The CEO Coalition Sustainable Technologies, Practices, & Public Policies Recycled Energy Cost Effective Sustainable Energy Thomas R. Casten Chairman & CEO Primary Energy

Conventional Energy Thinking  Economics says multiple actors in a free market drive industry towards economic optimization, given available technology.  Energy beliefs assume electric industry is near optimum with today’s technology, even though power industry is not a free market.  Since excess fossil use is harming planet,  A sustainable energy future requires development and deployment of new technology.

Summary of Presentation  Question optimization of power industry Power industry has made sub-optimal choices over the past 30 years, hurting industry Power industry has made sub-optimal choices over the past 30 years, hurting industry  Describe analysis of optimal way to meet US electric load growth Local generation, using proven technologies, improves every key outcome by avoiding T&D costs and losses, and enabling energy recycling Local generation, using proven technologies, improves every key outcome by avoiding T&D costs and losses, and enabling energy recycling  Explain and compare recycled energy to other clean energy  Suggest political thrust for CEO Coalition

Definitions  DISTRIBUTED GENERATION or DG: Any electric generation near users, including all fuels, technologies, and sizes up to 1,000 MW  T&D: High, medium and low voltage wires, transformers, capacitors, inductors and substations used to transmit power  WADE: World Alliance for Decentralized Energy, a not-for-profit organization seeking to change the way the world makes power to minimize fossil fuel use, emissions and power costs

World Energy Situation  Growing energy demand is driving up fossil fuel prices 132 nations increased energy use faster than USA last decade, including China and India 132 nations increased energy use faster than USA last decade, including China and India “Hubbert’s Peak” analysis says world oil production will peak in the 2003 to 2005, then decline “Hubbert’s Peak” analysis says world oil production will peak in the 2003 to 2005, then decline Oil purchases are a massive wealth transfer, propping up dictators, religious zealots, and those supporting global terrorism Oil purchases are a massive wealth transfer, propping up dictators, religious zealots, and those supporting global terrorism

Fossil Use is Changing Climate  Increasing atmospheric CO 2 is warming the globe, causing: Increased frequency and severity of storms Increased frequency and severity of storms Glacier and ice pack melting, thermal expansion of ocean raising sea levels that threaten low countries and many shore cities. Glacier and ice pack melting, thermal expansion of ocean raising sea levels that threaten low countries and many shore cities. More rapid species extinction & disease spread More rapid species extinction & disease spread  Failure to recycle energy, and over reliance on central generation adds needless costs and CO 2 emissions, worldwide.

ELECTRIC VS. GAS  Many gas-fired electric units are shut down today because of gas prices  But if gas prices fall, these units (22% of total US gas usage) will dispatch, driving demand and gas prices back up.  This provides a floor under gas prices of 150% of #6 oil price

US Power Industry History

US Energy Generation Efficiency Curve 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% CHP Plants Best Electric-Only Plants U.S. Average Electric Only Power Industry Efficiency Recovered Heat Potential Efficiency

Conventional Central Generation Fuel 100% 33% delivered electricity Power Plant T&D and Transformers Pollution 67% Total Waste Line Losses 9% Generation: $890 / kW Transmission: $1,380 / kW End user:.91 kW: $2,494 / kW

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/kW DG vs. CG: ($310) Transmission $138/kW (10% Cap) $1,242 End users:.98 kW $1,365/kW $932

Central Generation Problems Ahead  US T&D is inadequate, power quality is poor and declining, and massive T&D expenditures will increase power prices but not fix power quality  SO 2 and mercury cleanup will increase coal power costs, forcing some coal plant closures, but: Gas is on the margin, at even higher energy costs Gas is on the margin, at even higher energy costs  Industry will pay a major share of rising power costs, unless it embraces DG

Advances Enable Distributed use of Central Generation Technology  Coal combustion has improved, now very clean Fluid bed technologies available only in industrial sizes, perfect for DG Fluid bed technologies available only in industrial sizes, perfect for DG  Combustion turbines are the most efficient natural gas technology today, come in all sizes Aircraft derivative, mass-produced turbines are the most efficient, reversing economies of scale Aircraft derivative, mass-produced turbines are the most efficient, reversing economies of scale Emissions reduced by up to 99% vs technology Emissions reduced by up to 99% vs technology  There is no economic reason to burn gas in central electric plants

Has US Power Industry Made Optimal Decisions?  We analyzed major power generation technologies over period Assumed that new central generation needs 100% new T&D, new DG needs 10% new T&D wires. Assumed that new central generation needs 100% new T&D, new DG needs 10% new T&D wires.  We assumed cost of capital for CG was 8%, but that DG would require 12%  We then calculated future retail price per kWh needed for each technology in each year, given then current data.

