Captive Power Plants, 2004 Recycling Energy A Bridge to the Future Thomas R. Casten Chairman WADE World Alliance for Dec

1. Captive Power Plants, 2004 Recycling Energy A Bridge to the Future Thomas R. Casten Chairman WADE World Alliance for Decentralized Energy

2. World Energy Situation • Growing energy demand is driving up fossil fuel prices • 132 nations increased energy use faster than USA last decade, including India and China • “Hubbert’s Peak” says world oil production will peak in the 2003 to 2005, then decline • Oil purchases are a massive wealth transfer, propping up dictators, religious zealots, and those supporting global terrorism

3. Fossil Use is Changing Climate • Increasing atmospheric CO2 is warming the globe, causing: • Increased frequency and severity of storms • Threatens to flood low countries, such as Bangladesh • More rapid species extinction & disease spread • Developing countries can save money by reducing generation and transmission losses, and also reduce CO2 emissions

4. Cost of Work Drives Income per Capita • Recent economic analysis attributes 80% of per/capita income growth to changes in the real cost of work • Physicists “work” is useful changes – moving people, transforming product, illuminating, etc • Cost of work effected by: 1) fuel prices, 2) conversion efficiencies, 3) transmission losses, 4) appliance and vehicle conversion efficiency; 5) any other steps from fuel to useful work.

5. But Cost of Work Is Rising • Real fuel prices are increasing • Central electric generation efficiency has been frozen for 40 years at 33% • T&D losses are rising, due to grid congestion • Appliance efficiency gains are slowing • Mandated growth of renewable energy will raise electric prices • Without efficiency improvement, per capita incomes could begin shrinking.

6. Transporting EnergyRule of Sevens • One key to saving energy is choice of energy transmission, following rule of 7’s • Moving fuel (coal, gas, or oil) takes 7 times less energy than moving electricity, in best T&D (larger penalty with undersized T&D wires) • Moving thermal energy takes 7 times more energy moving electricity • Thus, moving thermal energy takes 49 times more energy than moving fuel.

7. Diseconomies of Scale • Large central power plants cost less to build than smaller local power plants, but: • One new KW delivered from central power plants requires 1.5 kW new plant (55,500 Rupees) and 1.5 KW new T&D, (87,000 Rupees); total of 142,000 Rupees • One new kW delivered from DG requires 1 kW new generation (50,000 Rupees) plus 0.1 kW new T&D (3,700 Rupees); total of 53,700 Rupees per delivered kW.

8. Local Generation Enables Energy Recycling

9. What is Recycled Energy? • Most fuel and electricity is used once, with all waste discarded • Power plants burn fuel and then discard 2/3’s as heat • Industry transforms raw materials to finished goods and then vents heat, pressure, & waste fuels • Captive power plants combine heat and power generation to recycle normally wasted heat • Recycling industrial waste energy produces clean power; no extra fossil fuel or pollution. • Can recycled power from bagasse, blast furnace gas, carbon black gas, hot exhaust, pressure drop

10. 10% Waste Heat 25% Electricity Waste Energy 100% 70% Steam Steam Generator BP Turbine Generator Recycled Energy (At user sites) No Added Pollution Capital costs similar to other CHP or DG plants

11. Recycled Energy Case Study: Primary Energy • We invested $360 million in six projects to recycle blast furnace gas and coke oven exhaust in four steel plants. • 440 MW electric and 460 MW steam capacity. • Return on assets exceeds 15% • Steel mills save over $100 million per year and avoid significant air pollution • Reduced CO2 equals uptake of one million acres of new trees.

12. 90 MW Recycled from Coke ProductionChicago in Background

13. What is Optimal Way to Meet Electric Load Growth; with CG or DG?

14. Central Versus Distributed Generation • WADE model includes all generation choices; calculates costs to meet 20 year expected load growth with CG or DG • DG scenarios include good CHP (4,000 Btu heat recovery per kWh electric,) industrial recycled energy, and renewable DG • Central generation scenario is user specified mix of electric-only plants, including renewable • Can model any country; need local data on existing generation, load growth, T&D losses

15. US Results, CG versus DG, for Next 20 years (Billion Dollars)

16. Extrapolating US Analysis the World • Insufficient data to run WADE model for the world • We believe US numbers are directionally correct for CG versus DG • We analyzed conventional approach of IEA Reference Case versus optimal solutions with DG using US values

17. Pollution 67% Total Waste Line Losses 9% Fuel 100% Power Plant T&D and Transformers Conventional Central Generation 33% delivered electricity Generation: $890 / kW 4,800 GW worldwide $4.2 trillion Transmission: $1,380 / kW 4,800 GW $6.6trillion To end users: $2,495 / kW 4,368 GW $10.8 trillion

