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There are regulatory and policy barriers for installing and operating Distributed Energy (DE) and Combined Heat and Power (CHP). The DE program is supporting CHP outreach and education projects to help eliminate barriers in the regulatory and policy areas. A useful state-by-state database is available for researching the status of many of these issues. More information on regulatory and policy issues are linked below.
Installation and Operation
A number of regulatory and policy issues at the Federal, State, and local levels affect the installation of CHP equipment and systems. In a majority of localities across the country, CHP systems must meet interconnection standards, local utility terms and conditions, air quality standards, and siting and permitting regulations. In addition, tax laws, particularly the existence of tax incentive programs, affect some facility owners' ability to install CHP systems.
The installation and operation of CHP systems is regulated by Federal, State, and local policies and regulations. These regulations are in place to ensure that systems interconnected with the grid are done so in a safe manner, that the emissions from these systems meet air quality and other environmental standards, and that the systems are permitted according to local zoning and safety codes.
Sometimes the rules and regulations for operating distributed generation and CHP systems can hinder or lengthen the installation and permitting process, making it difficult, expensive, or cumbersome to install and operate new units. Regulations and policies differ from one state to another and many times from one county or city to another. Thus, much time and effort is required during the project planning phase to arrange for all inspections, permits, and other requirements under utility and government guidelines. The American Council for an Energy-Efficient Economy (ACEEE) released a report in 2003 on state CHP activities, including policies and procedures for permitting potential CHP projects. (PDF 1.2 MB) Download Acrobat Reader.
Interconnection
Often a system owner wants a CHP unit to be connected to the local electric grid. In these cases, utility, and sometimes government, interconnection requirements must be met before the CHP system can be approved for operation.
Utilities implement interconnection policies to promote the safe and reliable operation of the local grid when distributed generation/CHP units are interconnected to it. Each utility has an approved rate structure and its own guidelines that must be followed when installing distributed generation/CHP systems within that electric utility's service territory. Many States have no standards, policies, or requirements for access and interconnection. In those States it is left up to each individual electric utility to define the procedures that affect installations. Some States are working on developing their own interconnection standards, often soliciting developmental guidance from utilities within their State, while others are proposing to follow the requirements set forth in the IEEE 1547, Standard for Distributed Resources Interconnected with Electric Power Systems.
The lack of consistent, uniform interconnection standards results in a "hodge-podge" of rules, standards, and fees, which makes it difficult for manufacturers, engineering and installation companies, energy service companies, and others who want to install CHP to discern what the requirements and subsequent costs will be. The financial stipulations for the same distributed generation/CHP installation in one service territory will likely be different in another. Many distributed utilities serve multiple states - their service territory does not end at a state's border. Therefore, in those utilities, the lack of uniform interconnection standards creates administrative delay and confusion, as individual state requirements are addressed.
Utilities generally require an interconnection study to be completed as part of the planning process for the CHP installation. In addition to the cost of the study, this process can also add months to the project's duration, while the utility completes and reviews the study. Some utilities have simplified study processes for grid interconnection if the distributed generation source is below 30 to 40 kilowatts.
Utility Practices
Utilities have policies and practices in place that effect CHP installations, including interconnection policies, tariff and rate standards, analysis requirements, and dispute resolution processes.
Part of the CHP installation process involves working with the local utility to meet its guidelines. Requirements typically depend on the system type, size, and method of operation (interconnected, emergency backup, parallel). After considering these factors, the utility will determine what tariff(s) is applicable to the system, review the interconnection application, and conduct an internal review that includes a pre-interconnection study, evaluation of the system design, and an analysis of metering, billing, and system operations.
Sometimes the utility charges and processes serve as disincentives to installing distributed generation and CHP. Many utilities have rate structures that carry significant standby demand charges, based on the need to maintain capacity to supply a distributed generation/CHP installation during the highest peak demand. Many also carry penalties associated with electric usage during unplanned outages of the customer's generation equipment. 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. Variations in utility rate structures make the financial viability of a CHP installation sensitive to the utility area in which it is installed and the operating performance of the generation portion of the system.
Air Quality
CHP systems are required to meet environmental permitting requirements that regulate the emission of pollutants into the air.
Many CHP advocates believe CHP systems should be allowed a special credit toward state and federal environmental air quality standards because they reduce emissions through the elimination of line losses. Such systems also result in lower energy demand as a result of the installation of heat recovery generation equipment.
