While humility makes it awkward for me to be posting this, David said it would be OK. (I swear!)
More seriously, this is a day of great pride at RED and I wanted to share a bit with you -- and perhaps explain the lack of time I've had for more insightful posts lately.
We've just completed a pretty substantial equity raise, with funds available to invest in recycled energy projects that convert waste heat to power. The target for our investments are places where we can simultaneously generate profits, lower energy costs, and reduce greenhouse-gas emissions - in other words, all the things I've blogged about here before. But now instead of just being an academic idea, we have the financial resources to go out and prove the concept. And, it bears noting, quite a bit of financial pressure to do so.
More important than that, though, is that we have a platform to change the way the world makes power.
Lots of good press today in Bloomberg, the Chicago Tribune, and The International Herald Tribune, among others. (Or, if you're a stickler for original source material, our press release is here.)
But perhaps the best piece -- and the one that really gets what we're out to do -- is on the Dow Jones newswire, printed below the fold ($ub req'd, or else I'd give the link).
Looking to harvest the hundreds of thousands of megawatts of wasted energy produced by industrial and manufacturing operations, Recycled Energy Development LLC has raised $500 million from private equity firm Denham Capital to develop waste energy reclamation projects.
Incorporated in November 2006 by the father-and-son team of Thomas and Sean Casten, Recycled Energy Development will leverage the initial funding to develop up to $1.5 billion in waste heat recovery projects nationwide.
"We have about $700 million of projects in various stages of development," said President and Chief Executive Officer Sean Casten, in an interview. "We'll probably close $50 million by the end of this year."
Though not as exciting or novel as the wind or solar market, industrial waste energy recovery and combined heat and power generation are two of the most economical and efficient ways to address the problem of greenhouse gas emissions and their contribution to global climate change, according to Casten.
"We will not touch a project that will not meet three criteria: it has to generate profits for us, it has to generate profits for our customers, and it has to reduce greenhouse gas emissions," said Casten.
According to studies from the U.S. Department of Energy and the Environmental Protection Agency, cited by Recycled Energy Development, recycling wasted energy could generate nearly 200,000 megawatts of clean power, equal to about 20% of U.S. electricity generating capacity. If implemented, those waste heat and combined cycle projects could cut greenhouse gas emissions by 20%, the company said.
The root of the problem is the inefficiency of the modern utility industry. "The electric industry is primarily designed to throw fuel away," Casten said. "If all you did was return [utility's efficiency] to where they were at in 1910 you would dramatically slash energy rates and you would exceed the carbon reductions that we would have been required to achieve under the Kyoto Protocol."
At Recycled Energy Development, the capital will be used to pay for the upfront costs of waste-heat-conversion projects with customers. Casten estimated that a typical project would be in the range of $15 million to $50 million. The company will then enter into long-term power purchase agreements with its customers and leverage those revenue streams with debt or other financial structures on the back end, Casten said.
The company will also sell excess energy back to the utility grid and potentially any emission credits that the power projects generate, the company said.
"Once [contracting] is done you've got a project with a pretty steady stream of annuities, which is available for a whole lot of financing structures," according to Casten. "It's well within the range of plausibility that $500 million in equity gets at least $1 billion in debt down the road."
Both Casten and his father, company chairman Thomas Casten, have spent years working in the power recovery business. The elder Casten previously founded Primary Energy Ventures LLC, which was sold to Edmonton, Alberta-based Epcor Power LP for $380 million in August 2006. Meanwhile, Sean Casten was the founder and Chief Executive of Turner Falls, Mass.-based Turbosteam Corp., now a Recycled Energy Development subsidiary.
Though the opportunity for waste heat recovery is massive, with Casten predicting the total market to be in the range of $350 billion, there are other competitors in the space. Chevron Energy Solutions, a subsidiary of the San Ramon, Calif.-based Chevron Corp., and Primary Energy Ventures are both also providing energy conservation consulting services that can include the development of projects.
"You could walk into the Amazon and the fact that four other people are there doesn't mean you're going to trip on each other," Casten said, dismissing concerns over competition.
More troubling for the company is the regulatory view of waste recovery projects.
Many states that have developed renewable portfolio standards have not included waste heat recovery as a renewable power source. The current energy bill that is being debated in Congress may include waste heat recovery as a renewable resource, but it is still being discussed.
Ultimately, Casten said that the investment from Denham Capital will do more to encourage the growth of the waste heat recovery market than any regulation.
"If you can get $1.5 billion and put it to work to reduce greenhouse gas emissions, then that will galvanize imitation much faster than telling a regulator that they're incentivizing the wrong behavior," Casten said.
Reach Denham Capital at 617-531-4864.
Hope you'll forgive the horn-tooting, but we think this is pretty big news.
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Comments
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David Roberts Posted 2:37 am
16 Nov 2007
grist.org
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GreenEngineer Posted 2:55 am
16 Nov 2007
Having said that, I wanted to question whether or not including waste heat recovery in an RPS would really be good policy. On one hand, it's a readily-tapped source of carbon-free energy, and that's all to the good. On the other hand, from the things you have said elsewhere, my understanding is that the barriers to widescale adoption are not financial so much as regulatory. That is to say (and correct me if I'm wrong) these projects will tend to pencil out as being profitable, except that various utility regulations either increase the cost artificially (e.g. departing load fees) or effective prohibit the project from happening at all. In the meantime, these opportunities presuppose the existing wasteful use of fossil fuels, with all the externalities that implies.
