RED | the new green 1 The Economic Opportunity of Climate Change: Profitably Recycling Waste Energy...

RED | the new greenwww.recycled-energy.com

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The Economic Opportunity of Climate Change: Profitably Recycling Waste Energy

Presentation to Distributed Generation / Combined Heat and Power Conference

Sean Casten,President & CEORecycled Energy Development, LLC

September 23, 2008Richard Ivey School of BusinessToronto, ON


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Climate syllogisms


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Understanding the linkage between the economy and GHG emissions.

EconomyFossil fuel in Useful Stuff out

Waste

CO2 Emissions Economic Activity

Indirect linkage


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Two massive opportunities for profitable CO2 reduction

EconomyFossil fuel in Useful Stuff out

Waste

1. Modify processes to reduce fossil fuel use per unit of production (energy efficiency, including CHP)

2. Recycle waste energy into useful electric and/or thermal input


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Economically / politically optimal GHG policy understands this linkage

• The ratio of [useful stuff] : [fossil input] isn’t fixed!

• Good GHG policy = good economic policy.

• Lower GHG emissions

• Lower manufacturing costs = more competitive businesses

• Lower fossil fuel purchase = enhanced balance of payments

• Greater overall standard of living


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DG is the primary beneficiary of an efficiency-focused GHG policy.

• The biggest cost-effective opportunities to lower GHG emissions are in the power generation sector.

• Utility regulation does not incentivize efficiency

• Well-run businesses do not invest in high-return energy projects

• The only way to significantly increase generation efficiency is to site generation at/near the load.• We have identified opportunities to generate 40% of US electricity from such local sources, which would profitably lower US CO 2 emissions by 20%.

• We have identified 11,400 MW of opportunity in Ontario; have not yet done analysis for all of Canada.

• BUT: the goal of good policy is not to deploy DG, but to profitably reduce CO 2.


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US Electric Industry Fuel-Conversion Efficiency

0%

10%

20%

30%

40%

50%

60%

70%

18

80

18

90

19

00

19

10

19

20

19

30

19

40

19

50

19

60

19

70

19

80

19

90

Recovered Energy

U.S. Average Electric Only

Local generation has an innate operating cost advantage.


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Local generation has an innate capital cost advantage.

US Average Capex ($/kW installed)US Average Capex ($/kW installed)

Central Central ApproachApproach

Local Local GenerationGeneration

$1,000 - $3,500

$1,000 - $3,000

$1,400

$140

1.44

1.07

GenerationGeneration T&DT&D Line Loss & Line Loss & RedundancyRedundancy

Total $ per Total $ per new kW loadnew kW load

$1,140 - $3,360

$3,460 - $7,000

Local Gen. Local Gen. Capital Capital

ComparisonComparison

Adds $200 to $3,200

Saves $1260 Saves 0.37 Saves $100 to $5,860 per KW

92% of US Grid

8% of US Grid; only 4% of this

(0.32% total) by

regulated utilities


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If it’s such a good idea... well-managed businesses probably haven’t done it already.

Annual $ Savings

Ra

te o

f R

etu

rn

Industrial IRR threshold for energy investments ~ 40%

Industrial IRR threshold for core investments ~ 15%

Industrial$ threshold = meaningful fraction of EBITDA

PROJECTS THAT GET BUILT BY INDUSTRIALS

CO2-ABATEMENT OPPORTUNITIES WITH ABOVE-

MARKET RETURNS


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And yet, much of our GHG conversation remains focused on who should lose.

• Virtually all of the “solutions” presented as a part of the GHG solution will raise energy costs.

• Carbon sequestration adds capital cost and depresses the operating efficiency of power plants; will raise rates of coal fired power by ~$50 – 70/MWh.

• No government has ever succeeded in building nuclear without massive public subsidies; the capital costs cannot be justified by a competitive market.

• Conventional renewables have high capex/kW and low load-factors

• All of these may well have a role to play in a carbon constrained future – but they aren’t the first choice of a world rationally allocating scarce dollars to GHG reduction.


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Ontario is no less guilty of favoring the status quo over true reform.

• The provincial Clean Energy Standard Offer Program set out to replace coal plants, but fails to encourage least cost clean energy solutions.

• Ignores the transmission and distribution costs associated with central power.

• Models the cost of nuclear power at a 4% cost of capital, mis-representing financial markets, and/or mandating an additional tax-payer subsidy of nuclear power.

• Significantly understates the efficiency and load-factor of locally sited CHP (54% and 58% respectively).

• Compares the cost of power generation rather than the cost of delivered energy, thereby ignoring the transmission, reliability and reserve margin savings innate to local generation.

• Provides long-term contracts to non-regulated investments only for power plants <10 MW.


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Profitable GHG reduction in Gary, IN.

• 95 MW of power recovered from the exhaust of 268 coke ovens.• Saves host ~$40 million/year with no marginal fuel combustion or CO2 release.

• Generates more clean power in 1 year than all the world’s grid-connected solar panels (with less CO2/MWh!)

Courtesy Primary Energy


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Profitable GHG reduction in Alloy, WV.

• RED will recycle hot gas to generate 45 MW of power from waste heat on 120 MW furnace

• Competitive with West Virginia (coal) power prices.


