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energy market in the U.S. is in a state of transition. For the
most part gas markets have restructured, breaking the gas suppliers
into unregulated companies and leaving the distribution ("pipe")
companies regulated. A similar restructuring is happening in the
electric industry today, with each state in various stages and
each adopting various regulations and policies towards electric
deregulation. Many States have adopted some policy or regulation
that breaks the electrical industry into two parts, essentially
the same as in the gas industry, a supplier side (electric generation
companies) and a distributor side (transmission and distribution
companies, also known as "wire" companies). For the current status
of restructuring in your State visit the Energy Information Administration
(EIA), Status
of Electricity Restructuring page.
While
there are similarities in restructuring between some States, the
differences are more numerous, ranging anywhere from the status
of restructuring in the State to the technical details of interconnecting
to the grid. (For a specific discussion of what is going on in
your Region or State click on your respective Region
on the map provided at the bottom of this page and follow
the links to the appropriate State.)
Many
of the policies and regulations are being driven by the overall
movement of the nation towards connecting distributed generation
(DG) systems to the grid. Distributed generation helps bring the
source of electricity closer to the point of use thereby reducing
grid congestion, especially in local areas where demand is high
and the transmission and/or distribution systems are at or near
capacity. Distributed generation can also reduce some of the line
losses associated with transmitting electricity from remote central
generating stations to urban areas.
The
issues also apply to CHP and are similar to those that apply to
DG. However, CHP has some additional aspects that need to be taken
into consideration. Since CHP not only generates electricity,
providing the same benefits to the grid as distributed generation,
it further reduces electrical demand by displacing electrical
load through the use of thermal technologies to provide cooling
and heating that otherwise would have been provided by electric
cooling and heating equipment. In this respect, CHP should be
given credit for not only the energy it saves by eliminating line
losses, but it should also be given credit for the electricity
it displaces through recovery of the heat produced by the generation
equipment. However current regulations and policies do not allow
emissions credits to be taken for the either the electricity and/or
line losses directly replaced by onsite self generation, nor for
electricity displaced by the thermal cooling and/or heating equipment.
Many
smaller electric generators, who generate electricity only for
their own use, are positioning themselves to connect to the grid
and that leads to many issues, including technical, pricing, policy,
and regulatory. The major issues include the following:
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Access
and Interconnection Policies and Requirements
Many
States have no standard, policies and requirements for Access
and Interconnection. In those States it is left up to each individual
electric utility to define the procedures that affect DG installations.
Each utility has an approved rate structure and its own guidelines
that must be followed when installing DG/CHP within that electric
utility's service territory. This results in a "hodge-podge" of
rules, standards, and fees makes it difficult for manufacturers,
engineering and installation companies, energy service companies,
and other that want to install DG or CHP at several sites within
a State to discern what the requirements and subsequent cost will
be. The financial aspects for the same DG/CHP installation in
one service territory will likely be very different than in another.
Many States have begun working towards identifying appropriate
interconnection standards for connecting to utility distribution
systems; some such as Texas and Michigan have completed guidelines.
Some States are working on developing their own interconnection
standards, often soliciting developmental guidance from utilities
within their State, others are proposing to follow the requirements
set forth in the developing IEEE 1547, Standard for Distributed
Resources Interconnected with Electric Power Systems.
Also,
utilities generally require an interconnection study to be completed.
In addition to the cost of the study, this process also often
adds time to the projects duration, sometimes months while the
utility completes and reviews the study. Generally these studies
are required to be done by the utility itself and the fees vary
widely depending on the type of equipment being installed, the
location of the connection on the grid, and the utility. These
studies can be very costly and often cost prohibitive to smaller
installations. Some utilities have simplified study processes
for grid interconnections if the DG source is below 30 to 40 kilowatts.
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Utility
Rate Structures
Many
utilities have rate structures that serve as a disincentive to
installing DG and CHP. These rate structures carry high standby
demand charges, often based on worst-case scenarios depicting
the need to maintain capacity to supply DG installation during
the highest peak demand. The also carry penalties associated with
electric usage during unplanned outages of the customers generation
equipment. The variation in utility rate structures makes the
financial viability of a CHP installation very sensitive to the
utility area it is in, as well as how the operating performance
of generation portion of the system performs.
