Perhaps the single most important thing we can do to drive up our energy efficiency, lower energy costs, and bolster the overall reliability of our energy infrastructure is to overhaul our electric sector's regulatory model to move generation away from big, remote plants and toward local generation.
From solar to CHP, we have a panoply of technologies, fuels, and companies who would participate in such a shift. Less understood is that our regulatory model creates obstacles to all of these options, unwittingly causing us to burn too much fossil fuel and pay too much for energy.
Back in January, David challenged us all to follow Michael Pollan's lead and summarize our objectives in seven words or less. Here's mine:
Generate energy locally. Recycle whenever possible.
Like Pollan, it takes a book to explain the detail underlying that summary. This particular explanation is limited to a blog post below the fold.
Why we should generate energy locallyOur electric system as first built by Thomas Edison was a local grid. His Pearl Street Station power plant was located in Manhattan, providing both electrical and thermal energy to neighboring facilities. As the industry grew, we evolved a horribly complicated system with different power plants operating at different voltages, frequencies (not to mention AC/DC) that made it impossible for any plant to connect to any other. Enter Samuel Insull, who convinced various municipal, state, and federal governments that we needed a standard electric grid and monopoly protections to ensure that utilities had an economic incentive to build the necessary infrastructure to tie all those disparate plants together.
Insull was absolutely right about the grid, and the electrification of the country that followed is a testament to his vision. But as that grid was built, we lost sight of the fact that the value of the grid is its ability to interconnect multiple generators to create a statistically robust network -- not the fact that it allows for remote generation.
And so we built a grid (good) but moved our generators away from the point of electricity consumption (bad). To understand the consequences, one need only note that Pearl Street Station recovered 50 percent of its input fuel energy as useful heat and power for resale to local customer (50 percent overall efficiency). Today's U.S. grid is only 33 percent efficient. I cannot think of another industry that is less fuel efficient today than it was in 1880 -- but this fact alone shows how we are massively over-consuming fossil fuel.
With this context, let's look more closely at what it means to generate energy locally.
Generate
The dominant operating cost of the electric industry is fuel. Efficient light bulbs, motors, and appliances are critical to minimizing our consumption of electricity, but we cannot lose sight of the need to also drive up the efficiency with which we convert primary energy (typically, but not exclusively, fossil fuel) into electricity. Our local focus has to therefore include both generation and consumption.
Also note that our transmission and distribution (T&D) network is "leaky." Push more current through a wire and it heats up (sometimes sagging and triggering blackouts, which is why "tree-trimming" is often cited as a system reliability measure). But that heat is lost. Nationally, about 9 percent of all the power we put into the T&D network is lost as heat, which means that we burn more fuel than we need to. Putting generation closer to the load minimizes this loss. It also saves the capital cost, which averages about $1300/kW just for the wires, or about the cost of a wind turbine.
A third point: Our electric grid is like any other network, in the sense that more independent nodes equals greater reliability. Today, our grid has about 20 percent "reserve margin" -- meaning that we build 1.2 units of generation for every 1 unit of needed electricity, simply to ensure that we (almost) always have enough capacity available after random outages are taken into account. Hisham Zerriffi at Carnegie Mellon University calculated that a grid with local generation (e.g., more nodes) can deliver the same level of reliability with a less than 10 percent reserve margin. In other words, more local generation equals less money we have to spend on generation capacity.
Finally, our current remote model imposes huge costs that essentially must correct for remote generation. Power factor (a measure of the degree to which our oscillating current A/C system oscillates "in phase" with voltage fluctuation) degrades throughout the system and we install massive capacitor banks to correct for this. Local generation can correct for power factor in real time, saving system capital cost. Similarly, we keep many generators running in a voltage support function so that temporary drops in voltage can be immediately served by "spinning reserve" (essentially, a generator that is burning fuel but is not connected to the grid, and can immediately connect as called on). Local generation boosts voltage lowering the need for this grid support function.
Energy
Not just power. Edison got to 50 percent efficiency by recovering heat as well. When you build power plants remotely, it is simply too expensive to move the heat very far. The general rule of thumb in the district energy world is that it isn't cost-effective to move heat more than a mile or two -- compared to the fact that we can move power from New York to Mississippi. But those remote power plants generate a huge amount of heat. Indeed, if you ask a 7-year-old (or Matt Groening) to draw a power plant, they will inevitably draw the heat rejection system. That's not coincidental: most of what a central power plant does is throw away heat. Meanwhile, lots of homes, buildings, and businesses buy fuel to generate heat that power plants throw away.
Local energy generation allows for simultaneous production of heat and power -- and indeed, it is the most economic way to generate both.
