A new collaboration of clean energy groups says Michigan has vast potential to generate electricity by taking advantage of wasted energy at industrial and other facilities.
Michigan has 10,000 sites capable of deploying more than 4,000 megawatts of electricity from combined heat and power systems, according to Greg Northrup, a principal at Grand Rapids-based Sustainable Partners who is working with a team of clean energy groups on studying the potential for the technology.
The team — which includes modeling consultants, university researchers and clean tech experts — was recently selected for a two-year, $310,000 grant from the state of Michigan and the U.S. Department of Energy. State energy officials want to tap into the potential of CHP as a way to meet carbon reduction and energy efficiency goals embraced this year by Gov. Rick Snyder.
“Because of the number of applications out there, it’s a good market in terms of potential,” Northrup said. “It’s underdeveloped.”
Right now, about 100 sites in Michigan use the technology.
CHP, or cogeneration, involves generating electricity onsite and capturing wasted heat produced from that for other uses – similar to the way a car uses heat from the engine's cooling system to warm the interior.
Gathering heat and electricity from a single fuel source greatly increases efficiency and has proven useful across the Midwest for steel mills, universities, hospitals, and other energy-intensive facilities. President Barack Obama issued an executive order in 2012 calling for 40 gigawatts of new CHP by 2020.
Key for clean energy
Ultimately, the state’s goal is pursuing CHP as a clean energy option on both the supply and demand side.
Earlier this month, the state announced the partnership to improve companies’ electric reliability, reduce their carbon emissions and save money.
“The various combined heat and power technologies present an opportunity for many companies in Michigan to reduce their energy costs and for us as a state to lower carbon emissions in line with the Governors’ Accord for a New Energy Future signed by Governor Rick Snyder and 16 other governors in February 2016,” said Valerie Brader, executive director of the Michigan Agency for Energy, in a statement. “The accord represents a commitment to diversify energy generation and expand clean energy sources, modernize energy infrastructure, and encourage clean transportation options.”
Jamie Scripps, project manager and principal with 5 Lakes Energy (which is also part of the project), said “generic modeling” shows “CHP does very well in any sort of carbon-constrained environment. It performed in a way in which the state would want to look very closely at having more CHP deployed.”
5 Lakes plans to customize its State Tool for Electricity Emissions Reduction (STEER) modeling to see what size and types of CHP could be deployed to best reduce carbon emissions.
“So we can tell that story in a way that’s detailed and actually helpful in guiding policy changes,” Scripps said.
Barriers to expansion
Scripps and Northrup say the lack of deployment so far is attributed to a lack of knowledge among utility customers and policy barriers around standby rates, or what utilities charge for providing a certain amount of backup power. Lower standby rates could provide a quicker return on investment.
Installers have faced challenges in recent years as low natural gas prices have prolonged the payback on what are otherwise expensive systems. According to the Energy Finance Report published by the energy law firm Sullivan and Worcester, installing CHP makes the most sense when a building’s heating needs are high; it has aging boilers; electricity prices are higher than 10 cents per kilowatt-hour; or boiler retrofits “are needed to satisfy new environmental regulations.”
Utilities continuing to provide reliable power is also a factor, Northrup said.
“There is a lack of education in the marketplace about what can be achieved and what can be sustained with cost and reliability,” Northrup said. “The word ‘complacency’ is too strong of a word, but it’s a lack of market knowledge.”
Scripps compared it to the debate around solar net metering in Michigan and concerns utilities have raised about distributed generation affecting their business model.
“One thing we’ll show with this project and with more CHP deployed are the grid resilience benefits and the energy independence that comes with that,” Scripps said. “The key is to get the policy to work in conjunction with utilities. We need to have them on board as well.”
There is also concern among CHP supporters that the standby rates don’t accurately reflect the value of the standby charge being made.
“There are pretty significant regulatory and policy barriers that make (CHP) not as attractive (in Michigan) as other states,” Scripps said. “Where Michigan is now, there’s just a ton of potential.”
The Michigan Public Service Commission has established a “standby rate working group” to look further into the issue and will produce a report in August.
“The return on investment is not as quick as what it needs to be,” Scripps said of Michigan’s standby rates. “Standby rates is an example of an obstacle, but it’s something the Public Service Commission is looking at now. That’s encouraging.”
Advocates also say CHP can delivery electricity more efficiently than traditional utility generation.
Northrup said CHP systems reach between 75 percent and 85 percent efficiency, whereas utility generation is typically around 50 percent.
“Utilities are not happy about it, but from a public policy standpoint, if you’re trying to do what’s the best use of energy and the best way to make companies competitive, then you have to allow people to consider this,” Northrup said. “Utilities are going to be concerned about loss load, but at the same time, utilities can also plan for it.”
Nancy Popa, executive director for renewable energy for Consumers Energy, called CHP deployment “an interesting situation.”
“The economics of CHP will really come into play if customers have to consider what we’ll pay for energy,” she said. “We’re talking to several customers about it — we think it’s a good idea for both (customers and the utility). It’s on our radar to continue to explore.”