Luther College in Iowa wants to invest in combined heat and power, but says it's utility's policies make it cost-prohibitive. (Photo by Justin Berndt via Creative Commons)

In Iowa, critics say utility policies holding back cogeneration

An Iowa college that wants to cut its energy consumption says its utility’s rate policies are holding it back.

“We are interested in combined heat and power to save money, and because we want to reduce our carbon footprint,” said Jim Martin-Schramm, a religion professor at Luther College in Decorah, Iowa, who also serves as the college’s interim director of the Center for Sustainable Communities. “Right now it’s not a real option.”

The college has looked at the feasibility of a 1.4 MW gas turbine that would generate more than half of the electricity used on the campus each year. It’s projected that the system could also heat the campus through combined heat and power, also known as cogeneration. Martin-Schramm said the system most likely would use either natural gas or gas produced at a nearby landfill.

However, according to the college administration’s math, the fee that their local electricity provider, Alliant Energy, would charge them for sporadic use of grid power — also known as the “standby rate” — is simply too high for the project to be viable.

The college hired the Energy Resources Center, based at the University of Illinois in Chicago, to do a feasibility study. The center estimated the payback time at 55 years. If the college were served by MidAmerican Energy rather than Alliant Energy, the researchers found, the system would pay for itself in about 15 years.

“The standby rate is a key piece of this,” said Martin-Schramm.

How standby rates work

Utilities typically charge standby rates to customers with on-site distributed generation, such as a combined heat and power system, to cover the costs to the utility both of providing actual power, and of maintaining the capacity to provide that power, should the customer’s own generation system fail or have to be shut down for maintenance.

The Energy Resources Center earlier this year evaluated the standby rates at Alliant Energy, one of Iowa’s major investor-owned utilities.

The authors, Clifford Haefke and Graeme Miller, concluded that the utility’s standby charges “financially burden otherwise economically viable distributed generation (DG), including combined heat and power.”

Standby rates can be designed in such a way that they pay off for utilities, but bear little resemblance to the actual burden that CHP systems impose, according to Jennifer Kefer, the program manager for the Alliance for Industrial Efficiency, which represents skilled trades that would build and install CHP systems.

Some utilities charge CHP customers a monthly fee in order to maintain access to the grid. The monthly fee is in some cases based on the largest amount of power drawn from the utility during a single 15-minute period in the previous year – like the hottest few minutes of the hottest summer afternoon. That ends up being a very high rate because power rates typically are highest during times of peak demand. Some utilities then charge that access fee every month for up to a year, when it would be reset.

“They’re assuming you’ll need power at a peak time. That’s an expensive time,” Kefer said. “They (CHP systems) are very unlikely to go down during a peak time. The rate is not based on how often you go down. It’s not a reflection of the real burden we’re placing on the grid.”

A ‘penalty’

According to the study earlier this year of Alliant’s charges on customers with CHP systems, “standby” customers were charged $7.69 per kilowatt to reserve transmission service whereas large general service customers paid $6.68 per kilowatt when actually taking transmission service. Standby customers have to pay for the actual power as well as reserving the right to purchase it.

Alliant Energy could not be reached for comment.

“Paying this penalty for the one time in the year when you had to use the grid can negate the whole benefit of installing CHP,” Kefer said. And while she conceded that utilities must invest in equipment to maintain the ability to produce power when it’s needed, Kefer said she suspects that “the motivation for high standby rates often is to discourage CHP. Utilities often have concerns that CHP undermines their business model.”

Utilities whose earnings continue to be based on the amount of power they sell almost certainly will lose revenues whenever their customers try to use energy more efficiently, or seek power from sources other than their local utility, such as rooftop solar panels.

“In most cases, these standby charges kill the project,” said Randy Portz, the president of Industrial Energy Applications in Cedar Rapids, Iowa. High standby charges might be justifiable if a utility were providing backup power for only one customer with a combined heat and power plant, Portz said. “But when you look at all of the CHP plants….what are the odds that all of them are going to be down at the same time? It should be based on a probabilistic algorithm. Not all of them are going to be down at the same time.”

In fact, combined heat and power is notable for its reliability. The Oak Ridge National Laboratory surveyed distributed-generation systems and found that reciprocating engines of up to 3 megawatts and gas turbines of up to 20 megawatts are, on average, available 95 percent of the time.

