Profitably Reducing Greenhouse Gas Emissions

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RED | the new green Profitably Reducing Greenhouse Gas Emissions MIT Energy Initiative Seminar Series Thomas R. Casten, Chair Recycled Energy Development, LLC September 9, 2008
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Profitably Reducing Greenhouse Gas Emissions. MIT Energy Initiative Seminar Series. Thomas R. Casten, Chair Recycled Energy Development, LLC September 9, 2008. Presentation Synopsis. Generation efficiency is the Elephant in the Room – that no one sees - PowerPoint PPT Presentation

Transcript of Profitably Reducing Greenhouse Gas Emissions

  • Profitably Reducing Greenhouse Gas EmissionsMIT Energy Initiative Seminar SeriesThomas R. Casten,ChairRecycled Energy Development, LLC

    September 9, 2008

  • Presentation SynopsisGeneration efficiency is the Elephant in the Room that no one seesImproving generation efficiency addresses climate change, jobs, balance of payments, security, income growth & more

    Regulations select against efficiency, local generation & waste energy recycling

    Waste energy recycling can profitably lower GHG emissions

    Suggested policies to improve efficiency

  • Generation Inefficiency is the Elephant in the RoomThe elephant seems invisible, but threatens life as we know it

  • Homer Simpsons Power Plant

  • Generation Plant in Craig, CO, Venting 65% of Input Energy

  • Inefficient US Electric Generation

    Related Headlines:Recent Warming of Arctic may Affect World ClimateNASAUS Manufacturing Jobs Fading Away Fast USA TodayUN Warns of Rapid Decay of Environment New York TimesOPEC Not Expected to Raise Production despite Record-High Oil Prices Associated Press

  • Electric Generations Increasing Contribution to CO2 Emissions

  • 69% of CO2 from Generating Heat and Power

  • Can U.S. Simply Switch to All Renewable?Gore calls for 100% switch by 2020

    Huge investment in T&D and windSolar very expensiveDirty coal underpins much industrial production

    Consider historical data

    Consider doubling fossil generation efficiency first

  • US Fuels for Electricity

  • Tentative ConclusionsElectric generation efficiency peaked, has not improved in 50 years (see Technology and Transformation Richard F. Hirsh)

    Markets not working?

    Regulations at fault?

    Need paradigm shift to local generation to double efficiency

  • What if Access to Useful Energy Explains Most of Observed Income Changes?People know intuitively the importance of having energy services, but economists do not find a correlation between raw fuel use and income growth.

  • Analysis of Exergy to Useful Work (Thanks to Dr. Robert U. Ayres)MITs Dr. Solow said, in 1956, that changes in technical productivity explain most changes in income

    Dr. Ayres estimated the useful work each year from 1900 -2005, says this explains 85% of income changes

    If Ayres is right, stagnant efficiency & rising fossil fuel prices spell trouble

    The low conversion efficiencies to useful work surprise most people

  • Conversion of Electricity to Light is Awful

  • 2nd Law Conversion Efficiency to Low Temperature Heat Lousy!

  • 2nd Law Conversion to High Temperature Heat a Little Better

  • Electricity Conversion to All Uses < 60%

  • But Delivered Electric Efficiency Stalled Since Eisenhower

  • Electric-only Coal & Oil Heat Rates Stopped Falling by 1960Source: EIA

  • Electric Efficiency Gains Slowed after Mid-Fifties, Now Gone

  • Yearly Changes in U.S. Efficiency (Potential Energy to Useful Work)

  • Conversion of Exergy to Useful Work Has Improved, but < 14%

  • Conclusions From Dr. Ayres WorkThe U.S. wastes 86% of input energy - room for improvement

    Efficiency gains in end use no longer offsetting electric generation stagnation the elephant in the room

    Not one Presidential candidate mentioned generation efficiencyThe elephant is invisible!

  • Conversion Efficiency ConclusionsWe appear to have bred efficiency out of the U.S. energy conversion system

    The electric sector stopped improving efficiency in 1950s, is now loosing ground

    The overall U.S. conversion efficiency to useful work stopped growing, began shrinking after 2000

    The elephant in the room, although largely invisible, explains many problems

  • Regulations Block EfficiencyElectricity is not a free market!

