1. NARUC 2015 Winter Meeting February 16, 2015 Combined Heat and Power and the Clean Power Plan Bruce Hedman Institute for Industrial Productivity

2. Agenda Review of CHP and its benefits The potential for natural gas CHP Initial thoughts on a CHP as a compliance pathway for the Clean Power Plan 2

3. CHP Captures the Heat Normally Lost in Power Generation, Increasing Overall Efficiency ……. 150 units Total Fuel Fuel 94 units 56 units 30 units Power Plant 32% efficiency Power Plant 32% efficiency Boiler/Furnace 80% efficiency Boiler/Furnace 80% efficiency 45 units Electricity Heat Combined Efficiency ~ 50% Combined Efficiency ~ 50% 3

4. Fuel 100 units 94 units 56 units 30 units Power Plant 32% efficiency Power Plant 32% efficiency Boiler/Furnace 80% efficiency Boiler/Furnace 80% efficiency CHP 75% efficiency CHP 75% efficiency 45 units Electricity Heat Combined Efficiency ~ 50% Combined Efficiency ~ 50% Combined Efficiency ~ 75 % Combined Efficiency ~ 75 % CHP Captures the Heat Normally Lost in Power Generation, Increasing Overall Efficiency ……. 4

5. Fuel 100 units 94 units 56 units 30 units Power Plant 32% efficiency Power Plant 32% efficiency Boiler/Furnace 80% efficiency Boiler/Furnace 80% efficiency CHP 75% efficiency CHP 75% efficiency 45 units Electricity Heat Combined Efficiency ~ 50% Combined Efficiency ~ 50% Combined Efficiency ~ 75 % Combined Efficiency ~ 75 % …. and Reducing Greenhouse Gas Emissions 30 to 55% less greenhouse gas emissions 5

6. CHP Is Already an Important U.S. Energy Resource Source: CHP Installation Database, March 2014 83.3 GW of installed CHP at over 4,220 industrial and commercial facilities Avoids more than 1.8 quadrillion Btus of fuel consumption annually Avoids 241 million metric tons of CO 2 compared to separate production of heat and power 6

7. Natural Gas is the Preferred Fuel for Existing CHP (Based on Capacity) Estimated Natural Gas Load of 4.2 Tcf 70% Natural Gas Coal 15% Oil 1% Waste 9% Wood 2% Other 1% Biomass 2% Source: ICF CHP Installation Database (2012 data) 7

8. Market Drivers for CHP Source: CHP Installation Database and ICF Internal Tracking, November 2014 Forecasted Additions Benefits of CHP recognized by Federal and State policymakers Game changing outlook for natural gas in North America Opportunities created by environmental drivers CHP enhances resiliency in the face of man- made and natural disasters Annual Capacity Additions (GW) 8

9. CHP Saves Energy and Reduces Emissions Based on: 10 MW Gas Turbine CHP - 30% electric efficiency, 70% total efficiency, 15 PPM NOx Electricity displaces National All Fossil Average Generation (eGRID 2010 ) - 9,720 Btu/kWh, 1,745 lbs CO 2 /MWh, 2.3078 lbs NOx/MWH, 6% T&D losses Thermal displaces 80% efficient on-site natural gas boiler with 0.1 lb/MMBtu NOx emissions Category 10 MW CHP 10 MW PV 10 MW Wind Annual Capacity Factor85%25%34% Annual Electricity74,446 MWh21,900 MWh29,784 MWh Annual Useful Heat103,417 MWh t None Capital Cost$24 million$45 million$24.4 million Annual Energy Savings 343,747 MMBtu225,640 MMBtu306,871 MMBtu Annual CO 2 Savings44,114 Tons20,254 Tons27,546 Tons 9

10. CHP Is a Cost-Effective Resource Source: Bloomberg Sustainable Energy Factbook 2014 10

11. The Remaining Potential for CHP Is Large Source: ICF Internal Estimates Technical Potential of 120+ GW (Industrial 60 GW; Commercial/Institutional 63 GW). (ICF estimates) 40+ GW with payback less than 10 years. (AGA) 111(d) could support 20 GW of new CHP nationwide. (ACEEE) 111(d) could support 10 GW of CHP potential with concentrations in the Midwest and Southeast. (CCAP) 11

12. The Market Is Evolving 12

13. AGA CHP Study - Summary Total Technical Potential 123 GW Base Case Economic potential of 41.6 GW (<10 year payback): – 35.2 GW Moderate Potential (5 to 10 years) – 6.4 GW Strong Potential (<5 years) Cost reduction will improve overall economics and increase the economic potential (25 % reduction in capital cost increases economic potential to 54.4 GW): – 37.9 GW Moderate Potential (5 to 10 years) – 16.5 GW Strong Potential (<5 years) Spark spread is a critical factor in economic competitiveness for CHP (15% increase in electric prices increases economic potential to 62.7 GW) – 45.3 GW Moderate Potential (5 to 10 years) – 17.4 GW Strong Potential (<5 years) 13

14. AGA CHP Study - Economic Potential Base Case Moderate Potential (5 to 10 year payback) Strong Potential (<5 year payback) 14

15. AGA CHP Study - Economic Potential 25% Cost Reduction Moderate Potential (5 to 10 year payback) Strong Potential (<5 year payback) 15

16. AGA CHP Study - Economic Potential 15% Electric Price Increase Moderate Potential (5 to 10 year payback) Strong Potential (<5 year payback) 16

17. Impact of Scenarios on Gas Consumption  Economic Potential includes moderate and strong potential.  Incremental gas use equals CHP consumption minus avoided boiler fuel. 17

18. Possible federal policies – Continuation of investment tax credit – Include CHP as a qualified resource in any national clean energy standards – Federal procurement requirements – Encourage CHP participation in ancillary services markets Possible state policies – Include CHP as a qualified resource in energy efficiency resource standards and rate-payer efficiency programs – Standardized interconnection requirements – Reasonable standby rates – Utility ownership – 111(d) compliance option Policy actions can increase the economic potential and reduce perceived risks of CHP 18

19. CHP as a 111(d) Compliance Option The EGU emission reduction impacts of non-affected CHP are similar to the emission reduction impacts of other end-use energy efficiency measures Deployment of CHP reduces demand, and overall emissions, from affected EGUs CHP provides long-term, persistent savings and is: Measurable Enforceable Quantifiable Verifiable Best practices exist in terms of crediting emissions savings from CHP, state programs to promote CHP markets, and in EM&V 19