1. Captive Power Plants, 2004 Recycling Energy A Bridge to the Future Thomas R. Casten Chairman WADE World Alliance for Decentralized Energy

2. World Energy Situation  Growing energy demand is driving up fossil fuel prices 132 nations increased energy use faster than USA last decade, including India and China 132 nations increased energy use faster than USA last decade, including India and China “Hubbert’s Peak” says world oil production will peak in the 2003 to 2005, then decline “Hubbert’s Peak” 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

3. 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 Threatens to flood low countries, such as Bangladesh Threatens to flood low countries, such as Bangladesh More rapid species extinction & disease spread More rapid species extinction & disease spread  Developing countries can save money by reducing generation and transmission losses, and also reduce CO 2 emissions

4. Cost of Work Drives Income per Capita  Recent economic analysis attributes 80% of per/capita income growth to changes in the real cost of work Physicists “work” is useful changes – moving people, transforming product, illuminating, etc Physicists “work” is useful changes – moving people, transforming product, illuminating, etc Cost of work effected by: 1) fuel prices, 2) conversion efficiencies, 3) transmission losses, 4) appliance and vehicle conversion efficiency; 5) any other steps from fuel to useful work. Cost of work effected by: 1) fuel prices, 2) conversion efficiencies, 3) transmission losses, 4) appliance and vehicle conversion efficiency; 5) any other steps from fuel to useful work.

5. But Cost of Work Is Rising  Real fuel prices are increasing  Central electric generation efficiency has been frozen for 40 years at 33%  T&D losses are rising, due to grid congestion  Appliance efficiency gains are slowing  Mandated growth of renewable energy will raise electric prices  Without efficiency improvement, per capita incomes could begin shrinking.

6. Transporting Energy Rule of Sevens  One key to saving energy is choice of energy transmission, following rule of 7’s Moving fuel (coal, gas, or oil) takes 7 times less energy than moving electricity, in best T&D (larger penalty with undersized T&D wires) Moving fuel (coal, gas, or oil) takes 7 times less energy than moving electricity, in best T&D (larger penalty with undersized T&D wires) Moving thermal energy takes 7 times more energy moving electricity Moving thermal energy takes 7 times more energy moving electricity Thus, moving thermal energy takes 49 times more energy than moving fuel. Thus, moving thermal energy takes 49 times more energy than moving fuel.

7. Diseconomies of Scale  Large central power plants cost less to build than smaller local power plants, but: One new KW delivered from central power plants requires 1.5 kW new plant (55,500 Rupees) and 1.5 KW new T&D, (87,000 Rupees); total of 142,000 Rupees One new KW delivered from central power plants requires 1.5 kW new plant (55,500 Rupees) and 1.5 KW new T&D, (87,000 Rupees); total of 142,000 Rupees One new kW delivered from DG requires 1 kW new generation (50,000 Rupees) plus 0.1 kW new T&D (3,700 Rupees); total of 53,700 Rupees per delivered kW. One new kW delivered from DG requires 1 kW new generation (50,000 Rupees) plus 0.1 kW new T&D (3,700 Rupees); total of 53,700 Rupees per delivered kW.

8. Local Generation Enables Energy Recycling

9. What is Recycled Energy?  Most fuel and electricity is used once, with all waste discarded Power plants burn fuel and then discard 2/3’s as heat Power plants burn fuel and then discard 2/3’s as heat Industry transforms raw materials to finished goods and then vents heat, pressure, & waste fuels Industry transforms raw materials to finished goods and then vents heat, pressure, & waste fuels  Captive power plants combine heat and power generation to recycle normally wasted heat  Recycling industrial waste energy produces clean power; no extra fossil fuel or pollution. Can recycled power from bagasse, blast furnace gas, carbon black gas, hot exhaust, pressure drop Can recycled power from bagasse, blast furnace gas, carbon black gas, hot exhaust, pressure drop

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. 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.

12. 90 MW Recycled from Coke Production Chicago in Background

13. What is Optimal Way to Meet Electric Load Growth; with CG or DG?

14. Central Versus Distributed Generation  WADE model includes all generation choices; calculates costs to meet 20 year expected load growth with CG or DG 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 Central generation scenario is user specified mix of electric-only plants, including renewable Central generation scenario is user specified mix of electric-only plants, including renewable Can model any country; need local data on existing generation, load growth, T&D losses Can model any country; need local data on existing generation, load growth, T&D losses

15. 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 28812216658% Tons SO 2 3331931494% MM Tonnes CO 2 77639438149%

16. Extrapolating US Analysis the World  Insufficient data to run WADE model for the world  We believe US numbers are directionally correct for CG versus DG  We analyzed conventional approach of IEA Reference Case versus optimal solutions with DG using US values

17. Conventional Central Generation Fuel 100% 33% delivered electricity Power Plant T&D and Transformers Pollution 67% Total Waste Line Losses 9% Generation: $890 / kW 4,800 GW worldwide $4.2 trillion Transmission: $1,380 / kW 4,800 GW $6.6trillion To end users: $2,495 / kW 4,368 GW $10.8 trillion

