Transcript Turning Down the Heat

CAEM – Competitive Energy Markets
Optimal Provision of New
Electric Load
Thomas R. Casten
Chairman & CEO
Primary Energy, LLC
Scott Tinker, Director
Bureau of Economic Geology
August 4, 2003
Summary
 Successful organizations agree on goals and mission, then
concentrate on tactics.
 Start by understanding the environment.


Rising electric rates, rising fuel costs, concerns about excessive
fossil fuel use and global warming, manufacturing job loss, and fear
for our way of life.
Expect journalists and politicians to fix blame.
 Figure out how to fix the problem

Determine consensus goals

Identify opportunities to advance goals

Quantify the problem and opportunity
 Articulate a clear, elegant, mission
Three Key Power System Goals
 Availability of Energy Services
 Availability of Energy Services
 Availability of Energy Services
Subordinate Power System
Goals
 Limit capital expenditure
 Reduce rates
 Reduce fossil fuel use
 Reduce pollution
 Reduce global warming
 Reduce system vulnerability
 Reduce manufacturing job loss
What is the Problem?
Is it the conventional wisdom?
 Large generation has economies of
scale
 All power will flow through wires
 (New) ‘Technology is the Ticket’
President Bush, May 2005
 Free markets cannot provide the world’s
most second most important service
(Beer is first)
Assess the Power System
 Did power industry chose optimal
approaches in the past?
 What is best way to meet expected US and
world load growth?
 What are the effects of 100 years of
monopoly protection of electric
distribution?
 Compare options for meeting expected load
growth
Conventional Central Generation
Pollution
Waste Heat
Transmission Line Losses
3 units (9%)
67 units
Waste
Energy
Fuel
100
units
=
Power Plant
End User
33 units
Electricity
Combined Heat and Power
Pollution
33 units
Waste
Energy
Fuel
100
units
=
33 units
Thermal
Energy
CHP Plant
33 units
Electricity
Waste
Heat
Recovery
End User
Site
66 units
Useful
Work
Capital Costs per Kilowatt, Central
versus Decentralized Generation
Generation
Total
KW
Transmission Total / kW
costs/ kW
required/
&
New
of
Distribution Generation kW Load
Load
Conventional
Central
Generation
$890
$1380
$2,270
1.52
$3,450
Decentralized
Generation
$1,200
$138
$1,338
1.07
$1,432
Savings (Loss)
of Local vs
Central
Generation
($310)
$1,242
$1,068
0.47
$2,018
% of Central
Generation
(34%)
90%
47%
59%
Central Generation Paradigm
Blinds Society to Cheapest,
Cleanest Option:
Recycling Industrial Energy
Defining Recycled Energy
 Recycled energy is useful energy
derived from



Exhaust heat from any industrial process;
Industrial tail gas that would otherwise be
flared, incinerated or vented; and
Pressure drop in any gas
Conventional Industrial Site
Electricity
Finished
Goods
Process
Fuel
Waste
Energy
End User
Site
Recycled Energy
Saved
Energy Input
Energy
Recycling
Plant
Electricity
Finished Goods
Process
Fuel
Waste
Energy
Electricity
Steam
Hot Water
End User
Site
US Industrial Recycling Potential
 Recycled energy could supply 45 to 92
Gigawatts of fuel-free capacity – 13% of US peak
 Recycled energy is as clean as renewable
energy – no incremental fuel or emissions, but:



Capital costs are $500 to 1,500/kW, only 12% to 40% of
solar and wind generation,
90% load factors versus 14-40% for solar & wind
Recycled energy is both clean and economic option
for new power generation.
 EIA shows only 2.2 Gigawatts operating
Recycled Energy Case Study:
Primary Energy
 NiSource invested $300 million in six projects to
recycle blast furnace gas, coke oven exhaust in
four steel plants, 440 megawatts of electric
capacity and 460 megawatts of steam capacity.
 Steel mills save over $100 million per year and
avoid significant air pollution

