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Incentives for Combined Heat and Power plants: How to increase societal benefits?

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  • Athawale, Rasika
  • Felder, Frank A.

Abstract

Investments in new combined heat-and-power (CHP) facilities have fallen short of harnessing what is believed to be CHP's full achievable economic potential and attenuate societal benefits of reducing emissions and increasing resiliency of the power system. Various reasons have been found to explain this “CHP gap,” an example of the “energy-efficiency gap.” This paper examines the effects of understated capital costs and low and volatile CHP capacity factors, which historically are demonstrated by a large number of existing US units, on the economics of CHP facilities and thereby provide a possible explanation for the CHP gap. Given the probability distribution of profitability for a CHP plant, an incentive structure that is modeled similar to insurance against risk of unfavorable outcomes, might compare favorably to the present one-time upfront capital incentive model for attracting new investments. We recommend further research on assurance-based incentives for CHP projects.

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  • Athawale, Rasika & Felder, Frank A., 2014. "Incentives for Combined Heat and Power plants: How to increase societal benefits?," Utilities Policy, Elsevier, vol. 31(C), pages 121-132.
    • Handle: RePEc:eee:juipol:v:31:y:2014:i:c:p:121-132
    DOI: 10.1016/j.jup.2014.10.005
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    References listed on IDEAS

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    5. Heng Chen & Jidong Xu & Yao Xiao & Zhen Qi & Gang Xu & Yongping Yang, 2018. "An Improved Heating System with Waste Pressure Utilization in a Combined Heat and Power Unit," Energies, MDPI, vol. 11(6), pages 1-20, June.
    6. Møller Sneum, Daniel & Sandberg, Eli & Koduvere, Hardi & Olsen, Ole Jess & Blumberga, Dagnija, 2018. "Policy incentives for flexible district heating in the Baltic countries," Utilities Policy, Elsevier, vol. 51(C), pages 61-72.
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    8. Zhang, Jian & Cho, Heejin & Knizley, Alta, 2016. "Evaluation of financial incentives for combined heat and power (CHP) systems in U.S. regions," Renewable and Sustainable Energy Reviews, Elsevier, vol. 59(C), pages 738-762.

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