Having resolved a number of previous uncertainties, the Ontario cap and trade program now includes provisions directly affecting Combined Heat and Power (CHP) facilities. The rules affect both CHP projects already in service and potential future CHP projects. Although certain implementation details remain to be resolved, many industry observers believe that most CHP projects will not be disadvantaged by the new regulations.
As of January 1, 2017, anyone burning natural gas in Ontario will be subject to carbon costs, either through a direct levy on the fuel purchased from their gas utility, or through their participation in the cap and trade program that obligates them to secure allowances equating to their carbon emissions. Any facilities under 10,000 tonnes (including homes and small businesses) pay the carbon levy. If a facility’s annual emissions exceed 25,000 tonnes, participation in the cap and trade program is mandatory. If emissions are between 10,000 and 25,000 tonnes per year, the facility can pay the levy or opt into the carbon market as a voluntary participant.
Power producers burning natural gas for power sold to the grid will pay the carbon levy regardless of size. If a facility is generating power for their own internal use using CHP, Ministry officials have confirmed that the facility will be eligible to receive free carbon allowances for any natural gas used to generate power and heat used by the host facility. The result is that the cap and trade regulation is indifferent to CHP, a positive development that ensures there is no increase in operating costs for facilities with CHP vs. those with boilers meeting their heating needs. “This is an important acknowledgement from the Ministry,” says Richard Laszlo, Director of Research & Strategic Initiatives for QUEST. “They have clearly indicated an intention to make sure that facilities producing electricity and other products are not penalized for their investment in high-efficiency fuel combustion equipment.” District energy facilities would also be eligible for free allowances provided any electricity generated was not destined for the grid.
Richard Laszlo stresses that “Combined Heat & Power (CHP) is an integral component of any cost-effective plan for a low-carbon economy. Today, CHP represents the most efficient means of generating electricity with natural gas. The combined electrical and thermal efficiencies of well-designed CHP are typically 80%, and some state-of-the-art facilities are over 90% efficient. Furthermore, CHP offers a path to the most efficient use of emerging renewable natural gas supplies so that renewable energy is integrated into both the electricity and thermal energy sectors.”
Mr. Laszlo leads the Ontario CHP Consortium hosted by QUEST, which has been the leading meeting place and voice for developers and owners of CHP in Ontario for several years. For further information readers may contact