PTQ Q1 2024 Issue

the adoption of CHP systems across different industries and sectors. The programme provides technical assistance, tools, and resources to help organisations and businesses assess the feasibility of CHP projects and facilitate their implemen- tation and certification. This programme includes all types of CHP applications. While not directly administered by the EPA, various federal and state-level renewable energy incentives may apply to cer- tain facilities that utilise CHP. These incentives could include tax credits, grants, or other financial benefits aimed at promot - ing clean and renewable energy sources. The EPA occasion- ally offers grant programmes supporting clean energy projects and initiatives, including those involving CHP and RNG. EPA grant opportunities are typically designed to reduce GHG emissions and promote sustainable energy practices. The EPA’s Combined programme aims to highlight the bene- fits of CHP in improving energy efficiency, resiliency, and reli - ability for critical infrastructure and facilities, which could be relevant for chemical processing facilities looking to enhance their energy systems with CHP (see Figure 1 ). IRA and RIN credits Along with these bespoke opportunities, state-driven efforts to boost distributed generation are opening new pathways for non-traditional CHP entrants. The IRA will allow produc- tion tax credit (PTC) and investment tax credit (ITC) recipi- ents to monetise credits through the previously mentioned ‘direct pay’ option or by selling all or a portion of the credits. With these incentives covering as much as 30% of project cost, the payback timeline decreases. CHP projects are more attractive with their built-in effi - ciency, resiliency, and sustainability. Going forward, the onus on achieving circa 20% LCFS reduction by 2030, and even more so by 2040, predicates the development of RNG-powered CHP units demonstrating highly negative CI scores. RNG-based CI score ranges benefit from combined value delivered LCFS and D3 RINs, as well as D5 RINs (RINs is the RFS programme’s ‘currency’). When considering value ranges to produce RNG, such as the -100 to -400 CI scale, adding value from LCFS com- pounds the attractiveness of RNG-powered CHP projects. Using a more specific demonstration, the value of dairy RNG = (D3 + LCFS) or RNG = ($37 [for D3 RIN @ $3.15/RIN]) + (LCFS = $65 [with a CI of -225]) is what is driving RNG/CHP. If a refinery, such as one in California, uses a certain amount of RNG for cogeneration originating from agricultural or dairy waste, it can demonstrate sustainable performance in a circular economy. Note that the $37 is from the Federal RFS RINs programme, the $65 is from the California LCFS programme, and the commodity value of the gas is just $2. Although CI scores are typically discussed without units, it is actually measured in grams of CO 2 equivalent per megajoule. Because of the combined value delivered by RFS RINs and California LCFS, interesting programmes are also developing for RNG/CHP projects in other industries, such as the plastics industry. Under the RFS programme, every feedstock and fuel type has a specific ‘D’ code of RINs. With RNG, there are pathways for qualification as a D3 RIN or D5 RIN. For example, D3 ($3.15/RIN) is generated from a

cellulosic-based feedstock (landfill gas, wastewater treat - ment plant, or any other feedstock with a 75% or greater adjusted cellulosic content). If a D3 RIN cannot be gener- ated, then a D5 ($1.87/RIN) can be generated as long as it is renewable biomass. However, that gap (or spread) has been wider in the past at about 4x or 5x difference. So, many plan- ners, including a few refiners, are targeting those cellulosic feedstocks to capitalise on the higher value D3 RIN. Existing pathways In this early stage of incentives implementation, it is likely to be seven to 10 months from commercial operation before LCFS credits are awarded. This expected revenue needs to be planned for, understanding that incentive payments may not be realised for at least seven months before obtaining a registered certification pathway under an LCFS. The credit must then be generated and sold. A common business practice among corporate planners involves banking and planning for about 10 months of lim- ited LCFS cash flow. The RIN usually falls within that period because the RNG is being stored during that time. The important aspect to understand is that earned value is not lost during those 10 months. Certain accounting exercises allow for the virtual storing of the RNG. The bottom line is that patience is necessary to fully monetise value from the RIN and LCFS pathway during that 10-month delay. The LCFS also has a process where a temporary pathway can be used to generate credits upon submitting an appli- cation. That temporary pathway can be as much as -150 CI for cellulosic feeds, so a lot of revenue could be left on the table using that temporary pathway because the project is expected to provide CIs in the -200 to -400 range. It boils down to an economic exercise as to what works for a given project. Otherwise, carefully budgeting and planning for those seven to 10 months is good practice. So, it is more of a timing delay until you receive that LCFS credit. Alignment We are seeing the coalescing of regulations, business prac- tices, and technical advancements favouring RNG-powered CHP systems. They are well suited for applications with very negative CI scores associated with lucrative LCFS values. In the US, the Fuel LCA model is used to measure the same (low CI ~ high $ value). Organisations like the Combined Heat & Power Alliance provide monetisation support to the CHP industry, particu- larly through CHP Technical Assistant Programs (TAPs). Such alliances help deploy CHP more effectively, which is why the CHP market is projected to be worth $35.2 billion by 2026. Adding CHP to a facility not only increases CI scores but also has a positive economic impact on the project. The IRA extends the ITC of 30% and PTC of $0.0275/ kWh (2023 value) until at least 2025. However, projects over 1 MW AC must meet prevailing wage and apprenticeship requirements. Overall, CHP is a valuable technology that can offer many benefits to facilities. By integrating CHP, process - ing facilities can demonstrate their efforts at reducing their environmental impact, saving money on energy costs, and improving their operational resilience.

PTQ Q1 2024