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Getting GHG policy right is a two-pronged approach.

• Monetize externalities

• Replacing our subsidy for dirty energy with a financial incentive to be clean will shift capital allocation in beneficial directions.

• This is also true for many non-environmental attributes (locational pricing, etc.)

• Remove barriers to market access

• Monetization alone is not sufficient, given the high discount rate placed on energy projects by non-energy experts.

• Electric regulation has been built on monopolies; these rules limit third party’s access to customers, distribution and capital.

• Removing these barriers has no fiscal cost, and significant gain. But they are politically hard.


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How big are our efficiency reserves? (= how long before we must tap unprofitable GHG reductions?)

1. What are the thermodynamic constraints?

• If we are at/near the limits of fossil fuel conversion from an energetic or mass-balance perspective, the opportunity is small. A: We’re not even close.

2. How dependent is the economy on extractive industries?

• The only sector of the economy that does not grow with fossil fuel conservation is fossil fuel extraction. If an economy is dominated by extractive industries, efficiency will slow economic growth. A: This is not true of any first world economy .

3. How quickly can the private sector respond?

• Addressing the threat of global warming requires urgent action. Can the private sector alone respond quickly enough? A: Faster than you think.


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Why we’re nowhere near thermodynamic constraints.


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Canada’s economy shows a net gain from conservation.

Canadian Employment, by Sector

0%

5%

10%

15%

20%

25%

2003 2004 2005 2006 2007

% o

f A

ll J

ob

sManufacturing +Transportation

Extractive Industries

10 jobs are at risk as energy prices

rise for every 1 job that benefits.

10 jobs are at risk as energy prices

rise for every 1 job that benefits.

Canadian GDP by Sector

0%

5%

10%

15%

20%

25%

2003 2004 2005 2006 2007

% C

on

trib

uti

on

to

GD

P

Manufacturing +Transportation

Extractive Industries

$4 of GDP are at risk as energy prices rise for every $1 that

benefits.

$4 of GDP are at risk as energy prices rise for every $1 that

benefits.

Source: www.statcan.ca


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Fossil Fuel Extraction Rates (2005)

0

5

10

15

20

25

30M

ongo

lia

Kaz

akhs

tan

Nor

th K

orea

Ser

bia

& M

onte

negr

o

Aus

trai

lia

Sou

th A

fric

a

Tur

kmen

ista

n

Rus

sian

Fed

erat

ion

Col

umbi

a

Ukr

aine

Bul

garia Iraq

Pol

and

Ang

ola

Sur

inam

e

Cze

ch R

ep.

Vie

t Nam

Indo

nesi

a

Indi

a

Rep

. Con

go

Uzb

ekis

tan

Sau

di A

rabi

a

Nig

eria

Iran

Chi

na

Can

ada

Nor

way

Ger

man

y

US

A

New

Zea

land

Mex

ico

Bel

arus

Spa

in

Bra

zil

Uni

ted

Kin

gdom

Fin

land

Sou

th K

orea

Italy

Sw

eden

Fra

nce

Japa

n

kg/$

of

GD

P (

US

D)

Top 10 CO2 Sources(67% of total emissions)

…as do all other first-world economies.

Source: http://www.materialflows.net/mfa/

G8


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Many jurisdictions are coming to realize the potential for negative cost (=profitable) GHG policy...

AZ CCAG Options Ranked by $/ MTCO2e 2007-2020

-$100

-$80

-$60

-$40

-$20

$0

$20

$40

$60

$80

TLU-1

RCI-3

RCI-8

ES-1

1

RCI-1

RCI-6

ES-9

TLU-4

F-3a

F-3b

RCI-4

RCI-5

A-2

RCI-2

ES-1

2

TLU-2

TLU-9

TLU-1

2

TLU-1

3A-

3A-

1aES

-1 A-9

F-1

RCI-7

ES-3

TLU- 1

4F-

2ES

-6 A-8

AZ CCAG Policy Option

$/M

TC

O2

e

$/MTCO2e

Clean Cars Appliance Efficiency Standards

Carbon Intensity Targets

Electricity PricingDG & CHP

Reduce Land Conversion

Truck Speed Limit

Increase Reforestation

BuildingCodes

DSM

RPS


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+285,000

jobs

…to create $billions of GDP growth and jobs.

Source: www.azclimatechange.us

Estimates of the net impacts of stabilizing atmospheric CO2 between now and 2020 suggest an NPV of over $1 trillion globally, even before consideration of environmental externalities.

Source: Ken Colburn


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The private sector can respond rapidly once barriers are removed.

US Installed Generation Capacity, by Fuel Type

0

50

100

150

200

250

300

350

400

450

1975 1985 1995 2005

Ins

talle

d G

W

Natural Gas

Nuclear

Coal

Source: US DOE, Energy Information Administration (www.doe.eia.gov)

1992 Energy Policy Act opens competitive markets

FERC Order 888 mandates non-discriminatory transmission access

Final FERC rehearing of 888 to clarify initial rule in 1998


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Conclusions

RED | the new green 1 The Economic Opportunity of Climate Change: Profitably Recycling Waste Energy...

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Transcript of RED | the new green 1 The Economic Opportunity of Climate Change: Profitably Recycling Waste Energy...