The CO2 reduction is equivalent to the uptake of one
million acres of new trees.
 The projects are profitable; were recently sold for
$335 million to our firm
90 MW Recycled from Coke Production
Chicago in Background
Has US Power Industry Made
Optimal Decisions?
 We analyzed major power generation
technologies over 1988-2002 period
 Central generation needs new T&D, DG
needs 10% or less new T&D wires.
 Assumed 8% cost of capital for CG, 12%
for DG
 Determined retail price/kWh needed in
each year, given then current data.
Average Retail
Oil / Gas Rankine
Central SCGT
Central CCGT
Central Coal
Cogen SCGT
Cogen CCGT
Cogen Coal
Recycled Energy (thermal recovery)
180
160
140
120
100
80
60
40
20
0
Central Generation
20
02
20
01
20
00
19
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
Distributed Generation
19
90
19
89
2004 $/MWh
Long Run US Marginal Costs/ MWh
Annual US Utility Additions of Electric Generating
Capacity by Technology 1988 - 2002
Nuclear
Hydro
CCGT
Coal
Pumped Storage
Other
Oil & Gas
SCGT
Other DG
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
Generation Built (MW)
16,000
Year
50000
40000
30000
20000
10000
0
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
Generation Built (MW)
Annual US IPP Additions of Electric Generating Capacity
by Technology 1988 - 2002
Hydro
Coal
Wind
Oil & Gas
SCGT
CCGT
Other
Other DG
Year
Spread of 435,000 MW Built by US Electric Utilities
1973 - 2002
Distributed Generation
Central Generation
Central
Generation
99%
Distributed
Generation
1%
Spread of 175,000 MW Built by US IPPs
1973 - 2002
Distributed Generation
Central Generation
Distributed
Generation
34%
Central
Generation
66%
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Ca al
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M a
ex
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W co
O
R
LD
DE share as a % of total power generation
Percentage of Electricity from CHP Plants in
Selected Countries (2004)
60
50
40
30
20
10
0
Conclusion of Historical Study
 Electric monopolies limited choices to
central plants, ignoring cheaper and
cleaner distributed generation options
 IPP companies built DG under PURPA
rules, but shifted to central generation
with passage of EPACT
 Neither monopolies nor IPP’s built
projects to recycle industrial waste
energy
What is Optimum Future
Generation?
 We modeled 8 scenarios to meet EIA
projected US load growth through 2020
(43%)
 Found each technology’s capital cost,
performance, emissions for each year
 Added 100% T&D for central generation,
10% for DG
 Met load growth with 8 scenarios: all
central, all DG and blended scenarios
Results, CG versus DG Dollars
(Dollars in Billions)
Item
All CG All DG
Savings % Saved
Capacity + T&D
$831
$504
$326
39%
Power Cost
$145
$92
$53
36%
Tons NOx
288
122
166
58%
Tons SO2
333
19
314
94%
MM Tonnes
CO2
776
394
381
49%
Capital Cost to Supply 2020
Electric Load Growth
900
800
$ Billions
700
600
500
400
300
200
100
0
6.11%
8%
10%
15%
20%
25%
30%
35%
39.38%
% DG of Total US Generation
Inv. In New Cent. Gen.
Inv. In new Dist. Gen.
Inv. In T&D
Retail Costs per KWh for
Incremental 2020 Load
10
9
Cents / KWh
8
7
6
5
4
3
2
1
0
6.11%
8%
10%
15%
20%
25%
30%
% DG of Total US Generation
T&D Amorization on New T&D
Capital Amorization + Profit On New Capacity
Fuel
O&M of New Capacity
35%
39.38%
Added Annual Fossil Fuel Use
for Incremental 2020 Load
Quads of Fossil Fuel
/ Yr
12
10
8
6
4
2
0
6.11%
10%
20%
30%
% DG of Total US Generation
Total "New" Distributed Generation Fuel Use
Total "New" Central Generation Fuel Use
39.38%
Emissions from Generating
Incremental 2020 Electric Load
Thousand Metric Tonnes /
Year
700
600
500
400
300
200
100
0
6.11%
8%
10%
15%
20%
25%
30%
35%
% DG of Total US Generation
SO2 Emissions
NOx Emissions
PM10 Emissions
39.38%
Added Annual CO2 Emissions for
Incremental 2020 Load
Million Metric Tonnes /
Year
800
700
600
500
400
300
200
100
0
6.11%
8%
10%
15%
20%
25%
30%
35%
39.38%
% DG of Total US Generation
CO2 emitted for added Cent Gen.
CO2 emitted for added Dist. Gen.
Why does the power industry
make suboptimal decisions?
 Many barriers to market competition, can be
likened to the layers of an onion
 The core of the ‘onion’ is the universal ban
on private wires.
 There can never be effective competition
when power cannot move except through
the monopolist distribution wires
 No polity in the world, to my knowledge,
allows private electric wires.
CAEM Mission (proposed)
Change the way the world makes
power by persuading governments
to remove all barriers to competitive
generation and delivery of power
and end monopoly protection of
electric distribution.
Expected Results
 Meet all consensus goals

Increase availability of energy services

Lower capital cost

Reduce power costs

Reduce pollution

Reduce fossil fuel use

Reduce system vulnerability

Reduce manufacturing job loss
Thank you for listening!