Navigant Research Blog

Energy Storage to Optimize and Advance CHP Generators

— August 31, 2017

Energy storage is often associated only with the integration of renewable energy. However, recent market developments have highlighted the potential for storage to optimize both existing and new fossil fueled generators. While large-scale pumped hydro energy storage has been used on the grid for decades, those systems were rarely tied directly to any generation plants. A recent storage project built by General Electric in California is evidence that the falling costs for battery storage are opening opportunities to improve the efficiency and flexibility of existing generators.

There are attractive advantages for energy storage to optimize generators at a smaller scale. Gas-powered combined heat and power (CHP) systems are becoming increasingly popular due to the improved efficiency these systems offer customers that need a reliable supply of both heat and electricity. Because of the varying energy needs of these customers and the dynamics of CHP systems operation, there is frequently an overgeneration of either electricity or heat. This energy is often wasted, as establishing contracts that export excess energy is costly and challenging. Both thermal and electrical energy storage systems can greatly reduce wasted energy when tied to CHP systems and can provide attractive ROI for customers.

Industry Actions

Several recent acquisitions in the industry have emphasized this dynamic. In a recent blog, my colleague Adam Forni discusses these developments and the efforts of generator manufacturers to expand their offerings and participate in the emerging Energy Cloud. Notable recent investments in storage providers include Wärtsilä’s purchase of Greensmith and Aggreko’s acquisition of Younicos.

In both cases, incumbent generator providers moved to acquire storage companies focused on the software and controls required to optimize storage systems and integrate them into electricity markets. These tie-ups are mutually beneficial, as the storage providers gain access to new sales channels and potential new customers. The generator providers are likely focusing on developing the capabilities to integrate storage into their offerings and utilize new combined solutions to provide energy and capacity services in competitive electricity markets. The additional revenue generated by these grid services can greatly improve the overall economics of new storage and microgrid projects, including those that expand the capabilities of existing generators.

Into the Future  

The move toward microgrids and local power systems to improve the resilience of energy supply is an important driver for the integration of energy storage with conventional generators. Navigant Research’s recent Market Data: Combined Heat and Power in Microgrids report anticipates that 11.3 GW of new CHP capacity will be added in microgrids around the world over the next decade. The addition of these systems presents a major opportunity for both thermal and electrical energy storage to improve overall efficiency. Through the integration of energy storage and the sophisticated software platforms used to connect to energy markets, large amounts of new distributed energy capacity will become available on the grid.


If $9 Billion of Renewable Energy Is Curtailed in 2030, What Opportunities Will Emerge? Part 2

— October 4, 2016

Cyber Security MonitoringThe first part of this blog covered the growing trend of renewables curtailment. This second post will cover the solutions that are turning curtailment from a problem into an opportunity.

Many solutions have been proposed to address the integration of renewables into the energy sector. The first two, transmission upgrades and storage technologies, tend to get a lot of media attention. However, these can be seen as “necessary but not sufficient” options in the race to integrate renewables. Flexible gas generation technologies will also play a growing role in the grid of the future.

Transmission upgrades connect renewables to more loads and diversify generation resources. Germany, with 26% of its generation coming from intermittent sources in 2015, has been building out transmission to connect the windy south of the country to the industrial north. As in many global markets, transmission expansion is subject to NIMBYism, and in Germany’s case is being forced underground, which is more expensive. California, with 14% of its generation from intermittent sources in 2015, may be expanding its independent system operator (ISO) into a regional organization across the climatologically diverse Western Interconnection, though the decision has been delayed for further review. And China, generating just around 3% of its electricity from wind in 2015, still curtailed billions of dollars of wind power in recent years and is quickly pushing to interconnect it with load.

Storage technologies are growing quickly, as well. Hydroelectric storage is a cheap and clean technology that nonetheless sometimes battles drought-related, environmental, and even methane emissions concerns. Batteries, including lithium ion and other types, are rightly making news as costs fall and policies like incentives and storage mandates drive the market toward rapid growth. These and related storage technologies, including compressed air storage, are growing quickly and will become a major part of our electric grids.

Flexible Solutions

Flexible gas-based generation solutions tend to get less media attention but will also be crucially important in the flexibility of the grid.

