Koda Energy, a combined heat and power plant in Shakopee, Minnesota, runs on biomass. (Craig Lassig for Midwest Energy News)

Koda Energy, a combined heat and power plant in Shakopee, Minnesota, runs on biomass. (Craig Lassig for Midwest Energy News)

Q&A: Why combined heat and power is a ‘no-brainer’

Sean Casten and his father, Tom Casten, could be called the country’s family dynasty of combined heat and power.

CHP, also known as cogeneration, is the under-appreciated practice of capturing and using waste heat from power generation to make clean electricity and steam, greatly increasing efficiency and reducing greenhouse gas emissions.

Sean Casten is president and CEO of Recycled Energy Development LLC (RED), an Illinois firm that constructs and runs CHP operations for industrial partners. RED’s chairman is Tom Casten, who has more than three decades under his belt in waste energy recovery.

RED’s most prominent current project is transforming the 125 MW utility complex at Kodak’s Eastman Business Park in Rochester, New York, which provides power and heat to more than 40 tenants and owners. RED is turning the century-old coal-fired station, which already includes co-generation with waste heat, into a highly efficient gas-fired CHP plant.

Sean Casten was previously president and CEO of the RED subsidiary Turbostream. He has held a number of industry-wide leadership posts, garnered numerous CHP-related awards and also writes for Grist and other publications.

Midwest Energy News: How are things going at Eastman Business Park, and how did it come about?

Casten: That project takes up most of my waking hours at this point. We started looking at the Boiler MACT rules coming through, originally passed under (President George W.) Bush, that would lead to retirement of all these coal plants; and we were looking at what our industrial customers would do.

We realized people were being given basically three choices which were all bad: one, just to shut down the facility; two, to install a bunch of back end pollution controls on boilers that would be really expensive; or three, to do a total natural gas conversion which might be good at current gas prices but basically is slapping you with a high volatility index energy source. That’s what big energy law firms were telling their customers to do.

We had conversations with a number of industrials to try to persuade them instead to replace their coal boilers with gas turbines (with CHP). That way you become much more efficient, generate a lot of electricity and hedge out your risk.

We succeeded in convincing a number of people it was a good idea. It turned out Kodak’s operations were for sale; we started talking in 2011 and closed in September 2013. So we were saying, “let’s do this,” and we got a high-profile place to do it. Soon it will be nine months of operation, and so far it has behaved more or less as we thought it would. It makes a pretty neat climate story and economic story.

In general, are natural gas plants better suited to CHP than coal?

Gas is really a slam dunk – you’ve got a much more efficient cycle, a gas turbine is already hotter, so you use much less gas per pound of steam running the plant that way. A (cogeneration) plant is 10 to 15 percent more efficient on an overall basis with gas.

Another piece that is relevant to us and a lot of others: any solid fuel boiler plant really doesn’t like to run over a broad range of operating conditions with the load jumping up and down. When you’re looking at the load (at Eastman Business Park), there’s not just some seasonality (to electricity demand) but you’re serving 13 different industrials, with different shifts on weekdays and weekends; you have seasonal, daily and weekly ups and downs in load. With that variation, it’s much easier to maintain a high efficiency with a gas plant than a coal plant (which takes longer to cycle up and down).

Why would an industrial operation work with Recycled Energy Development to install and operate a CHP system, instead of just doing it themselves?

Our mission is to profitably reduce carbon dioxide emissions, recovering energy that otherwise would have been wasted. We’re technology-agnostic. But the only way to make sure that works out is we own and operate the facility. We don’t sell consulting advice or equipment.

What that means as relates to a project like Kodak or others, is we now own assets that Kodak used to own to serve their own manufacturing purposes. It’s not fundamentally different than companies outsourcing their human resources or other functions.

So you’re providing the capital and know-how that they might not possess to do a CHP operation on their own?

Capital is the least important part of it. I know as much about how to make film as Kodak knows about how to make energy. What’s holding me back from being a film maker is not my access to capital.

Does the viability of CHP projects vary greatly by state because of regulations and utility policies?

There are huge differences between the states in terms of economics and regulatory costs.

