RECYCLYING ENERGY: The Relationship Between Useful Work, Economic Growth & Energy Regulation

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Aubrey Ball
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1 USAEE/IAEE: 25th Annual North American Conference September 20, 2005 RECYCLYING ENERGY: The Relationship Between Useful Work, Economic Growth & Energy Regulation Thomas R. Casten Chairman & CEO Primary Energy, LLC

2 Background Observations Income largely determined by availability of energy services useful work Fossil fuel use has spurred huge income gains and environmental damage Two thirds of fuel used for heat and power Economists assume that the power system is near optimal, given available technology Apparent governance dilemma: balance economic growth and a healthy biosphere

3 Power System Is Not Optimal, Fails to Recycle Waste Energy

4 Conventional Central Approach 1960 Data (& 2003 Data) Pollution Waste Heat Transmission Line Losses 3 units (7.5%) 67 units Waste Energy Fuel = 100 units End User Power Plant 33 units Electricity

5 Defining Recycled Energy Recycled energy is useful energy derived from: Exhaust heat from any industrial process or power generation Industrial tail gas that would otherwise be flared, incinerated or vented, Pressure drop in any gas

6 Industrial Energy Options Saved Energy Input Electricity Energy Recycling Plant Finished Goods Process Fuel Waste Energy Electricity Steam Hot Water End User Site

7 Primary Energy s s Approach 90 MW Recycled from Coke Production

8 Recycled Industrial Energy Potential Recycled industrial energy could supply 45 to 92 gigawatts (Per US EPA study) 30% to 60% of US nuclear fleet Could supply 19% of US power Comparable numbers likely in other industrialized nations Recycled energy is as clean as renewable energy no incremental fuel or emissions Only 9.9 gigawatts operating

9 Decentralized Generation Option Combined Heat and Power Pollution Fuel 100 units CHP Plant = 33 units Waste Energy 33 units Thermal Energy 33 units Electricity 66 units Useful Work Recycle Waste Heat End User Site

10 Potential for up to 50% of Electricity from CHP, based on Selected Countries in Denmark Netherlands Finland Russia Germany Poland Japan China Portugal Canada Mexico WORLD US UK Indonesia France Brazil India Argentina DE share as a % of total power generation

11 Skeptics Admit Local Generation Saves Fuel, But Claim Economies of Scale Make Central Generation Optimal

12 Economies of Scale? Central versus Decentralized Generation Conventional Central Generation Generation $890 Transmission & Distribution $1380 Total / kw of Generation $2,270 KW required/ kw Load 1.52 Total costs/ kw New Load $3,450 Decentralized Generation $1,200 $138 $1, $1,432 Savings (Loss) of Local vs Central Generation ($310) $1,242 $1, $2,018 Central Generation Capital as a % of DG Capital (74%) 1000% 213% 142% 241%

13 Local generation that recycles energy is more efficient, less capital intensive, less polluting, and less vulnerable to extreme weather and terrorism than central generation

14 Why Do Most Countries Keep Building Central Generation? Power industry is enormous with many players, so we assume market forces must drive industry towards optimality This suggests something must be wrong with analysis, but The flaw is in the assumption, power industry governance ignores lessons of economics

15 Market Enabling Conditions Are Not Met in Any Country Free entry into the business Clear price signals Absence of price subsidies that distort decisions Charges for externalities Restriction of predatory practices by established firms against insurgent firms

16 Anti-trust trust rules are inverted in the electric power sector, helping incumbent monopolies block insurgent company innovation

17 What is Economic Impact of Energy Inefficiency? Economists have not been overly concerned: Raw energy use does not correlate with income growth, seems to be only one of many inputs But useful work does matter Ayres estimated useful work done every year of 20 th century, factoring in all efficiencies in energy chain Replaced TPF with changes in useful work in three factor model and predicted observed growth

18 Implications Changes in useful work appear to explin 7/8ths of observed income growth, but: Power system efficiency stagnated after 1960 Century long fossil fuel price decline has reversed Mandates to deploy renewable energy are raising costs of energy services Income growth is not a given increasing costs of energy services could slow or even reverse income growth It is thus vital to optimize production of heat and power, which requires local generation that recycles waste energy

19 Conclusion: Global economic and environmental health depends upon the speed at which governments unleash competition in the world s largest industry: electric power generation

20 Thank you

22 Electricity Generation CO2 Performance versus GDP Real GDP All Generation All Generation/GDP Fossil Fuel Generation Carbon per MWh

23 Growth of US Real GDP & Fossil Carbon Emissions, All Sectors of the Economy Real GDP % / Year CO 2 Emissions +0.97% / Year CO 2 Emissions Flat Actual CO 2 / GDP -2.04% / Year Flat CO2 Intensity -2.98% / Year

Profitably Reducing CO2 by Recycling Energy Some Convenient Truths

Congressional Briefing June 20, 2006 Profitably Reducing CO2 by Recycling Energy Some Convenient Truths Thomas R. Casten Chairman & CEO Primary Energy, LLC Climate Change Mitigation A Governance Dilemma?