Turning Off the HeatTurning Off the Heat

Thomas R. CastenThomas R. CastenPresident and CEO,Trigen EnergyPresident and CEO,Trigen Energy

How to save money & mitigate climate change by unleashing competition and eliminating barriers to efficiency

Presentation SummaryPresentation Summary

•• Situation ReportSituation Reportll U.S. energy infrastructure is obsolete.U.S. energy infrastructure is obsolete.

ll Climate change is a problemClimate change is a problem

ll U.S. wastes > $100 billion/year on energyU.S. wastes > $100 billion/year on energy

ll Why no electric generation efficiency gains inWhy no electric generation efficiency gains in40 years?40 years?

•• Trigen has pioneered economical solutionsTrigen has pioneered economical solutions

•• A proposed solution -- ERRATA -- EnergyA proposed solution -- ERRATA -- EnergyRegulatory Reform And Tax ActRegulatory Reform And Tax Act

Situation ReportSituation Report

External Forces that CauseExternal Forces that CauseInefficient, Dirty, ExpensiveInefficient, Dirty, Expensive

Energy Production,Energy Production,Distribution, and UseDistribution, and Use

US Energy Infrastructure OldUS Energy Infrastructure Old•• Average US electric plant built in 1964Average US electric plant built in 1964

ll 33% delivered efficiency, wastes the rest33% delivered efficiency, wastes the rest

ll 100 times more polluting than today’s best100 times more polluting than today’s best

•• Costs 2 to 2.5 ¢ / kWh to transmit powerCosts 2 to 2.5 ¢ / kWh to transmit power

•• Thermal energy is non-core & neglectedThermal energy is non-core & neglectedll Little investment for efficiencyLittle investment for efficiency

ll Skill sets inadequateSkill sets inadequate

ll Massive distribution & conversion lossesMassive distribution & conversion losses

ll Little physical arbitrage capabilityLittle physical arbitrage capability

Energy Generation EfficiencyEnergy Generation EfficiencyCurveCurve

0%0%

10%10%

20%20%

30%30%

40%40%

50%50%

60%60%

70%70%

80%80%

90%90%

100%100%

18801880 18901890 19001900 19101910 19201920 19301930 19401940 19501950 19601960 19701970 19801980 19901990

Monopoly Efficiency Gap

Trigen CHP Plants

Best Electric Only Plants

U.S. Average Electric Only

Estimated U.S. Average with Market Competition

Climate Change is a ProblemClimate Change is a Problem

00

11

22

33

44

55

66

77

00 200200 400400 600600 800800 10001000 12001200 14001400 16001600 18001800 20002000

YearYear

Population in Population in BillionsBillions

World Population GrowthWorld Population Growth

00

11

22

33

44

55

66

77

18501850 18701870 18901890 19101910 19301930 19501950 19701970 19901990

YearYear

Billion Metric Billion Metric Tons Tons

of Carbonof Carbon

World Carbon Dioxide EmissionsWorld Carbon Dioxide Emissionsfrom Fossil Fuelsfrom Fossil Fuels

Atmospheric COAtmospheric CO2 2 Concentration andConcentration andAssociated Temperature ChangesAssociated Temperature Changes

140140

160160

180180

200200

220220

240240

260260

280280

300300

320320

340340

360360

002020404060608080100100120120140140160160-10-10

-5-5

00

55

1010

1515

TemperatureTemperatureChangeChange

(degree C)(degree C)

COCO2 2 ConcentrationConcentration

(parts per million)(parts per million)

Thousand Years Before PresentThousand Years Before Present

1700AD Level

Current Level

CO2 Concentration

Temperature Change

Global Temperature AnomaliesGlobal Temperature Anomalies(1880 - Present)(1880 - Present)

-1-1

-0.5-0.5

00

0.50.5

11

1.51.5

18801880 18901890 19001900 19101910 19201920 19301930 19401940 19501950 19601960 19701970 19801980 19901990

Temperature Deviation Temperature Deviation from 1880-1998 Mean from 1880-1998 Mean

(deg. F) (deg. F)