  • Since the Industrial Revolution, government regulation has been used to control the production and distribution of the social necessity called energyEnergy Law Toman, Joseph P. and Cudahy, Richard D. West Publishing Co., 1992

  • Regulation Blocks Generation EfficiencyUtilities not rewarded for efficiency since 1920

    The 1970 Clean Air Act ignores efficiency, mandates controls that increase parasitic loads, cut efficiency

    New Source Review penalizes efficiency investments with loss of operating permitBlocks new construction. Weighted average age of coal plants:1970: 10 years old2007: 35 years old

  • Regulation Also Blocks Local GenerationMIT was bloodied by Boston Edison for generating their own power; regulators did nothing

    Local generation that recycles waste energy streams, denied 40% to 50% of benefits it creates by regulation

    Local generation is not charismatic carbon savings, sees few inducements

  • But Recycling Waste Energy Solves Many ProblemsEnergy recycling:Gives factories added revenue, Preserves U.S. jobsSaves money andCuts CO2 emissions

    Requires paradigm shift to local genWaste energy streams do not travel economically, must convert on the spotWaste heat only economic to transport 2 to 4 miles, needs local gen

  • Energy Recycling Plants We Have Developed

  • Indiana CHP Plant Recycles Heat To US Steel Tin Plate Plant (85% efficiency)

  • Silicon Furnace Alloy WV

  • Economics of Clean GenerationCompare costs of recycling waste energy with other clean energy approaches

  • World Alliance For Decentralized EnergyWADE modeled 20 year future of U.S. generation and electric use. Meeting growth with local generationReduced capital by 50%Reduced CO2 in U.S. by 20%Reduced fossil fuel used by electric generation by 40%Saved $150 to $200 billion per year

  • Consider Costs (Savings) of Avoiding 1 Ton of CO2 Versus the Best New Central GenerationThe four highest profit options are local generation that recycles waste energy

  • Cost (Savings) / Ton of Avoided CO2 Emissions

  • Policy Options to Promote Clean Energy

  • Policy Options to Induce Clean Local GenerationClean Energy Standard Offer Program or CESOP LT contract for clean energy at 85% of delivered cost of best central generation

    Convert CAA to Output Pollution Standards allow every emission source same allowances per unit of useful output for criteria pollutants and for CO2

  • Clean Energy Standard Offer Program (CESOP)U.S. encourage recycled energy and other clean technology with a 'Clean Energy Standard Offer Program' (CESOP) incorporating the following principles:Offer 20-year CESOPcontracts to qualifying clean technology facilitiesPay roughly 85% of cost of delivered power from new coal plants.Let local generation compete with conventional central generation

  • Output Pollution StandardsReplace CAA rules with output allowance per unit of useful heat and of useful power for each pollutant

    Require each plant to obtain allowances equal to annual pollutionDirty plants purchase from clean plantsRecycling waste heat adds allowances

    Each stick has equal carrot, market decides which technology to build

    Lower allowances on schedule, corrected for total output

  • Other Policy ChangesEnd monopoly protection of electric generation

    Preserve monopoly protection of electric distribution Require local generators to sell to grid to be eligible for CESOP avoids backup issue

    End New Source Review, use output allowances to control and reduce pollution, freeing all to invest in efficiency

    Adopt national Clean Energy Portfolio Standards covering all clean energy, including waste energy recycling

  • ConclusionsStagnant generation efficiency is the elephant in the room, causing many problems

    New research suggests importance of energy services to income growth

    We can cut CO2 by 20% and save $150 billion per year with local generation that recycles waste energy

