Transcript Document

DISTRIBUTED ENERGY’S ROLE IN A
SUSTAINABLE, CARBON-CONSTRAINED
FUTURE
Presentation to
Tufts Clean Distributed Energy Workshop
Medford, MA
June 8, 2006
Sean Casten
Chief Executive Officer
161 Industrial Blvd.
Turners Falls, MA 01376
www.turbosteam.com
Creating Value from Steam Pressure
What DE/CHP can and cannot do for future energy systems
“The United States, and the world, must begin a decades-long transition to an energy system that will not
run out, cannot be cut off, supports a vibrant economy, and safeguards our health and environment.
Today’s patterns of energy production and consumption will not deliver these benefits for our children and
grandchildren. The way we produce and use energy wastes money, threatens our environment, raises our
vulnerability to accident, terrorism and economic shocks, and contributes to instability around the globe.”
National Energy Policy Initiative
Can do
Cannot do (without help)
• If no guarantee of cost recovery (e.g.,
non-utility owned) it will be more fuel
and cost-efficient than that which it
displaces.
• Promotes competitive markets, greater
electric sector efficiency (“rising tide”)
• Reduces fuel consumption, T&D
burden, GHG emissions, electric & gas
prices.
• Increases overall grid reliability
• DE/CHP is fuel-agnostic, and is not
categorically carbon-neutral or 100%
sustainable
• Faces similar pressures of central gen
with respect to NIMBY, natural gas
• Will always be a need for costineffective, large scale investments
(nuke, wires, etc.) and thus for a central
grid manager. (but not necessarily
centrally-planned market)
In aggregate, DE/CHP is critically necessary, but not sufficient to fully
meet the goals laid out by the National Energy Policy Initiative.
HOWEVER: DE/CHP is absolutely critical to the “begin[ning of]
a decades long transition…”
•
At current fuel usage patterns, the only sustainable fuel that comes
close to providing sufficient annual flow to offset current fossil fuel
consumption rates (for chemicals & fuels) is biomass.
•
•
Thus, a sustainable future MUST start by focusing on greater fuel
conversion efficiency, to reduce raw energy use, regardless of future
fuel use patterns
•
•
•
Ayres estimate: only 3% of global energy use becomes useful work. Going to “only”
6% would cut raw fuel use in half!
All other paths to reduced energy consumption are economically painful
Numerous regulatory barriers to energy efficiency, and nowhere bigger
than in the electric sector.
•
•
Shell Oil estimate – annual biomass energy uptake (globally) ~7X current fossil fuel
consumption – but most of that is wet & single celled…
Removing these barriers ought to be the first step of a responsible energy policy.
DE/CHP is big enough to expose these barriers in a way that solar &
other beneficiaries of barrier-removal cannot.
•
DE/CHP is therefore the place to focus our attention, and the metric of our success.
CHP is the (perhaps unfortunately) low-hanging fruit in a
carbon-constrained future.
CHP is the (perhaps unfortunately) low-hanging fruit in a
carbon-constrained future.
100%
Power Industry
90%
80%
ants
l
P
P
H
C
Efficiency
70%
60%
50%
Recovered
Heat
40%
30%
20%
U.S. Average Electric Only
10%
0%
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
CHP is the (perhaps unfortunately) low-hanging fruit in a
carbon-constrained future.
TECHNICAL POTENTIAL FOR CHP IN THE NORTHEAST
State
Connecticut
Delaware
Maine
Maryland
Massachusets
New Hampshire
New Jersey
New York
Pensylvania
Rhode Island
Vermont
< 5 MW
Sites
MW
5 - 20 MW
Sites
MW
> 20 MW
Sites
MW
Total
Sites
MW
5,365
1,110
1,708
7,091
9,220
1,700
12,756
24,577
16,838
1,616
871
890
259
296
1,175
1,760
269
2,190
3,692
3,431
251
154
39
34
15
75
89
13
127
214
213
12
7
182
331
104
474
495
72
742
1,041
1,391
73
37
5
11
1
9
3
0
8
18
39
0
0
194
750
38
295
100
0
300
366
1,569
0
0
5,409
1,155
1,724
7,175
9,312
1,713
12,891
24,809
17,090
1,628
878
1,265
1,340
437
1,944
2,355
341
3,232
5,099
6,391
324
191
82,852
14,367
838
4,941
94
3,611
83,784
22,919
Technical Potential for CHP - existing commercial and industrial facilities; within the fence use
Source: Energy and Environmental Analysis
CHP is the (perhaps unfortunately) low-hanging fruit in a
carbon-constrained future.
Eastern Grid Load factors
by Fuel
Coal
Natural Gas
Nuclear
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
1990
1991
1992
1993
1994
1995
1996
years
*EIA; Electricity Power Annual 2003
1997
1998
1999
2000
2001
2002
2003
CHP is the (perhaps unfortunately) low-hanging fruit in a
carbon-constrained future.
Technology to serve
new load
CO2 release, lb/MWh
CO2 reduction if technology
is displaced by CHP, lb/MWh
Natural gas-fired CHP
(60 – 90% h)
517 - 775
N/A
Avg US Power Grid
(delivered)
1,772
997 – 1,255
Avg New England Power
Grid (delivered)
1,881
1,106 – 1,364
Combined Cycle GT
(delivered)
922
217 - 405
Simple Cycle GT
(delivered)
1,264
489 - 747
Rankine Coal (delivered)
2,297
1,522 – 1,780
Source for emissions factors: Oregon Climate Trust. Delivered efficiencies factor in 9% average T&D losses
From 23 GW technical potential, this implies a potential GHG reduction in the
NE US alone of 5 – 122 million tons/year and potential fuel purchase
reductions of 153 – 904 trillion Btu/yr, with the upper end far more likely.
