estimates that increased CHP utilization could save industrial energy users “tens of billions of dollars” in avoided energy costs. In addition to reducing manufacturers’ vulnerability to energy price volatility, implementing CHP can help businesses comply with environmental regulations in cost-effective ways. For example, the pending Boiler MACT standards include a provision to credit efficiency measures, including CHP, for achieving required toxic emissions reductions.
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 historical annual installations of CHP capacity in the United States. As illustrated below, achievement of the new CHP goal by 2020 requires more average annual capacity additions than in any previously recorded year. Achievement of the 2020 CHP goal would result in a 50 percent increase total U.S. CHP capacity compared to 2010 levels.
How Will the Executive Order Help Move Industrial Energy Efficiency Forward?
Today’s 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.
The Executive Order 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).
To effectively address the persistent barriers listed above, 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.
A More Sustainable Path Ahead?
Industry 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, 9/10/12: After publishing this post, we noticed an error in our reporting of the White House Executive Order's CHP goal. The chart and accompanying text have been updated to more accurately describe the CHP goal in historical context.