Are high penetrations of commercial cogeneration good for society?

Low natural gas prices, market reports and evidence from New York State suggest that the number of commercial combined heat and power (CHP) installations in the United States will increase by 2%–9% annually over the next decade. We investigate how increasing commercial CHP penetrations may affect net emissions, the distribution network, and total system energy costs. We constructed an integrated planning and operations model that maximizes owner profit through sizing and operation of CHP on a realistic distribution feeder in New York. We find that a greater penetration of CHP reduces both total system energy costs and network congestion. Commercial buildings often have low and inconsistent heat loads, which can cause low fuel utilization efficiencies, low CHP rates-of-return and diminishing avoided emissions as CHP penetration increases. In the northeast, without policy intervention, a 5% penetration of small commercially owned CHP would increase CO 2 emissions by 2% relative to the bulk power grid. Low emission CHP installations can be encouraged with incentives that promote CHP operation only during times of high heat loads. Time-varying rates, such as time-of-day and seasonal rates, are one option and were shown to reduce customer emissions without reducing profits. In contrast, natural gas rate discounts, a common incentive for industrial CHP in some states, can encourage CHP operation during low heat loads and thus increase emissions.