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Policy
Makers/Planners - Policies & Regulations
The
energy market in the U.S. is in a state of transition. For the most
part gas markets have restructured, breaking the gas suppliers into
unregulated companies and leaving the distribution ("pipe") companies
regulated. A similar restructuring is happening in the electric
industry today, with each state in various stages and each adopting
various regulations and policies towards electric deregulation.
Many States have adopted some policy or regulation that breaks the
electrical industry into two parts, essentially the same as in the
gas industry, a supplier side (electric generation companies) and
a distributor side (transmission and distribution companies, also
known as "wire" companies). For the current status of restructuring
in your State visit the Energy Information Administration (EIA),
Status
of Electricity Restructuring page.
While
there are similarities in restructuring between some States, the
differences are more numerous, ranging anywhere from the status
of restructuring in the State to the technical details of interconnecting
to the grid. (For a specific discussion of what is going on in your
Region or State click on your respective Region on
the map provided at the bottom of this page and follow the links
to the appropriate State.) A report (October 2003) by the American
Council for an Energy-efficient Economy (ACEEE) on the Update on
States’ Combined Heat and Power Activities is also available
here in PDF format.
Many
of the policies and regulations are being driven by the overall
movement of the nation towards connecting distributed generation
(DG) systems to the grid. Distributed generation helps bring the
source of electricity closer to the point of use thereby reducing
grid congestion, especially in local areas where demand is high
and the transmission and/or distribution systems are at or near
capacity. Distributed generation can also reduce some of the line
losses associated with transmitting electricity from remote central
generating stations to urban areas.
The
issues also apply to CHP and are similar to those that apply to
DG. However, CHP has some additional aspects that need to be taken
into consideration. Since CHP not only generates electricity, providing
the same benefits to the grid as distributed generation, it further
reduces electrical demand by displacing electrical load through
the use of thermal technologies to provide cooling and heating that
otherwise would have been provided by electric cooling and heating
equipment. In this respect, CHP should be given credit for not only
the energy it saves by eliminating line losses, but it should also
be given credit for the electricity it displaces through recovery
of the heat produced by the generation equipment. However current
regulations and policies do not allow emissions credits to be taken
for the either the electricity and/or line losses directly replaced
by onsite self generation, nor for electricity displaced by the
thermal cooling and/or heating equipment.
Many
smaller electric generators, who generate electricity only for their
own use, are positioning themselves to connect to the grid and that
leads to many issues, including technical, pricing, policy, and
regulatory. The major issues include the following:
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Access
and Interconnection Policies and Requirements
Many
States have no standard, policies and requirements for Access and
Interconnection. In those States it is left up to each individual
electric utility to define the procedures that affect DG installations.
Each utility has an approved rate structure and its own guidelines
that must be followed when installing DG/CHP within that electric
utility's service territory. This results in a "hodge-podge" of
rules, standards, and fees makes it difficult for manufacturers,
engineering and installation companies, energy service companies,
and other that want to install DG or CHP at several sites within
a State to discern what the requirements and subsequent cost will
be. The financial aspects for the same DG/CHP installation in one
service territory will likely be very different than in another.
Many States have begun working towards identifying appropriate interconnection
standards for connecting to utility distribution systems; some such
as Texas and Michigan have completed guidelines. Some States are
working on developing their own interconnection standards, often
soliciting developmental guidance from utilities within their State,
others are proposing to follow the requirements set forth in the
developing IEEE 1547, Standard for Distributed Resources Interconnected
with Electric Power Systems.
Also,
utilities generally require an interconnection study to be completed.
In addition to the cost of the study, this process also often adds
time to the projects duration, sometimes months while the utility
completes and reviews the study. Generally these studies are required
to be done by the utility itself and the fees vary widely depending
on the type of equipment being installed, the location of the connection
on the grid, and the utility. These studies can be very costly and
often cost prohibitive to smaller installations. Some utilities
have simplified study processes for grid interconnections if the
DG source is below 30 to 40 kilowatts.
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Utility
Rate Structures
Many
utilities have rate structures that serve as a disincentive to installing
DG and CHP. These rate structures carry high standby demand charges,
often based on worst-case scenarios depicting the need to maintain
capacity to supply DG installation during the highest peak demand.
