CHP: One of the answers (but not the question)

1. CHP: One of the answers (but not the question) Presentation to Efficient Enterprises: Powering American Industry Sean Casten,President & CEORecycled Energy Development, LLCJune 23, 2009US Capitol Building, Room HC-7 RED | the new green www.recycled-energy.com

2. Asking the right questions • Technology-specific questions have minimal policy merit. • How could we deploy more CHP, how much CHP could we deploy, how does CHP work are not especially enlightening. • Much more constructive to ask questions about how to better realize our goals • How can we quickly and cost-effectively lower CO2 emissions? • How can we enhance the competitive position of the US economy? • How can we induce rapid, large scale private sector investment in the nation’s aging (and increasingly, unacceptably dirty) energy infrastructure? • Understanding the potential for CHP is key to answering these questions – but it is not the question. RED | the new green www.recycled-energy.com

3. Things you think are true aren’t. • The past is a good predictor of the future • The US energy sector is too big, too capital-intensive and too politically powerful to accommodate rapid, transformative change. • Significant reductions in CO2 emissions will require increased energy costs and/or technological breakthrough In other words:Unexpected, transformative changes can quickly reduce our CO2 emissions and grow our economy… so long as we don’t constrain our future with our present conventional wisdom. RED | the new green www.recycled-energy.com

4. Transformative changes in our fossil energy use are inevitable. • Current fossil fuel extraction rates are unsustainable • 50% of all the coal we have ever burned has been burned since 1970. • 50% of all the oil we have ever burned has been burned since 1986. • 50% of all the natural gas we have ever burned has been burned since 1990. • Our choice is one of adaptation: • Proactively, by increasing our energy efficiency? • Reactively, forced to act by resource constraints? • “If you choose not to decide, you still have made a choice” (Neal Peart) RED | the new green www.recycled-energy.com

5. Transformative shifts in our fossil fuel use are inevitable. RED | the new green www.recycled-energy.com

6. Things you think are true aren’t. • The past is a good predictor of the future • The US energy sector is too big, too capital-intensive and too politically powerful to accommodate rapid, transformative change. • Significant reductions in CO2 emissions will require increased energy costs and/or technological breakthrough RED | the new green www.recycled-energy.com

7. Final FERC rehearing of 888 FERC Order 888 mandates non-discriminatory transmission access 1992 Energy Policy Act opens competitive markets Potential pace of electric sector reform: 20% of US fleet built in just 10 years! Source: US DOE, Energy Information Administration (www.doe.eia.gov) RED | the new green www.recycled-energy.com

8. New England’s FCM success is even more dramatic. • Typical NE power peak = 19,000 – 24,000 MW • All time peak = 28,160 MW (8/6/06) • ISO-NE’s forward capacity market closed their first capacity auction on 3/1/07; they have now completed two forward capacity auctions (FCAs) • FCM allowed demand resources (including, but not limited to CHP and other behind-the-meter generation) to bid into markets and compete with new-build generation to meet system supply needs. • As of their most recent auction (FCA#2), they have 2,936 MW of demand resources that have been brought forward under this program. • Met over 10% of the system peak in under 3 years without building a single power plant. Source: ISO-NE; website and personal correspondence. RED | the new green www.recycled-energy.com

9. Things you think are true aren’t. • The past is a good predictor of the future • The US energy sector is too big, too capital-intensive and too politically powerful to accommodate rapid, transformative change. • Significant reductions in CO2 emissions will require increased energy costs and/or technological breakthrough RED | the new green www.recycled-energy.com

10. CO2 reduction is not constrained by technology nor economics. • Non-renewable CO2 release comes from the combustion of (previously sequestered) fossil carbon fuels. • Uniquely among pollutants, the thing which causes the pollution costs money; ergo, reducing CO2 pollution saves money. • If done with greater efficiency, this cost reduction need not be coupled to a reduction in standard of living. • Current regulations generally do not encourage energy efficiency, and in some cases discourage it. • Clean Air Act has the right intent, but is methodologically flawed; efficiency doesn’t count as a pollution control strategy! • Ditto for modern utility regulation, which keeps the power flowing, but does not allow utilities to use cost-control to maximize profits. • Most US energy capital stock is old; to the degree it was optimized, it was for yesterday’s energy prices. RED | the new green www.recycled-energy.com

11. Energy waste = Economic / Environmental opportunity The costs of current policy, and potential for CHP. RED | the new green www.recycled-energy.com

12. Homer Simpson’s plant wastes lots of energy. • RED | the new green www.recycled-energy.com RED | the new green www.recycled-energy.com

13. So do ours. • RED | the new green www.recycled-energy.com RED | the new green www.recycled-energy.com

14. Energy flows in the US electric sector. • RED | the new green www.recycled-energy.com RED | the new green www.recycled-energy.com

15. Energy flows in a fueled CHP plant (“topping cycle cogen”) • RED | the new green www.recycled-energy.com RED | the new green www.recycled-energy.com

16. Energy flows in an energy recycling plant (“bottoming cycle cogen”) • RED | the new green www.recycled-energy.com RED | the new green www.recycled-energy.com

17. CHP’s local nature gives it an innate capital cost advantage. US Average Capex ($/kW installed) Generation T&D Line Loss & Redundancy Total $ per new kW load Central Approach $1,000 - $3,500 $1,400 1.44 $3,460 - $7,000 Local Generation $1,200 - $4,000 $140 1.07 $1,430 - $4,430 RED | the new green www.recycled-energy.com

18. Supporting data from FERC Courtesy Jon Wellinghoff RED | the new green www.recycled-energy.com

19. Total potential for additional US CHP is massive and transformative. • DOE estimate: 135+ GW of opportunity for fueled-CHP • EPA estimate: 65+ GW of opportunity for power generation from currently wasted energy (including, but not limited to waste heat). • In total, represents 20% of entire US generation fleet • Taking capacity factor into account, represents approximately 40% of total US power consumption. • If fully deployed, would reduce total US CO2 emissions by 20% AND would lower our cost of energy. RED | the new green www.recycled-energy.com

20. Achieving this level of CHP has already been done by many of our trading partners. Source: Energy & Environmental Analysis RED | the new green www.recycled-energy.com

21. What CHP looks like: steel manufacturer in Gary, IN. • 95 MW of power recovered from the exhaust of 268 coke ovens. • Saves host ~$40 million/year with no marginal fuel combustion or CO2 release. • Generates more clean power in 1 year than all the world’s grid-connected solar panels (with less CO2/MWh!) Courtesy Primary Energy RED | the new green www.recycled-energy.com

22. What CHP looks like: silicon manufacturer in Alloy, WV. • RED will recycle hot gas to generate 45 MW of power from waste heat on 120 MW furnace • Competitive with West Virginia (coal) power prices. RED | the new green www.recycled-energy.com

23. Ask the right questions • What regulatory barriers exist to energy efficiency (in all its flavors), and how can we remove them? • Lesson from FERC 888 / FCM: unleashing a flood of private sector investment need not require tearing down an entire dam – we simply need to remove the critical bricks, and let the blocked resource do the rest of the work for us. • How do we reward the goal, instead of the path? • More incentives for CHP / solar / wind / nuclear / clean coal are not the answer; experience teaches that approach will cause massive unintended consequences. • We have enough time to change course – barely. RED | the new green www.recycled-energy.com