Locally
It's commonly assumed that distributed generation is small. It's not necessarily. It's distributed. In this context, local means that the energy is generated close to the point at which the heat and/or electricity is used. Doing so minimizes distribution costs and maximizes the potential for energy recycling (see next), thereby maximizing overall efficiency.
Recycle
There are two ways to recycle energy, both of which are really only feasible at the local level. First, and most commonly, we can recycle the waste heat from the power plant into hot air, hot water, steam, or any other useful form so that the local facility can shut down their existing (fueled) heater. This only works locally for the aforementioned reason that it is expensive to transmit heat over long distances.
The second way is to take waste energy that is locally produced and do something useful with it. This may be waste heat from an industrial, waste gas from a landfill, wood waste from a sawmill, or any of a number of other sources. The key, though, is that none of these sources transports very well -- and all of them go to waste without some way to recycle them into higher value forms. Again, absent local energy generation, you simply can't capitalize on this opportunity.
Whenever possible
Finally, a qualifier. Realistically, we still need a grid, and we still need central generation to balance the load on that grid. We just need a lot less than we're presently using. Our objective therefore ought not to be to categorically ban central, inefficient generation, but rather to change the rules to make that our last choice rather than our first.
What this means: If a facility has waste energy, let's craft rules to make sure they convert that into useful energy to the maximum extent we can before we burn fossil fuel in a central plant. (Today, more often than not, the plants either throw this energy away due to a combination of utility laws and perverse environmental regulations, or they only convert that fraction of it to useful energy that ensures they will not export power to the grid.) If we build a power plant next to an industrial, let's recover the heat to send it to the industrial rather than throwing it away in cooling towers. Use solar energy for heating and electricity rather than letting that heat dissipate. Use wind energy in the same way ... but do all those things first.
(Thanks to Jon Rynn for posing the question that prompted this post!)
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Comments View as Flat
Lhogue Posted 9:47 am
23 Apr 2008
Think Globally, Generate Locally
That's what we've been saying in San Diego for years now, as we fight the obnoxious Sunrise Powerlink. Fortunately a new plan has been developed that could cut our county's energy-related carbon footprint by 50%, all without building damaging transmission lines to distant solar facilities.
The plan can be found at www.sdsmartenergy.org.
Unfortunately, our Governor hasn't quite caught on and neither have columnists like Dan Walters of the Sacramento Bee. His column today, "Greens like idea of renewable energy, balk at the reality" is incredibly uninformed.
The California Public Utilities Commission will be holding one final hearing on the Sunrise Powerlink on May 12, and if you want to make a comment on this boondoggle, please visit the Desert Protective Council's website.
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Biodiversivist Posted 12:52 pm
23 Apr 2008
Interesting history there, Sean
The University of Washington maintains its own powerplant inside the city of Seattle. Few people even know it's there. It sits quietly next to the bike trail behind trees burning natural gas to run a steam turbine and provide heat for the campus. Purdue had the same setup. I've noticed that a lot of campuses use these efficient CHP systems. Towns and neighborhoods rarely do it (at least in this country). This is a case where new regulation might be effective.
"If a facility has waste energy, let's craft rules to make sure they convert that into useful energy to the maximum extent we can before we burn fossil fuel in a central plant"
In the case of companies, these rules would need to apply to all competitors. You would not want to saddle a US company with costs that his competitor in China could take advantage of.
It would be interesting to see what one of these laws would look like on paper.
In the end, it all comes down to biodiversity. Poison Darts--Protecting the biodiversity of our world
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mihan Posted 12:02 am
24 Apr 2008
Questions
So, how about the push to generate renewable energy where possible and transport it where needed, like generating solar (PV or thermal) in the SW and wind in the central states?
Would a local system really work for NYC as it exists today, even operating efficiently?
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Sean Casten Posted 12:24 am
24 Apr 2008
Biod - I think you have a flawed assumption
You assume that these impose costs. Quite the opposite - they create profits. (Indeed, one of the biggest commercial challenges we face as a business is that our customers want us to sign exclusive contracts with them, so that we can't help their competitors to save money.)
This is the crux of the problem with our climate debate - it has a sign error. We recently signed a project to do a $50MM deal at a silicon plant, recovering waste heat to generate 40 MW of fuel free power. As a direct result of that project, the plant is increasing their production by 20%, essentially seizing market share from others, and quite literally stealing jobs back from China as a direct result of lowering their CO2 emissions. The example is far from atypical.