“Harsh standby rates penalize DG (distributed generation) systems for the 5 percent (or less) a system is inoperable while failing to reward the other 95 percent of the time. When multiple DG systems operate on the same distribution circuit the average availability increases,” Miller and Haefke wrote in their testimony to Iowa’s utility regulator. Miller is a research policy analyst and Haefke a principle engineer and manager of the distributed generation program at the University of Illinois Energy Resources Center.

The two were hired by the Iowa Environmental Council, the Environmental Law and Policy Center and the Iowa Policy Project to evaluate CHP policy in the state. And while they characterized Alliant’s CHP rates as especially punitive, in much of the country the potential of producing heat and power together has not been fully realized.

In its 2013 State Energy Efficiency Scorecard, the American Council for an Energy-Efficient Economy rated the states on their energy policies, with an emphasis on friendliness to efficiency and renewable energy sources.

Policies pertaining to CHP could earn a top score of 5 points in the evaluation. In the Midwest, only one state scored higher than a 2. That was Ohio, which earned a 3.5. Nebraska, by contrast, scored a zero, and Missouri a meager .5 out of 5.

States can encourage development of CHP by treating it as a renewable or efficiency resource, just like solar panels or LED light bulb, the report said. And while some states do, at least officially, classify CHP as an efficiency or renewable resource, they don’t treat it as an equal, according to ACEEE. To do so, states must develop a specific method for computing the energy saved by combined heat and power.

State policy and utility profit considerations can, and do, pose significant hurdles in the development of combined heat and power. In addition, market forces can get in the way of this technology. Combined heat and power thrives best in an environment of a high electricity price and a low price on energy, such as natural gas or coal.

In at least some parts of the Midwest, electricity is still cheap enough that burning a fossil fuel to produce heat or steam, with a side order of power, is still a hard sell.

The Iowa Environmental Council, the Environmental Law and Policy Center and the Iowa Policy Project are all members of RE-AMP, which publishes Midwest Energy News.

3 thoughts on “In Iowa, critics say utility policies holding back cogeneration

  1. Too bad they are not served by a municipal power operator. They might have been able to do better than with uber capitalist Alliant.

  2. They should just go ahead and do it. Then next year when operating off CHP they should be able to draw 50% less during that peak monitoring time that sets the yearly back up rate. If at the same time they do as much demand/response/load control, they could use it to lower that peak demand even further.
    If we had a $40/ton CO2 tax they would also be taxed half as much for CHP as no CHP which could make the project much easier to swallow finically.

  3. There is the difference in mentality. In Germany, all new buildings are required to have CHP, and there are eco-tax subsidized programs for replacing heating oil or nat gas heating- with nat gas fired micro-combined heat power units.
    In North Germany, VW teamed up with Lichtblick Utilities- a North German wind utility- to install micro-combined heat power units- SMART GRID coordinated in a SWARM of 100.000 units- to produce up to 2 gigawatts of power. Each unit in a multi-family dwelling produces 35 kw of heat and 20 kw-of power, and uses 6 m³ of nat gas hour.

