3. Waste Heat Recovery Proposals

In the Energy Division report and subsequent comments, parties present several waste heat recovery proposals for our consideration, as summarized below.

3.1 Joint Parties (SoCal, SDG&E and SDREO)

Joint Parties propose a minimum system efficiency requirement of 40%, calculated as total electrical plus total thermal output as a ratio to total fuel input. For projects under 250kW, Joint Parties propose that this standard must be met over any three months of the year. Larger projects from 250kW to 1 MW must meet the standard over the entire year.

Joint Parties assert that their proposed 40% efficiency ratio represents an improvement over existing "peaker" generation, which often utilizes less than 24% electrical efficiency. Additionally, Joint Parties believes that providing a seasonal variation for units under 250kW could increase the number of eligible participants by recognizing the needs of smaller facilities. Small facilities such as small hospitals, lodgings, nursing homes, restaurants, small office complexes, retail establishments and schools often have very small thermal loads that vary based on season. A standard allowing small projects to utilize waste heat recovery on a seasonal basis opens the program to more participants.

In its workshop report, Energy Division recommends the adoption of this standard for similar reasons. Onsite and Ingersoll-Rand also support the standard proposed by the Joint Parties, arguing that it is appropriately inclusive and meets the policy goals of the Commission and the Legislature.

3.2 PG&E

PG&E objects to the Joint Parties' proposal on three grounds. First, PG&E argues that the proposed definition of waste heat recovery does not achieve meaningful heat recovery and reuse. Second, PG&E contends that the Joint Parties' formula for calculating efficiency overstates the contribution of thermal output, thereby making it much easier for generators to claim to be efficient. Third, PG&E objects to the characterization of customers up to 250kW as "small" customers. PG&E considers customers above 35kW to be medium to fairly large customers. In PG&E's view, Joint Parties' proposed seasonal variation would allow these customers with very low overall efficiencies to qualify for incentives, which conflicts with the Commission's goal of improving the overall efficiency of the electrical generation system.

PG&E recommends that the Commission utilize existing standards for cogeneration set forth in Pub. Util. Code § 218.5 for all sizes of distributed generation:

(a) Waste Heat Recovery: At least 5 percent of the facility's total annual energy output must be in the form of useful thermal energy.

(b) System Efficiency: The useful annual electric power output plus one-half of the useful thermal output must be greater than or equal to 42.5 percent of the total annual fuel input of the system.

PG&E states that these standards are not difficult to meet for genuine projects, and the Commission has had many years of experience in applying them.

3.3 SCE

SCE also objects to the Joint Parties' proposal. In SCE's view, this standard would provide incentive payments to non-renewable generators less efficient and more polluting than combined cycle technologies.

SCE recommends the Commission adopt waste heat recovery standards that would augment Pub. Util. Code § 218.5 requirements to make them consistent with the Federal Energy Regulatory Commission (FERC) standards for qualifying facilities.¹ In addition to the waste heat recovery and system efficiency standards described under PG&E's proposal, SCE would add the following:

For systems over 50kW, if the useful thermal output of the system is less than 15% of the total energy output of the facility, the useful power output plus one-half the useful thermal energy output must be no less than 45% of the total energy input to the system for the calendar year.

SCE states that these standards require a reasonable level of overall efficiency, are widely understood and accepted in the industry, and do not provide significant advantages or disadvantages to renewable vs. non-renewable technologies.

3.4 NRDC/ACEEE

NRDC/ACEEE object to the manner in which waste heat recovery is computed under the FERC and Pub. Util. Code § 218.5 standards. In their opinion, these standards devalue the contribution of thermal energy to output in calculating system efficiency by using only ½ of thermal output in the formula. Therefore, they would utilize the same formula for system efficiency as the Joint Parties, but would require that units maintain a minimum efficiency of 55% when operating at more than 50% capacity regardless of the power to heat ratio. In addition, NRDC/ACEEE would require that the heat recovered must equal at least 20% of the total energy output of the combined heat and power unit, regardless of the size of the unit.

NRDC/ACEEE also recommend that all units comply with the standards under development in a California Air Resources Board process mandated by Senate Bill 1298.

3.5 RealEnergy

RealEnergy opposes the use of any fuel efficiency hurdle as the sole determinant of whether a unit qualifies for incentives. Instead, Real Energy proposes an incentive scale that would encourage the most efficient use of fuel resources, but not exclude technologies that cannot cost-effectively incorporate cogeneration into the on-site generation plans.