POWER February 2015 - 24

COMBINED HEAT AND POWER
plentiful and process steam valuable for petrochemical
processing. Quite a few of these
continue operation as viable facilities today.
But not surprisingly, PURPA also spawned
projects that sought to game the rules. Plants
sprang up that were generating electricity from
gas, recovering heat to make steam, and then
diverting 5% of the steam to niche applications
such as heating greenhouses for commercial
production of roses or warming water for fish
farms. It was perfectly legal, but it drove the
utilities that were forced to buy the power at
high prices into a political frenzy. They called
them " PURPA machines, " objected to the
gaming of the law, and mounted a major lobbying
campaign for a change in PURPA.
Congress responded in 2005. As part of
a larger energy law, the solons decided that
the electricity market had changed. In large
parts of the country, utilities were no longer
the buyers-or even generators-of power.
The Independent System Operators were
the boss. So the 2005 energy law " excused "
utilities from buying QF power from the cogenerators
if, according to a PURPA manual
written by the nation's electric utility trade
groups, the QF has access to a sufficiently
competitive market to sell its power. Specifically,
no purchase obligation exists if
the Federal Energy Regulatory Commission
finds that the QF has nondiscriminatory access
to either of the following:
■ Independently administered, auctionbased
day-ahead and real-time wholesale
markets and wholesale markets for longterm
sales of capacity and energy.
■ A regional transmission organization with
competitive wholesale markets.
That effectively marked the end of the
heyday of cogeneration under PURPA.
Also, the EIA noted, " CHP facilities, particularly
those at industrial sites, were disproportionately
hard hit by the recent economic
recession. While electricity generation at nonCHP
plants increased 4.8% between 2004 and
2011, electricity generation at CHP plants decreased
by 11.2% over this same period. "
Power Markets Continue to Evolve
In response to last winter's polar vortex-induced electricity
challenges, PJM has proposed changes to its capacity market,
as detailed in the web exclusive " PJM Tightens Capacity
Market Rules to Improve Reliability. " Here's an excerpt:
According to Andy Ott, executive vice president of market
operations for PJM, the changes go beyond weatherizing the
system for winter cold. " It's a fundamental change in what
capacity is, " he told POWER in an interview. " It does deal with
the winter issue, but it is much broader. "
" If we had simply made an edict to winterize power plants,
and 30% of the fleet was getting inadequate revenue, their
response would be to retire. "
Overall, he thinks the changes will serve to cull the weakest
and least reliable plants from the herd.
" We have some units that have been hanging around, highcost
units that run only occasionally, just living on capacity
payments, but that don't perform well, " he said. " They will get
priced out of the market and get replaced with more efficient
resources. Like units with a 70% forced outage rate, they
don't run when called but still get a capacity payment. "
" Some units won't be able to make the transition-that's
the whole point. " . . .
If the system had been in place in 2014, during the polar
vortex, he said, it would have saved $7 billion.
" It's like insurance, " he said. " You're paying up front for
capacity, and you may or may not need it. But in an extreme
year, it more than pays for itself. "
The role and status of demand response is at issue both in
PJM's rule changes and in the ongoing saga of the Federal
Energy Regulatory Commission's Order 745. For details, use
the search bar at powermag.com to find " FERC Order 745 and
the Epic Battle Between Electricity Supply and Demand. "
Shifting Future
Since then, developers of industrial CHP projects
have focused on markets that aren't subject
to the terms of the 2005 federal law: public power
systems, state agencies (including colleges
and universities), and the federal government.
Selling power output to utilities and the wholesale
power markets has been more difficult.
Recently, the ACEEE scored how states are
adopting CHP generating strategies. The results
show wide disparities. Some, for example,
credit CHP projects in their renewable portfolio
standards, while others have erected barriers to
interconnecting them to the electric grid. According
to the ACEEE report, California is the
leader in new CHP facilities, " with over 90 installations
over the last two years, but Connecticut
and Massachusetts also have high levels of
deployment relative to other states. "
Conversely, said ACEEE, " many states,
including those with strong manufacturing
bases like Indiana and Michigan, received
low scores due to poor policies and have few
new installations over the past few years. "
Said the ACEEE, " Several barriers impede
the full realization of the country's CHP potential.
These include electric utility rate structures
that discourage utility investment in CHP,
a lack of common and fair interconnection and
net metering standards, discriminatory utility
standby rates, and emissions regulations that
do not recognize the improved efficiency and
pollution benefits of CHP systems. "
But the energy efficiency group has hopes
for the future of CHP, noting that " states with
resiliency-focused programs and goals, such
as New Jersey, Connecticut, and New York
have seen growth in CHP deployment since
Superstorm Sandy, and likely will continue
to see that in the future as well. "
New air quality rules in the Obama administration's
Clean Power Plan could also spur CHP,
says ACEEE. " As states work toward compliance
with new air quality regulations . . . CHP is
a readily available resource that can help states
meet their goals for energy savings and greenhouse
gas emissions reductions. " ■
-Kennedy Maize is a POWER
contributing editor.
24
www.powermag.com
POWER | February 2015
http://www.powermag.com http://www.powermag.com
POWER February 2015

Table of Contents for the Digital Edition of POWER February 2015