    In South Germany, the Munich Aqueous Initiative is optimizing an “aqueous fuel system” for micro-combined heat power which uses advanced “Brown´s gas generation”- from a larger, secondary – d.c. generator- on the engine- plus “m.r.i.s.i.”- magnetic resonance-ionized steam ignition”- which magnetic resonance ionizes steam generated on the hot exhaust manifolds. That is, micro-chp running 100% aqueous- with thesource of mineral free water- (avoiding scale formation) being rooftop runoff rainwater collected in special plastic tanks where the old heating oil tanks had been.
    That displacement of nat gas- by “hybrid aqueous” makes the installations rapidly self amortizing inside of 6 years to the installing utilities- which sell heat to the building occupants at 80% the price of oil heat as well as discount power.
    Installation prices for “all aqueous” SMART GRID coordinated SWARMS of micro-CHP run at approximately 1.250 per producing kilowatt of power. As these units also displace both heating oil- average consumption per unit- 5000 liters per season, and coal for generating power- they are rapidly self amortizing.
    Agrarian region “energy co-ops'” such as Wildpoldsried in SW Bavaria in the alpine foothill Algäu region- utilize wind, rooftop solar, small hydro- small wood chip waste to power hooked to district heat- and “manure methane recapture systems- and currently generate over 5 times as much power as they consume.
    The manure methane waste to power system capacities are being expanded by gas storage-, aqueous supplements, and additional – i.c.e. or fuel cell- generation capacities-smart grid coordinated with the additional wind and solar going up, and with additional syn-gas power buffering- and aqueous aided syn-gas- meaning that Wildpoldsried will be putting out up to ten times more power than it needs- with additional solar and wind buffering capacites available. as hydrogen syn gas- which can be burnt on the added fuel cell or internal combustion engine CHP systems- feeding the district heat system which supplements the solar heat- ground heat heat pump systems- (500% sustainability is doable- as Wildpoldsried proves.)
    In Germany, the build out of agrarian CHP running off cattle, pig, and poultry manure on all 150.000 farm units that come into question- with gas storage- and additional aqueous-fuel aiding measures- will put 75 gigawatts of bio-gas power onto the German grid- and SMART GRID coordinated with the same amount of rooftop solar- as its back up baseline power source- for 18 hour a day- p.g. as needed.
    The other micro-combined c.h.p. system- in about 6 million German buildings- will average “only” about 20 kw power, (medium sized multi-family dwelling) 35 heat- (channel outside when not needed.) also SMART GRID coordinatable by installing commuinally owned utilities.and energy -co-ops. It costs approximately 30.000 Euros to pull out the old oil heating units and tanks, and install the rooftop rainwater storage tanks, and the “aqueous fuel system” i.c.e.s driving generators- with heat channelable outside- when used during summer seasons- as smart grid coordinated back up for wind. The net price per producing kwh is about €1.250 or $1.6987 installed – including the 19% German Value added tax. putting it below the price of new coal and just above non dispatchable, land based wind turbines.
    This will put about 97 gw onto the German grid by 2040- replacing much of the nuclear which is shutting down and strip-mined lignite coal fired power plants- as a supplement to wind- which will be about 100 gw capacity by 2030.
    Bio-gas and “aqueous fuel aided” mid sized and micro-combined heat power systems- will thus provide close to 173 gw of backup baseline power to German solar and wind by 2040.
    Needless to say, community owned utilities will continue large scale combined heat power build outs. Munich leads Europe in large scale CHP with all six of its thermodynamic power plants hooked up to CHP. Two are bio-gas systems- and one is sewage sludge and garbage incineration, two gas fired combined cycle systems, and one coal fired– and built out to over 800 km– with supplementary heating by deep geothermal- saving over 6 million barrels of heating oil. The transition to deep geothermal p.g. and district heat is continuing, and by 2025, the city will have built out its district heat- system to over 1400 – km- and be generating another 800 mw deep geothermal, while converting its coal fired plant to dry hot rock geothermal.
    Two of Munich´s chp units are based on bio-gas- one from sewage sludge-and the other at the Munich zoo which takes all the uneaten feedstocks- shreds it and mixes it with manure for bio-gas on fuel cells- for heat and power.
    The big bio CHP is the garbage incineration plant putting out 400 mw of power and over 750 mw of district heat.
    These systems save a lot of fossil fuel from being burnt while simultaneously suppressing anthropogenic methane.
    CHP systems powered by nat gas, bio-gas, and aqueous fuel systems are supplements and back up baseline power to wind and solar – assure smooth transition away from fossil fuels. There are also deep geothermal chp systems as Germany is also proving as it builds out non-seismic- dry hot rock geothermal – systems over its north and south german hot rock formations.

    The American midwest is much further south than Germany, enjoying better insolation rates for solar heat and power, has better onshore wind conditions than Germany, and has ample bio-waste available for providing back up baseline power and heat from those bio-wastes.
    The judicious applicytion of bio-waste and aqueous fuel powered chp in conjunction with wind and solar could have the American midwest off both nuclear and fossil by 2040. There are also the enormous potentials involved in using mill race dam hydro-electric systems and floating, anchored hyro-electric on the entire Mississippi, Missouri, Ohio basin.
    As the populace of the Midwest begins to feel the worsening consequences of global warming in the form of summer droughts, intense winter blizzards, flooding and tornadoes, the electorate may not vote “democrat” but it will demand the Republicans they do elect are as ‘”green” as Jill Stein in leading the way off fossil fuels.