As part of its overall pollution prevention strategy, the federal government is actively working to increase the efficiency of electricity generation in the United States to reduce emissions. Historically, emissions regulations have been based on the amount of fuel required as an input to the generation of electricity. One technique for encouraging power plant owners to reduce emissions by increasing efficiency is through the use of output-based regulations (OBR). A new handbook written and published under the auspices of the U.S. Environmental Protection Agency, is available on the use of OBR.
Air Pollutants
Operation of any fuel-fired power generating equipment results in emissions of exhaust gases. Principal among these are carbon dioxide (CO2), water vapor (H2O), oxides of nitrogen (NO and NO2, generally referred to as NOx), oxides of sulfur (SOx), carbon monoxide (CO), unburned hydrocarbons (UHC), and particulates. The environmental permitting requirements for on-site generation impose restrictions on emissions of NOx, SOx, CO, and particulates because of their contributions to smog and acid rain. Regions of the United States with significant air quality problems are classified as non-attainment zones and severe limits are placed on annual emissions of these pollutants in those areas. As a consequence, requirements for pollution abatement equipment are more stringent there.
Emission rates depend on the quantities of fuel consumed, the type of fuel used, and the temperature of combustion. "Thermal" NOx emissions are a consequence of high combustion temperatures; the higher the temperature level the greater the formation rate for NOx. This is true no matter what fuel is used. "Fuel based" NOx emissions are negligible in systems using natural gas, but they can be a significant source of pollution when fuel oil is used. SOx formation is a consequence of sulfur contained in the fuel and is insignificant for natural gas but must be considered when fuel oil or other fuels are used. Generally, technologies for reducing NOx and SOx emissions increase emissions of CO and UHCs.
Unfortunately, not all states have regulations and policies that allow emission credits to be taken for the electricity and/or line losses directly replaced by onsite generation, nor for electricity displaced by thermal cooling and/or heating equipment.
Pollution Abatement Technologies
The least expensive mechanism for reducing NOx emissions is based on lowering the combustion temperature to lower thermal NOx. This can be accomplished by injecting water or steam with the combustion air or by specialized designs of the combustion chambers. Exhaust gas treatment can be performed with non-selective or selective catalytic reduction (NSCR or SCR). NSCR causes CO to react with NOx in the presence of a catalyst to form CO2 and N2. In the case of SCR, an ammonia or urea solution is sprayed into the exhaust gases from the power generator where NH3 reacts with NOx in the presence of a catalyst to form nitrogen (N2) and water vapor (H2O). NSCR is commonly used in conjunction with rich-burn IC-engines while SCR is applied more often to gas turbines. Efficient operation of SCR requires careful control of the ammonia spray and the exhaust gas temperature. SCR can add $500 to $900 per kW to the cost of small gas turbines (<5 MW) and on the order of $250 per kW or less to larger turbines. Low NOx burners cost about the same as water or steam injection. Scrubbers can be used to reduce SOx emissions. This is accomplished by injecting calcium carbonate (CaCO3) in the form of a lime or limestone solution with SO2 in the exhaust gases to produce CaSO3 and CO2. Carbon monoxide can be forced to react with oxygen in the exhaust using a catalyst to form CO2. Wet and dry equipment is available to reduce particulates in the exhaust.
Financial
Equipment used in CHP systems may qualify for one of several tax treatment categories depending on the configuration and ownership of the system.
According to current tax law, CHP components fall into several tax categories with depreciation periods based on their use and capacity. Equipment that has generation capacity greater than 500 kW has 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. There are several proposed strategies available to standardize depreciation tax life for CHP-related equipment so that it better reflects the 7-10 year operating life. (PDF 298 KB) Download Acrobat Reader.
New information is available on proposed CHP tax credit provisions in the U.S. Senate's energy bill.
Siting and Permitting
All distributed generation/CHP systems must go through a local siting and permitting process with local zoning, building, fire, and safety code inspectors.
The expanded use of CHP systems will be greatly affected by manufacturing, performance, installation, and operational codes and standards. There are more than 44,000 state and local jurisdictions in the U.S. The graphic below shows the breakdown of national, state and local agencies with siting and permitting authority. This process depends on the size of the distributed generation/CHP unit. Siting for a smaller CHP installation (under 1 megawatt) takes place at the state and local levels and is not as restrictive as for those over 1 megawatt. Those over 1 megawatt must obtain a siting permit from the Environmental Protection Agency (EPA). In areas designated as non-attainment this may require that 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 within the jurisdiction of the EPA. Implementing CHP at those sites could result in changes to a central boiler system that may require a new filing with the EPA, which may result in the emissions from the generation equipment being taken into consideration along with any boiler emissions.
Electricity Restructuring
While there are similarities in restructuring among 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.
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