    Regulatory changes will induce profitable GHG reduction

  • Thank You for Your Interest in Clean EnergyXXX

    RED | the new greenRecycled Energy Development, LLCRED | the new greenNotice what dominates Homers plant; the two giant cooling towers to reject 2/3s of the energy released in the nuclear reaction. But this is just a cartoon.Recycled Energy Development, LLCRED | the new greenThis is a real power plant, with 15% of the energy leaving the three coal boiler stacks and 50% of the energy leaving the cooling tower. The 35% converted to electricity drops to 32% by the time it reaches remote consumers in Denver.Recycled Energy Development, LLCRED | the new greenNote the gain in delivered electric efficiency from 3% in 1900 to 33% by 1960, followed by less than one percentage unit of further improvement in the past 50 years. Central electric-only generation efficiency is stagnant. The possible explanations are 1) Plants reaching Carnot limit (a problem, but still room for improvement) 2) Regulations do not reward efficiency (absolutely true for utility monopoly generation, but much generation is now competitive, so owners would benefit financially from improving efficiency), 3) Clean Air Act permit approach (grandfathered emission permits are voided by any major modification to old plant, including efficiency investments, so it is more valuable to keep operating at historic levels of efficiency than to improve efficiency but have to add massive controls to reach current Best Available Control Technology or BACT levels of emissions. Recycled Energy Development, LLCRED | the new greenElectricity generation contributed 11% of U.S. CO2 in 1950, but rising electric use results in 42% of U.S. CO2 from electricity, and we expect electricity to continue to grow as a percentage of total energy delivery.Recycled Energy Development, LLCRED | the new greenThermal energy generation accounts for another 27% of U.S. CO2 emissions, making heat and power responsible for 69% of total U.S. CO2. Much of the thermal energy is for industrial process use often ideal for supply by the byproduct heat from electric generation. Other thermal energy is for space heating of commercial office buildings, high rise apartment complexes, hospitals and universities, also possible tu provide with byproduct heat of electric generation.Note that of the 31% of CO2 from transportation, 19 percentage units come from automobiles and light trucks. We will show that deploying 200 gigawatts of local generation that recycled waste heat or was powered by industrial waste energy would cut U.S. CO2 by 20%, more than removing every auto and light truck from the road.Recycled Energy Development, LLCRED | the new greenIn 1900, 90% of U.S. electricity came from renewable energy, mainly hydroelectricity and wood. Although total renewable electricity has grown, the percent of total supply is now only 10%. It seems virtually impossible to drive the renewable power back to 90% or indeed 100% in ten years. However, we could eliminate 40% of the fossil fuel used in power generation by deploying 200 gigawatts of local generation that recycles presently wasted energy. This could be done with proven technology. Research and development of technologies that produce electricity with lower temperature waste energy flows could increase this savings number.We believe society will need to pursue all fossil fuel reduction strategies, favoring those with the lowest cost or greatest savings per ton of carbon avoided. Under this logic, waste energy recycling to double electric generation efficiency should be encouraged.Recycled Energy Development, LLCRED | the new greenHirsh notes a variety of factors that caused the monopoly-protected industry to lose focus on improving efficiency. Strangely, he does not discuss the fact that utility regulations, to avoid monopoly rents require utilities to pass through 100% of efficiency gains to consumers, removing any incentive for utilities to increase efficiency, or to fight against other rules that are barriers to efficiency.Recycled Energy Development, LLCRED | the new greenWe segue into explanations of economic growth because of the implications for energy policy. Although the work cited has not been independently verified by a second team of researchers, it feels intuitively correct and has profound implications for intelligent policy choices.Recycled Energy Development, LLCRED | the new greenThis work is hard to verify because no independent source has