The Combined Heat and Power Market for Small Commercial End-Users in North Carolina

Abstract

Combined heat and power (CHP) is an approach to generating both electricity and usable thermal energy than can offer numerous environmental and economic benefits over more conventional generation methods. Previous research has made clear that the technical potential for additional CHP is huge, yet questions still remain as to how much of this potential is actually economical, and therefore likely to be adopted by end-users. This report evaluates the economic potential for CHP in the commercial and institutional sectors of North Carolina, with a focus on the relatively small (<1 MW average electric demand) end-users. Using prevailing and projected energy prices and equipment costs for CHP units commercially available in 2007, the likely returns on investment were assessed for the purchase of reciprocating engine CHP systems ranging from 100 kilowatts (kW) to 1,000 kW in capacity. The effect of various financial incentives on investment returns, including rebates and long term, low interest rate loans, was also evaluated. This assessment finds that given prevailing and projected energy prices, CHP at present would not be an attractive investment for most commercial sector facilities in North Carolina. Facilities that require an uninterrupted source of power, or that are capable of producing their own source of fuel, are likely exceptions, and could potentially benefit economically from CHP even given the state’s relatively low spark spread. While various incentives and low interest loans could significantly improve the economics of CHP for much of the sector, the financial outlay required to do so would likely be on an order of magnitude not currently seen in any state. Taken together, these findings suggest that CHP will likely play a limited role in meeting the state’s energy needs, at least for the foreseeable future.