18. 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 4,368 GW World Cost: $5.2 trillion DG vs. CG: ($1.0 trillion) Transmission $138/kW (10% Cap.) 0.44 GW DG $600 billion $6.0 trillion To End Users $1,338/kW 4,368 GW $5.8 trillion $5.0 trillion

19. What is Lost if World Opts for DG?  World will consume 122 billion fewer barrels of oil equivalent (½ Saudi reserves)  Fossil fuel sales down $2.8 trillion  Medical revenues from air pollution related illnesses may drop precipitously  Governments might spend much of the savings to supply electric services to entire population  Global warming might slow down

20. Potential Indian Savings  No one has yet run WADE model for India  We believe Indian analysis will show similar savings and support a future built on distributed generation that recycles normally wasted energy, avoids T&D capital and T&D losses

21. Part II A Case Study Indian DG Miracle

22. India’s Potential Future  The Indian economy has many elements in place for rapid economic growth 900 million person common market 900 million person common market Many well educated people Many well educated people Solid basic industry Solid basic industry  However, inadequate access to electricity and frequent outages block progress.  Until 1994, Indian policy absolutely favored central generation – like every other country

23. The Indian Power System  India has 100,000 megawatts of mostly central generation Only 60% of generated power reaches paying end users, due to line losses and theft Only 60% of generated power reaches paying end users, due to line losses and theft Many people lack access to, or only receive power a few hours per day Many people lack access to, or only receive power a few hours per day Government goal is to double delivered power in next decade. Government goal is to double delivered power in next decade.  What has DG contributed?

24. Central Power Historically Favored  State Electricity Boards were given monopoly rights to generate and distribute power  Federal government focused on new central generation, assumed all generation equal, but: 1 kWh generated locally replaces 1.5 to 1.8 kWh generated centrally and avoids T&D capital costs 1 kWh generated locally replaces 1.5 to 1.8 kWh generated centrally and avoids T&D capital costs  Historically, state grids refused to purchase or offered a fraction of the value of local power  These policies isolated wasteful monopolies, blocked innovation and efficiency, hurt industry

25. Sugar Cane DG Success Story  Sugar cane converts sunlight efficiently to hydrocarbons  Indian has 457 sugar cane mills  Bagasse is incinerated at sugar mills  40% of bagasse can satisfy mill’s thermal and electric needs, rest could provide power for local area

26. Policies Changed  In 1994, Ministry for Unconventional Energy encouraged SEB’s to pay full value, pay half of interconnection costs and offer 13 year power purchase contracts with inflation adjustment  Most states in cane producing areas agreed and encouraged sugar industry to invest in modern power plants, selling surplus power to grid  The results are historic, not seen in any other country!

27. A DG Miracle is Underway!  In 5 years, 87 projects with 710 megawatts capacity have been built or are under contract Adds 1% to Indian generation, but no line losses, so adds 2% to delivered power Adds 1% to Indian generation, but no line losses, so adds 2% to delivered power  This new clean energy is five times the power that will be generated worldwide by solar PV  Total potential from Indian bagasse is 5,000 megawatts – a sevenfold increase is possible

28. Economics of Bagasse based DG Item Local bagasse Central power Delivered MW 710710 7101,183 Capital Cost 2.15 B Rupees 7.18 B Rupees Fuel per kWh (del.) 0 1.08 Rupees Capital Amortization N/A 3.30 Rupees Total Cost/kWh 2.92 Rupees 4.9 Rupees Total Cost/year 12.3 B Rupees 20.7 B Rupees Incremental Carbon Dioxide Nil 7 MM tons Inc. Sulfur Dioxide Nil 40,000 tons

29. Savings w/ Full Deployment  Add 5,000 megawatts local power, avoids 8,330 MW of new central power and T&D  Will reduce power costs by 39 billion Rupees/year  Will reduce carbon dioxide by 50 million metric tons per year  Will cut sulfur dioxide emissions by 310,000 metric tons per year  Can provide 12.5% addition to delivered power in India, without new government investment

30. Lessons and Observations  Policy changes have induced renewable energy development on a vast scale, exceeding every other country and;  Indian society already saving 5.6 billion Rupees per year, could rise to 39 billion savings/year  Next step: recycle industrial waste including blast furnace gas, carbon black gas, exhaust heat, refinery off-gas to generate 20 to 30,000 added local megawatts with no incremental pollution

31. Implications  Current trends hurt per capita income in all countries  India has started to reduce real cost of work by inducing captive power plants that recycle sugar mill waste, avoid T&D capital and losses  More regulatory changes are needed to induce recycling of all industrial waste energy and to induce all other new generation to recycle waste heat.

32. Implications for CII  Revenues and cost avoidance from recycled energy essential to remaining competitive  Growth of generation near users is the least costly way to end energy poverty  Changing Indian policy to favor all DG that recycles energy is key to economic growth  Electricity is too important to be left to central planning and regulated monopolies

33. Importance of DG Revolution  The DG revolution may, in time, match importance of the Green Revolution  We hope the DG revolution spreads beyond India, perhaps even to the US some day  We tip our hats to the enlightened government officials in India who have fostered a DG revolution  We encourage CII to help open energy industry to competition

34. Thank you for listening!