Pollution ProbeAugust 2, 2006

Profitably Reducing CO2 by Recycling Energy

Some ‘Convenient Truths’

Thomas R. Casten

Chairman & CEOPrimary Energy, LLC

Presentation SummaryPresentation Summary Ontario can Ontario can profitablyprofitably eliminate coal eliminate coal

fired generation with unconventional, fired generation with unconventional, innovative governanceinnovative governance

Must remove barriers to efficiency and Must remove barriers to efficiency and encourage local generation in order to:encourage local generation in order to: stimulate energy recycling, stimulate energy recycling, Avoid new T&D capitalAvoid new T&D capital Cut fossil fuel useCut fossil fuel use Improve manufacturing competitivenessImprove manufacturing competitiveness

Climate Change MitigationClimate Change MitigationA Governance Dilemma?A Governance Dilemma?

The declining cost of energy services has The declining cost of energy services has driven income growth throughout history driven income growth throughout history

Exploiting fossil fuel has produced 150 years of per Exploiting fossil fuel has produced 150 years of per capita income gains, butcapita income gains, but

Resultant COResultant CO22 emissions are changing climate emissions are changing climate

2/3’s of fossil fuel use is for heat and power2/3’s of fossil fuel use is for heat and power

The Governance Dilemma:The Governance Dilemma: How to supply How to supply affordable energy services and maintain a affordable energy services and maintain a healthy biosphere?healthy biosphere?

Cost

Pollution

False Prophets Say We Must Chose False Prophets Say We Must Chose Between Economy and EnvironmentBetween Economy and Environment

But North American Energy But North American Energy Systems Are Far from OptimalSystems Are Far from Optimal

Regulations ignore new technologies Regulations ignore new technologies

Regulations block innovationRegulations block innovation

Energy price signals do not include Energy price signals do not include externality costsexternality costs

Utilities are seldom rewarded for fossil Utilities are seldom rewarded for fossil efficiency or conservationefficiency or conservation

These many rules are These many rules are ‘barriers to ‘barriers to efficiency’efficiency’

Conventional Central ApproachConventional Central Approach1960 Data (& 2003 Data)1960 Data (& 2003 Data)

Pollution

Fuel

100 units

Power Plant

=

67 units Waste Energy

33 units Electricity

End User

Waste HeatTransmission Line Losses

3 units (9.0%)

Recycling Thermal Energy with Recycling Thermal Energy with Combined Heat and PowerCombined Heat and Power

Pollution

Recycle Waste Heat

CHP Plant

End User Site

33 units Waste Energy

=66 units Useful Work 33 units

Electricity

33 units Thermal Energy

Fuel

100 units

Comparative Deployment of Combined Heat Comparative Deployment of Combined Heat and Power in 2004and Power in 2004

0

10

20

30

40

50

60

Denmar

k

Nether

lands

Finlan

d

Russia

Germ

any

Poland

Japa

n

China

Portugal

Canada

Mex

ico

WORLD US UK

Indon

esia

France

Brazil

India

Argentin

aDE

sh

are

as a

% o

f to

tal

po

wer

gen

erat

ion

Ontario CHP PotentialOntario CHP Potential Current CHP @ 10%Current CHP @ 10% 2,600 MW2,600 MW

If German CHP @ 19% If German CHP @ 19% 4,900 MW4,900 MW

If Netherlands CHP @ 39%If Netherlands CHP @ 39% 10,400 MW 10,400 MW

If Denmark CHP @ 52%If Denmark CHP @ 52% 13,520 MW 13,520 MW

Compare with current coal 7,000 MWCompare with current coal 7,000 MW

Affordable Clean Energy PotentialAffordable Clean Energy PotentialRecycling Industrial Waste EnergyRecycling Industrial Waste Energy

Recycled energy is useful energy Recycled energy is useful energy derived from:derived from: Exhaust heat from any industrial process or Exhaust heat from any industrial process or

power generation power generation Industrial tail gas that would otherwise be Industrial tail gas that would otherwise be

flared, incinerated or vented, flared, incinerated or vented, Pressure drop in any gas Pressure drop in any gas

Fuel-Free Heat and Power Fuel-Free Heat and Power Recycling Industrial EnergyRecycling Industrial Energy

