By Jack Griffin, Vice President & General Manager, SourceOne, a Veolia North America Company
Every energy project undertaken by Veolia North America requires a unique solution. But our customers all have one thing in common: they all demand efficiency. One of the best ways we can boost our customers’ energy efficiency is through onsite electricity generation known as Combined Heat and Power (CHP).
In conventional power generation, more than two-thirds of the fuel inputs are typically lost into the air. Industrial-scale systems like CHP can double the efficiency of traditional power generation – and that matters to the businesses we serve. Energy efficiency means energy bills go down, boosting profits and making manufacturers more competitive.
Because CHP systems reduce the overall demand on the power grid, they make the entire power system more reliable and less prone to blackouts. That’s good for every city and state in which we operate. What’s more, because a CHP system can function independently of the grid, facilities with a CHP system can keep the lights and power on, even if the rest of the grid goes down.
Unfortunately, there are a few economic barriers that can discourage people from building CHP systems. First, while CHP is a reliable source of energy, it may not cover all of a business’ needs. For example, companies may still need to tap the standard energy grid for backup or supplemental power, or to cover periodic shut-downs for planned maintenance or repairs. When manufacturers depend on grid power, they pay what are called “standby rates” – often hefty charges, which vary widely from one utility to another.
Industrial consumers expect to pay a fair market rate for energy during standby service and utilities should be compensated for the cost of providing power. Consumers understand that there is a cost to the utility for having service “at the ready” when needed. The trouble is when standby rates charge far in excess of the cost to the utility for maintaining the capability. Each utility sets its own standby rates and can stack them with needless and excessive fees. These kinds of penalties essentially prevent companies from investing in CHP, blocking them from being as clean, efficient and competitive as they could be. Right now, poorly designed standby rates with antiquated assumptions about the real cost to the utility for providing the standby service increase energy costs and are sending the wrong price signal for investment in CHP.
A second obstacle to CHP investment is that utilities can impose so-called “infrastructure requirements” for mandatory and expensive additional equipment, driving up costs and discouraging investment in CHP systems. We’ve seen cases where manufacturers have been forced by such “infrastructure requirements” to delay their CHP projects for many months, leading to cost increases in the $1 million range or more.
A final obstacle to CHP investment can be the upfront capital costs for these projects, which can be a challenge when the payback period is evaluated under a four-year timeframe (or even less). But this is shortsighted and businesses should be willing to consider significantly longer payback periods when evaluating return-on-investment decisions for CHP systems, because these are assets with a 20- to 30-year lifespan.
Utilities and public service commissions can and should encourage more CHP investment by making sure standby rates are fair and reasonable. This makes our business and our customers more competitive, securing jobs, while improving energy efficiency, and conserving valuable resources. Fair and predictable standby charges allow the public to capture the financial and sustainable benefits of CHP investment.
Our customers that invest in CHP systems are winning with savings and reliability that make their businesses more competitive. With the right policies to encourage efficiency, we can do even more.