So why don't we do more of it? This is where we get to those laws - and there are so many of them that it is impossible to be succinct, so I'll just flag a few:
- You can't get a fair price for power exported to the grid from a local energy plant. If I build an expensive, central coal plant, utility regulations give me guaranteed equity returns, even if the resulting price raises the cost of power. By contrast, if I can generate power locally at a price that is less than the retail rate, but I generate more than I need, the price I get for any excess is stipulated by the utility, who has a vested interest in my not doing the project. Not surprisingly, these rates are pretty crappy. In far too many cases, this causes industrials to size their local energy plant not to the social optimum (on a macro-economic basis), but rather to their local power demand, since that's the only part that gets a fair price.
- Utilities are allowed (and often damn-near encouraged) to create rates that protect their shareholders at the expense of their customers. These take many flavors, but amongst the most pernicious are "standby rates", whereby you pay the utility for the money that they lose if you generate your own power. In effect, this removes your economic incentive to build the plant, since you have to pay all or part of your savings back to utility shareholders. Another classic is the so-called "cogen tariff", where utilities approach their largest customers and offer them a discounted electric rate provided they agree never to cogenerate their own heat and power. (This is all the proof you need that they know that local power is cheaper than their stuff.) Both serve to cause a societal preference for central gen at the expense of local gen.
- You could fix both of the above if you could get around the utility. But in 50 states, it is a felony offense to run a private wire across a public thoroughfare. Thus, instead of being able to simply sell my excess power to my neighbor (who also would like cheaper power), I am forced to choose between taking the utility's crummy rate, undersizing (or not building) my local plant or going to jail. The latter option is not especially popular.
- Our entire utility regulatory model is set up to provide utilities with a guaranteed return on capital invested and a pass through on their operating expense. This gives them an incentive to build expensive power projects, and makes them agnostic about efficiency. Local generation is thus contrary to a regulated utility's financial interest, since it is (a) cheaper to build and (b) has lower operating expenses. A utility who favors local generation is therefore a utility who is consciously choosing to reduce their quarterly dividend payment. Not surprisingly, this gives utilities a strong predilection for expensive central plants rather than cheaper (and much less CO2-intensive) local ones. Note that the problem is not the utilities here, but the utility regulation.
- Because central gen is built by regulated utilities, it gets guaranteed equity returns from the state utility commission. This gives it very cheap debt financing, since a bank assesses the underlying credit risk to be essentially that of the state. By contrast, when one builds a local plant (which, per the previous, is not done by regulated utilities), banks assess the underlying risk based on the likelihood that the local industrial will make payments. This raises debt costs and creates an artificial preference for the lowest cost capital at the most sub-optimal projects (from a macro-economic perspective).
I could go on (and on, and on, and on), but hopefully you get the jist...Permalink
Sean Casten Posted 12:58 am
24 Apr 2008
Mihan
Note that the core issue here is not fuel specific - it's about efficiency. It's stupid to burn coal inefficiently, and only a little less stupid to make inefficient power from renewables.
As I noted in the "wherever possible" section, there will always be a need for a grid and some central generation - and clearly, there is a societal gain if that central generation is cleaner than the current 50% coal mix. But any central generation faces inherent efficiency penalties by virtue of it's location: it requires (leaky) wires, it is located far away from any thermal load and therefore cannot recover plant waste heat and thus ends up with higher capital costs, operating costs and net environmental impact than a local alternative.
Re: the local system in NYC, there are tons of opportunities, and indeed several good examples. And remember that local does not necessarily equal small. The East River Repowering, recently built by ConEd is a 360 MW gas turbine, sized to the thermal load of the NYC steam system, providing useful heat and power, smack in the middle of the city. (See here, starting on slide #17.) It is hugely more efficient than anything else, precisely because it's local. On a smaller scale, there have been any number of small cogen projects in commercial office buildings in NYC using gas turbines, reciprocating engines, fuel cells... and in all cases, recovering their waste heat to offset fueled boilers. And - near and dear to my own heart - the Con Ed steam system has valves at every building they serve that deflate the high pressure steam from the street down to lower pressure in the building. You could replace every one of these valves with a backpressure steam turbine to pick nearly-free electricity off the existing system.
You'd still need the grid... but there's a ton you could do, even in a place as congested as Manhattan. Even more elsewhere.
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JMG Posted 1:29 am
24 Apr 2008
"For all those hacking at the branches . . .
of a problem, there is only one striking at the root." (--somebody smart)
Thank you Tom & Sean and Co. for continuing to strike at the roots of some of the most pernicious problems we have.
I used to work for a public utility commission -- I used to tell as many people as possible "Look, we're going to make the utility bastards rich one way or another. Why don't we make them rich for doing the right thing rather than for helping destroy the world?"