Greenhouse Gas ProblemGreenhouse Gas Problem•• Highest level of COHighest level of CO22 in 160,000 years in 160,000 years

•• Ice core data shows ten times theIce core data shows ten times thecorrelation of COcorrelation of CO22 and temperature and temperature

•• Government leaders seek ways to reduceGovernment leaders seek ways to reduceCOCO22 that won’t disrupt the economy that won’t disrupt the economy

•• 68% of CO68% of CO22 comes from heat and power comes from heat and powerproductionproduction

•• Combining heat and power generationCombining heat and power generationon-site saves money and cuts COon-site saves money and cuts CO22

COCO22 Emissions by Sector Emissions by Sector

21%

7% 5%33%Thermal 35%

32%

Electric

Generation

Transportation

Industrial

Residential

Com

mercial

CO2 from

heat &

power

68%

U.S. Wastes > $100U.S. Wastes > $100Billion/Year on EnergyBillion/Year on Energy

Real Cost SavingsReal Cost Savings10 Years after Deregulation10 Years after Deregulation

0%0%

10%10%

20%20%

30%30%

40%40%

50%50%

60%60%

70%70%

AirlinesAirlines RailroadsRailroadsGasGas

27%

57%

LongLongDistanceDistanceTelecomTelecom

40%

47%

TruckingTrucking

28%

58%

ElectricElectricPowerPower

30%

40%

29%

44%

EIAEstimate

U.S. Energy Market 1995U.S. Energy Market 1995

$207 Billion$207 Billion All U.S.All U.S.ElectricElectric

$157 Billion$157 Billion All U.S.All U.S.HeatingHeating

Annual Costs - $364 BillionAnnual Costs - $364 Billion

U.S. Energy Cost with DeregulationU.S. Energy Cost with Deregulation

$255 Billion$255 BillionAll U.S Heating All U.S Heating

and Electricand Electric

CHP, otherCHP, other

Customer Savings per Year = $109 BillionCustomer Savings per Year = $109 Billion

Why No Electric IndustryWhy No Electric IndustryProgress in 40 Years?Progress in 40 Years?

•• Intelligent energy policy must answer thisIntelligent energy policy must answer thisquestion. Subordinate questions:question. Subordinate questions:ll Is better technology available?Is better technology available?

ll Will replacing present generation lower costs.Will replacing present generation lower costs.

ll Will new plants decrease pollution?Will new plants decrease pollution?

ll Does central generation idea block progress?Does central generation idea block progress?

ll Does monopoly protection block progress?Does monopoly protection block progress?

ll Have environmental regulations kept up withHave environmental regulations kept up withtechnology?technology?

Is better technologyIs better technologyavailable?available?

YES

Generating Efficiencies of VariousGenerating Efficiencies of VariousTechnologies TodayTechnologies Today

85%85%

66%66%

0%0%

20%20%

40%40%

60%60%

80%80%

100%100%

COALCOALCHPCHP

45%45%

Fuel Cell Fuel Cell Fuel CellFuel CellCHPCHP

39%39%

GTGTSIMPLESIMPLECYCLECYCLE

55%55%

GTCCGTCC GTCCGTCCCHPCHP

GTCCGTCCCHP w/CHP w/sup firesup fire

U.S. AverageEfficiency

33%

COALCOAL

40%40%

ELECTRIC ONLY

78%78%

CHP90%90%

Supplemental Firing

GTCC = Gas Turbine Combined Cycle

CHP = Combined Heat and Power

Conventional ThermalConventional ThermalGenerationGeneration

Fuel 100% Electricity 33%

(Remote from thermal users)

67% Waste Heat

Pollution

Power Plant

Combined Cycle GasCombined Cycle GasTurbine GenerationTurbine Generation

Fuel 100% Electricity

55%

(Remote from thermal users)

45%WasteHeat

Pollution

Power Plant

Combined Heat and PowerCombined Heat and Power(CHP)(CHP)

Fuel100%

(On or near thermal user sites)

Steam

Electricity

ChilledWater

90%

10% Waste Heat

Pollution

CHP Plants

Will replacing existingWill replacing existinggeneration lower costs?generation lower costs?

