Climate Change and Creative Destruction of Inefficient Generation Energy in California Tenth Annual Conference Thomas R. Casten, Chair Recycled Energy Development, LLC September 23, 2008 Presentation Synopsis Three possible climate change strategies, but rules focus on hair shirt and fuel switch approaches, make efficiency a distant third Generation inefficiency is the Elephant in the Room that no one sees Improving generation efficiency prevents pollution & addresses climate change, jobs, balance of payments, security, income growth & more Outmoded regulations are full of barriers to efficiency block creative destruction Policies to profitably achieve CA target GHG reductions by improving generation efficiency
Climate Change Strategies The Elephant in the Room Regulatory Barriers Suggested Policies Energy Policy Decision Tree NO Drill Baby, Drill Is Global Warming A Problem? Fuel Switch YES Hair Shirt (cut use of energy services) Increase Efficiency
Possible Strategies to Mitigate Climate Change Fuel Switch encourage nuclear, wind, solar, other renewable, or natural gas to reduce CO2 Mandates, Renewable Portfolio Standards (RPS) Hair Shirt raise energy prices, mandate reductions of energy services use (Hard Sell) Tax pollution, tax fossil fuel (ala Europe), end fossil subsidies, ration electricity (developing world) Improve efficiency Reduce end use waste (appliance, building and vehicle efficiency) Reduce generation waste (The elephant no one discusses) by recycling byproduct heat Reduce industrial energy waste by recycling into heat and power Can Fuel Switching Solve Climate Problem? Al Gore calls for 100% switch to renewable generation by 2020 Huge investment in T&D and wind Solar very expensive Dirty coal underpins much industrial production Consider historical data Consider doubling fossil generation efficiency first
US Fuels for Electricity % of total fuel 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Petroleum Coal Natural Gas Nuclear Renewable C 1905 1915 1925 1935 1945 1955 Year 1965 1975 1985 1995 2005 2020 Politics of Applying Hair Shirt Climate change mitigation debate framed wrongly how much will it cost to reduce GHG emissions Faced with inevitable Hair Shirt, many question the science of climate change Policies subsidize energy, encouraging more use of energy Depletion allowances, tax credits for fossil fuel Subsidies of nuclear and coal research Extreme political difficulty enacting fossil fuel taxes or pollution taxes, or reducing subsidies
What About Efficiency? Many programs to encourage end-use efficiency, led by California on appliance standards, auto efficiency, building envelope, etc. Less attention to generation efficiency, no net progress Electric generation efficiency peaked, has not improved in 50 years (see Technology and Transformation Richard F. Hirsh) Markets not allowed to work Regulations penalize efficiency investment Need paradigm shift to local generation to double efficiency and prevent pollution Climate Change Strategies The Elephant in the Room Regulatory Barriers Suggested Policies
Generation Efficiency Largely Ignored or Discouraged Homer Simpson s Power Plant
Generation Plant in Craig, CO, Venting 65% of Input Energy Inefficient US Electric Generation 100% 90% Related Headlines: Recent Warming of Arctic may Affect World Climate -NASA 80% 70% US Manufacturing Jobs Fading Away Fast -USA Today Efficiency 60% 50% 40% Wasted Energy UN Warns of Rapid Decay of Environment -New York Times OPEC Not Expected to Raise Production despite Record-High Oil Prices -Associated Press 30% 20% 10% U.S. Delivered Electric Efficiency 0% 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 Year
Growth of CO2 from Electric Generation % US CO2 from Electric Generation % CO2 from Elec. Gen 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 1949 1953 1957 1961 1965 1969 1973 1977 1981 Year 1985 1989 1993 1997 2001 2005 2005 Fossil CO 2 Emissions (MM Tons/yr) Transportation 31% Electricity 42% Thermal 27% Heat and Power; 69% of fossil CO 2 Emissions
100% 90% 80% $2 Billion of Energy Recycling Plants (200 Projects) Industrial Waste Heat Recovery (6 Projects) Efficiency 70% 60% 50% 40% Steam Pressure Recovery (190 Projects) Combined Heat & Power (56 Projects) 30% 20% 10% U.S. Delivered Electric Efficiency 0% 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 Year Efficient Generation Saves More GHG/MW of Capacity Than Wind (Equal or Less Savings/MWh, Higher Load Factor) Tons CO2 / MW WH 0.8 0.6 0.4 0.2 0 Wind 60% Eff. CHP 90% Eff. CHP Recycled Energy 8000 6000 4000 2000 0 p. / Yr Tons CO2 / MW Ca
Cost (Savings) / Ton of Avoided CO 2 Emissions lars / Ton Avoided CO2 Dol $500 $400 $300 $200 $100 $0 -$100 -$200 -$300 Recycled Energy Fuel Switch Efficiency CHP RE w/ CHP Biomass CHP NG CCGT Clean Energy Type Biomass Elec. Only Remote Wind Farm Nuclear Coal w/ Seq. Concentrated Solar Solar PV Local Generation That Recycles Waste Energy Eases Many Problems Local generation with energy recycling: Gives factories added revenue, Preserves manufacturing jobs Saves money and Cuts CO 2 emissions Prevents Pollution Requires paradigm shift to local generation Waste energy streams do not travel economically, must convert on the spot Waste heat only economic to transport 2 to 4 miles, needs local gen
Thomas R. Casten of Recycled Energy Development LLC Speaker 14: 11 Indiana CHP Plant Recycles Heat To US Steel Tin Plate Plant (85% efficiency) Cokenergy, Mittal Steel, Northern Indiana
