Making the Case for Industrial Combined Heat and Power

US industry used more than 30 quadrillion BTU of energy in 2011 – more than 30 percent of domestic energy consumption – yet roughly one-third of energy used in industrial processes is lost as waste heat. Combined heat and power (CHP) systems can capture this heat for productive use.

CHP systems have the potential to significantly improve overall efficiency of electricity and thermal energy production. Rather than generating heat and buying electricity from the electrical grid, both electricity and heat can be produced together more efficiently. A CHP plant can capture thermal energy that would otherwise be wasted when generating electricity, or generate electricity with heat from industrial processes. While improving efficiency by reducing waste, CHP also provides reliability, cost, and environmental benefits. A recent executive order from the Obama Administration recognized the important role CHP can play in meeting domestic energy needs when it set a goal to add 40 gigawatts of domestic CHP implementation by 2020 – a 50 percent increase from today. The industrial sector presents good opportunities for CHP implementation as many facilities have significant needs for both heat in their processes and electricity to run them.

The extra energy captured by CHP systems – be it electricity generated from industrial process heat or waste heat from generation captured for other uses – provides usable energy with no additional emissions. As such, it offsets emissions that would otherwise have been produced in the creation of that marginal energy. These emissions savings can be substantial and can play an important part in greenhouse gas mitigation. The 40 GW goal championed by the current administration would reduce CO2 emissions by an estimated 150 million metric tons annually by 2020 (DOE & EPA, Aug. 2012). CHP is also a highly cost-effective way to reduce greenhouse gas emissions. McKinsey & Co. note that industrial and commercial CHP has a negative cost for GHG reductions – meaning a company makes money while reducing emissions.

Despite these important advantages, CHP faces a number of challenges to greater implementation. Issues of financing and businesses’ capacity to manage large capital projects are common to many capital-intensive industrial energy efficiency projects. CHP also faces regulatory issues similar to renewable energy sources. For example, CHP facilities may be restricted in how they access the electricity grid or sell energy to third parties, or may do so under unfavorable terms. Similarly, environmental regulations may not acknowledge the emissions savings from improved efficiencies. Government policies to address these barriers can improve CHP implementation, as can better awareness within industry about the potential and technical aspects of the technology.

CCAP’s work on industrial efficiency recognizes the important role that CHP can play in improving economic competitiveness and reducing industry’s climate change impacts. To better inform future policy directions on industrial efficiency in general, and CHP in particular, the next meeting of the Climate Policy Initiative dialogue will focus on ways the federal government can support enhanced CHP deployment. A white paper on industrial CHP is also forthcoming.