March 08, 2012
March 08, 2012
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A 10 percent increase in CHP's share of total electric power capacity in Ohio would create $1.3 billion in annual energy savings while reducing emissions by 13 million metric tons – the equivalent of taking more than 2 million cars off the road, nearly 30 percent of passenger vehicles registered in the state.
In 2009, Ohioans spent nearly $41 billion to fuel cars, to run our homes and businesses, and to power industry. This amounted to about 9 percent of Ohio’s gross product that year. Because we use energy very inefficiently, however, billions of dollars are wasted. As a result, Ohio ranks 28th in the nation for energy productivity, which is the economic value achieved from the energy we use.
The biggest source of Ohio’s energy waste comes from inefficiencies in the electric power industry itself. In 2009, we lost more than one quadrillion British thermal units (Btus) of energy in Ohio’s electricity-generation system, worth an estimated $17.6 billion.
Combined heat and power (CHP) technologies, which generate power from heat that is normally wasted, can help transform this inefficient system and cut energy losses.
The overall energy efficiency of a factory is typically in the range of 50 to 55 percent. By using a single fuel source to produce both heat and power, CHP technologies achieve much higher industrial plant efficiencies than separate heat and power systems, result in significantly lower utility bills, and cut related emissions. Recovery and use of all the heat typically rejected in the electric generation process can achieve industrial plant efficiencies as high as 75 to 85 percent.
There are two types of combined heat and power. Conventional CHP uses fuel to generate electricity, normally through an engine, turbine, or fuel cell; heat generated during the production of electricity is captured and recycled to meet the thermal needs of the facility. Waste heat recovery (WHR) captures and recycles, from an already occurring industrial process, heat that is normally released to the atmosphere. (Together, these CHP technologies are also known as cogeneration.) Generating electricity on-site or near energy consumers, particularly manufacturers, would allow us to capture heat energy typically wasted, save billions of dollars spent on polluting fossil fuels, and significantly reduce emissions.
Ohio has great CHP potential. The state currently ranks in the top five for potential use of CHP technology, but we rank 44th in the nation for actual adoption. While Ohio has a technical potential to generate 25 percent of its electricity from CHP, current capacity is less than 2 percent of total electric power capacity. If we were to increase CHP’s share of total electric power capacity by 10 percent in Ohio (an increase of 3.6 gigawatts), we would see $1.3 billion in annual energy savings. This would also reduce emissions by 13 million metric tons, the equivalent of taking 2.3 million cars – nearly 30 percent of passenger vehicles registered in Ohio – off the road.
Ohio’s manufacturing sector is a prime for target for CHP development. Early candidates for CHP/WHR investments include manufacturers that use large quantities of both electric and heat energy at the same time. Industry, made up largely of manufacturing, accounts for one-third of our state’s energy use. Manufacturers burn fuels on-site, largely to heat chemicals, metals, wood, and glass in various industrial processes, and they access the electric power grid to run electric motors that drive things like metal cutting and forming tools, power welding tools, electric furnaces, and electric forklifts. Ohio manufacturers spent an estimated $5.9 billion on energy in 2008, and $4.4 billion in 2009 (more than one quarter the amount of their payroll costs). Ohio already has 552 megawatts (MW) of combined heat and power capacity, approximately 80 percent of which can be found in the manufacturing sector. For perspective, if that energy were used in the residential sector, it would be enough to power more than 450,000 homes.
There are many barriers to greater CHP adoption in Ohio. A lack of cooperation from electric utilities, along with complicated rate structures that discourage CHP adoption, has been a major impediment to greater adoption of these technologies. At the same time, achieving energy savings from CHP technologies has not been a priority for manufacturers or state and local economic development officials.
To overcome these barriers, the state of Ohio and local governments can implement policies that promote CHP development. The state should support local CHP efforts by creating an implementation schedule for existing CHP/WHR requirements under Ohio’s alternative energy standard, with specific annual targets (a CHP/WHR “carve-out” within Ohio’s alternative energy standard, similar to the renewable energy and solar requirements).