Silicon Furnace Alloy WV Electricity, coal and wood chips melt quartz in a large furnace Models Show Local Generation is a Win/Win World Alliance for Distributed Generation (WADE) modeled 20 year future of U.S. generation and electric use. Meeting growth with local generation versus central generation: Reduced capital investment by 50% Reduced CO 2 emissions in U.S. by 20% Reduced fossil fuel for electric generation by 40% Saved $150 to $200 billion per year
Best New Generation: Recycle Industrial Energy Wasted energy streams in nineteen industries could generate 19% of US electricity Recycled Energy in the US 9,900 MW Recycled Energy in Service 95,000 MW Identified d Opportunities Source:USEPA 2004 Study Mix of Local and Central Generation in the U.S. Local Gen Central Gen Local Gen 7% Central Gen 93%
Generation Efficiency Conclusions Central electricity-only generation has bumped thermodynamic limits since mid-1950s, but: Utilities remain committed to electric-only generation, stopped improving efficiency in 1950 s, are now loosing ground We appear to have bred efficiency out of the U.S. energy conversion system The elephant in the room, although largely invisible, causes many problems Climate Change Strategies The Elephant in the Room Regulatory Barriers Suggested Policies
The Problem Is Dysfunctional Regulation Since the Industrial Revolution, government regulation has been used to control the production and distribution of the social necessity called energy Energy Law Toman, Joseph P. and Cudahy, Richard D. West Publishing Co., 1992 Regulatory Barriers to Efficiency Utilities not rewarded for efficiency since 1920 The 1970 Clean Air Act ignores efficiency, mandates controls that increase parasitic loads, cut efficiency New Source Review penalizes efficiency investments with loss of operating permit Blocks new power plant construction. Weighted average age of coal plants: 1970: 10 years old 2007: 35 years old Historic energy policies put Hair Shirt and Fuel Switching first, treat efficiency as an afterthought
Regulations Block Creative Destruction of Inefficient Generation Creative Destruction: Building new production capacity that destroys value of existing production capacity, but produces net benefits to consumers. Joseph Schumpeter However: Electricity is not a free market, limited entry and exit, conscious distortion of price signals Regulations protect existing generation, block creative destruction and hold back efficiency ygains More on Barriers to Efficiency Clean Air Act allows old plants historic emissions, but requires 90% to 98% reduction of pollution from new plants, which h must then compete w/ dirty plants This blocks creative destruction Local generation that recycles wasted energy typically not paid for 1/3 of benefits it creates: Reduced T&D investment and line losses Reduced criteria and GHG pollution Reduced need for redundant capacity Seldom included in portfolio standards Not given credit for avoiding wires and line losses This blocks creative destruction
Climate Change Strategies The Elephant in the Room Regulatory Barriers Suggested Policies Policy Options to Induce Clean Local Generation 1) Clean Energy Standard Offer Program or CESOP long term contracts for clean energy 2) Add all clean energy to RPS rename Clean Energy Portfolio Standards 3) Convert Clean Air Act to Output Pollution Standards and include both criteria pollutants and CO 2,
Clean Energy Standard Offer Program (CESOP) Induce all clean technology with a 'Clean Energy Standard Offer Program' (CESOP): 20-year contracts to clean technology facilities 15% discount versus delivered cost from best new electric-only plants. Require sale to grid to be eligible for CESOP avoids backup issue, keeps distribution healthy CESOP is win/win; prevents pollution, reduces fossil fuel, reduces manufacturing costs, adds industrial jobs Reduces electric rates, avoids T&D investments and line losses Convert RPS to Clean Energy Portfolio Standard Goal is cleaner energy, renewable just one path Define Clean Energy as generation with 60% or higher fossil efficiency this minimum is nearly double average electric-only fossil generation Raise RPS mandates to 50% of total generation, but count all generation meeting above fossil efficiency standard. Includes: All renewable generation All industrial i waste energy recycling Good quality CHP Nuclear Let market pick winners
Output Pollution Standards CO2 permits tied to useful output of electricity and of thermal energy All major sources must obtain sufficient permits for annual CO2 emissions Dirty plants purchase permits from clean plants Clean plants sell excess permits By recycling waste heat, generation plant can earn more permits without increasing CO2 Each h stick k has equal l carrot, so overall price of power stays constant, but markets pick technology Lower permits per unit of output over time, corrected for total output of useful heat and power Other Policy Changes State Government: End all State monopoly protection of electric generation Preserve monopoly protection of electric distribution Federal Government: End New Source Review, use output based permits to control and reduce pollution, inducing investments in efficiency National Clean Energy Portfolio Standards covering all clean energy, including waste energy recycling
Conclusions Failure to improve generation efficiency since 1960 is the elephant in the room, causes many problems U.S. can reduce CO2 emissions by 20% and save $150 billion per year with local generation that recycles waste energy Regulatory changes will induce profitable GHG reduction States should encourage all clean energy - allow efficient CHP and wasted energy recycling to satisfy RPS standards Focus on the goal reduced GHG emissions and not the path not favoring the technology du jour Thank You for Your Interest in Clean Energy XX