Resulting energy cost savings exceed $1 billion/year.
CO2 is unlike other pollutants – with the possible exception of
SOx – and therefore demands unique regulatory controls.
The only cost-effective way to reduce CO2 release is to burn less fossil-fuel. Cannot
tweak engine control (like NOx) or capture from tailpipe (like PM) without severe negative
economic consequences. This creates opportunities for innovative regulation, but also
implies great challenges in light of existing regulatory models
Opportunities
• Energy efficiency is the only
economically beneficial GHG
control strategy
• Nationally, we extract useful
work from only ~3% of our raw
energy consumption.
• Ample room for EE increases,
and therefore opportunity for
economically painless GHG
reduction
Challenges
• Our electric infrastructure is
predisposed to inefficiency.
• Electricity regulation
disincentivizes energy efficiency
(throughput bias).
• Necessary changes require
great political courage.
• Most current energy/envtl policy
is woefully short on political
courage.
RGGI: “Great baby. Crummy bathwater.”
Problems with RGGI as currently
formulated
• Economics 1: Allocation of credits
(as opposed to auction) will
substantially delay the arrival of
carbon market signal. This delay is
entirely inappropriate given the
scale and urgency of global
warming.
• Participation 1: “Only” encompasses
<1/3 of carbon sources in region
• Participation 2: Offset structure
does not (yet) provide transparent
way for cost-effective approaches to
participate
Potential solutions?
• Offset model could address some of
current problems. Key will be
structuring to make sure that “a ton
is a ton is a ton”, all with equivalent
value for maximum economic
efficiency. Offsets should be
indexed to the same $/ton value as
other RGGI policies for economic
efficiency.
• Accounting links could allow
participation for those excluded by
RGGI, effectively creating a single
international framework
independent of local nuances.
Key point: for now, it’s not clear if/how most DE/CHP would
realize incentives via RGGI. This is a big problem!
At the most general level, there are five core barriers to greater
deployment of CHP/DE
1.
16 recognized benefits accrue from CHP/DE deployment, but only 3
create direct financial value for CHP owners. Unrewarded
externalities cause inefficient resource allocation.
2.
Volume-based utility revenue models coupled with monopoly power
impose responsible for most regulatory barriers to CHP (interconnect,
tariff design, etc.)
3.
Grid managers generally don’t understand or acknowledge
unregulated generators (or the benefits they create)
4.
Implicit conflict between utility shareholders and utility customers
confuses and delays intelligent policy debate.
5.
Private sector capital allocation processes impose extremely low
risk/reward ratios for non-core investments
Most benefits from DG do not accrue to DE/CHP owners.
Benefits Created by CHP – Only 3 accrue to CHP Owners
Benefits that accrue to CHP Owners
• Energy cost savings
• Increased on-site power reliability
• Enhanced economic competitiveness
Benefits that accrue to society
•
•
•
•
•
•
•
•
•
•
•
•
•
Enhanced overall grid reliability
Reduction in greenhouse gas emissions
Reduction in criteria emissions
Reduction in fresh water consumption
Deferral of rate-base transmission & distribution investments
Deferral of rate-base generation investments
Reduction in market-clearing prices for natural gas
Reduction in market-clearing prices for wholesale electricity
Introduction of competitive efficiencies to regulated utilities
Less grid vulnerability to terrorism & other disruptions
Economic development – job creation
Economic development – industry creation
Economic development – greater national/regional competitiveness
Interestingly, there are markets for many of the externalities –
an obvious policy action would therefore be to link CHP/DG to
those markets.
Examples (incomplete list only to get brain-juices flowing)
•
ISOs provide cash payments for capacity, spinning reserve, voltage support,
etc., but rules do not currently allow for behind the fence base-load generation
to directly participate. Allowing participation, or else allowing for bilateral
contracts independent of ISO & utility could resolve.
•
Favorable tax treatment for pollution control devices generally not provided to
CHP/clean DE. Could change tax rules to accommodate.
•
Lack of output based standards and/or thermal credits therein fail to recognize
pollution reduction from CHP/DE. Correction would directly save CHP/DE
owners $ that must otherwise be spent on more costly emissions control.
•
Renewable portfolio standards generally favor path over goal, focusing on
specific technologies rather than larger environmental/sustainability goals. A
more holistic approach to RPS would create new revenue streams for CHP.
Thoughts on remaining barriers
• Throughput bias: Revenue decoupling removes disincentive; if coupled to wellthought out PBR structure could also add positive incentives, removing this
monopoly/throughput barrier
• Grid Managers Can’t “see” unregulated generators: Many argue that ISOs
should manage grid, but not markets. Replacing market management function
with allowances for bilateral contracts would solve many (all?) problems.
• Private Sector Capital Allocation: Make sure rules allow for energy outsourcers
– remove bans on private wires and third party electric sales (primarily SE US).
Removal of other barriers will also help lower risk/reward ratio, thereby easing
the proximate barrier, but ultimate problem is not going to go away so long as
businesses that aren’t in the electric power sector have an opportunity to selfgenerate. (Rising energy costs also make this barrier less problematic, but for
the wrong reasons.)
• Utility Customer/Shareholder Conflict: Hardest barrier to remove, for reasons
having to do with politics, contracts and 100 years of judicial/legal/corporate
history. That said, deserves much more thought & discussion than it gets.
Enormous mistakes made in hindsight… but can you put the toothpaste back in
the tube?