1. mCHP in North America Promise, Progress & Obstacles Dr. Samuel Bernstein Special Assistant to the Chairman National Grid, US Presentation at the GAS INDUSTRY MICRO CHP WORKSHOP PARIS, FRANCE 29 & 30 MAY, 2008

2. Outline Why mCHP? Technology evaluation and demonstration The obstacles to mCHP Conclusions The views expressed in this presentation are these of the author only and do not reflect National Grid policy

3. mCHP advantage in the NE of USA  Climate Change Option  Regional Greenhouse Gas Initiative, (RGGI) (Cap and Trade Program including NY, NH MA & RI)  New York  City - 30% reduction by 2030  State - 15% reduction by 2015  Massachusetts – “Lead by Example“ Program (through 2080)  Energy Efficiency Option  Active Rebate Programs in MA, NH & NY  Cost to Benefit Metric (Based on Reduced Gas Consumption)  Offer an alternative to use of Oil & Electricity

4. Issues Favoring Distributed Generation in the US  Environment & Global Warming  Increased Efficiency  LEED Points (at least 3 pts under EAc1)  Rate of Increase in Energy Costs  Massachusetts sell-back provisions  Net Metering & Interconnect  Being Actively Sought in NY & RI  Local Electric Distribution Limits  High Cost (especially Urban Areas)  Demand reduction programs  Concerns over EMF Radiation  Difficulties Siting New Power Plants  Community Opposition  Environmental Concerns (Air Emissions, Thermal Discharge)

5. Why do customers want ‘on-site’ generation? 1. No Worries About Outages/Blackouts 2. Save Money on Energy Bills 3. Independence From Electric Utility 4. Greater Predictability of Energy Costs 5. Help the Environment 6. Home Office Needs 7. Medical Equipment Needs Consultant Survey

6. As a key energy utility, National Grid is leading Climate and Energy Efficiency Programs in North America Largest energy distribution in the US Northeast Customers:  4.5 Million Electric**  3.3 Million Gas Service mix Turn over ~ £ 11.5 Billion * * Does not include the commodity in the UK ** Includes 1.1 Million customers of the Long Island Power Authority

7. Possible Advantage of mCHP to the utility service TYPICAL SEASONAL VARIATION OF NATURAL GAS & ELECTRICITY ENERGY USE Normalized Natural Gas  Increased Overall Efficiency  Potential for Customer Savings  Environmental Benefits  To be verified....  Potential for Electric Grid Support  Increase in Summer Gas Load

8. mCHP Technology options in North America  IC engines : Climate Energy / Honda (1 -1.2 kw)  Stirling Engines: (pre-com) Disenco (3kw)  Fuel Cells : (development) PEM and Advanced PEM: Plug- Power, Vaillant, Pemeas (3-5kw), Clear Edge Power (5kw)

9. Field Evaluation of mCHP:  Beta Unit Testing: 19 sites in Eastern Massachusetts 2006/07  Sample data  Totals for the heating season: Run Time: 3,968 hours; gas usage 732 Therms  Auxiliary Furnace Run Time: 450 hours; gas usage 360 Therms  Total Gas Usage: 1092 Therms  Electrical Generation: 3,968 kwh  Total Combined Heat Generated: 884 Therms  Fraction of Total Annual Heat Delivered by the mCHP: 62%  Total Combined Annual Efficiency: 93%  Energy Cost: $1,747  Combined heat and Electric Energy Cost Savings: $756  Reduction in CO 2 Produced: 5,111 lbs. (2.5 tons)

10. Current technology projects at IC (1/2) Evaluation of mCHP market and market barriers in NY 5 units test program (Climate Energy) Joint project with

11. Current technology projects IC (2/2)  Next generation mCHP unit for North America  Hot water capability  Back-up power capability  40+ unit demonstration (NE US & Canada)  Joint project with  Performed with

12. Current technology projects: Fuel Cells  Advanced high temperature PEM fuel cell demonstration  Joint project with  Project performed with

13. Issues Stifling Distributed Generation  Electric Grid Connection  High cost (relay protection)  Reactive power limits/costs  Onerous approval processes  Customized application review  Insurance & liability  Site (not product) certifications  Electric standby-rates (One outage more than eliminates savings)  High Cost Equipment (Up to $4,000 per kW + Installation)  Poor Performance of Some Systems  Reliability (Maintenance Interval & MBTF < 1 year)  Emissions (excessive CO or NO X )  Fuel Price Volatility

14. Regulatory Progress  Electric Grid Connection  Most States have published Standard Interconnect Requirements (SIRs), (limited to 300 kVA in NY)  IEEE 1547 type testing of grid protection devices universally recognized & UL Standard for Inverters – UIL 1741  Special Gas Utility Rates for CHP for all size customers  New Emissions standards (California & proposed for NY)  Net Metering  Allows customer payback at rate paid for electricity (2-3 times avoided cost previously paid for)  Most states allow only for renewable but considering for all CHP.  Micro-turbines ( Concern over on-board gas compressor) “New Standard for Safe Use and Installation of Energy-Efficient Microturbine Systems will enable Owners to Participate in PlaNYC Goal of Increasing Clean Power Generation” Mayor Bloomberg  Public Utility Commissions Investigating Disincentives to CHP in NY & MA  Electric & Gas Utility Financial De-coupling

15. Active Discussion on Ways to Finance Distributed Generation  Government incentives  Federal & local  Rate-based Gas utility incentives  Transfer avoided cost from electric wires company to customer purchasing equipment  Rate Design  Offer electric load management rebates  Emissions reduction credits  NO X & SO X (aggregate)  Greenhouse gases  Share customer savings or energy sales model

16. Conclusions  CHP has Tremendous Potential in All Sizes  mCHP Making Progress in US  Economic Obstacles Remain  International Cooperation can help in identifying best solution  Lower costs  Economies of scale  Innovation  Code harmonization