Stock Plays to Eye in the Changing Heat and Power Industry

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New regulations proposed in September by the Environmental Protection Agency under President Obama’s Climate Action Plan are meant to substantially crack down on carbon emissions at power plants. Under the new rules, coal-fired plants will be permitted to release 1,100 pounds of carbon dioxide per megawatt hour, or 40 percent less than average emissions today. Natural gas-fired plants will be capped at 1,000 pounds of CO2 per megawatt hour. This proposed legislation has set the coal industry on its side and, not surprisingly, weighed on coal plays like James River Coal Company (NASDAQ:JRCC) and Arch Coal (NYSE:ACI) as investors ponder future demand. While the case is certainly not closed on the coal industry, it is time for investors to be looking at greener alternatives that will play a key role in shaping future generations of energy production.

The President’s initiatives and those of some state leaders, such as New Jersey Governor Chris Christie’s Energy Master Plan, are bringing back to light more earth-friendly ways to power industry, namely combined heat and power (or, CHP). In its essence, CHP (also called “cogeneration”) produces heat and electricity simultaneously from one source fuel, capturing thermal energy for repurpose in the process of generating electricity. The electric power is used for some or all of the electric needs of a facility, while the heat can be used in an array of applications, such as hot water supply or process heat. This vast improvement in efficiency lowers energy costs for the user, reduces harmful emissions and lessens the risk of electric grid disruptions, amongst other benefits.

To understand how efficient CHP is, consider that the existing power grid operates at a paltry 33-percent energy efficiency; discharging about twice as much heat as electrical energy it delivers to end users. The total of energy lost in wasted heat from generating power in the U.S. each year is greater than the total energy consumption of Japan. Conversely, CHP has been shown to operate at up to 90 percent efficiency.

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