Ohio cities can provide “green incentives” to manufacturers as an economic development tool. Ohio manufacturers pay seven times more for energy than they do for state and local taxes. Green incentives – access to cheap and clean light, heat, and power – can help improve a company’s energy productivity without the negative impact tax incentives would have on already strained state and local budgets. Cities can offer manufacturers green incentives by arranging long-term power purchasing agreements for affordable clean energy; co-locating industries within eco-industrial parks where heat and power energy resources can be shared cheaply; or by purchasing excess power generated by manufacturers that have invested in on-site CHP or WHR facilities.
In 2009, Ohioans spent nearly $41 billion to fuel our cars, run our homes and businesses, and power our industry. This was approximately 9 percent of our state’s gross product that year. Because of inefficiencies in the way we use energy, Ohio is slightly below the national average and far below top performers in energy productivity, ranking 28th in the nation for the level of gross economic activity we achieve for the amount of energy we consume (2009). Among states, fifteen are at least 30 percent more energy productive than Ohio, and the state of New York gets more than twice as much output from the energy it consumes. Globally, Ohio and the rest of the nation fall behind other industrialized nations — with Japan being more than twice as energy productive as the U.S. and Ohio. Northwestern Europe is 23 percent more productive than the U.S. In a global economy, this is a competitive race we cannot afford to lose.
The biggest source of Ohio’s energy waste comes from inefficiencies in the electric power industry itself. Nearly 70 percent of all energy contained in fossil fuels used at electric plants, or nearly 1/3 of all energy consumed in Ohio (29 percent), is lost during generation and transmission on our outdated grid. At the same time our electric industry discards large amounts of heat energy produced during conventional electricity production, however, energy consumers are purchasing fuel to create heat on-site. This is a waste of both scarce resources and money, and results in large amounts of unnecessary toxic and carbon emissions. In 2009, more than one quadrillion Btus of energy, an estimated $17.6 billion worth, was lost in Ohio’s electrical system during generation and transmission. That same year, Ohio’s electric power industry ranked third in the nation for carbon dioxide (CO2) emissions, first for sulfur dioxide (SO2), and fifth for nitrous oxide (NOX). Roughly half of all carbon emissions in Ohio come from the electric power sector.
By distributing electricity generation closer to the end user and capturing heat typically wasted, using combined heat and power (CHP) and waste heat recovery (WHR) technologies, we can slash the billions of dollars we spend on polluting fossil fuels and significantly reduce related emissions. Ohio ranks in the top five states for potential use of CHP technology, with Ohio’s technical CHP potential estimated to be greater than 9 gigawatts in capacity, roughly 25 percent of Ohio’s total electric capacity. Table 1 shows we currently rank 44th in the nation, however, for actual adoption (with CHP representing just 1.5 percent of total generation capacity).
There are two types of combined heat and power (CHP), also known as cogeneration. Conventional CHP uses fuel to generate electricity (normally through an engine, turbine, or fuel cell); heat generated during the production of electricity is captured and recycled to meet the thermal needs of the facility. The second type, waste heat recovery (WHR), captures and recycles heat already being created from an existing industrial process that is normally released to the atmosphere. WHR requires no additional fuel to be used on site. This is “free energy” that would otherwise be lost in the industrial process.
Electricity was first generated from falling water. Once most of the easily exploited hydroelectric sources had been tapped, utilities began generating electricity by burning fossil fuels like coal, natural gas, and oil. In these power plants, the heat from burning fossil fuel boils water into steam, which then drives a steam turbine connected to an electric generator. Rather than funneling the spent (low-pressure) steam created in the electricity-generation process toward a useful purpose, our existing centralized electric power system uses a river, lake, or ocean to cool the hot exhaust or large cooling towers to disburse it into the ambient air.
A typical electricity-generating plant is only 30 to 40 percent efficient – that means that less than half of the energy in the fossil fuel ends up generating electricity for consumer use. It also means more fossil fuels are burned than necessary, and needless toxic and carbon emissions are produced. Due to low efficiency rates of electric generation, the overall energy efficiency of a factory is typically in the range of 50 to 55 percent, even for those with relatively efficient on-site boilers (at an 80 percent efficiency level or above) for supplying their thermal energy needs.