estimated the amount of useful work delivered to the consumer each year. There are good data series of total energy input fossil fuel, nuclear, wood, etc but no accepted data on the amount of useful energy produced and delivered other than Ayres work.Intuitively, it seems that peoples standard of living is not directly impacted by the amount of potential energy released, but by the amount of useful energy services delivered the light in the room, comfort, transport of goods and people, energy embodied in goods and services, etc. The following slides review some of the conversion efficiencies Ayres has estimated over the past century.Recycled Energy Development, LLCRED | the new greenEdisons first bulbs turned 99% of the energy in the electricity into heat and only 1% into light. Even with nearly 300% gain in efficiency, incandescent bulbs do not achieve 3% efficiency. Lighting consumes 22% of U.S. electricity, making this inefficiency particularly important.Recycled Energy Development, LLCRED | the new greenAlthough 100 units of natural gas into a home furnace may produce 80 to 94 units of heat, this is a very inefficient use of the potential energy in the gas. From a thermodynamics perspective, this process has turned all of the quality potential in the natural gas into low-grade thermal energy. Such conversion achieves only 3.5% of the thermodynamic potential.Recycled Energy Development, LLCRED | the new greenManufacturers who apply higher temperatures to production of goods such as melting and reducing iron ore to iron, or high temperature chemical conversion processes now approach 30% 2nd law efficiency. 70% of the potential energy is still wasted.Recycled Energy Development, LLCRED | the new greenOnce potential energy is converted into electricity and delivered, the overall conversion to useful work approaches 60%. As this is all electric uses, it reflects much higher efficiencies of motors, pulling up the low efficiency of producing lightingRecycled Energy Development, LLCRED | the new greenThe problem with electricity is the inefficiency of producing and delivering the power to the point of conversion to useful energy. The elephant in the room is the 50-year stagnation of generation efficiency for the U.S.Recycled Energy Development, LLCRED | the new greenAnother way to look at generation efficiency, as used by the industry, is to examine the heat rates the Btus of potential energy used to produce one kilowatt-hour of electricity. Recall that a kWh equals 3412 British thermal units, so a 10,236 Btu heat rate per kWh would represent 33% efficiency. The heat rates for coal are now higher than in 1960, due to the addition of parasitic loads for pollution control devices including the fans to pull exhaust through bag houses and scrubbers.Recycled Energy Development, LLCRED | the new greenAnother way to look at electricity generation efficiency is to plot the year to year changes in efficiency. Prior to the mid 1950s, the industry was, on a 10 year trailing average basis, increasing the rate of efficiency improvement. Ever since the rate of improvement has gone down, and is headed for efficiency declines unless something is done.Recycled Energy Development, LLCRED | the new greenIf Dr. Ayres insight stands up to independent verification that access to useful energy explains 7/8ths of observed income growth the declining gains in efficiency and higher fossil fuel prices spell major trouble for the economy. This chart shows the year to year swings smoothed out by a 10 year trailing average to depict how the first half of the 20th century saw efficiency gains increasing at a growing pace, but then a 50-year slowing. We point to potential trouble as the efficiency gains have actually turned negative in the early 21st century.Recycled Energy Development, LLCRED | the new greenThis chart shows Dr. Ayres estimates of total U.S. conversion efficiency. Note the rise from 2% in 1900 to 13% by 2000, but the ominous fall in the next five years. Also note that after a century of gain, we still waste over 86% of the potential energy in all of the fuel we burn.Recycled Energy Development, LLCRED | the new greenWe reviewed the energy policy portions of every candidate for President in the 2008 primaries and did not find one specific mention of generation efficiency. Most candidates spoke of end use efficiency, automobile MPG, more use of renewable energy to generate power, and more R&D, but no one tackled the source of 69% of U.S. CO2 emissions.Recycled