Yes

Marginal Electric CostsMarginal Electric Costs

$0$10

$20$30$40

$50$60$70$80$90

GTCC(EIA/DLJ)

CHP (Trigen)

$/MWh

Coal (EIA/DLJ)

Net Fuel, O&M T&D CapitalAverage US electric price in 1997

Merchant Power Approach

B PressTurbine

001.01.0

2.02.03.03.04.04.05.05.06.06.0

8.08.0

7.07.0

9.09.0cents/kWh

Closing Monopoly Efficiency GapClosing Monopoly Efficiency GapDollar value/dollar fuel cost

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

Heatonly

Electonly

CWonly

CHP

Will new plants decreaseWill new plants decreasepollution?pollution?

YESYES

New Technology Emits 1%New Technology Emits 1%of the Pollution of Olderof the Pollution of Older

PlantsPlants

Average age of US generationAverage age of US generationplant is 1964 -- 35 years oldplant is 1964 -- 35 years old

History of Gas Turbine NOx ControlsHistory of Gas Turbine NOx Controls

0

20

40

60

80

100

120

140

160

180

200

1975 1980 1985 1990 1995 2000Year

NOx Emissions (parts per million)

Water/Steam Injection

SCRSCONOX

Dry Low-NOx Burners

Expected Catalytic

Combustor

Pollution/mWh of Energy OutputPollution/mWh of Energy Output

050

100150200250300350400450500

Pre 1972Central Plant

1980 CentralPlant

1999 CHPPlant

2005 CHPplant

Input Based NOx PPM Output Corrected NOx PPM

Uncontrolled CHP plants

that are denied permits

Average Output Corrected NOx For Each State

Does the central generationDoes the central generationparadigm block progress?paradigm block progress?

YesYes

Energy Market Failures FromEnergy Market Failures FromCentral Generation ParadigmCentral Generation Paradigm

•• 90 years of monopoly have created central90 years of monopoly have created centralgeneration paradigmgeneration paradigmll Distributed power blocked by monopoliesDistributed power blocked by monopolies

ll Failure to focus on using waste heatFailure to focus on using waste heat

ll Unintentional barriers to efficiency enactedUnintentional barriers to efficiency enacted

•• Regulations lock in obsolete generationRegulations lock in obsolete generation

•• Environmental laws penalize efficiencyEnvironmental laws penalize efficiency

Monopoly Protection BlocksMonopoly Protection BlocksEfficiencyEfficiency

•• Regulator focus on rate of returnRegulator focus on rate of returnll Utilities seldom allowed to keep efficiencyUtilities seldom allowed to keep efficiency

savings -- savings -- YOU GET WHAT YOU REWARDYOU GET WHAT YOU REWARD

ll Monopolies over built to increase profitsMonopolies over built to increase profits

ll Long lived plants are economically obsolete &Long lived plants are economically obsolete &protected; result is needless cost and pollutionprotected; result is needless cost and pollution

•• Competition blocked -- slows innovationCompetition blocked -- slows innovation

•• Utilities’ costs of fighting distributed powerUtilities’ costs of fighting distributed powerare added to rates -- consumers pay twiceare added to rates -- consumers pay twice

State Rules Block Efficient andState Rules Block Efficient andCheap GenerationCheap Generation

•• Non-utility retail sales prohibitedNon-utility retail sales prohibited

•• Connection to neighbors prohibitedConnection to neighbors prohibited

•• Third parties banned from generationThird parties banned from generation

•• Manning rules based on 1930Manning rules based on 1930technology penalize distributed powertechnology penalize distributed power

•• Market sourcing of backup power illegalMarket sourcing of backup power illegal

Other State Laws AreOther State Laws AreBarriers to EfficiencyBarriers to Efficiency

•• Siting review of all power plantsSiting review of all power plants

•• Electric companies allowed to bundleElectric companies allowed to bundleservices (Violation of antitrust laws?)services (Violation of antitrust laws?)

