Combined Heat and Power Projects Still Blocked by Some Utilities

March 7, 2006
Report stresses the need for utility policies to change

Individual utility interconnection and tariff practices continue to be significant barriers faced by combined heat and power (CHP) projects, according to the Washington, D.C.-based American Council for an Energy-Efficient Economy’s (ACEEE) new report Combined Heat and Power: Connecting the Gap between Markets and Utility Interconnection and Tariff Practices (Part I). Although many states are making positive progress on CHP policies, significant barriers still stunt the realization of CHP’s nationwide potential. This report is the first of two reports documenting individual utilities’ CHP/distributed energy policies and practices state-by-state. Part I covers 15 states; Part II will address utilities in the remaining states.

Utility interconnection and tariff practices have long been identified as major barriers to expanded CHP. Lack of progress at the federal level via legislation or regulation has resulted in a shift in focus to the states.

“CHP projects can reduce electricity prices, natural gas prices, air pollution and greenhouse gas emissions, and the risk of blackouts. But to realize CHP’s potential, utility policies need to change,” states Susanne Brooks, a research staff member with the industry program team at ACEEE. “While federal regulation and legislation would be the most logical way to address these issues, federal action is unlikely for the next several years. This makes the burden on state and regional efforts that much greater. The CHP community must focus its efforts on states in order to bring the country closer to a stable and secure energy future.”

The report focuses on interconnection and tariff practices for key utilities, as well as their friendliness in general to CHP projects. It exposes barriers to entry for proposed CHP facilities, highlights the need for a national interconnection standard, and illustrates the existing hierarchy regarding the progressiveness of CHP policies on a state-by-state and regional basis. It identifies major utilities in 15 states and reviews them systematically, placing them into a four-tiered ranking system based on their friendliness to CHP. It also reviews recent developments in CHP policy and markets, explores several trends among the states, and makes some policy recommendations to address these barriers.

CHP systems, sometimes known as cogeneration, generate electricity and thermal energy in a single, integrated system. These systems are more energy efficient than separate generation of electricity and thermal energy because heat normally wasted in conventional power generation is recovered as useful energy for thermal demand such as steam, process heat, or space-heating and -cooling. CHP systems can be employed in many commercial, institutional, and industrial facilities.

Several regional and state initiatives have succeeded in lending technical support to CHP projects and in educating utilities and the public on the benefits of CHP. The report highlights New York and Connecticut as having made significant progress with CHP. “Despite these good efforts, discontinuities in interconnection standards, discriminatory tariff rates, utility disincentives, negative impact on utility profits, lack of awareness of CHP benefits, misconceptions about safety issues, and a general lack of education amongst those outside the CHP community remain significant barriers to the expanded adoption of CHP nationally,” adds Brooks.

“There is a wide variety of attitudes and practices within the utility industry regarding CHP, ranging from those that actively promote the adoption of CHP through varied incentives to those that are actively working against the adoption of CHP in their territories,” states Neal Elliott, industry program director at ACEEE. “Part of the purpose of this review is to give credit where it is deserved and to highlight the states and utilities that still have a long way to go.”

“This report also documents the impacts that the U.S. Department of Energy’s and Environmental Protection Agency’s CHP efforts at the state and regional level have had over the past decade,” says Elliott. “In view of these successes, it is regrettable that the Bush Administration has called for largely eliminating these efforts in its 2007 budget request. Congress should restore full funding to CHP and distributed energy efforts.”

This article was reprinted with permission from ACEEE.
Combined Heat and Power: Connecting the Gap between Markets and Utility Interconnection and Tariff Practices (Part I) is available for free download at ( or a hard copy can be purchased for $20 plus $5 postage and handling from ACEEE Publications, 1001 Connecticut Avenue NW, Suite 801, Washington, D.C. 20036-5525, phone (202) 429-0063, fax (202) 429-0193, e-mail ([email protected]).

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