CHP Sees Quiet Growth

While not very headline grabbing, the combined heat and power (CHP) market has been undergoing a quiet but significant transformation in recent years.

CHP, also known as cogeneration, refers to a group of technologies that operate together for the concurrent generation of electricity and useful heat in a process that is generally more energy-efficient than the separate generation of electricity and useful heat. As an integrated system, CHP includes a suite of technologies that includes gas turbines, microturbines, and/or fuel cells, paired with software and component hardware.

According to a recent report, "CHP and Fuel Cells 2016-2026: Growth Opportunities, Markets and Forecast," published by GTM Research, 11 gigawatts of new customer-sited fuel-based generation will be deployed in the U.S. over the next 10 years, from 84 gigawatts today to 95 gigawatts by 2026.

Popular markets for CHP applications are industrial/manufacturing, especially food processing and ethanol production, as well as utilities, hospitals, commercial/institutional buildings, government buildings, multifamily residential.

Today, according to GTM Research, 8 percent of all U.S. electric generation capacity comes from customer-sited CHP and fuel cells. This is almost double that of the total U.S. wind capacity, and 10 times that of distributed solar.

Growth trends

After a decade of limited growth due to regulatory uncertainties and a declining U.S. manufacturing sector, new incentives and corporate activity are priming the market for resumed growth of CHP, according to GTM Research.

"What looks like a stagnant market on the surface is actually smoldering with a significant number of technology and fuel options, capable vendors, and a new batch of customers who are ready to adopt fuel-based DG systems," said Mei Shibata, lead author of the report. "The whole thing could light up again if implementation barriers are lowered and regulations are deemed sufficiently stable from a customer's perspective."

These days, CHP adoption is increasingly driven by non-industrial customers, while corporations and data centers in a few select states continue to drive U.S. adoption of fuel cells.

According to the CHP Association, about 50,000 megawatts of CHP capacity have been built in the U.S. since 1980. The most significant market growth for CHP occurred between 1970 and 2000, when the U.S. manufacturing sector was thriving, and interconnection standards were introduced. After 2000, overall market growth slowed down dramatically due to a manufacturing slump and new regulatory uncertainties in the energy markets.

This trend has generally continued to this day, as non-industrial customers now make up the bulk of new installations. According to GTM Research, the sector that has implemented CHP systems faster than any other sector is the multifamily residential building owner, with a 46 percent increase over the last five years. Second is hospitality (41 percent), followed by hospitals/healthcare (19 percent), and office buildings (16 percent).

Reasons for growth

Since CHP deployments are not dependent on a single breakthrough technology, they are widely available for a range of applications.

In addition, CHP can scale to sites as large as an industrial park or as small as a commercial office.

The motivations for implementing CHP are grid resiliency (protection from utility outages) and energy savings, which are "top of mind" for more and more customers these days - residential, commercial, governmental, and industrial. According to the CHP Association, the markets that most frequently install CHP technology are those with flat load profiles and high thermal/electric ratios.

"The use of CHP can reduce a building's energy demand by up to 40 percent when compared to the separate production of heat and power," said Mackinnon Lawrence, a senior research director with Navigant Research, in a 2012 press release. "Although the high upfront cost of CHP systems and the challenge of finding suitable use for the heat generated are key barriers, relatively short payback periods have allowed many major companies to invest in these energy-saving technologies."

(Editor's note: Navigant's most recent report on CHP can be found here.)

Another reason for growth is that CHP is an ideal application for "district energy" installations, which are becoming more popular. According to the CHP Association, district energy systems can be installed at large, multi-building sites such as universities, hospitals and government complexes, as well as downtown (urban) areas.

According to the CHP Association website, "District energy systems are a growing market for CHP, because they significantly expand the amount of thermal loads potentially served by CHP. District energy also has a major added benefit of reducing the requirement for size and capital investment in production equipment due to the diversity of the consumer loads." In addition, they tend to use larger and more efficient equipment, and can take advantage of such things as thermal energy storage that aren't economically effective on a small scale. Moreover, district energy systems aggregate thermal loads, enabling more cost-effective CHP.

Another advancement that is fueling the growth of CHP is the new technology of microturbines, which typically have power outputs of 30 to 300 kilowatts (kW). A heat exchanger recovers thermal energy from the microturbine exhaust to produce hot water or low-pressure steam. The thermal energy from the heat recovery system can be used for potable water heating, absorption cooling, dessicant humidification, space heating, process heat, and other building uses.

Even smaller microturbines are being introduced, with outputs of between five and 10 kW. These units are less than four feet wide and two feet deep and can fit almost anywhere, but still provide cost savings and grid security for small multifamily buildings.

"I think it [the micro-CHP] is a game-changer," said Posie Constable, director of business development at the New York City Energy Efficiency Corporation (NYCEEC), a non-profit finance company focused on building-scale clean energy, including CHP. "We have just financed five CHP systems with many more in the pipeline."

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