SUSTAINABILITY, CHP AND ENERGY
EFFICIENCY: SEARCHING FOR THE WIN-WIN
Presented to Boston Area Solar Energy Association
Cambridge, MA
June 12, 2003
Sean Casten
Chief Executive Officer
161 Industrial Blvd.
Turners Falls, MA 01376
www.turbosteam.com
Creating Value from Steam Pressure
Why is it so hard to do something that is so obviously good?
1. Over 1 billion tons/year of U.S. greenhouse gas reduction can
be achieved if we focus only on short-term financial returns.
2. Any debate that is based on tradeoffs between environmental
and economic impacts misunderstands the problem.
3. It will take strong leadership to overcome the existing regulatory
barriers that prevent this economic/environmental win-win.
4. Differences of opinion within the environmental community have
contributed to some of these barriers.
The current situation, as predicted by simple economics:
•
If supply is flat and demand is rising:
– Prices should rise
– Shortages should occur
– Volatility should increase
•
Doesn’t this supply situation describe the U.S. electric sector?
–
–
–
–
No new oil fields being discovered
No new hydro coming on line
New nuclear/coal difficult to permit
Natural gas distribution infrastructure can’t meet rising demand,
and most new fields are non-U.S.
– Electric delivery infrastructure has not kept pace with demand for
the last 2 decades (see next)
While electricity demand growth shows no sign of slowing…
20 Year Electric Demand Projection (DOE/EIA)
20
Electricity Consumption (Quads)
18
16
Pacific
Mountain
14
West South Central
12
East South Central
10
South Atlantic
West North Central
8
East North Central
6
Middle Atlantic
New England
4
2
0
2003
2023
…the distribution infrastructure to deliver that electricity is
increasingly inadequate.
310
290
(miles/GW demand)
U.S. Transmission Capacity
U.S. Transmission Infrastructure: 20 year History
270
250
Actual
230
Trend
210
190
1978
1983
1988
1993
1998
Note – we are likely to hit a supply constraint at the end of the wire
long before we ever see a fuel and/or generation limit upstream.
From these supply constraints, demand is starting to behave in
ways that are predicted by economic theory.
1. Volatility in natural gas markets goes up each year:
U.S. Wellhead Natural Gas Prices
From these supply constraints, demand is starting to behave in
ways that are predicted by economic theory.
2. Electric shortages are increasing both in frequency and intensity
 Chicago (1995): 800 deaths directly attributable to power outages
 California (2000): Multibillion dollar budget overrun / utility bailout
directly attributable to power outages
 New York (2002): Transformer fires in Manhattan directly
attributable to too much power demanded through too few wires
 Coming soon to a wire near you…?
From these supply constraints, demand is starting to behave in
ways that are predicted by economic theory.
3. But (average) electricity price is (so far) flat / falling… why?
S u p re m e
2 nd
10
c e n ts / k W h
C o u r t. F in a l
PURPA
9
1996 $
O PEC
EPA
F o rm ed
8
EPACT
FER C
888
1 st
O PEC
7
6
5
4
60
65
70
75
80
Year
85
90
95
Fuel switching has helped to maintain falling electric rates
(although current trends are probably unsustainable)…
U.S. Electricity Generation, By Fuel Type
60%
% of Total
50%
40%
30%
Coal
Oil
Nuclear
Hydro
Natural Gas
20%
10%
0%
1949
1959
1969
1979
Year
1989
1999
In addition, well intentioned (but also unsustainable) regulation
has thus far insulated markets from much price volatility.
•
California 2000: Rising natural gas prices (among other causes)
were never seen in their entirety by electric consumers due to
price caps that ultimately bankrupted the state’s utilities.
•
Connecticut 2003: Grid congestion in SW CT is driving up the
cost of getting power into this load pocket – but the PUC has so
far leaned towards spreading rate increases across the state so
as to blunt the economic impact in Fairfield county.
•
In many jurisdictions, it is easier to alter a rate structure so as to
maintain profitability rather than pass economic costs directly to
electricity consumers (standby tariffs currently/recently under
debate in NY, CT, MA, CA).
So if fuel supply is fixed and electricity demand is rising, how
do you avoid disaster? By increasing conversion efficiency.
100%
Power Industry
90%
80%
ts
an
CHP Pl
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
The Costs of Failure
(U.S. only)
• ~$100 billion too
much money spent
on energy each year
• Over 1 billion too
many tons of CO2
emitted from lowefficiency power
generation each year.