  • A 2016 National Renewable Energy Laboratory (NREL) report suggested that for California to accommodate 50% of its generation coming from solar PV, a wide range of changes would need to take place. Notably, flexible thermal generators and combined heat and power (CHP) plants were mentioned as a key necessity, even if the amount of energy storage is boosted by more than 10 times what is outlined in the current mandate.
  • A 2015 report by the Union of Concerned Scientists on California’s grid states that under a 50% Renewable Portfolio Standard (RPS) scenario, curtailment could be cut from 4.8% to 3.2% if natural gas resources are able to turn down to half-power.
  • A 2015 report points out that Denmark was able to generate 39% of its electricity from wind thanks in large part to flexible district energy CHP resources. These district energy systems are in some way the core of Denmark’s grid and are expected to become electricity consumers rather than producers during times of high wind generation.
  • A 2016 report funded by the German government suggests that power-to-heat will be more important than batteries in balancing that country’s grid in the future.

Most of these reports suggest that fossil-based sources will fuel this generation, though carbon-neutral biogas and hydrogen are taking strides to catch up too. These gas-based technologies have the dual benefit of boosting grid flexibility while (in most cases) decarbonizing heating, an area of growing concern. As a complement to the transmission and battery storage changes making headlines, these sources are set to become key contributors in the grid of the future.


Climate Plan Promises Brighter Future for U.S. CHP Market

— June 28, 2013

President Obama’s climate change speech this past week signaled a revamped effort by the Administration to tackle emissions from industrial facilities.   To date, the effort by the Environmental Protection Agency (EPA) to set regulations targeting boiler emissions from new coal plants and industrial facilities has carried the Administration’s climate change torch.   But the President’s speech signaled a willingness to use broad executive authority to clamp down on existing facilities, expanding opportunities for a combined heat and power (CHP) industry that has seen a sharp drop off in new growth from its PURPA heyday.

Achieving greater levels of efficiency by simultaneously generating electricity and useful heat, CHP allows facility owners to reduce their fuel expenses while also cutting emissions.   According to the U.S.  CHP database, maintained by ICF International on behalf of Oak Ridge National Lab (ORNL) and the Department of Energy (DOE), 82 gigawatts (GW) of CHP capacity was installed across the country by mid-2011.  Industrial facilities represented 88% of total capacity, with refineries processing petroleum and manufacturing chemicals accounting for nearly 40 GW.

Although hosting a relatively broad base of CHP deployments across a number of applications, the U.S. CHP industry has room to run as measured against leading markets like Denmark, the Netherlands, and Finland.  Installed CHP capacity accounts for  around 30% of total generation capacity in these countries; CHP represents just 8% of generation capacity in the U.S.

Drumbeat Continues

Presaging Obama’s double-down on climate change, a drumbeat of executive orders and state-level commitments over the past 12 months has renewed interest in exploiting CHP opportunities across the U.S.

In August 2012 Obama issued an executive order that called for 40 GW of new CHP capacity to be deployed in the industrial sector.  Although non-binding, the effort seeks to stimulate $40-$50 billion in new capital investment.  A corollary executive order directs federal facilities to use CHP when life-cycle cost analysis indicates energy-reduction goals will be met.  Meanwhile, a surge in natural gas production, along with the stabilizing of Henry Hub prices – a useful proxy for tracking national movements in the price of NG – is expanding the field of potential viable projects.


In the oil- and gas-rich state of Texas, the CHP industry has thrived despite low electricity rates and narrow spark spreads (the difference between the delivered electricity price and the total cost to generate CHP, and a widely used measure of CHP viability).  The state accounts for 17 GW of installed CHP capacity, or 21% of total U.S.  capacity.  In Texas, home to 5% of the world’s refining capacity – facilities that produce commodity products and have high around-the-clock thermal load demand – efficiency plays a key role in driving profitability.

Recent bills signed into law by Texas Governor Rick Perry supporting CHP technology dovetail with the Obama Administration’s broader climate change agenda.  The bill removes regulatory barriers and improves the business climate for cogeneration facilities in Texas.

For the U.S. as a whole, the transition away from coal-based power generation is opening up opportunities for technologies like CHP to expand power generation capacity while reducing demand-side pressure on the grid.  After annual capacity growth declined 92%, from an average 2,700 MW from 2000 to 2004 to 207 MW a year from 2005 to 2010, the CHP market appears to be responding to positive signals.


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