Sites with CHP: 12
Total installed megawatts: 83
Sample Companies and Facilties Using CHP
- Clarion Hotel
- La Posada Retirement Community
- America West Industries
- Gould Electronics Foil Division
- IC Manufacturing
- Arizona State University
- City of Tucson District Heating
- El Dorado Hospital
- NRG Energy Phoenix-Tucson
- Northwest Wastewater Treatment Plant
- Pima County Jail
- Tucson District Heating
- Tucson Medical Center Heating & Cooling
- University of Arizona
- Wildcat Hill Wastewater Treatment Plant
The Arizona CHP Landscape
With just 12 sites in Arizona identified as CHP with a capacity of 83 MW, the state has potential for greater site development based on policies that encourage the use of renewable-fueled CHP systems, waste heat to power, and biomass or biogas systems but minimal opportunity for nonrenewable CHP. In 2003, Arizona adopted legislation requiring state agencies and universities to achieve a 10% reduction in energy use per unit of floor area by 2008 and a 15% reduction by 2011. This law led to the majority of Arizona’s universities installing CHP, however, there remain many good targets for additional CHP deployments, especially for wastewater treatment facilities and some hotels/resorts. Compared to other Western region states, CHP system deployment in Arizona is low, contributing less than 1% of total regional capacity.
Customers of Arizona Public Service Company (APS), Tucson Electric Power Company (TEP), UNS Electric (UNSE) and Salt River Project (SRP) all have different interconnection standards, so an effort is underway for one statewide standard. Policy coordination priorities for Arizona include:
- Coordinate with three main state utilities to develop common interconnection standard using DOE guides as a reference point for integration of DG.
- Revise key parts of the RPS to include thermal energy.
- Encourage the development of customer-owned and community-owned renewable energy and combined heat and power facilities.
In terms of potential, Arizona’s CHP market is promising yet was ranked 17th nationwide for energy efficiency by the ACEEE in 2018. The same scorecard ranked Arizona 1.5 out of 4 for CHP policies and performance. While the state has policies in place to incentivize adoption of CHP systems, a disconnect exists between local adoption of energy efficiency codes and state-mandated standards. For example, while local jurisdictions are supporting large-scale investment into CHP technology, Arizona lacks mandatory statewide energy codes for new commercial construction.
Historically, the state marketplace has shown a propensity for discouraging CHP adoption by commercial entities, either by offering lower electricity rates to discourage new site development or even shutting down entire systems. In the years since initial reports emerged, it appears not much has changed. The successful installation of CHP sites in Arizona has been limited by missing interconnection standards, resource accessibility, contradictory program support and standardized revenue streams.
Arizona Policies Impacting CHP
The following key policies are affecting CHP investment in Arizona. For more information on these policy areas, see the Western CHP webpage Policies to Support CHP.
- Statewide Interconnection Policies – In 2005, the Arizona Corporation Commission convened a working group to draft standardized procedures to streamline interconnection procedures. While a draft was developed and revised by the commission staff, the standards have yet to be finalized into rules. No changes have been made since 2013.
- Waste Heat Excluded in Renewable Portfolio Standard - Proponents of Arizona's renewable portfolio standards neglected to include waste heat as a renewable resource. CHP is explicitly included if it is fueled by a renewable resource.
- CHP in Demand-Side Management - Arizona's electric efficiency standard (22% by 2020) and gas efficiency standard (6% by 2020) both include CHP as an eligible resource for helping to meet those goals. While utilities have yet to adopt CHP programs (or included CHP as a custom measure) in their implementation plans, two are considering how to do so (TEP and UNSE). See the electric standard and the gas standard.
- Fair Standby Rates – Standby rates charged by Arizona utilities are very high, and neither the regulatory commission nor the legislature has taken up the issue. Additional reports of utilities offering individual businesses special lower rates in exchange for ceasing to pursue CHP, or in exchange for shutting down an existing system, are worrisome. These bargains not only diminish the efficiency advantages of CHP, but also negatively impact all other ratepayers as well.
- CHP-Specific Initiatives - The Arizona Corporation Commission (ACC) has approved CHP incentives of $400-500/kW, offered by Southwest Gas. Incentive details are available online at Arizona Demand-Side Management (DSM) Combined Heat and Power (CHP) Incentive Program. Several other Arizona investor-owned electric utilities are considering incentive programs for CHP either on their own or in conjunction with Southwest Gas; however, details have yet to be released or finalized.
Arizona Gas Prices
Across the board, Arizona's commercial and industrial natural gas rates have steadily dropped after peaking in 2014. However, both remain well above national averages.
Table 1. Average Arizona Gas Prices - 2016
||AZ Price ($/MMBtu)
||U.S. Price ($/MMBtu)
Arizona Electricity Prices
Since 2011, electricity prices have diverged between industries. Within the industrial sector, a gradual drop has left end users with prices slightly below the national average. In contrast, commercial entities have found themselves paying slightly more than the national average for electricity.
Table 2. Average Arizona Electricity Prices - 2016
||AZ Price (₡/kWh)
||U.S. Price (₡/kWh)
The Market Potential of CHP Systems in Arizona
In a 2016 report from the Department of Energy, Arizona’s CHP technical potential capacity was identified at 5,703 sites. Top industries that showed the highest potential included primary metals, chemicals, food, paper and transportation equipment sectors, totaling to 638 MW of on-site CHP technical potential.
The same report also suggested strong potential within the commercial, institutional and multifamily markets. It noted schools, office buildings, colleges and universities, multifamily buildings and hotel sectors could produce nearly 1,654 MW.