If we could transfer the heat lost from the electric power sector to our manufacturers and others, we could reduce enormous amounts of waste heat, while also reducing the need for manufacturers to purchase additional fuel for heating and cooling purposes. Transporting heat requires the use of expensive heavily insulated pipes, with great losses over any distance, and so becomes impractical beyond three miles. Our centralized electrical power system, located at the far corners of the state, means most existing power plants are far too remote to transfer heat to urban industrial centers.
Combined heat and power technology, sometimes referred to as distributed generation or co-generation, is typically located in facilities on site or near end users who are in need of both electric and heat energy. The CHP system provides at least a portion of the electric load of the customer and the heat generated during the production of electricity is recycled and used to meet thermal needs of the facility (such as industrial process heating and cooling, space heating and cooling, and dehumidification). By using a single fuel source, CHP achieves much higher industrial plant efficiencies than separate heat and power systems, resulting in significantly lower utility bills and related emissions. If all the heat typically rejected in the electric generation process is recovered and used, efficiencies as high as 75 to 85 percent can be achieved. Figure 1 demonstrates how separate heat and power systems require more fossil fuel inputs than combined heat and power technology to produce the same amount of useful energy.
Benefits of combined heat and power to the consumer:
Benefits of CHP/WHR to society as a whole:
Prime candidates for CHP investments
Early targets for CHP/WHR investments include entities that use large quantities of both electric and heat energy at the same time (their use loads are “coincident”). Other good candidates use heat energy throughout the year (for steam, hot or chilled water, process heat, refrigeration, dehumidification), produce waste heat, or demand power reliability. Table 2 lists industries that make good potential first candidates for combined heat and power technologies due to their relatively consistent use of heat throughout the year. Most large commercial and residential buildings can also use CHP and WHR for space heating and cooling. As far back as 1882, Thomas Edison piped the steam left over from electricity generation at his power plant to warm surrounding buildings.
Ohio’s manufacturing sector is a prime first target for CHP development opportunities. Industry, made up of manufacturing, agricultural activities, construction, and mining, is Ohio’s largest energy-consuming sector, accounting for 1/3 of our state’s energy use. Manufacturers consume 90 percent of that industrial energy use in two primary ways: they burn fuels on site, largely to heat chemicals, metals, wood, and glass in various industrial processes, but also to heat and cool buildings and to power vehicles; and they access the electric power grid largely to run electric motors that drive metal cutting and forming tools, power welding tools, electric furnaces, and electric forklifts. Electricity is also used to light, heat, and cool buildings. Ohio manufacturers spent an estimated $5.9 billion on energy in 2008, and $4.4 billion in 2009 (more than one quarter the amount of their payroll costs). Nearly half of that was spent to purchase fuels for onsite heating and cooling purposes, while slightly more than half was spent on electricity to meet power needs.
Ohio examples. Table 3 shows Ohio has 552 MW of combined heat and power capacity already in existence, approximately 80 percent of which can be found in the manufacturing sector. For perspective, if the 552 MW were to be used in the residential sector, it would be enough to power more than 450,000 homes. Appendix 1 provides greater detail on several of these projects. Examples of CHP adopters include manufacturers of steel and other primary metals, automobiles, tires, food and wood products, pulp and paper, and petroleum refineries. Other CHP adopters are found in the agricultural sector; the public sector, including wastewater treatment facilities; at universities; and in the commercial sector, such as hospitals. While many interesting projects are already in existence, much more can be done.
If Ohio were increase its CHP and WHR capacity by an additional 10 percent, we would see $1.3 billion in annual energy savings and reduce emissions by 13 million metric tons, the equivalent of taking 2.3 million cars, or nearly 30 percent of passenger vehicles registered in the state, off the road. The $5.4 billion capital investment needed to make this transition would create more than 20,000 jobs. Ohio, with its strong manufacturing base, could also be a leader in producing gas and steam turbines, high-pressure steam lines, valves, and the other essential components of CHP systems. Furthermore, CHP technologies can use biomass or biogas for fuel, so CHP could be a boon to Ohio’s agricultural sector. As this section shows, however, there are obstacles to reaching that target.
