Sunday, September 3

Week 322 - Global Buildout of Combined Heat & Power (CHP) Systems

Situation: Cogeneration of heat and power is a method that has long been used to capture waste energy remaining in the heat generated to produce electric power. That residual heat is used to generate steam--to heat nearby buildings. However, the Rural Electrification Act of 1936 subsidized the buildout of large, centrally located Regular Electric Generation Facilities (REGFs) to bring all homes onto the national power grid. That subsidy aborted the buildout CHP systems. Nonetheless, CHP systems accounted for 9% of US electric power generation in 2008. Worldwide, the growth of CHP systems is predicted to be 4.38%/yr from 2014 to 2024. 

CHP systems are becoming more commonplace in urban areas, now that natural gas is replacing coal as the cheapest energy source. The idea is to add a heat exchanger that will generate steam from exhaust gases produced by newly installed electricity-generating gas turbines. This means that “energy wasted” is reduced to 20% from the 55% loss that is typical of REGFs. Unlike having a central station to generate electricity for wide use, CHP requires the station to be near heating and cooling application sites ( Most large applications are at industrial sites, typically oil refineries. But small applications used to heat or cool nearby buildings are also ideal. For example, the University of Cincinnati built a gas turbine powered CHP plant in 2004 with a capacity of 47,700 KW. The Department of Energy has identified a potential for over 290,000 sites in the US with more than 240GW of estimated output. That’s double the installed capacity of wind and solar power in the US.

Mission: Analyze 12 Electric Utilities that support electric grid connections to CHP power plants, including the 3 US companies highlighted in a recent study: “Some of the major players identified across the Global CHP system market for data centers include ENER-G, Korea Electric Power Corporation, National Grid plc, Exelon Corporation, NextEra Energy, Inc., Chubu Electric Power Company, American Electric Power Company, Inc. and others.

Execution: see Table.

Administration: Our best example of a CHP system is the one supporting the Phillips 66 (PSX) facility in Linden, NJ: “Linden Cogen Plant Gas Power Plant NJ USA” is owned by PSEG Power LLC, a division of Public Service Enterprise Group (PEG - see Table). The main purpose of this 1566 MW power plant is to provide Cogen-mode steam to the adjacent Bayway (Phillips 66) Refinery. It provides power to that refinery, and connects to the electrical grid operated by Consolidated Edison (ED) which provides power to the New York City and New Jersey markets.

Bottom Line: There are large up-front costs for building a cogeneration plant, but these pale in comparison to the long-term savings. But “the devil is in the details.” Plant engineers tend to focus on the avoided natural gas costs while assuming that the reliability benefit is approximately the same as for a Regular Electric Generation Facility. But it isn’t. Operating hours are lower and have a larger standard deviation. The key requirement for deciding to build a CHP plant is that it will provide steam for heating (and cooling) nearby buildings.

Risk Rating (for aggregate of 12 utilities): 4, where a 10-Yr T-Note = 1, S&P 500 Index = 5, and gold = 10. 

Full Disclosure: I dollar-average into NextEra Energy (NEE).

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