Slow Phase-Out of Combined Heat and Power Incentives

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Slow Phase-Out of Combined Heat and Power Incentives

Energy News | August 30, 2021
By: Robert Rio

Associated Industries of Massachusetts is calling on state energy officials to slow the reduction of financial incentives for a tool that many AIM-member companies use to control their energy costs.

The statewide business association argued in recent comments to the Massachusetts Department of Energy Resources (DOER) that the proposed pace of reducing subsidies for Combined Heat and Power (CHP) would threaten the viability of systems at nearly 100 Massachusetts facilities, including hospitals, universities and manufacturing companies that use the technology. It would also have an impact on new CHP projects.

The reductions, AIM said, should be tied to the availability of cleaner energy alternatives.

CHP systems produce electricity and recover the exhaust heat to produce heating, cooling, and process steam for manufacturing and other uses.

The state is eliminating financial incentives for CHP because it uses natural gas and Massachusetts has aggressive greenhouse gas (GHG) reduction goals (net-zero emissions by 2050) that will eventually require the phase out of natural-gas (and other fossil fuel) usage. AIM supports elimination of the incentives but believes the phase-out should proceed deliberately and be measured against evidence of a cleaner electric grid.

The state proposed to reduce CHP incentives to 70% of current value in 2023, dropping 10% per year to zero in 2030.

AIM made its comments together with a group of CHP owners and operators called the CHP Coalition. Backing up these comments was a report conducted by the AIM Foundation on the economic and emissions justifications for CHP.

There are several good reasons to slow the phase-out of incentives:

  • CHP is more efficient and produces fewer emissions than the power it displaces. Because CHP is so much more efficient than the electric grid, at least through 2026 and possibly later, high performing CHP systems will reduce greenhouse-gas emissions compared to the traditional grid. The incentive phase-down should occur only when there is a clear indication that the grid power that will replace CHP is cleaner.
  • CHP is important for climate resiliency and pandemic preparation. CHP can normally run when the electric grid is down and can protect critical infrastructure such as hospitals and manufacturing companies. Focusing on GHG reduction while ignoring this benefit could lead to public health issues.
  • CHP could use clean fuels to displace their natural gasOn the horizon are potentially carbon-free fuels that could be used in CHP systemincluding hydrogen and renewable natural gas (The AIM Foundation is also conducting a study on hydrogen fuels expected November) making CHP an important tool in meeting the GHG goals.

New England has some of the highest electricity prices in the continental United States – only California is higher – and CHP incentives are crucial for companies if CHP is to be economically viable.

AIM urges DOER to craft a well-designed CHP program that recognizes the ultimate net-zero goal along with the financial and resiliency benefits of CHP. That approach will ensure that Massachusetts meets its emissions reduction goals without unintended consequences.

DOER plans to review comments for several weeks then release proposed regulations for public comment.

For a copy of the comments of AIM and the CHP Coalition, the studies of the AIM Foundation or if you would like to know more about the CHP Coalition , please email Robert Rio at rrio@aimnet.org.