•• Utilities use interconnection rules toUtilities use interconnection rules todiscourage distributed powerdiscourage distributed power

•• Revisit history to learn what could haveRevisit history to learn what could havehappened to US generation efficiencyhappened to US generation efficiency

Have environmentalHave environmentalregulations kept up withregulations kept up with

technology?technology?

NO

Emission Rules Block EfficiencyEmission Rules Block Efficiency

•• Input based standards ignore efficiencyInput based standards ignore efficiency

•• Old plants main pollution source, butOld plants main pollution source, butgrandfatheredgrandfatheredll Old plants are up to 100 times moreOld plants are up to 100 times more

polluting than new plants, 1/2 as efficientpolluting than new plants, 1/2 as efficient

•• Air rules make modernizing old plantsAir rules make modernizing old plantsprohibitively expensiveprohibitively expensive

•• Ever tougher standards for new plantsEver tougher standards for new plantsraise costs, slow deploymentraise costs, slow deployment

Trigen Energy CorporationTrigen Energy CorporationHas Pioneered SolutionsHas Pioneered Solutions

What Can Be Learned fromWhat Can Be Learned fromTrigen’s Approach andTrigen’s Approach and

Experience?Experience?

Trigen Energy CorporationTrigen Energy CorporationMission StatementMission Statement

Provide heating, cooling and electricityProvide heating, cooling and electricity

with half the fossil fuel and half thewith half the fossil fuel and half the

pollution of conventional generationpollution of conventional generation

Reasons for Mission: Reasons for Mission:

•• Electric generation efficiency is very lowElectric generation efficiency is very lowand stagnant -- market failuresand stagnant -- market failures

•• All vectors point to CHPAll vectors point to CHP

•• Best ways to mitigate climate changeBest ways to mitigate climate changemust:must:ll Extract more value from all fuelExtract more value from all fuel

ll Reduce fossil fuel use and pollution.Reduce fossil fuel use and pollution.

ll SAVE USERS MONEY!SAVE USERS MONEY!

Total Trigen Capacity inTotal Trigen Capacity inMegawattsMegawatts

010002000300040005000600070008000

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

Signed

CAGR = 34%/Year

GHG Saved by TrigenGHG Saved by Trigen

0

500

1000

1500

2000

2500

1997 1998

GHC M Tons

Criteria Pollutants Saved byCriteria Pollutants Saved byTrigenTrigen

0

5000

10000

15000

20000

25000

1997 1998

M tons

Why Haven’t More Followed?Why Haven’t More Followed?•• Difficult to generate profits with on-siteDifficult to generate profits with on-site

CHP because of barriers to efficiencyCHP because of barriers to efficiencyll Protected distribution monopolies block on-Protected distribution monopolies block on-

site generationsite generation

ll Environmental rules preserve status quoEnvironmental rules preserve status quoand penalize efficiencyand penalize efficiency

•• Energy entrepreneurs thus focus onEnergy entrepreneurs thus focus oncentral generation - AES, central generation - AES, CalpineCalpine, others, others

•• Equipment suppliers follow, focus onEquipment suppliers follow, focus oncentral generation sized plantscentral generation sized plants

Who Will Invest in Conservation?Who Will Invest in Conservation?

•• Monopoly DSM is an oxymoron, willMonopoly DSM is an oxymoron, willnever produce significant savingsnever produce significant savings

•• Retail competitors for centrallyRetail competitors for centrallygenerated power lose with DSMgenerated power lose with DSM

•• On-site power provider gains sale withOn-site power provider gains sale withsavings and increased qualitysavings and increased qualityll must learn customer’s processesmust learn customer’s processes

ll specializes by industryspecializes by industry

ll reduces energy/unit of productionreduces energy/unit of production

NEEDED:NEEDED:Path to sustainable futurePath to sustainable futurewith lower costs and lesswith lower costs and less

pollutionpollution

How?How?•• Modernize regulation, eliminate barriersModernize regulation, eliminate barriers

to efficiencyto efficiency

•• Unleash competition to reduce costsUnleash competition to reduce costs

A Proposed Solution --A Proposed Solution --ERRATAERRATA

The Energy Regulatory ReformThe Energy Regulatory ReformAnd Tax ActAnd Tax Act

Energy Regulatory Reform AndEnergy Regulatory Reform AndTax ActTax Act

•• National deregulation of electricityNational deregulation of electricity

•• Repeal PUHCA and most of PURPARepeal PUHCA and most of PURPA

•• Output based environmental regulationOutput based environmental regulationll Replace BACT, LAER, NSPS with fossil andReplace BACT, LAER, NSPS with fossil and

