PTQ Q1 2024 Issue

Conventional generation

Combined heat and power (CHP)

Power plant

Power station fuel (US a verage fossil fuel)

36 units Electricity Annual consumption 44 units Heat

Electricity

Combined h eat and p ower (CHP) 1 MW Natural gas reciprocating engine

CHP fuel (Gas)

155 units fuel

Boiler

100 units fuel

Heat

Boiler fuel (Gas)

52% ecient

80% ecient

TOTAL FUEL EFFICIENCY

Figure 1 EPA-sourced diagram comparing conventional generation vs CHP

• Are there concerns about the impact of current or future energy costs on the business? • Does the facility operate at high utilisation rates? • Are there plans to replace, upgrade, or retrofit central plant equipment (such as generators, boilers, and chillers) within the next three to five years? Overall, integrating CHP into a facility demonstrates a commitment to sustainable practices and environmental stewardship, enhancing the facility’s reputation and appeal to environmentally conscious consumers and stakeholders. CHP systems are one of the most direct pathways towards reducing carbon intensity and increasing RNG’s value. Opportunities For these bespoke circumstances, CHP has proven its ability to offer a variety of benefits, including avoided capital costs, revenue stream protection while reducing exposure to elec - tricity rate increases from the grid. Against this backdrop, NG or RNG-powered CHP will positively impact carbon scores vs the grid’s supply mix. By using waste heat recovery technology to capture wasted heat associated with electricity production, CHP systems can typically achieve total system efficiencies of 60-80%, compared to 50% for conventional technologies (such as purchased utility electricity and an on-site boiler). In fact, the Waste Heat & Carbon Emissions Reduction Act encourages the development of small CHP projects of less than 20 MW. This includes CHP/NG/RNG/microgrid applica - tions at facilities without temporary or permanent grid access. Basically, they need less fuel, including tail gas, for a given unit of energy output. Operating costs are further reduced because the CHP output reduces electricity purchases. Through on-site generation and improved reliability, CHP can allow facilities to continue operating in the event of a disaster or grid interruption, thus protecting revenue streams from the increasing drop in grid reliability, such as the hur- ricane-prone US Gulf Coast refining region. Unfortunately, the drop in grid reliability is co-occurring with electricity rate increases. Because less electricity is purchased from the grid using CHP, facilities have less exposure to rate increases. CHP units can be configured to operate on a variety of fuel types, such as NG, RNG, biogas, hydrogen, or a combination thereof. Therefore, a facility could build in fuel-switching capa - bilities to hedge against high fuel prices. With the passage of the US Inflation Reduction Act (IRA) and its full implementation

in 2024, flat demand for CHP seen over the past decade will increase linearly for RNG-powered CHP units. Paybacks To further generate credits, The IRA reduced ‘direct pay’ timelines, increasing paybacks from CHP projects with built-in efficiencies, resiliency, and sustainability. All signs suggest that RNG projects fuelling CHP units will grow sig - nificantly in 2024. RNG economics increase with CHP utili - sation, exhibiting a linear relationship between improved CI score and improved RNG market value. The Wall Street Journal recently predicted that RNG may make up nearly 30% of the total natural gas supply by 2040 compared to less than 1% today. Against this backdrop, tax and regulatory-driven incentives (renewable identification numbers [RINs], Low Carbon Fuel Standard [LCFS]) can facilitate the pace and permitting pathways to RNG and CHP integration, such as identifying the necessary permits and approvals required for RNG and CHP components of the project. Notwithstanding, every effort should be made to maxim - ise LCFS and Investment Tax Credits (ITC) in addition to RINs under the Renewable Fuel Standard (RFS) programme. This is the reason why CHP projects are seen in other industries. CHP market growth in the refining and petrochemical indus - try may soon follow. However, according to some experts, CHP downstream applications in Europe, The Middle East, and other major refining regions outside North America seem minimal to nothing, perhaps because IRA, US Environmental Protection Agency (EPA), and other similar types of govern - ment incentives are not available in other regions. For more near-term prospects, biogas (biomethane) and RNG-powered CHP projects can be implemented now. RNG, meanwhile, can be generated from the direct gasification or pyrolysis of biomass. “The high methane content of RNG allows for full compatibility within pipeline systems. CHP fleets that run on natural gas require minimal upgrades to be fuelled by RNG and would produce immediate emission reductions by transitioning,” the CHP Alliance noted. EPA support On the market front, evolving opportunities include the outgrowth of Power Purchase Agreement (PPA)-style con - tracts, which can be designed for heat and power purchases. The EPA’s CHP Partnership programme aims to promote

PTQ Q1 2024