Transcript Document

FIVE ACES AND A WINKING DEALER
Causes of the U.S. failure to modernize its electric system
Presented to the World Energy Engineering Congress
Atlanta, GA
November 12, 2003
Sean Casten
Chief Executive Officer
161 Industrial Blvd.
Turners Falls, MA 01376
www.turbosteam.com
Creating Value from Steam Pressure
Three hard – and provocative – questions:
• We could easily reduce CO2 emissions by 1 billion tons/year
AND reduce electricity bills by $100 billion tons a year by
deploying proven technology. Why don’t we?
• For two decades, investments in the U.S. grid have failed to
keep pace with growth in power demand. Why doesn’t supply
rise to meet demand?
• The average U.S. power plant was twice as efficient during WWI
than it is today. Why don’t we make the most of existing
technology?
The answer lies in a fundamental ideological flaw in the way we
regulate the electricity sector.
“The best lack all conviction, while the worst are filled with
passionate intensity” – Yeats, describing 21st century electric
policy.
Fiscal
Benefits
(Revenues)
The worst:
“I am more moral
than you”
Fiscal
Damage
(Costs)
The best:
“If it’s such a
good idea,
someone would
have done it
already”
The worst:
“I am more moral
than you”
Social Damage
Social Benefit
Note: “Social” damages and benefits are used broadly here to include any impacts that are not monetizable in the near
term, and may include environmental impacts, national security considerations, electric grid reliability, etc.
What should good energy policy do, at a minimum?
First: encourage, stimulate
and reward anything that
provides a win/win
Fiscal
Benefits
(Revenues)
Second: discourage and
penalize anything that
provides a lose/lose
Third: deal impartially with
the hard questions that are
left – but when in doubt, go
back to step 1!
Fiscal
Damage
(Costs)
Social Damage
Social Benefit
What do we actually do?
Third: we ignore the win/win,
assuming that it’s already
done.
Fiscal
Benefits
(Revenues)
Second: we actually reward
people for the lose/lose
First: we devote most of our
effort to resolving the battle
between Carter’s sweater
and Bush’s oil lobby
Fiscal
Damage
(Costs)
Social Damage
Social Benefit
…and our backwards logic creates barriers.
Fiscal
Benefits
(Revenues)
ENERGY
EFFICIENCY
With very few
exceptions, there are
no counterbalancing
policies to encourage
the win/win
Policies that reward
these actions drive
scarce capital dollars
away from the best
investments
Fiscal
Damage
(Costs)
Social Damage
Social Benefit
Sadly, but not surprisingly, barriers to the win/win create
enormous penalties.
100%
Power Industry
90%
80%
ts
an
CHP Pl
Efficiency
70%
60%
50%
Recovered
Heat
40%
30%
20%
U.S. Average Electric Only
10%
0%
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
The Costs of Failure
(U.S. only)
• ~$100 billion too
much money spent
on energy each year
• Over 1 billion too
many tons of CO2
emitted from lowefficiency power
generation each year.
• BUT: fixing this
requires that we first
fix the paradigm
Barriers generally fall into two categories:
Regulatory Barriers
• Generally focus on the “fight”
between economics and
environmentalism
• In many cases, unwittingly
reward us for the lose/lose
Business Practice Barriers
• Good business practices force
tradeoffs
• In many cases, unwittingly
prevent us from realizing the
win/win
Regulatory Barriers (partial list)
Failures of Omission
Universal Failures
(Lose/Win vs. Win/Lose)
(Lose/Lose)
• Environment over Economy:
BACT emissions controls
• Environment over Economy:
Input-based emission standards
preferentially reward nonrevenue generating emissions
control
• Economy over Environment:
Grandfather provisions of CAA
• Economy over Environment:
Drilling in ANWR
• Cost-plus pricing rewards utilities
for inefficiency
• Input-based emission standards
penalize efficiency
• Ban on private wires forces CHP
generators to be undersized.
• Monopoly rights allow utilities to
take anti-competitive actions to
block their customers from
installing high-efficiency CHP
Business Practice Barriers almost all derive from a common
cause: limited capital budgets.
Total Opportunity for In-Plant Win/Win Capital Investments
Total Capital Available
Capital Mandated to Lose/Win Projects
Capital not allocated due to
failure to achieve IRR criteria
Capital for Core Capital Projects
Key point: Good business practice adopts only a fraction of the
total win/win, absent regulatory encouragement.
As we begin to think about how laws could support the win/win,
consider the case of CHP.
GHG Reduction (ton/$ invested)
0.5
Heat-first CHP
(Turbosteam Projects)
All Sequestration
Technologies
Nuclear
0
(0.5)
(300%)
Photovoltaics
Power-first CHP
Wind
End-Of-Pipe
SOx/NOx Control
0
Project Return-on-Capital
300%
Recommendation 1: Examine every future energy and/or
environmental policy to make sure that it preferentially rewards
the win/win.
•
In some cases, this has already started:
– EPA trends towards output-based emission standards and offset credits
– National Energy Policy’s proposed tax-depreciation (and other) incentives
for CHP.
– Recent EPA ruling regarding flare gas MACT in carbon black plants
– Maine’s 35-A §3210: 30% renewable requirement, CHP counts (see next)
– DSM is a win-win, in some cases
•
In most cases, we still argue over who should lose:
– Recent debates over NSPS overhaul, ANWR, “Costs” of Kyoto compliance
•
Emerging CO2 policies are an ideal test ground for this new
formulation:
– Require CO2 abatement only on those projects than engender positive rates
of return?
SD
KY
MO
ND
RI
OH
OR
WY
IL
WV
TN
IA
WI
AR
MN
MS
NV
CO
OK
AK
VA
MA
TX
LA
HI
CHP Penetration, as % of Total In-State Power Consumption (GWH)
The impact of good legislation.
Compare
US Average
Recommendation 2: Recognize that good business practices
limit the potential adoption of energy efficiency, and recast
policies to recognize these limitations
• Actions that would encourage energy efficiency, leading to
negative costs and environmental improvement:
– Amend the tax code to classify CHP as a pollution control device,
so as to level the economic playing field with lose/win alternatives.
– Give facilities credits for emissions offsets accumulated through
energy efficiency investments – and apply them to any energy that
is displaced, be it fuel or electricity.
– Extend the logic of DSM programs to high efficiency power
generators – since the result is the same.
Recommendation 3: Knock down the “central paradigm”.
• Many features of the central paradigm were appropriate in the
1920s, but now drive us to lose/lose:
– Cost-plus rate setting.
– Bans on “private wires”
– Monopoly protection of anti-competitive utilities
• Some features of the our regulatory structure were passed more
recently, but did not question the CP’s core tenets:
– PURPA encouraged end-of-wire installations – but set the value of
the electricity based on wholesale markets!
– Many interconnection policies over-design for bi-directional flow…
what if I don’t want to export?
• The only exception to Win/Win: Within the CP, a win/win for
economy and the environment is a lose for the utility!
– If we don’t have the courage to question the CP, we won’t
realize the benefits of efficiency.
Finally – recent events have shown the liability inherent in our
devotion to the central paradigm. It’s time to move forward.