1. Tenth Annual Midwest Energy Conference March 7, 2007 How Best Satisfy Midwest Electric Load Growth? Thomas R. Casten Chairman Recycled Energy Development

2. Four Questions  Where are electricity prices headed over next five to ten years?  What is optimal new generation?  What blocks optimal generation choices?  What changes would induce better choices?

3. Electricity Prices Likely to Double in Five to Ten Years  Emission rules force coal plants to invest $300- $800/kW and lower efficiency, or to retire plants  Long-term fuel contracts below spot market  Massive investment in T&D will raise rates  Carbon credits inevitable, $20/ton adds 2 cents/kWh to Midwest delivered power costs  New coal plants require 10 to 12 cents per delivered kWh, plus carbon permit costs  These factors will add 6 to 8 cents/kWh to average retail rates.

4. Midwestern Plant Closing Risk Operational MW of Generation MW over 40 years old Percent over 40 years old Great Lakes 178,88736,23720.3% Midwest72,75312,71817.5% Total Region 251,56548,95519.5%

5. How Best Satisfy Electric Load Growth and Plant Retirement?  Lowest delivered cost per kilowatt-hour?  Least criteria pollutant emissions?  Least greenhouse gas (GHG) emissions?  Least requirement for system redundancy?  Lowest line losses?  Best power quality?  Least grid vulnerability?

6. Future Generation Options 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

7. Lowest Cost Central Option Local Options that Recycle Energy Central Gen Options

8. Conventional Central Generation Fuel 100% 33% delivered electricity Power Plant T&D and Transformers Pollution 67% Total Waste Line Losses 9% Generation: $1200-$2500/kW Transmission: $1,400/kW End user:.91 kW: $2,900-$4,100/peak kW

9. Combined Heat and Power (CHP) Fuel 100% Steam Electricity Chilled Water 90% 10% Waste Heat, no T&D loss Pollution (At or near thermal users) CHP Plants Generation: $1,200 -$1,600/kW DG vs. CG: Transmission $140/kW (10% CG) End users:.98 kW $1,400 -$1,800/kW Saves $1,100-$1,700/kW

10. Recycled Energy ( Recycled Energy (At user sites) Waste Energy 100% 10% Waste Heat Steam Generator 70% Steam 25% Electricity BP Turbine Generator No Added Pollution Capital costs similar to other CHP or DG plants

11. 90 MW Recycled from Coke Production Chicago in Background

12. Potential to Recycle Energy  Convert industrial waste energy into heat and power with on-site energy recycling plants 95,000 megawatts potential, 9,900 MW in service 95,000 megawatts potential, 9,900 MW in service  Build Combined Heat and Power (CHP) near thermal users to recycle waste thermal energy Potential for up to ½ of all US generated power with CHP plants Potential for up to ½ of all US generated power with CHP plants

13. Best New Generation: Recycle Industrial Energy  Wasted energy streams in nineteen industries could generate 19% of US electricity Source:USEPA 2004 Study Recycled Energy in the US Identified Opportunities 95,000 MW Recycled Energy in Service 9,900 MW

14. US Industrial Recycled Energy Potential.  Gas compressor stations: 16,200 GWh  Flare & stack gas: 148,000 GWh  Steam pressure drop: 78,000 GWh  Estimated exhaust heat: 300,000 GWh  Total Potential: 492,000 GWh  Est. Recycled Energy Cap. 95,000 MW  For all remaining thermal load, install CHP plants, fueled with gas, coal, and biomass

15. CO2 Emissions Per Delivered MWH By Generation Type Central Generation Options Local Generation Options

16. Cost and CO2 per Delivered MWh Local Plants that Recycle Energy Central Plants

17. Unique Midwest Option for Load Growth Induce CHP at every ethanol plant 50 MW each plant, 90% efficient, avoids transmission investments, less GHG, AND AND Slashes cost of ethanol

18. Ethanol Hosted CHP Local Boiler, Central ICGCC 50 MW Gas CHP local generation Local savings versus CG Fossil MMBTU/hr 64541236% Tons CO2 per year 467,000213,00054% Fossil BTUs/ Gallon Ethanol 34,60020098% Cost/delivered kWh $0.11$0.0736%

19. CO2/Year from 55 Million Gallon Ethanol Plant & 50 MW Electricity/hr

20. What Blocks Optimal Local Generation?  Conventional wisdom is biased to CG CG easier to plan and control CG easier to plan and control  Decisions based on cost at generation plant, instead of on cost of delivered kWh  Monopoly protection creates barriers to local gen  Local gen not paid for values it creates, including T&D capital savings, line loss avoidance, CO2 reduction, and health savings  Central gen and associated T&D guaranteed by rate payers, local gen not guaranteed

21. What Would Induce Optimal Generation Choices?  Long-term contracts for best delivered kWh  Pay local generation plants for grid support  Factor in health and environmental costs in generation decisions  Insure new industrial energy recycling plants against risk of host ceasing to supply waste heat  Monetize carbon emissions

22. Summary  Power prices will likely double in 5-10 years  Best option for new generation is local generation that recycles waste energy.  CHP at ethanol plants saves 36% to 54% versus new central coal plant generation, and makes ethanol competitive  Barriers and denial of benefits blocks good generation choices  Regulators can fix the bias and induce best new generation.

23. Thank you for listening!