ElectricitySteam

Hot Water

End User Site

Energy Recycling

Plant

Electricity

Process Fuel

Finished Goods

Waste Energy

SavedEnergy Input

Primary Energy’s Approach Primary Energy’s Approach 90 MW Recycled from Coke Production90 MW Recycled from Coke Production

Ontario Energy Recycling PotentialOntario Energy Recycling Potential(Rough Estimate 2,300 MW)(Rough Estimate 2,300 MW)

Steel (Defasco, Stelco, Algoma) est. 400 MWSteel (Defasco, Stelco, Algoma) est. 400 MW Blast furnace gas, exhaust heat, pressure dropBlast furnace gas, exhaust heat, pressure drop

Refineries and chemical factories est. 900 MWRefineries and chemical factories est. 900 MW

Natural gas pumping station exhaust – 560 MW Natural gas pumping station exhaust – 560 MW of fuel-free powerof fuel-free power

Pressure drop at gas delivery points est. 100 MWPressure drop at gas delivery points est. 100 MW

Glass & fiberglass factory exhaust heatGlass & fiberglass factory exhaust heat

Sewage gas, landfill gas, biomass, construction Sewage gas, landfill gas, biomass, construction waste, recycled carpet, other.waste, recycled carpet, other.

Ontario CHP PotentialOntario CHP Potential Gas fired combined cycle plants next to Gas fired combined cycle plants next to

thermal energy users to recycle heatthermal energy users to recycle heat Toronto and London district energy systems, Toronto and London district energy systems,

hospitals, breweries, refineries, universities, hospitals, breweries, refineries, universities, industrial plants using heatindustrial plants using heat

Biomass fueled plants for greenhouses, Biomass fueled plants for greenhouses, agricultural processing, paper, paper agricultural processing, paper, paper recyclingrecycling

Other opportunity fuels including tires, Other opportunity fuels including tires, sludge, wood waste, construction waste, sludge, wood waste, construction waste, petroleum cokepetroleum coke

Conventional Power Thinking:Conventional Power Thinking: Local Generation Saves Fuel, But Local Generation Saves Fuel, But Economies of Scale Make Central Economies of Scale Make Central

Generation OptimalGeneration Optimal

Economies of Scale?Economies of Scale? Central versus Decentralized Generation Central versus Decentralized Generation

Transmission Transmission & Distribution& Distribution

$1380$1380

$138$138

$1,242$1,242

1000%1000%

(US Dollars)(US Dollars) GenerationGeneration

Central GenerationCentral Generation $890$890

Local GenerationLocal Generation $1,200$1,200

Savings (Excess) of Savings (Excess) of Central vs. Local Central vs. Local

GenerationGeneration$310$310

Central generation Central generation capital as a % of capital as a % of

local capitallocal capital 74%74%

Total / kW Total / kW of of

GenerationGeneration

$2,270$2,270

$1,338$1,338

$1,068$1,068

213%213%

KW KW required/ required/ kW LoadkW Load

1.441.44

1.071.07

0.370.37

135%135%

Total Total costs/ kW costs/ kW New LoadNew Load

$3,269$3,269

$1,432$1,432

$1,837$1,837

228%228%

What is Optimal New GenerationWhat is Optimal New Generation

Reduced cost versus present systems Reduced cost versus present systems (including all subsidies and externality (including all subsidies and externality costs)costs)

Reduced overall capital investmentReduced overall capital investment Reduced criteria pollutant emissions Reduced criteria pollutant emissions

(NOx, SOx, particulates, mercury, CO)(NOx, SOx, particulates, mercury, CO) Reduced green house gas (GHG) Reduced green house gas (GHG)

emissionsemissions Society should demand win/win answersSociety should demand win/win answers

Future Generation Options

Existing Coal Fossil Plant - No new T&D

New Coal

New Combined Cycle Gas Turbine

Coal Gassification CCGT

Remote Wind

Coal Gas with CO2 Sequestration

Balanced CHP Recycled Industrial Energy

0

5

10

15

20

-10123

Average Fossil Heat Rate (Units of fossil fuel per unit of delivered electricity)

Cen

ts /

kWh

Renewable Energy Options

Central Generation

Options

No incremental fossil fuel line

Recycled Energy Options

Avg. Industrial Power Price 5.5¢ / kWh

(33% efficiency) (50% efficiency) (100% efficiency) (net fossil savings)