The also carry penalties associated with electric usage during unplanned
outages of the customers generation equipment. The variation in
utility rate structures makes the financial viability of a CHP installation
very sensitive to the utility area it is in, as well as how the
operating performance of generation portion of the system performs.
Another
circumstance that impacts the financial viability of CHP is the
potential for re-negotiated discounted rates to those customers
who intend to self-generate. Many States allow for the utility to
re-negotiate rates when the potential loss of a customer would result
in an uneconomic bypass of the utility's system. This can occur
when the customer has decided to investigate or move forward with
a DG or CHP installation. A customer may have already paid a consulting
firm to review the rate structure and likely savings and/or paid
an engineering firm to develop a specification for the CHP installation.
The project can have a reasonable payback and good economics, yet
because the host electric utility does not want to lose the electric
load, they offer a lower rate. This can effectively stop the installation.
The
reason many States allow for an electric utility to re-negotiate
rates is the perception is that if a large use customer leaves the
utility, the ratepayers will end up paying more because of deficiencies
in the utilities revenue requirements. While this argument has some
place in a totally regulated electric utility environment, it does
not have significance in a deregulated environment because the market
determines the price and all customers are allowed to "shop around."
Even in a regulated environment, the threat of a rate increase to
a "captive" customer has minor significance since the current and
predicted growth of electricity to 2010 exceeds the predicted growth
in DG over the same time period. Therefore, even if all of the DG
that was predicted to be installed were installed, the utilities
would still see a growth in load and income.
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Exit
Fees
In
many States exit fees are determined by the utility on a case-by-case
basis and can vary significantly and be relatively substantial.
For smaller projects, exit fees can be a disincentive to installing
CHP.
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Tax
Treatment of Distributed Generation and Thermal Recovery Equipment
According
to current tax law, CHP components fall into several tax categories
with depreciation periods based on its use and capacity. Systems
that have generation capacity greater than 500 kW have a cost recovery
period of 15 years if the electricity is used onsite verses 15 to
20 years if the electricity is sold. In contrast, a similar engine
used in an airplane would have only a 5 to 7 year tax life. The
federal government is considering ways to standardize depreciation
tax life for CHP related equipment so that it better reflects the
7-10 year operating life of the equipment.
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Siting
Requirements and Emission Credits
Sitting
for smaller CHP installation is not as restrictive as for those
over 1 MW. Those over 1 MW must obtain a sitting permit from the
EPA. In areas designated as non-attainment this may require additional
environmental controls be installed on the equipment or operational
hours may be restricted. EPA requirements may also come into effect
when changes are made to sites that have central boilers that fall
under the regulations of the EPA. Implementing CHP at those sites
may result in changes to a central boiler system, changes to the
boiler system may require filling changes with the EPA, this in
turn may result in the emissions from the generation equipment being
taken into consideration along with any boiler emissions.
The
US Environmental Protection Agency (USEPA) has recently launched
an initiative, Combined
Heat and Power Partnership Program, to help foster the installation
of CHP. They recognize that CHP offers an efficient clean alternative
to central power generation. They acknowledge the offset of pollution
by the use of clean energy fuels like natural gas, and new generation
technologies, like microturbines and fuel cells. They also acknowledge
that CHP saves energy and therefore pollution by reducing transmission
losses and displacing electricity by using recovered heat from the
generation process to operate cooling and heating equipment, and
for industrial production processes.
In
recognizing the benefits of CHP, the US EPA is working to issue
new Guidelines regarding the treatment of CHP and to also begin
developing changes to their regulations to help foster the deployment
of CHP technologies.
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Energy
Efficiency Incentives
Numerous
State Governments, and many major metropolitan areas have launched
energy efficiency benefits program. In general, these programs promote
the use of energy efficient technologies and offer some incentives
such as low interest loans or tax-benefits to those installing systems
at some defined level of efficiency.
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For
a specific discussion on the status of the relevant policies and
regulations in your Region or State click on the appropriate Region
of the map below. (Currently only information from the Midwest Region
is available)
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