NOx allowances/mWh of heat & powerNOx allowances/mWh of heat & power

•• Eliminate barriers to efficiencyEliminate barriers to efficiency

•• End tax penalties on efficiencyEnd tax penalties on efficiency

•• Federal purchase of energy efficiencyFederal purchase of energy efficiency

CO2 Emissions due to Monopoly Efficiency Gap

COCO22 Emissions from U.S. Electric Emissions from U.S. ElectricPower GenerationPower Generation

0.5

1

1.5

2

2.5

3

3.5

1998 2008 2018

CurrentCO2

Emissions

Further CO2 Reductions from a Fossil Fuel Efficiency Standard

Billion Tons CO2 per Year

Existing Monopoly

Market Competition

Market Competition & Fossil Fuel Efficiency Standard

1990 CO2 Emissions

Who are theWho are the WINNERS & LOSERS WINNERS & LOSERS

•• Boilermakers andBoilermakers andsteamfitterssteamfitters

•• Equipment makersEquipment makers

•• Engineering,Engineering,procurement andprocurement andconstruction firmsconstruction firms

•• Energy researchEnergy research

•• All consumersAll consumers

•• The environmentThe environment

•• The planetThe planet

•• OPECOPEC

•• Coal minersCoal miners

•• Oil lease holdersOil lease holders

•• Oil exploration firmsOil exploration firms

•• Countries that do notCountries that do notfollow suit, keepfollow suit, keepenergy protected,energy protected,efficiency low, costsefficiency low, costshighhigh

US Gains From ERRATAUS Gains From ERRATA•• $200 billion work for $200 billion work for EPCsEPCs, craft persons, &, craft persons, &

equipment manufacturersequipment manufacturersll Substitute capital and knowledge for fossil fuelSubstitute capital and knowledge for fossil fuel

•• Competition will lower costs and lessenCompetition will lower costs and lessenfossil fuel and NOx per megawatt hourfossil fuel and NOx per megawatt hourll Heat & power costs drop by > $109 billionHeat & power costs drop by > $109 billion

ll COCO22 from electric will be halved in 20 years from electric will be halved in 20 years

•• US gains competitive advantage overUS gains competitive advantage overcountries that do not follow suitcountries that do not follow suitll Inverts anti-Kyoto argumentsInverts anti-Kyoto arguments

Other Countries Gains FromOther Countries Gains FromUS Passage of ERRATAUS Passage of ERRATA

•• Companies with US operations will carryCompanies with US operations will carryon-site power globallyon-site power globally

•• Growing on-site power market --> betterGrowing on-site power market --> betterequipment value --> cheaper heat & powerequipment value --> cheaper heat & power

•• Developing economies skip centralDeveloping economies skip centralgeneration step, go directly to CHPgeneration step, go directly to CHP

•• Renewable energy and waste fuel bothRenewable energy and waste fuel bothgain from move to on-site powergain from move to on-site power

For More CompleteFor More CompleteExplanation, See:Explanation, See:

•• “Turning Off The Heat,” Prometheus Press“Turning Off The Heat,” Prometheus Pressll Published October 1998Published October 1998

ll Forward by former DOE Secretary FedericoForward by former DOE Secretary FedericoPeñaPeña

ll Recommended by Bennett Johnston, formerRecommended by Bennett Johnston, formerChair, Senate Energy CommitteeChair, Senate Energy Committee

ll Reviewed by Len Reviewed by Len HymanHyman, senior utility analyst,, senior utility analyst,Salomon Smith BarneySalomon Smith Barney

ll Available from publisher, web booksellersAvailable from publisher, web booksellers

Thank You ForThank You ForListeningListening