At a macro level, the thing that is most personally intriguing to me is that the big industrial boilers facing these issues now are by definition in the coal belt – by definition in parts of country that have pretty cheap energy right now.

There’s this analysis that says if I was going to build this plant in San Francisco or New York it would be a no-brainer – the value of energy would be so high it would justify the investment. But there’s not much manufacturing to speak of in San Francisco or New York. So, okay, we’ll help out in Joliet, Illinois. In Joliet you couldn’t justify it based on prices alone.

But whatever happens with the price of gas, everyone is becoming gas marginal, they just don’t realize it yet. [That means the price of energy on the market will increasingly be set by the cost of generating power from natural gas, since that will increasingly be the source turned to during peak demand]. If you can use gas more efficiently than someone else, you’re in good shape.

Given the EPA carbon rules and other federal regulations, could increased efficiency through CHP help existing and/or new coal plants operate in the future, when they otherwise would have been forced to close?

If you’re going to convert a pure thermal coal plant, with boilers making steam, the case can certainly be made that you should look at efficiency including some cogeneration. But the coal plants having a hard time complying with EPA rules were ones built prior to the Clean Air Act. Those plants generally speaking are really dirty, and they are basically all amortized at this point (so owners have less incentive to keep running them; their costs are already recouped).

Bringing those plants into compliance with any strategy that lets you stay on coal and use those boilers is a pretty big investment in pollution controls. It can be done, sure there are cases where it works, but as a general rule you can have cheap coal, you can have clean coal, but you can’t have both.

In terms of a macro strategy, the value of converting an existing plant to cogeneration (CHP) will be lower than the cost of taking a pre-Clean Air Act coal boiler and bringing it up to modern pollution standards.

How widely is CHP included in state renewable portfolio or efficiency standards?

About 12 or 13 states allow CHP to participate in the RPS in some fashion – with a heavy emphasis on “some fashion.”

As relates to coal conversion (to gas turbines with CHP), a bigger driver is that the EPA — to their great credit – says that is the Best Available Control Technology (BACT) for compliance. That’s EPA speak for “If you do this, you’re good.” Setting aside whether you can participate in the RPS markets, it’s important to have EPA guidance saying this is what you should do.

So is there a financial incentive attached to the EPA guidance?

It’s a financial incentive in terms of the fact that it eliminates the pain, because you’re in compliance. If you’re not in compliance, you’re not going to be able to run. Most of these industrials (with CHP) are regulated not as power plants but as thermal sources. RPS’s are typically only looking at power plants.

So for industrials, combined heat and power usually means they generate electricity from waste heat and also use the heat directly for their operations. Are you saying the heat is the most important component financially?

Yes, we’re talking about predominantly industrials rather than power plants. Power plants weren’t built where the thermal loads are; the big power plants are built where the people and the industrials are not.

[By contrast] the industrials built their boilers where their thermal loads are, while they also have connection to grid. Though there are certainly exceptions – I will pick one near and dear to my heart that drives me crazy. I’m an amateur cyclist, I ride on the Fox River up to (the Chicago suburb) Romeoville, with the Midwest Generation plant. From that plant you could throw a rock and hit the Citgo oil refinery.

Midwest Generation is struggling with bankruptcy, meanwhile they are making tons of waste heat [that could be sold to the oil refinery for its operations]. And the refinery is putting all that pollution up in the air to make steam (which they could be buying from the coal plant).

Those kinds of things are maddening.

How does CHP figure in to the concept of a more responsive and automated smart grid?

In general anything that has smaller generation closer to the load has the potential to be much more integrated within a smart grid context. I’ve done plants as small as 30 kW. CHP in some ways is the ideal technology for a smart grid.

If you have solar or wind you can’t guarantee it will be there when you need it. If you have a CHP plant, you can make decisions like, “do I serve the thermal load first or the electric load first?” I can dispatch it however I decide.

Are most industrials with CHP operations sending electricity back to the grid?