Another
circumstance that impacts the financial viability of CHP is the
potential for re-negotiated discounted rates to those customers
who intend to self-generate. Many States allow for the utility
to re-negotiate rates when the potential loss of a customer would
result in an uneconomic bypass of the utility's system. This can
occur when the customer has decided to investigate or move forward
with a DG or CHP installation. A customer may have already paid
a consulting firm to review the rate structure and likely savings
and/or paid an engineering firm to develop a specification for
the CHP installation. The project can have a reasonable payback
and good economics, yet because the host electric utility does
not want to lose the electric load, they offer a lower rate. This
can effectively stop the installation.
The
reason many States allow for an electric utility to re-negotiate
rates is the perception is that if a large use customer leaves
the utility, the ratepayers will end up paying more because of
deficiencies in the utilities revenue requirements. While this
argument has some place in a totally regulated electric utility
environment, it does not have significance in a deregulated environment
because the market determines the price and all customers are
allowed to "shop around." Even in a regulated environment, the
threat of a rate increase to a "captive" customer has minor significance
since the current and predicted growth of electricity to 2010
exceeds the predicted growth in DG over the same time period.
Therefore, even if all of the DG that was predicted to be installed
were installed, the utilities would still see a growth in load
and income.
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Exit
Fees
In many States exit fees are determined by the utility on a case-by-case
basis and can vary significantly and be relatively substantial.
For smaller projects, exit fees can be a disincentive to installing
CHP.
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Tax
Treatment of Distributed Generation and Thermal Recovery Equipment
According to current tax law, CHP components fall into several
tax categories with depreciation periods based on its use and
capacity. Systems that have generation capacity greater than 500
kW have a cost recovery period of 15 years if the electricity
is used onsite verses 15 to 20 years if the electricity is sold.
In contrast, a similar engine used in an airplane would have only
a 5 to 7 year tax life. The federal government is considering
ways to standardize depreciation tax life for CHP related equipment
so that it better reflects the 7-10 year operating life of the
equipment.
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Siting
Requirements and Emission Credits
Sitting for smaller CHP installation is not as restrictive as
for those over 1 MW. Those over 1 MW must obtain a sitting permit
from the EPA. In areas designated as non-attainment this may require
additional environmental controls be installed on the equipment
or operational hours may be restricted. EPA requirements may also
come into effect when changes are made to sites that have central
boilers that fall under the regulations of the EPA. Implementing
CHP at those sites may result in changes to a central boiler system,
changes to the boiler system may require filling changes with
the EPA, this in turn may result in the emissions from the generation
equipment being taken into consideration along with any boiler
emissions.
The
US Environmental Protection Agency (USEPA) has recently launched
an initiative, Combined
Heat and Power Partnership Program, to help foster the installation
of CHP. They recognize that CHP offers an efficient clean alternative
to central power generation. They acknowledge the offset of pollution
by the use of clean energy fuels like natural gas, and new generation
technologies, like microturbines and fuel cells. They also acknowledge
that CHP saves energy and therefore pollution by reducing transmission
losses and displacing electricity by using recovered heat from
the generation process to operate cooling and heating equipment,
and for industrial production processes.
In
recognizing the benefits of CHP, the US EPA is working to issue
new Guidelines regarding the treatment of CHP and to also begin
developing changes to their regulations to help foster the deployment
of CHP technologies.
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Energy
Efficiency Incentives
Numerous State Governments, and many major metropolitan areas
have launched energy efficiency benefits program. In
general, these programs promote the use of energy efficient
technologies and offer some incentives such as low interest
loans or tax-benefits to those installing systems at
some defined level of efficiency. The Database of State
Incentives for Renewable Energy (DSIRE) is a comprehensive
source of information on state, local, utility, and selected
federal incentives that promote renewable energy. To
access information go the DSIRE
Website.
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For
a specific discussion on the status of the relevant policies and
regulations in your Region or State click on the appropriate Region
of the map below.
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