Long Run US Marginal Costs/ MWh Central Generation Distributed Generation

US Utility Additions of Electric Generating Capacity by Technology

Spread of 435,000 MW Built by US Electric Utilities

US IPP Additions of Electric Generating Capacity by Technology

Spread of 175,000 MW Built by US IPPs

DG, Using Conventional Technology, Saves 40% versus Central Generation World Alliance for Decentralized Energy (WADE) built a model to find optimal way to meet US load growth

WADE Model Description  Database built for all generation choices  Model calculates capital, fuel cost, T&D losses emissions, and other costs to meet 20 year load growth with CG or DG Central generation scenarios assume mix of electric-only plants Central generation scenarios assume mix of electric-only plants DG scenarios include good CHP (4,000 Btu heat recovery per kWh electric,) industrial recycled energy, and renewable DG DG scenarios include good CHP (4,000 Btu heat recovery per kWh electric,) industrial recycled energy, and renewable DG

US Results, CG versus DG, for Next 20 years (Billion Dollars) ItemAll CGAll DGSavings% Saved Capacity + T&D $831$504$32639% Power Cost $145$92$5336% Tons NOx % Tons SO % MM Tonnes CO %

CG for 2020 US Load Growth Fuel 100% 33% delivered electricity Power Plant T&D and Transformers Pollution 67% Total Waste Line Losses 9% Generation: $860 / kW 370 GW $320 billion Transmission: $1,380 / kW 370 GW $511 billion Totals: $2,495 / kW 333 GW $831 billion

DG for US 2020 Load Growth 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/kW 377 GW Cost: $452 billion DG vs. CG: ($132 billion) Transmission: $1380/kW 37.7 GW (10% Cap.) $52 billion $459 billion Totals: $1,338/kW 377 GW $504 billion $327 billion

Central Generation Paradigm Blinds Society to Cheapest, Cleanest Option: Recycling Industrial Energy

What Energy Can Be Recycled?  Fuel and electricity is typically used once, with all waste discarded  Power plants burn fuel and then discard 2/3’s as heat Local combined heat and power generation (CHP) recycles normally wasted heat (Topping cycle) Local combined heat and power generation (CHP) recycles normally wasted heat (Topping cycle)  Industry transforms raw materials to finished goods and then vents heat, pressure, & waste fuels Recycle industrial waste energy to heat & power without extra fuel or pollution. (Bottoming cycle) Recycle industrial waste energy to heat & power without extra fuel or pollution. (Bottoming cycle)

Recycled Energy ( Recycled Energy (At user sites) Waste Energy 100% 10% Waste Heat Steam Generator 65% Steam 25% Electricity BP Turbine Generator No Added Pollution Capital costs similar to other CHP or DG plants

ENERGY RECYCLING  Energy costs are going to stay high  One way to stem the tide of outsourcing is to radically reduce total energy costs by recycling energy

ENERGY RECYCLING  Most US facilities were built in the age of cheap energy and do not recycle  Today, with double and triple gas prices and no relief in sight, US manufacturers must learn to recycle to stay competitive

ENTROPY  Many typical industrial processes use “once through” heat  Fuel used indiscriminately for low and high temperature requirements PROCESS HEAT INPUT WASTE HEAT

ENTROPY  Imagine the energy that could be saved if this heat was recycled  Recycle higher temperature exhausts to provide or preheat lower temperature processes PROCESS HEAT INPUT WASTE HEAT

Recycled Energy Case Study: Primary Energy  We invested $360 million in six projects to recycle blast furnace gas and coke oven exhaust in four steel plants. 440 MW electric and 460 MW steam capacity. 440 MW electric and 460 MW steam capacity.  Return on assets exceeds 15%  Steel mills save over $100 million per year and avoid significant air pollution  Reduced CO 2 equals uptake of one million acres of new trees.