Avg. Retail Power Price 8.1¢ / kWh

Power Cost and COPower Cost and CO22 Policy Choices Policy Choices

Cost down Cost / MWh Cost up

CO

2 dow

n

CO

2/M

Wh

C

O2 u

p

Coal gasification, CCGT,

Cost up, CO2 up

Central generation with coal, no criteria pollutant control

Cost down, CO2 up

Wind, Geothermal, CO2 sequestering, on grid solar

Cost up, CO2 down

CHP, industrial energy recycling(Requires local generation) off

grid solar, local hydro

Cost down, CO2 down

Cost and Emissions Today

Policy Goal

Ontario Recycled Energy PotentialOntario Recycled Energy Potential Avoid 730 trillion Btu’s of fossil fuel per yearAvoid 730 trillion Btu’s of fossil fuel per year Add 9,000 megawatts of clean generationAdd 9,000 megawatts of clean generation Largely eliminate need for added T&D Largely eliminate need for added T&D Reduce annual energy costs by $3 billionReduce annual energy costs by $3 billion

Reduce COReduce CO22 and other emissions by 20% and other emissions by 20%

Preserve manufacturing jobs, stimulate Preserve manufacturing jobs, stimulate construction jobsconstruction jobs

Reduce electric system vulnerabilityReduce electric system vulnerability Force bordering U.S. states to follow or lose Force bordering U.S. states to follow or lose

jobs to Ontario jobs to Ontario

How Can Ontario Governance Spur How Can Ontario Governance Spur Profitable COProfitable CO22 Reduction? Reduction?

Modernize old rules that are now Modernize old rules that are now barriers to modern technologybarriers to modern technology

Raise energy taxes to cover the Raise energy taxes to cover the externality costs of burning fossil fuel, externality costs of burning fossil fuel, cut other taxes, send accurate price cut other taxes, send accurate price signalssignals

Reward local generation for avoiding Reward local generation for avoiding T&D capital and line lossesT&D capital and line losses

Encourage all clean energy, including Encourage all clean energy, including recycled energy recycled energy

Specific SuggestionsSpecific Suggestions Provide standard offer for CHP, no time limitsProvide standard offer for CHP, no time limits Provide Provincial loan guarantees for Provide Provincial loan guarantees for

industrial energy recycling plants industrial energy recycling plants Shift energy subsidies into cost of energy Shift energy subsidies into cost of energy

services and lower tax rates to remain revenue services and lower tax rates to remain revenue neutralneutral

Tax externality costs of fossil fuel and then Tax externality costs of fossil fuel and then lower other taxes to stay revenue neutral but lower other taxes to stay revenue neutral but send clear signalsend clear signal

Ask all to identify specific barriers to efficiency Ask all to identify specific barriers to efficiency and suggest new rules that serve the social and suggest new rules that serve the social purpose but do not block efficiency.purpose but do not block efficiency.

Convenient Truth:Convenient Truth:Energy Recycling Can Profitably Reduce COEnergy Recycling Can Profitably Reduce CO22 Ontario can profitably replace coal with Ontario can profitably replace coal with

9,000 megawatts of recycled energy – all 9,000 megawatts of recycled energy – all affordable and cleanaffordable and clean

Requires innovative governanceRequires innovative governance

The biggest challenge is to change The biggest challenge is to change conventional thinking!conventional thinking!

Denmark made this change in two Denmark made this change in two decades, and we can do betterdecades, and we can do better

Denmark Changed in Two DecadesDenmark Changed in Two Decades

Source: Danish Energy CenterSource: Danish Energy Center

Conclusions:Conclusions: Global warming a very serious problem Global warming a very serious problem

Mitigating climate change will require Mitigating climate change will require allall clean clean energy solutions. to reduce atmospheric COenergy solutions. to reduce atmospheric CO22

buildupbuildup

Recycling energy will reduce the cost of Recycling energy will reduce the cost of energy services and lower COenergy services and lower CO22

This will buy time for development of lower cost This will buy time for development of lower cost renewable energy renewable energy

Our collective future depends on how fast Our collective future depends on how fast governments remove barriers to efficiency governments remove barriers to efficiency and encourage clean energyand encourage clean energy

Thank you for listening