Like the insurance industry that has devolved into a health care financing racket (as in RICO), utilities sit athwart progress and would rather count their high ROI profits while the world burns than they would do anything that takes them out of their comfort zone.
Save your community: Cut greenhouse gas emissions 5% per year.
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stopgreenpath Posted 2:05 am
24 Apr 2008
so, let's change the laws!
Thanks so much, Sean, for writing this. I have been frantically shouting these things for the past year, and find myself on opposite sides from Sierra Club and NRDC, among others, when I keep insisting that gigantic, wilderness-killing "solar farms" are an enormously and needlessly destructive way to manage global warming, and that local, renewable energy (combined with comfortable conservation like passive solar and high-tech efficiency) should be the initial 85% of the equation. After that, we can see where we stand and if we need to kill a million acres of pristine desert habitat to keep McMansions fully consuming at maximum utility profit marginal rates. Why are these Big Enviros totally selling out our ecosystems to "save" our ecosystems?
By saying in your comment, above,000000000000000000 that "utilities aren't the problem, regulations are," you miss the critical point that utilities own and operate our government. Big Energy lobbyists actually write our legislation, including the insanely destructive ripoff of the 2005 Energy Policy Act (helloooo Enron!), which is perpetrating this massive, massive destruction of private homes, public lands and wilderness to heavily re-centralize our grid, right when it is necessary and finally possible to almost entirely de-centralize it!
We need to speak with one voice about capital financing for residential/commercial solar/wind systems (CA is experimenting with low-interest municipal loans paid back through the propty tax system, but it is all voluntary for cities); about 100% buyback programs (ditto for CA but AB 1920 is silent as to utilities being required to pay us "peaker" rates); and all the other guarantees, incentives and subsidies that Big Energy is taking our of our pockets. All that money should be diverted back to LOCAL, RENEWABLE SOLUTIONS ON PREVIOUSLY DEVELOPED LAND.
There is already an enormous grid infrastructure in place, as noted, and an enormous amount of developed land in "prime solar resources" (ditto with wind). By generating at point of use, plus significant excess, we greatly reduce the load on those wires and can afford then to feed excess to that grid for harder regions/structures. Use our Mars Rover and cellphone technology people to improve our efficiency/conservation/generation capacities, and we are set.
As noted above, much of the problem is the press. They REFUSE to write coherently about the issue, and instead try to paint those of us on the right track as loony malcontents. It is so frustrating!
So, thanks again for raising this, and please KEEP TALKING ABOUT IT, and take as much political action as you can. Lots of letters, calls, and lobbying from US will put pressure on legislators to do the right thing or be publicly embarrassed then voted out for selling out to utilities (including municipal utilities like LADWP, one of the most rapacious of them all!).
the greenest energy is that which you needn't ever produce.
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WWAGD?! Posted 3:49 am
24 Apr 2008
The "Energy" is not generated locally
Solar energy comes from a transmitter -- 93 million miles away.
Hydrocarbon energy comes from miles inside the earth.
Wind energy can be local but most often it's on a farm -- miles away.
Water -- miles away.
J. Bailo Participant Texeme.Construct()
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amazingdrx Posted 4:25 am
24 Apr 2008
Hmmmm
It IS about fuel Sean.
And turning to a distributed generation/storage grid.
The cleanest backup fuel for the grid? Biogas, second is natural gas. And both of these fuels are easily stored and distributed, on already existing gas pipelines. Biogas is more easily and efficiently generated in a distributed manner. Less transportation of farm waste and biomass, and the organic fertilizer byproduct.
Distributed generation of this type using solid oxide fuel cell/turbines is 70% efficient. And nearly all the remaining 30% can be used as cogenerated heat.
This mode of backup allows the rest of the grid load to be met completly by fuel-less GHG free renewables, wind, solar, water.
So how could laws be changed to enable a smart grid to accept and manage these power sources, and use storage to minimize energy use?
How could subsidies be distributed to make this happen as quickly as possible?
I worry that cogeneration projects added onto coal or nukes will be an excuse to continue using these sources, until the payback for the projects is reached. Smart coal and nuke operators would cooperate with your company to divert attention from alternatives like a renewable distributed smart grid and storage/conservation.
When the more reactionary utility operators see the beauty of cooperation with cogeneration efforts, diverting renewable energy revoltion, and bribe politicians to pass lobbyist written laws; it might just tend to hurt renwable energy rather than help.