90 MW Recycled from Coke Production Chicago in Background

US Industrial Recycling Potential  Recycled energy could supply 45 to 92 Gigawatts of fuel-free capacity – 13% of US peak  Recycled energy is as clean as renewable energy – no incremental fuel or emissions, but: Capital costs are $500 to 1,500/kW, only 12% to 40% of solar and wind generation, Capital costs are $500 to 1,500/kW, only 12% to 40% of solar and wind generation, 90% load factors versus 14-40% for solar & wind 90% load factors versus 14-40% for solar & wind Recycled energy is both clean and economic option for new power generation. Recycled energy is both clean and economic option for new power generation.  EIA shows only 2.2 Gigawatts operating

Recycled Energy Potential versus 20 Year US Load Growth, GW 309 gigawatts of new generation required

Clean Energy Comparisons Solar, Wind, and Recycled Energy All are equally clean. Compare the economics.

Worldwide Solar PV vs. Recycled Energy Worldwide solar PV 4 Recycled Energy projects Installed Capacity, MW Annual Load Factor 14%90% GWh per year 7973,154 Capital Cost, Millions $5,200$300 Tonnes CO 2 saved/yr 571,0002,259,000 Incremental fossil fuel 00 Capital/tonne CO 2 saved $456$7 Capital Amort. / kWh 83.2 cents 1.3 cents

New Wind Power vs. Recycled Energy Equivalent wind 4 Recycled Energy projects Installed Capacity, MW Annual Load Factor 40%90% GWh per year 3,1543,154 Capital Cost, Millions $2,600$300 Tonnes CO 2 saved/yr 2,259,0002,259,000 Incremental fossil fuel 00 Capital/tonne CO 2 saved $58$7 Capital Amort. / kWh 11.1 cents 1.3 cents

Capital Cost of Clean Energy

Cents / kWh for Clean Energy

Renewable Portfolio Standards Ignore Recycled Energy  17 States mandate clean generation, but largely ignore low-cost efficiency and recycling: RPS standards that ignore energy recycling will raise power prices RPS standards that ignore energy recycling will raise power prices Only Nevada, South Dakota and North Dakota allow recycled energy to compete with renewables Only Nevada, South Dakota and North Dakota allow recycled energy to compete with renewables  Pennsylvania considering Advanced Energy Portfolio Standard that includes recycled energy  Industry should demand inclusion of recycled energy in all State and Federal RPS mandates, and recycle energy to avoid cost increases, lessen environmental footprint

Typical Recycling Opportunities  Convert steam pressure drop to power Raise steam pressure to increase power Raise steam pressure to increase power Generate power from pressure let down with topping turbines Generate power from pressure let down with topping turbines  Use small gas turbines for dryer pre-heat  Recover steam from thermal oxidizers  Digest bio-waste, burn gas  Generate remaining thermal process load with on-site CHP

Typical Steam Plant Design Boiler Fuel Feed water H.P. steam Header High pressure steam process load Medium pressure steam process load Low pressure steam process load PressureReducing Valve (PRV) PRV

Turbine-generators Recycle Electricity from Pressure Drop Low Pressure steam out Electricity out High Pressure steam in Note that this generator is sized to the thermal rather than electric load, thus “heat-first” CHP

The Coming DG Revolution  First-mover countries are embracing recycled energy, including India and China Energy recycling requires on-site generation Energy recycling requires on-site generation Third-party energy partners speed process Third-party energy partners speed process  US energy efficiency is low, based on cheap energy, but we now pay world prices for fuel  US industry largely ignored energy regulations, gave up a seat at the table. To correct, lobby to: Add recycled energy to all RPS standards Add recycled energy to all RPS standards Remove barriers to efficiency, including interconnection rules, backup, boiler manning laws, output based emission regulations Remove barriers to efficiency, including interconnection rules, backup, boiler manning laws, output based emission regulations

What Is At Stake?  A sustainable future with rising standards of living  US competitive position with trading partners  Long term impacts from today’s generation and T&D investment decisions  Global leadership

Final Thoughts  If this analysis is correct, the global consequences of clinging to the “central generation paradigm” are not nice  If we challenge the current worldview, we can achieve a more sustainable future with: lower cost energy, lower cost energy, less pollution, and less pollution, and higher standards of living. higher standards of living.  The CEO Coalition can speed change towards an affordable and sustainable energy system.

Thank you for listening!