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CHP in NYC: opportunities and obstacles

New York City’s electricity demand continues to rise, and the installation of many more decentralized CHP systems would be an ideal way to meet at least some of the new generation capacity required. But the city needs a more explicitly pro-CHP policy environment to allow this to take place, write Stephen A. Hammer and Jeanene Mitchell

By several different accounts, New York City faces an imminent electricity supply shortfall due to steady demand growth, the anticipated retirement of existing in-city power generation capacity, and difficulty siting and financing large new in-city power plants. PlaNYC2030, the long-term growth and sustainability plan released by New York City Mayor Michael Bloomberg in April 2007, details a variety of approaches the city can pursue to reduce the size of this anticipated supply gap in an environmentally sound manner1.

Because of their highly efficient design, CHP systems are potentially a valuable tool in PlaNYC’s efforts to satisfy local demand while simultaneously reducing the city’s overall greenhouse gas emissions.


Figure 1. Total installed capacity of small-scale CHP systems in New York City
Click here to enlarge image

Research conducted in 2007 by a team from Columbia University’s Center for Energy, Marine Transportation and Public Policy (CEMTPP) found a range of CHP technologies currently deployed around New York City in different settings2,3. These systems utilize both older and cutting-edge system designs; the vast majority of systems are powered by reciprocating engines – an established technology – but microturbines are quickly gaining in popularity, a fact likely attributable to its status as the only CHP technology currently eligible for federal tax credits. Microturbines tend to have less power generation capacity, contributing to a decades-long trend of decreasing average CHP system size around New York City.

A 2002 study prepared for the New York State Energy Research and Development Authority (NYSERDA) forecast significant potential for the deployment of CHP technologies around New York City, totalling nearly 3200 MWe of capacity across various commercial, residential, and industrial sectors4. Current deployment lags far below that level, however. Of the 135 local small-scale CHP systems currently installed around the city, we estimate their aggregate capacity at 118 MWe5, or just 1% of overall local power generation capacity.

Obstacles abound

There are many factors that influence the current deployment situation, both positively and negatively. Most relevant to the New York story are key obstacles that we believe make attainment of PlaNYC’s deployment target of 800 MWe of CHP by 2030 rather challenging. These include:

The mechanics of connecting to the distribution grid

When a building hosting a CHP system maintains a link to the local electric grid, the CHP system is said to be ‘interconnected’ to the grid. When a building hosting a CHP system operates completely independently of the grid, the CHP system is considered to be ‘grid-isolated’ or in ‘island’ mode. Virtually all buildings hosting CHP systems in New York City are interconnected, using the CHP system to generate some portion of their electricity load on-site while deriving the rest of their power from the Con Edison electric grid. This configuration occurs primarily because the density of the city and the high price of local real estate make it too costly to build a CHP system large enough to meet all of a building’s energy needs.


Figure 2. New York City CHP installations and capacities (1974–2006)
Click here to enlarge image

The fact that CHP systems have an interconnection to the Con Ed grid is problematic because they potentially represent new power sources at locations where the grid was not originally designed to accept them. In other words, in the event of a failure on the local grid, the CHP system could potentially send its power out of the building and back into the grid, energizing lines thought to be dead, posing a safety risk to Con Edison repair crews and potentially damaging transformers and other equipment on the line. Con Edison engages in a detailed engineering analysis of each interconnection proposal to determine what – if any – impact it might have at that location on the network. State regulators grant Con Edison the authority to impose technology requirements on the project developer as a pre-condition for approval of the interconnection, generally with all costs borne by the party proposing the installation. This situation is monitored by state regulators to ensure the fairness of these requirements. Some of these requirements are costly, however, potentially destroying the otherwise favourable economics of a project.

Con Edison is currently upgrading substations around the city so they can accept higher levels of fault current, a move that will help alleviate some of this problem, but will not be completed until 2014. Technological advances in the form of fault current limiters and other types of power electronics may also help overcome the interconnection problem, but some of these technologies are still at the early stages of development, and their local viability remains relatively unproven. To accelerate their use, we believe the city and state should examine ways to provide financial relief for the deployment of this technology.

A complex policy environment and approval process

Federal and state policies have been quite helpful in supporting CHP deployment in New York, significantly improving the economics of project installations by providing valuable tax credits and direct project subsidies. New York City’s own policymaking efforts are increasingly CHP-friendly, with PlaNYC requiring large new development schemes to analyze the viability of CHP technology as a permitting condition. Less helpful have been local Fire Department (FDNY) objections to microturbine projects, due to post-September 11 concerns over the risks associated with high-pressure gas line use in large buildings. For much of the past year, a special task force convened by City Hall has been meeting to resolve FDNY concerns. Final rules have yet to be formally adopted, so it is uncertain what proportion of these projects will ultimately win approval.

Con Edison policies and procedures for interconnections are another vexing matter. In public documents Con Edison sounds broadly supportive of CHP technology, but many complaints have been levied by project developers about the opaque application process they must follow to win Con Ed approval to interconnect CHP systems to the grid. New York City is no different from many other cities in this regard, as research by others has uncovered similar complaints about the transparency and predictability of the interconnection application and review process involving other utilities. In PlaNYC, the City proposes steps that should address some of these concerns locally, pushing Con Edison to establish an internet-based tracking system that clarifies where projects are in the approval pipeline.

Worth noting, however, is the fact that New York State regulators monitoring this issue report they field few customer complaints about interconnection issues, and that most problems appear to result from communication failures attributable to both parties. New York State Public Service Commission staff also acknowledge the complex nature of Con Edison’s network grid, saying that part of the application review problem may be that it’s simply harder to interconnect systems in New York City than in other cities.