So what’s stopping us from “going back to the future”? Three
(uncomfortable) barriers:
1. Bad Utility Regulation: Cost-plus utility pricing, monopoly
regulations and bans on private wires all work to create financial
disincentives to efficiency that would not be present in an
unregulated industry.
2. Bad Environmental Regulation: Input-based standards, end-ofpipe enforced pollution control and accelerated depreciation for
non-revenue generating pollution control approaches all serve
to discourage efficiency as a pollution control strategy.
3. Living up to Low Expectations: We expect economic growth to
be inconsistent with economic enhancement - and we get what
we expect.
What is the cost of inaction? Three looming crises:
1. Natural gas crisis. Rising gas price volatility + rising electric
dependence on gas = ??? Expect electric price volatility,
electric outages, or both (see CA, 2000).
2. T&D crisis. Line losses in a fixed diameter wire increase with
the square of the current… which is what we see: 1975: 5%;
1998: 8.5%; 2002: 9.5%. Linearly increasing demand +
exponentially increasing losses = ???
3. Crisis decision making does not focus on the long-term. LIPA is
installing 120 MW of diesel recips on Long Island in preparation
for the summer. NYC post 9/11 installed nothing but diesel
generators. We can make sensible economic/environmental
choices now – but if we wait for a crisis to come, the decision
will be made based on economics alone.
The good news? There’s an easy solution.
1. We avert disaster by getting as much clean, energy efficient DG
at the end of the wire as we can as quickly as possible.




Cheapest, cleanest way to serve future load growth (see next)
We have to make the most of current opportunities and resources
We have to tear down the barriers common to all DG quickly
Need to install 13,000,000 kW per year just to keep up with rising
electric demand
2. Clean DG community needs unification.
 Utilities present a consistent front to regulators who rely on
lobbyists for education
 DG community remains caught up in theoretical arguments and
loses sight of the big picture. Is CHP clean enough? Is Solar
cheap enough? Does anything other than a fuel cell jeopardize the
future “hydrogen economy”? (We need them all to achieve 1)
Minimizing capital cost for future load growth = maximizing DG
penetration.
Total Required Capital ($ Billions)
900
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
Inv. In New Cent. Gen.
Inv. In new Dist. Gen.
Inv. In T&D
Minimizing retail electric cost = maximizing DG penetration.
Retail Electric Price (c/kWh)
10
9
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%
Minimizing fossil fuel use = maximizing DG penetration.
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%
Positive
SHORT-TERM
ENV’TL.
INTERESTS
SUSTAINABILITY
BAD IDEAS
SHORT-TERM
BUSINESS
INTERESTS
0
Negative
Net Impact on Environment
A final thought exercise: place policies in the matrix – why don’t
more policies encourage the win/win?
Negative
0
Positive
Project Return-on-Capital
On this metric, CHP presents an unparalleled solution to
environmental and economic limits to growth – shouldn’t this
be the starting point for all environmental action?
GHG Reduction (ton/$ invested)
0.5
Heat-first CHP
(Turbosteam Projects)
All Sequestration
Technologies
Nuclear
0
(0.5)
(300%)
Photovoltaics
Power-first CHP
Wind
End-Of-Pipe
SOx/NOx Control
0
300%
Project Return-on-Capital
Note: All returns calculated on a 15-year, pre-tax basis with a 4X cash multiple in the final year. Capital and operating costs for each technology
were estimated as the current state-of-the-art with power revenues calculated on a wholesale or retail basis as appropriate. Turbosteam projects
represent actual, known capexes, opexes and annual revenues.
So how do we get there?
1.
Over 1 billion tons/year of U.S. greenhouse gas reduction can be achieved if we
focus only on short-term financial returns.
•
2.
Any debate that is based on tradeoffs between environmental and economic
impacts misunderstands the problem.
•
3.
TEAR DOWN REGULATORY BARRIERS TO ENERGY EFFICIENCY
It will take strong leadership to overcome the existing regulatory barriers that
prevent this economic/environmental win-win.
•
4.
CHASE EFFICIENCY
BROAD ACCOUNTABILITY FOR CURRENT PREDICAMENT;
ENVIRONMENTALISTS AND BUSINESS COMMUNITY HAVE ERECTED
BARRIERS TO EFFICIENCY
Differences of opinion within the environmental community have historically
made it difficult for this leadership to emerge.
•
VALUE JUDGMENTS BETWEEN TECHNOLOGICAL APPROACHES ARE SELFDEFEATING. SET ENVIRONMENTAL RULES TO ACHIEVE GOALS, BUT DON’T
TRY TO PICK THE ROUTE.