18. Pollution 10% Waste Heat, no T&D loss Electricity Fuel 100% CHP Plants 90% Steam Chilled Water (At or near thermal users) Combined Heat and Power (CHP) Transmission $138/kW (10% Cap.) 0.44 GW DG $600 billion $6.0 trillion Generation: $1,200/kW 4,368 GW World Cost: $5.2 trillion DG vs. CG: ($1.0 trillion) To End Users $1,338/kW 4,368 GW $5.8 trillion $5.0 trillion

19. What is Lost if World Opts for DG? • World will consume 122 billion fewer barrels of oil equivalent (½ Saudi reserves) • Fossil fuel sales down $2.8 trillion • Medical revenues from air pollution related illnesses may drop precipitously • Governments might spend much of the savings to supply electric services to entire population • Global warming might slow down

20. Potential Indian Savings • No one has yet run WADE model for India • We believe Indian analysis will show similar savings and support a future built on distributed generation that recycles normally wasted energy, avoids T&D capital and T&D losses

21. Part II A Case StudyIndian DG Miracle

22. India’s Potential Future • The Indian economy has many elements in place for rapid economic growth • 900 million person common market • Many well educated people • Solid basic industry • However, inadequate access to electricity and frequent outages block progress. • Until 1994, Indian policy absolutely favored central generation – like every other country

23. The Indian Power System • India has 100,000 megawatts of mostly central generation • Only 60% of generated power reaches paying end users, due to line losses and theft • Many people lack access to, or only receive power a few hours per day • Government goal is to double delivered power in next decade. • What has DG contributed?

24. Central Power Historically Favored • State Electricity Boards were given monopoly rights to generate and distribute power • Federal government focused on new central generation, assumed all generation equal, but: • 1 kWh generated locally replaces 1.5 to 1.8 kWh generated centrally and avoids T&D capital costs • Historically, state grids refused to purchase or offered a fraction of the value of local power • These policies isolated wasteful monopolies, blocked innovation and efficiency, hurt industry

25. Sugar Cane DG Success Story • Sugar cane converts sunlight efficiently to hydrocarbons • Indian has 457 sugar cane mills • Bagasse is incinerated at sugar mills • 40% of bagasse can satisfy mill’s thermal and electric needs, rest could provide power for local area

26. Policies Changed • In 1994, Ministry for Unconventional Energy encouraged SEB’s to pay full value, pay half of interconnection costs and offer 13 year power purchase contracts with inflation adjustment • Most states in cane producing areas agreed and encouraged sugar industry to invest in modern power plants, selling surplus power to grid • The results are historic, not seen in any other country!

27. A DG Miracle is Underway! • In 5 years, 87 projects with 710 megawatts capacity have been built or are under contract • Adds 1% to Indian generation, but no line losses, so adds 2% to delivered power • This new clean energy is five times the power that will be generated worldwide by solar PV • Total potential from Indian bagasse is 5,000 megawatts – a sevenfold increase is possible

28. Economics of Bagasse based DG

29. Savings w/ Full Deployment • Add 5,000 megawatts local power, avoids 8,330 MW of new central power and T&D • Will reduce power costs by 39 billion Rupees/year • Will reduce carbon dioxide by 50 million metric tons per year • Will cut sulfur dioxide emissions by 310,000 metric tons per year • Can provide 12.5% addition to delivered power in India, without new government investment

30. Lessons and Observations • Policy changes have induced renewable energy development on a vast scale, exceeding every other country and; • Indian society already saving 5.6 billion Rupees per year, could rise to 39 billion savings/year • Next step: recycle industrial waste including blast furnace gas, carbon black gas, exhaust heat, refinery off-gas to generate 20 to 30,000 added local megawatts with no incremental pollution

31. Implications • Current trends hurt per capita income in all countries • India has started to reduce real cost of work by inducing captive power plants that recycle sugar mill waste, avoid T&D capital and losses • More regulatory changes are needed to induce recycling of all industrial waste energy and to induce all other new generation to recycle waste heat.

32. Implications for CII • Revenues and cost avoidance from recycled energy essential to remaining competitive • Growth of generation near users is the least costly way to end energy poverty • Changing Indian policy to favor all DG that recycles energy is key to economic growth • Electricity is too important to be left to central planning and regulated monopolies

33. Importance of DG Revolution • The DG revolution may, in time, match importance of the Green Revolution • We hope the DG revolution spreads beyond India, perhaps even to the US some day • We tip our hats to the enlightened government officials in India who have fostered a DG revolution • We encourage CII to help open energy industry to competition

34. Thank you for listening!