Energy Development, LLCRED | the new greenTechnology advances since 1960 are nothing short of phenomenal, yet generation efficiency is stagnant. Our conclusion is that the unintended impact of utility regulations and environmental regulations, coupled with a societal belief in inexhaustible fossil fuel supplies has bred efficiency out of the heat and power generation systems. We stopped rewarding efficiency, then began penalizing efficiency and even mandating control devices for criteria pollutants that lower efficiency, yet do not recognize efficiency as a pollution control strategy.Recycled Energy Development, LLCRED | the new greenMajor economic models assume optimality in all sectors, thus claiming that free markets magically deploy the economically optimal approaches in all sectors, given available technology. Thus the only way to improve efficiency is to develop new technology. While this may be a reasonable approximation for truly free markets (many would argue otherwise) it is a tremendous stretch for electricity production, since none of the conditions of a free market are present. Econ 101 teaches us that free markets require freedom of entry (only utilities can distribute power) freedom of exit (government regulators raise rates to keep utilities from going bankrupt) accurate price signals (electricity is subsidized in many ways, central generation is given access to cheaper capital than competitors, etc) and large companies are prevented from using market power to push out competitors (monopoly is enforced by the government) In short, electricity is not a free market.Recycled Energy Development, LLCRED | the new greenSociety has long demanded energy services and feels government must regulate these services.Recycled Energy Development, LLCRED | the new greenWe believe you get what you pay for. It is thus no surprise that utilities have not increased efficiency, since the rate commissions do not allow monopoly utilities to keep any of the gains from efficiency. We do not suggest that generation monopolies should be allowed to earn above allowed rates of return due to efficiency. Instead, we question why generation was ever considered a monopoly, and suggest that all generation be fully open to competition.The Clean Air Act is the other major reason for stagnant efficiency. These comments are in no way intended to suggest we should ease environmental standards. Rather, we must find ways to steadily reduce pollution from all sources that embrace and encourage efficiency. Society was lulled into a very flawed regulatory approach because we tackled criteria pollutants without realizing the problems of carbon dioxide emissions. Now that global warming is a recognized problem, we must completely re-write the Clean Air Act to reward efficiency. The startling increase in the average age of coal plants is proof that the act blocks creative destruction and building of new plants.Recycled Energy Development, LLCRED | the new greenUtilities, which enjoyed both generation and distribution monopolies prior to PURPA in 1978, fought hard to keep generation. They went out of their way to make examples of innovative organizations that dared to generate local power, and MIT (along with Harvard Medical Center) got bloodied, making an example to anyone else who thought of infringing on the utility generation monopoly. Over the ensuing 30 years, generation has been largely opened to market competition, but commissions did nothing to represent local generation. As a result, local generators were not paid for avoiding transmission and distribution investment, for avoiding line losses, for stabilizing voltage, or for pollution avoidance.Trigen developed a 150 megawatt cogeneration plant in downtown Philadelphia that achieves 80% to 85% efficiency, using all of its byproduct heat to serve 304 downtown buildings on the Trigen Philadelphia Steam system. Trigen built and paid for the plant in the heart of the city, allowing the utility to avoid building new transmission lines and reducing line losses. After a long and difficult fight with the utility and commission, Trigen received a power purchase agreement paying roughly 5 cents per kilowatt-hour. The local utility then delivered much of the power about 600 yards away to the University of Pennsylvania, charging 8 cents per kWh. This project, given its size and efficiency, was built, but many smaller projects that would have saved society money were not built for 5/8ths of the benefit they created.