For that reason, it is unclear how much of the difficulty faced by local projects is a learning curve problem rather than a fundamental shortcoming in the interconnection review process. There are currently fewer than 140 CHP systems interconnected to the local grid, most of which have been installed over the past ten years. As Con Edison engineers and project developers gain experience working with these systems, the process may become more predictable.

Depending on how the CHP market matures – either tending towards a large number of small projects that are easier to interconnect, or a lesser number of big projects that are more difficult to interconnect – there may also be increased pressure for reforming the interconnection process. It is essential that Con Edison monitors market trends and ensures that staffing levels are sufficient to keep interconnection projects moving apace.

Project economics – multiple challenges to keeping project budgets on track

Although facility owners may pursue CHP for several reasons – such as an interest in climate protection or enhanced on-site energy security – at the end of the day, most projects will only be realized if they deliver energy services at a cost equal to or lower than existing grid-based sources. Aside from the cost of resolving any interconnection-related issues, there are several other factors that heavily influence whether projects keep moving forward or run off the rails. These include the basic system ownership model, the interaction between utility tariffs and system design, and ongoing operating costs.


Figure 3. Number of CHP systems installed in New York City (by technology type) (1974–2006)
Click here to enlarge image

The ownership model is a key starting point, as new strategies involving third-party ownership now put CHP systems within the reach of building owners who previously couldn’t afford to pay cash up front for these systems. We have seen limited use of this arrangement thus far in New York, but firms specializing in CHP system deployment are pushing this approach in meetings with commercial building owners who want the benefits of CHP without the ownership responsibilities.

Local tariff structures influence the size of the system deployed. In New York, systems that generate more than 15% of a facility’s peak energy demand are bumped into an alternative, more expensive tariff for the balance of their energy needs, potentially destroying the original economic justification for the project. To the extent space constraints limit the size of the system installed, the tariff bump may be particularly problematic for buildings that continue to rely on large amounts of power from Con Edison. We recommend that the city work with the state to examine this issue, determining whether the 15% threshold should be increased.

Ongoing operating cost issues primarily relate to the so-called ‘spark spread’ – the difference between the current electricity and gas prices. As the cost of natural gas rises, so too will the cost of CHP-fired power. In New York, many facilities calculate whether to operate their CHP system on a day-by-day basis; one CHP developer said we should pay no attention to the total installed CHP system capacity around the city, as that bears little relationship to the actual amount of CHP power being generated at any given time.

Creating a more CHP-friendly city

Combined heat and power technologies can play a significant role in helping New York City address its impending in-city electricity supply shortfall in a more sustainable manner. The growing number of small-scale installations around the city – 40% of which have been deployed in the past five years alone – testify to the value of CHP’s greater efficiency and money-saving potential. With the Regional Greenhouse Gas Initiative (RGGI) coming into effect in 2009, bringing with it the prospect of higher electricity prices for grid-based power, CHP may become an even more attractive option for meeting the city’s electric and thermal needs.

Despite the benefits of CHP, there are numerous stumbling blocks. Interconnection is a major hurdle, and until it is adequately resolved – through technological solutions or learning-by-doing – PlaNYC’s goal of 800 MWe of CHP by 2030 seems a rather optimistic target. Achieving the Mayor’s goal should therefore follow a two-track approach, in which the City works with state officials and key market stakeholders to improve both the short- and long-term outlook for CHP technologies.

As a first step, we recommend that a local ‘CHP Partnership’ be established to provide overarching direction and support to any CHP market development effort, operating under the auspices of the Energy Department at the New York City Economic Development Corporation. This public-private partnership, consisting of local and state government officials, utility representatives, and other key energy sector and environmental/community stakeholders, would harness the knowledge and financial resources necessary to tackle the most pressing issues impeding CHP deployment.

As part of its short-term strategy, we recommend that the CHP Partnership focuses on evaluating the existing interconnection guidelines and processes. Policymakers and Con Edison would both benefit from an independent assessment of such issues, to clarify the extent to which interconnection difficulties must remain an unavoidable fact of life for local CHP projects. The review should also examine whether Con Edison’s approach is excessively cautious, or whether it is entirely appropriate, given the need to maintain high levels of system reliability.

As a longer-term strategy, we recommend the Economic Development Corporation and the CHP Partnership conduct research into new market structures and regulatory systems that more systematically incentivize CHP interconnections with the local grid. Work must be done to explore how to change the local regulatory rules so they more explicitly reward Con Edison for facilitating CHP and other distributed generation deployment.

As an ever-growing center of global commerce, industry and culture, New York City’s burgeoning energy demand shows no sign of abating. While there is a clear role for CHP to play in filling the supply gap, CHP’s potential will only be realized to the extent that a more explicitly pro-CHP policy environment can be implemented within New York City.

Dr Stephen Hammer is the Director of the Urban Energy Program of the Center for Energy, Marine Transportation and Public Policy at Columbia University, New York City, US.
e-mail: sh2185@columbia.edu

Jeanene Mitchell is a Research Associate at the Center.

notes

1. The full PlaNYC report can be found at www.nyc.gov/planyc2030

2. A copy of the Columbia study on which this article is based can be found at http://energy.sipa.columbia.edu/PDFs/uep_chp_200709.pdf

3. Our research relied heavily on information found in datasets maintained by Environmental and Energy Analysis, Inc. (EEA) and the New York State Energy Research and Development Authority (NYSERDA).

4. Energy Nexus Group, Onsite Energy Corporation, and Pace Energy Project, CHP Market Potential for New York State (Final Report 02-12). Prepared for New York State Energy Research and Development Authority (NYSERDA). October 2002.

5. Our research focused on small-scale installations, which we defined as <10 MWe power generation capacity. We opted to focus on smaller (single-building scale) systems because many of the larger installations are so big they actually exceed the capacity of the smallest central-station power plants in the city.

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