The Role of Incentives in Promoting CHP Development

Abstract

Conventional wisdom suggests that financial incentives should be sufficient to spur the installation of combined heat and power (CHP) systems. However, the states with the most CHP development are often not the states with the most generous financial incentives. ACEEE has collected data on state regulatory policies that suggest that states with a regulatory structure favorable to CHP have more implementation activity. The four regulatory factors that stick out are: 1) fair interconnection standards; 2) output-based emissions regulations; 3) fair utility standby rates; and 4) that CHP is encouraged within a clean or renewable energy standard. We anticipate that these four regulatory factors correlate more strongly with empirical CHP implementation than the presence of financial incentives for CHP, which suggests that getting regulatory and market conditions right may be more important than providing incentives. This finding could also apply to many other facets of energy efficiency policy.