    We feel energy recycling is just as clean as energy from renewable sources, but is not given the public inducement, perhaps because generation efficiency is not charasmatic.Recycled Energy Development, LLCRED | the new greenOrganizations I have led have built many local generation projects that recycle energy. The worst of those projects achieves twice the efficiency of the U.S. grid, proving that we can raise electric efficiency with existing technology. The backpressure steam turbines convert steam pressure drop into electricity at an 82% or better efficiency and should be used everywhere steam pressure is deflated, which is in most factories. The Primary Energy projects are depicted at the top of the graph as 100% efficiency, but in fact, they are powered by streams of energy from factories that would otherwise be wasted, and thus have zero incremental fossil fuel input. It is not possible to calculate fossil efficiency when the divisor is zero.Recycled Energy Development, LLCRED | the new greenThis 50 megawatt gas turbine/steam turbine plant has no cooling tower. The byproduct thermal energy leaving the steam turbine is used to heat 1,800 gallons per minute of hot softened water which is then used by U.S. Steel to wash the oil from continuous rolls of sheet steel, prior to their coating for use in automobile bodies. We call it the largest dishwasher in the world. It converts 85% of the gas energy into useful heat and power, and the power is all absorbed by the mill, lightening the load on area transmission lines.Recycled Energy Development, LLCRED | the new greenThis is the top of a submerged-arc furnace that melts quartz and reduces the silicon dioxide to molten silicon. For 80 years, the hot exhaust has been dumped to atmosphere. RED is investing $84 million in the mill to reconfigure the hoods, capture the hot exhaust and produce steam to drive a 44 megawatt steam turbine generator. The five existing furnaces draw about 120 megawatts, and the project will recover over 40 megawatts, or one recycled MWh for each three input MWh. The savings to Globe Metallurgical will allow them to open a sixth furnace and pull silicon manufacturing back from overseas.Recycled Energy Development, LLCRED | the new greenThis elaborate model met expected load growth with various scenarios ranging from 100% central generation to 100% local generation that recycled waste energy. The figures compare these two cases and local generation won on every measure, as well as significantly reducing emission of criteria pollutants NOx, SO2, and particulates.Recycled Energy Development, LLCRED | the new greenThe currently favored approach to new generation by the regulated utility companies is to build an integrated coal gasification combined cycle plant. We looked at the carbon output, capital cost, load factor, operating costs and all other relevant variables to calculate the cost / (savings) of alternate generation that would save one ton of carbon. The main data came from a June 2008 report by investment banking firm Lazard.Recycled Energy Development, LLCRED | the new greenTaking the cost of power from a new IGCT coal plant as the bogey, we examined eleven other generation approaches that would emit less carbon dioxide and calculated how much it would cost society (or save society) to deploy each technology sufficient to reduce annual CO2 emissions by one ton. The four technologies in the red box are all local generation that recycles otherwise wasted energy. The first recycles industrial waste energy into electricity, while the second burns natural gas to generate power next to a thermal user and then recycles the byproduct heat to displace the users boiler fuel. The third approach recycles waste energy to produce both heat and power, and the last approach burns biomass to produce heat and power. These approaches save from $115 to $200 per ton of avoided carbon. By contrast, wind and nuclear generation cost roughly the same as the IGCT power, and society will pay significant premiums for enough coal with sequestration, concentrated solar or solar photovoltaic generation to avoid a ton of carbon.Recycled Energy Development, LLCRED | the new greenThese policy options are more completely described at www.recycled-energy.comRecycled Energy Development, LLCRED | the new greenThe CESOP approach fixes the major objections to the 1978 PURPA legislation. It provides savings to the consumer of 15% versus the best new central option, sets avoided costs at the level of delivered kWh, and does not take load away from the distribution companies. What it does do is induce the construction of plants that recycle waste energy, or use any other clean energy approachRecycled Energy Development, LLCRED | the new greenAgain see The output allowance approach incorporates efficiency into the equation, since producing more useful energy provides added allowances, and using less fossil carbon per unit lowers the actual pollution and either decreases the need to purchase allowances or provides more allowances for sale. This approach has dramatic advantages over the two most mentioned approaches of a carbon tax or a cap and trade system. The carbon tax requires a government to decide what is the right price to induce behavior changes, rather than specify the amount of reduced carbon, as a cap and trade approach, and then let the market determine the price. The carbon tax system give all taxes to governments, who then pass the money out at will, creating much potential for mischief. The cap and trade has the virtue of setting hard limits on carbon emissions, but suffers from two deep flaws. First, if any of the permits are given to existing polluters, it stacks the deck against new plants, which would have to purchase all of their allowances and then compete with plants that received free allowances. Second, this system assumes that higher prices for power from existing plants will make it more attractive to build new plants, but the costs do not pass through so simply. Utility commissions have often passed through added costs to users, but not given any credit to a new generator for avoiding the costs.By contrast, the output allowance system has government set the target for emission reductions, then lets the market determine the price. Furthermore, no money leaves the system, such that overall electric and thermal costs remain the same. Those with above average emissions of carbon would have to purchase allowances to supplement the output allowances they receive in relation to actual useful energy output. Every plant with carbon emissions below the allowance level would have allowances to sell, making it more attractive to operate and expand that plant. This approach would stimulate the market to replace all of the dirty and inefficient plants with the most efficient possible new plants, and in many cases, the fuel savings will more than offset the capital costs and thus reduce the cost of heat and power while simultaneously reducing CO2 emissions.Recycled Energy Development, LLCRED | the new greenWe think society made a mistake to ever offer monopoly protection of generation, which is in no way a natural monopoly. The U.S. federal government has largely opened generation to competition, and we should complete the transition. However, there is a logic for one electric grid that serves everyone from multiple generation sources, and we propose eliminating the fight by requiring local generators to sell their power to the grid rather than to the local host.The NSR rules block investment in new generation of heat or power, but would be superfluous under an output allowance system that covers all heat and power generation. With NSR eliminated, plant owners can all decide whether to continue operating dirty plants and purchasing allowances, to add efficiency and pollution controls to reduce the cost of allowances, or to close the plant down and build cleaner, more efficienc plants. We assume the output allowance system would be applied to all criteria pollutants and to CO2.A national CESOP would give a powerful signal to power entrepreneurs everywhere to develop capability of developing, financing and operating clean energy plants and spur a $350 to $500 billion private investment boom. This would also tempt many to develop new and improved technologies to recycle and recover waste energy and further increase overall system efficiency.Recycled Energy Development, LLCRED | the new greenThanks in advance for helping to end energy waste and profitably reduce GHG emissions.Recycled Energy Development, LLC