Then there are the more progressive utilities like Xcel (1000 home smart grid building in Colorado, extensive wind farms, and even utility scale battery wind power storage)and Wisconsin Electric (voluntarily paying 23 cents per kwh to solar panel owning customers for their power sold back into the grid). Maybe these utilities should be the ones that green politicians listen too?
http://amazngdrx.blogharbor.com/blog
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Sean Casten Posted 5:20 am
24 Apr 2008
Dr. X
I beg to differ - it's all about efficiency. Even renewables aren't infinite, and it's in our interest to use all of them efficiently.
Re: biogas and SOFCs, they are certainly options, and we need every horse in the race. SOFCs at 70% are perpetually 5 years from commercialization, but it is a neat technology. The more important thing to note is that you can hit over 80% efficiency with plain old vanilla cogen using much cheaper and more robust technology. Which isn't to say that new tech doesn't have it's place, but simply that we shouldn't presume that we need to wait for technology to act (or, conversely, that if we had a better mousetrap, the world would beat a path - after all, the same barriers that apply to cogen will apply to SOFC).
Final point: you really can't do any kind of cost effective cogen on an existing central power plant. They're too big, and too remote. Consider: a 500 MW coal plant (which, in the grand scheme of things, is on the small side for central coal) uses about 3.5 million pounds of steam an hour. If I converted that into a cogen plant, I'd have to find someone who could use that much steam. For perspective, the entire NYC steam loop peaks at about 2.5 million in the middle of winter (and that is, after Paris France, the second biggest district steam system in the world.) Thus, you just don't have big enough thermal loads to convert those central stations into very significant cogen players (although, to be sure, every point of efficiency we can squeeze out of those beasts is to our net benefit.) But then there's also the remoteness. Big coal and nuclear plants tend to be built where the people aren't, for rather obvious reasons. And you can't run steam pipe very far.
Bottom line is that in a rational world, those plants wouldn't have been built that big, in that location. Moving to a local system could potentially strand those assets and leave their owners losing a lot of money. To which I say "welcome to competitive market discipline". (I dream, of course.)
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Biodiversivist Posted 5:43 am
24 Apr 2008
Good response, Sean
These systems all impart an upfront cost that has to be payed off with interest over time. I was referring to that cost. Of course a company has to calculate they will eventually save money or they would not cogen. So we are not at odds, just a clarification.
Taking on debt is a calculated risk and often imparts a drag on revenues until payback, giving competitors a temporary edge, which may be just enough to break the camel's back. That is a moot point in this discussion because you are simply saying that many more companies would cogen if we took the regulatory roadblocks away. No arguments from me.
I thought you were proposing regulations that would force companies to congen. I can see the value of regulations that could force new construction of closely spaced communities to use cogen as part of a building code. People with renewable sources being allowed to opt out of the comunity source etc.
In the end, it all comes down to biodiversity. Poison Darts--Protecting the biodiversity of our world
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Sean Casten Posted 6:10 am
24 Apr 2008
Biod
I'm not suggesting any mandates at all (I'm far too much of a free-market-o-phile for that!). I'm simply suggesting that we remove the regulations that drive capital towards suboptimal energy assets, and away from cleaner, cheaper options. If an industrial is then willing to put their capital at risk to build the project, that's wonderful. If they're not, someone like our company will. But in all cases, by fixing the regulations we will find that the economic proposition for all local energy investments are better than the presently are (and proportionally worse for the central stuff). Capital will then flow, without any mandate.
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amazingdrx Posted 12:33 pm
24 Apr 2008
Commercial fuel cell
http://www.aredi.org/_coreModules/content/contentDisplay. ...
There it is Sean. It works on biogas from brewery waste. Several other breweries are doing this.
Why is it about fuel? Because biogas eliminates 25 times the GHG it emits when used in the fuel cell. By curtailing methane emissions from manure and biomass waste, by substituting organic fertilizer for GHG intensive chemical fertilizer, and reviving soil as a carbon sink.
This makes biogas THE best fuel by far. And natural gas further backs up the distributed generation system of fuel cell/turbines. Which still produce waste heat to harvest.
BTW these fuel cells use microturbines, an already commercialized product.
Also, coal can be converted to natural gas underground with recently discovered naturally occuring bacteria. Making the grid backed up with these distributed biogas fuel cell/turbines viable even in an emergency where natural gas starts to run out.
Like a year without a summer, caused by volcano or asteroid strike.
Oh and another great aspect of biogas fuel, trains are being converted to use methane in Sweden. Diesel generators on locomotives can be converted to methane. Also a fuel cell/turbine car behind the locomotive could power it from methane at twice the efficiency.
Turbines run on methane, aircraft turbines. A new nanotech development of a metal matrix that stores record amounts of methane is in development.
http://amazngdrx.blogharbor.com/blog
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