Across the country you’ve got the plants built in response to PURPA, for the purpose of selling to the grid. But those plants aren’t responsive to the needs of the grid, they are responsive to the needs of the seller. There are some merchant (CHP) plants but not many. The CHP plants which don’t have a Power Purchase Agreement (in place for their electricity), which is most of them, are serving their local loads first, and maybe opportunistically dumping some power on the grid.

Will the recent court decision striking down the FERC order offering incentives for generation during peak hours be a serious blow for CHP? Would it remove the motivation for some industries or power plants to do CHP?

I think it’s too soon to tell frankly. I’m not sure it’s really a CHP issue. FERC has been trying to put some proper rules in place for demand – with demand being what you get paid to be there if called as opposed to what you’re paid to run. In general the capacity markets have not incentivized very much [new generation] to come on-line. I think you could broadly generalize that very few people are building generation of any type in response to demand markets. FERC was trying to do that.

In Grist you wrote about things to worry about regarding the grid in 2014 – how does CHP figure in to the grid situation and looming challenges?

CHP figures into almost everything. Water shortages – the biggest water use is cooling towers at power plants. If you’re recovering your heat, you’re not wasting all that water in a cooling tower. With CHP, constraints on gas and power systems would be hugely eased. These are not technological leaps – we’d use a lot less fuel if we increased efficiency, including though not limited to CHP.

In 2010 you talked about the US’s efficiency deficit compared to its trading partners like Japan, the UK and Austria — has that changed at all?

These are such long cycles I’m quite certain it hasn’t changed. The last time I saw (CHP) data the U.S. had plateaued – we’ve gone as far as we’re going to go in the current regulatory environment.

You’ve shown that Denmark, Russia and Finland have had the highest percentage of CHP, followed by various Eastern European countries – why is that? What can the US learn from them?

Those countries that have a high level of CHP penetration are not un-coincidentally places where there’s still a high amount of central control of the electric system. If you look in the U.S. it’s the opposite, states that deregulate quicker tend to be friendlier for CHP.

Denmark has a socialist government in the best sense of the word, a government structure where they sit down and notice what they need to accomplish. You have an enlightened despot running the system instead of thousands of market actors. Denmark sat down and said, “we need to address energy constraints,” meaning boosting transmission, more wind…and saying new developments have to have a district heating system (involving CHP). France has taken a similar approach.

I don’t think these are political models that will work in the U.S. context, but the general lesson says when people said, “let’s be coldly rational about what we should do,” CHP is a big part of the mix. And when we let markets decide and act in response to spot prices, CHP hasn’t happened. Draw your own conclusions.

What role does CHP have in our future energy landscape?

To state the obvious – it’s the only generation technology that has zero technological risk and the potential to scale up to really address challenges we face in the country.

One of my favorite and utterly shocking statistics is that nationally we get about 8.5 percent of our power from CHP, which makes it a little more important than hydro to the national grid. We don’t think of it that way, but it shows what an important source it is.

Some states like Maine get 34 percent of their energy from CHP, while New Hampshire gets less than 2 percent. They have the same industrial mix, the same climate, so it shows the difference between policies that go out and promote this and states that choose to “live free or die.”

One thought on “Q&A: Why combined heat and power is a ‘no-brainer’

  1. Good article but it would be very useful for Midwest Energy News or REAMP to dive deeper into some of the other barriers to cogeneration. In Wisconsin, two large cogeneration projects, the We Energies/Domtar 50 MW biomass cogeneration project in Rothschild, WI that recently went online as a renewable facility, as well as the We Energies Valley coal plant repowering proposal (an older, large cogeneration plant in downtown Milwaukee being repowered with natural gas) received negative comments in the proceedings from ratepayer advocates (in this case the Wisconsin Citizens Utility Board). The news articles about these projects indicated that the ratepayer concern was that the biomass cogeneration project was more expensive than other renewable alternatives (wind) or that the conversion of the Valley coal plant to natural gas would require “uneconomic dispatch” during times of high heat demand when electrical demand is low. Incidentally, the uneconomic dispatch of a natural gas cogeneration plant on MISO is actually one of the best ways to directly offset electrical generation by the lowest cost coal units, which also have some of the highest carbon emissions. The environmental aspects of cogeneration were not well described in the proceedings.