Ohio’s clean energy laws do not effectively promote CHP. Aggressive alternative energy and energy efficiency requirements for our electric utilities helped jumpstart renewable energy and efficiency industries in Ohio, but have been less effective in promoting CHP development. Ohio law requires 25 percent of the electricity generated in Ohio to come from alternative energy by 2025, at least 12.5 percent of which must come from renewable energy sources like solar, wind, geothermal, and biomass. The other half can be procured from renewable energy or advanced energy technologies, the latter of which is defined to include combined heat and power. The renewable energy requirement includes annual benchmarks to ensure utilities make continual progress in the development of renewable energy between now and 2025. There are no equivalent benchmarks for the other half of the alternative energy standard for any of the advanced energy technologies like CHP. As a result, there is no incentive for utilities to secure CHP resources before 2025. Ohio also has an energy efficiency standard that requires electric utilities to become 22 percent more efficient by 2025, but it does not specifically allow for combined heat and power as a way to meet that standard.
The CHP incentive program under Ohio’s Advanced Energy Fund was discontinued. At one point, an incentive program housed in the Ohio Department of Development’s Energy Office used grants from Ohio’s Advanced Energy Fund to encourage adoption of CHP technology. The program was small to begin with, has since expired, the Advanced Energy Fund has been depleted, and collections for the fund have stopped (there used to be a small clean energy surcharge on our electric bills).
Manufacturers are not in the energy business. Manufacturers are not energy experts and reducing operating costs from energy use tends to be less of a priority than increasing revenues from product sales. Plus, historically low gas prices and relatively low electricity prices, in part due to special arrangements, economic development side deals, and ratepayer cross subsidies that make industrial electricity rates artificially low, have further hindered adoption of this technology.
Ohio’s municipal utilities and rural cooperatives often do not have the technical capacity to enable direct investments in combined heat and power. Even Ohio’s investor-owned utilities have not developed the skills needed for thermal energy production, distribution or integration into industrial facilities. Ohio’s municipal utilities largely rely on American Municipal Power-Ohio to develop, manage, and supply their electric power. In the past, AMP-Ohio has depended heavily on centralized coal-fired power, but more recently has begun exploring CHP opportunities.
The Ohio Constitution may limit the state’s ability to directly finance CHP projects. Article VIII, Section 13 of the Ohio Constitution reads, in part: “Except for facilities for pollution control or solid waste disposal, as determined by law, no guarantees or loans and no lending of aid or credit shall be made under the laws enacted pursuant to this section of the constitution for facilities to be constructed for the purpose of providing electric or gas utility service to the public.” This has historically been interpreted to mean the state cannot finance power projects, including combined heat and power, unless they are determined to be a facility for pollution control.
Heat and power are considered separately. Two energy systems have evolved to meet heat and power needs separately, via gas and electric utilities. It requires unconventional thinking across two systems to realize the economic efficiencies created by combined heat and power.
To counter these barriers, state and local governments can implement policies to promote CHP development.
The state of Ohio should support local CHP development efforts by encouraging Ohio’s investor-owned utilities to become willing partners. By creating an implementation schedule for existing CHP/WHR requirements under Ohio’s alternative energy standard, with specific annual targets, we can encourage Ohio’s investor-owned utilities to become more cooperative partners in promoting CHP/WHR development opportunities in the near term. Essentially, we would be creating a CHP/WHR “carve-out” within Ohio’s alternative energy standard, similar to the renewable energy and solar requirements.
