By Katie Wimsatt, Intern, David Gardiner and Associates
The Senate is currently considering changes to tax policy that could further drive investment in combined heat and power (CHP) and waste heat to power (WHP) systems. The energy investment tax credit (ITC) under Section 48 of the Internal Revenue Code provides tax benefits to investors for certain clean or renewable technologies. Currently, CHP receives a 10% ITC under section 48 and WHP is not qualified for any form of ITC. In a letter to the Senate Finance Committee Energy Taskforce, the Alliance for Industrial Efficiency recommended that the Senate increase the ITC for CHP systems between 15 and 50 MW to 20% and clarify that WHP is eligible for the ITC. By implementing these changes, the Senate can help overcome the commercial uncertainty and financial barriers that currently limit the use of these systems. This will allow businesses to realize the efficiency and resiliency benefits of these technologies while cutting operational costs.
There are still large areas of untapped potential for CHP systems. Industrial uses currently represent about 86% of current CHP capacity but over 70% of new potential lies in the commercial sector. This potential mainly lies in CHP systems adapted to fit the smaller footprint of commercial facilities. Commercial CHP use would help more businesses cut their energy expenditures and increase resilience.
Increased efficiency from CHP enables users to cut their energy and heating costs. For example, Snowbird Ski and Summer Resort in Snowbird, Utah installed a 2 MW CHP system that generates one-third of the resort’s winter electricity load, the all of the summer electricity load, and heating and cooling for the facility. The CHP system has saved the resort over $815,000 a year on energy costs. Commercial buildings can also access the energy efficiency benefits of CHP. San Francisco’s Transamerica Pyramid Building installed a 1 MW CHP system in 2009 that provides 70% of its daytime electricity consumption and 100% of its heating, chilled water, and hot water needs while saving between seven and eight thousand dollars annually. The energy efficiency potential of CHP can also play a role in lowering the carbon footprint of commercial facilities—for example, Bowdoin College’s CHP system offsets 8% of the college’s electricity needs, provides 100% of the campus’s heating needs, and saves over $100,000 per year while lowering emissions of carbon dioxide equivalent by 230 metric tons. CHP can provide major cost savings—even in non-traditional markets—that can help boost the competitiveness of U.S. commercial entities.
Commercial CHP can also boost the resilience of critical infrastructure within U.S. Airports, hospitals and wastewater treatment facilities; these critical infrastructure, have been identified as major opportunities for CHP investment due to their needs for continuous power. The ability of CHP to island from the electrical grid during natural disasters and outages ensures these key services can maintain continuous operations. For example, the CHP system at the John F. Kennedy International Airport in New York provides electrical, hot water, and cold water needs of the airport without support from the electrical grid, preventing costly outages like the 11 hour power outage at the Hartfield-Jackson International Airport in Atlanta that generated over $100 million in losses. Additionally, the Texas Medical Center in Houston was able to operate uninterrupted during Hurricane Harvey because its CHP system provided energy, heating, and cooling after the surrounding areas lost power. Increasing ITC for CHP systems will enable similar projects that increase the resilience of key buildings and sectors.
Expanding CHP would benefit all Americans but its commercial potential is currently limited. If CHP provided 20% of US electricity capability, it would create about 1 million technical jobs, reduce air pollution by an amount equal to taking half of current passenger vehicles off the road, and save over 5 quadrillion BTUs of fuel per year, an amount nearly equal to half of the energy consumed by US households. However, commercial buyers view CHP as a risk instead of an opportunity; this perception is furthered by a lack of experience with CHP systems, a history of problems with sales and service support, limited technical resources, and large upfront financial costs. A 20% ITC would encourage non-traditional CHP customers to reap the benefits of this efficient and reliable energy source by lowering investment costs.
Additionally, the Senate Finance Committee has an opportunity to make Waste Heat to Power (WHP) eligible for section 48 investment tax credits. WHP, which uses waste heat from processes and operations to generate electricity, has been excluded from tax credits due to a lack of understanding of key differences between WHP and CHP when the CHP ITC was initially drafted. Thus, WHP, unlike other zero-emission energy resources, is excluded from major tax benefits that help make innovative technologies cost competitive.
Currently, WHP is underutilized in the US; only 10% of its potential is currently utilized. Expanding the ITC would lower costs of WHP systems and encourage companies to begin adopting WHP at a low cost—the Joint Committee on Taxation estimated it would only cost $60 million over ten years. This minor clarification would allow businesses to further increase their efficiency and lower electricity costs.
CHP and WHP adoption is beneficial for American businesses and consumers. The Senate finance committee should recognize their potential and provide a 20% investor tax credit for investment in both generation technologies.
Read the Alliance’s letter to the Senate Finance Committee Energy Taskforce.