When lifecycle costs are cut short

Combined Heat and Power (CHP), also known as cogeneration, is an approach to generating electric and thermal energy from a single fuel source. Originally CHP was limited to large utility plants, but advances in turbines and reciprocating engines reduced the cost and complexity of small CHP systems. Since the 1980’s, industrial facilities with steady base load electricity demand coupled with steady thermal demand can realize the benefits of incorporating facility-scale CHP into their energy systems. Today these micro-CHP systems are in use for commercial, institutional, and residential buildings, and have reached efficiency levels as high as 80% (producing heat and electricity by conventional methods typically has a combined efficiency around 45%). Additionally, the efficiency gained at the building level translate to reduced emissions, enhanced power quality and reliability, and diversification of energy supply.

Because of the potential efficiencies and peripheral benefits, policymakers have increasingly focused on micro-CHP installations as a demand-side management (DSM) solution for utilities. Governmental agencies and investor-owned utilities (IOU) have worked to develop innovative strategies to advance the availability and overcome barriers to achieving the potential of CHP technologies. However, the complexity and variations of CHP installations can confound program designs, both economically and administratively.

This looks a bit like UW (Source: http://www.reuk.co.uk)

This looks a bit like UW (Source: http://www.reuk.co.uk)

Last year, I collaborated with a large east coast utility to add micro-CHP into its DSM portfolio. A long time champion of energy efficiency and DSM strategies, the utility looked to expand its technology base by providing financial incentives to customers for the installation of micro-CHP systems. At first look, designing such a program seems straightforward: customer installs a system; utility repays the customer for part of it. In reality, the unique challenges of micro-CHP projects demand a level of diligence and administration beyond that of other DSM strategies.

Unfortunately, studies have shown the performance of micro-CHP diminishes over time, largely due to operator ignorance or negligence. For example, a newly installed system that the operator is really excited about may run at 80-percent efficiency; that same system five years later may only run at 50-percent efficiency. Soon the system becomes more costly to run than to sit idle, and many systems go long periods of time with little attention and sometimes are ultimately “unplugged” within a few years of installation. In other words, the life in the lifecycle cost was being cut short and the economics were not working out.

So how can energy utilities and governmental agencies support micro-CHP projects while staying comfortably within the bounds of stringent regulatory environments? One method is to rethink the traditional DSM program financial incentive methodology. Instead of providing money for projects immediately upon install, we considered providing a percentage of the money upon install and the remaining money the customer would have to earn. This strategy, called a “Capacity + Performance Payment,” not only guarantees the customer some money to offset the burdensome capital outlay for micro-CHP projects, but also creates shared ownership and shared risk in the system. If the system fails to perform a few years down the road, the utility will only be out only a portion of what it expected to pay. Additionally, the prospect of earning additional incentive money by maintaining the system performance provides a carrot on a stick for customers trying to make ends meet.

Such a strategy can apply to other forms of centralized utilities, such as water and waste. If we can somehow give the users part ownership in the supply and performance, we can shift the way we consider using those goods and services. I think we are still some time away from decentralizing energy sources, but the spark is there.


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