Cities in Ohio can provide “green incentives” to manufacturers as an economic development tool. Ohio manufacturers pay seven times more for energy than they do for state and local taxes. However, manufacturers are not in the energy business and may not have the awareness, time, technical capacity, or motivation it takes to sort out energy-saving opportunities. Local economic development officials, however, working with energy, technical, and financing partners, can help manufacturers take advantage of CHP/WHR opportunities. Green incentives – access to cheap and clean light, heat, and power – can help improve a company’s energy productivity without the negative impact tax incentives would have on already strained state and local budgets. This strategy is better for the environment (and community) than existing economic development approaches. Cities can offer manufacturers green incentives by arranging long-term power purchasing agreements for affordable clean energy; co-locating industries within eco-industrial parks where heat and power energy resources can be shared cheaply; or by purchasing excess power generated by manufacturers that have invested in on-site CHP or WHR facilities (via CLEAN contracts discussed further below).
The biggest source of Ohio’s energy waste comes from inefficiencies in the electric power industry itself. By distributing electricity generation closer to the end user and capturing heat typically wasted, using combined heat and power (CHP) and waste heat recovery (WHR) technologies, we could slash the billions of dollars we spend on polluting fossil fuels and significantly reduce related emissions. Ohio ranks in the top five states for potential use of CHP technology, but 44th in the nation for actual adoption. Achieving energy savings from combined heat and power technologies, in the past, however, has not been a priority among state and local economic development officials and the lack of cooperation from electric utilities has been a major impediment. But the state of Ohio can change that by encouraging Ohio’s investor-owned utilities to become willing partners by adopting timelines under Ohio’s alternative energy standard for CHP, and Ohio’s cities can provide “green incentives” to manufacturers as an economic development tool.
 “Table C12. Total Energy Consumption, Gross Domestic Product (GDP), Energy Consumption per Real Dollar of GDP, Ranked by State, 2009,” US Energy Information Administration (EIA) at http://bit.ly/t3EgWH.
 See McKinsey & Co., Wasted Energy: How the U.S. can reach its Energy Productivity Potential, July 2007 at http://www.mckinsey.com/Insights/MGI/Research/Natural_Resources/How_US_can_reach_its_energy_potential .
 EIA consumption estimates at http://www.eia.gov/state/seds/hf.jsp?incfile=sep_sum/plain_html/sum_use_tx.html.
 EIA 2009 Consumption Estimates including electrical system losses at http://bit.ly/wxBpQD; EIA Price per Btu at http://bit.ly/yf1AU6 (calculation based on Ohio’s average price of $16.78 per million Btus).
 See Oak Ridge National Laboratory, Combined Heat and Power: Effective Energy Solutions for a Sustainable Future, at http://bit.ly/wxXKcY. Technical potential based on report by ICF International at http://bit.ly/xIZqbs.
 Types of CHP Systems include: Gas turbines; microturbines; steam turbines; reciprocating engines — either spark-ignition or compression-ignition (diesel); and fuel cells.
 See Policy Matters Ohio, Energy Standards at Work: Ohio Senate Bill 221 Creates a Cleaner Economy (2010), at http://www.policymattersohio.org/energy-standards-at-work-ohio-senate-bill-221-creates-a-cleaner-economy.
 Article 18, Section 4 of the Ohio Constitution states “Any municipality may acquire, construct, own, lease and operate within or without its corporate limits, any public utility the product or service of which is or is to be supplied to the municipality or its inhabitants, and may contract with other for any such product or service.” See also Ohio Revised Code, Section 4933.02, http://www.legislature.state.oh.us/constitution.cfm?Part=18&Section=0, which says gas or electric utilities may manufacture and supply both electricity and gas: “every corporation organized under the laws of this state to manufacture and supply artificial gas for light, heat, or power purposes and every corporation organized under the laws of this state to manufacture and supply electricity for light, heat, or power purposes, subject to statutory provisions relating to the granting of franchises by municipal corporations for any such purpose in force at the time of granting the franchise, may manufacture and supply electricity and artificial gas, respectively, for light, heat, or power purposes. Such corporations may make all contracts and do all things necessary and convenient for furnishing electricity and artificial gas for both public and private objects.” http://law.onecle.com/ohio/public-utilities/ch4933.html
 Often referred to as a feed-in tariff.
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