Renewable energy, on the other hand, often doesn't pencil out under the existing economic paradigm, but does not impose alot of externalities. The difficulty making the economic case arises in large part because the costs of the externalities of competing power sources are not being counted, so the fact that solar, wind, etc do not have them (at least to the same extent) does not work in their favor.
From this perspective, it seems to me that the best policy prescription would be an RPS that only counts truly renewable power sources, coupled with a liberalization of utility regulations to remove the barriers waste heat recovery and generation.
Thoughts?
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Sean Casten Posted 3:13 am
16 Nov 2007
But the short version is that - ascribed quotations not withstanding - that's not the biggest regulatory barrier to clean energy that I'd normally cite, and I think we're in pretty violent agreement on that point.
There is, however a larger problem with RPS regs in that they confuse the goal with the path, and therefore encourage inefficient capital allocation. If our goal is low carbon, put a price on carbon. If our goal is eliminating fossil fuel use, put an incentive in place to those who do so. But RPS start by saying "we like technologies X, Y, and Z because they produce benefits A, B, and C", leaving all others who produce A, B and C excluded. This is not about any particular technology, but simply an economic observation that such rules artificially inflate the value of some technologies and artificially depress others. Vastly better would be simply to signal where we want to go, and then get out of the way so that entrepreneurs can figure out the best way to get there.
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sunflower Posted 3:30 am
16 Nov 2007
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Kristina & Jason Makansi Posted 4:17 am
16 Nov 2007
Pearl Street::Jason and Kristina Makansi
Read Lights Out reviews
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apsmith Posted 2:30 pm
16 Nov 2007
As I've said before, while debating some of your details, these can be very worthwhile projects.
One question if you have the time to answer - I can understand that governments might be wary of including your projects in RPS definitions, but I would think you would be in a good position under "cap and trade" (or carbon tax) carbon emissions legislation which treats everything pretty uniformly. Any opinions on that?
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Sean Casten Posted 9:54 pm
16 Nov 2007
So - hope springs eternal, but watch the details.
And thanks!
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Sam Wells Posted 12:46 pm
18 Nov 2007
Onward through the fog
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Amit Gadkari Posted 3:22 pm
26 Nov 2007
What drives politicians and hence legislation is public feelings - they do the things that large number of people like. Solar has caught up in recent years because global warming is so visible and people see installing solar as a way to do their part. The solar panels on the houses advertise for the technology themselves and solar gets a lot of press.
Similarly do you think it would be a good idea to push a 5KW CHP for houses which might be subsidized by the government and would drive home the point of heat-first design and the energy savings thereof.
This would drive the point that electricity is a byproduct of the `CHP furnace' and we do not need to buy it from the utility. This would get a lot of press and popularity thereby driving the legislation for waste heat and pressure reducing power generation which could truly have an impact on our overall energy consumption.
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bookerly Posted 11:21 pm
26 Nov 2007
Good luck Sean, great news!! Good to hear about practical environmentalism. Wishing you the best!! (and consider expanding to developing nations!!).
patrick in Beijing
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Sean Casten Posted 12:16 am
27 Nov 2007
I'd note however that this doesn't change the basic policy problem with an RPS in the sense that they reward the goal rather than the path. (And recognize that I am conflicted on this, since my company would be a huge beneficiary if the RPS passes in the house, which does include CHP as an "eligible technology"). The policy problem with RPS isn't that we don't include enough green technologies in the definition, but rather than the definition is framed as a list of eligible technologies. We would be vastly better to simply say that the RPS applies to all clean technologies and spend our time defining "clean" rather than "technologies". Then instead of complaining that technology X isn't clean enough, we could end up with a situation where a technology that is 50% clean gets 50% of a credit - and the market would respond efficiently, rather than being distorted towards whatever technologies happened to be included in the enabling legislation.
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Amit Gadkari Posted 2:47 pm
27 Nov 2007
Other thing that has been hovering in my head, ever since I heard a talk from LBNL, was `Greening the Capitol', the plan to make the Capitol carbon neutral by Dec 2008
http://speaker.gov/issues?id=0023
Picking some brains to check my assumptions.....
33% of the carbon emissions come from `Capitol Power Plant' (CPP). The name `Capitol Power Plant' is a misnomer. This facility does not produce any power. It provides heating and cooling for the 23 buildings on Capitol Hill.
http://www.speaker.gov/pdf/GTCsummary.pdf
This has the potential to be a marquee installation for CHP as it will be watched by the world and incorporating this technology for the decision makers to see and feel everyday can change the flow of thoughts.
Speaker Nancy Pelosi approved the change of the fuel in the boilers to natural gas from coal. This makes waste heat recovery even easier. The incremental heat required for HP steam could be recovered from the waste heat and would still be much more capital efficient than using wind or solar to offset carbon emissions. HP steam could give practically free electricity before we use it for heating. Also it would add to overall grid generating capacity as it would be available during peak periods as opposed to wind which is strongest at night.
Downside: Per the article below, CPP is over 100 years old and any modification needs act of Congress.
http://www.capitalcommunitynews.com/publications/hillrag/ ...
Is it worth pushing for CHP in this installation-
Pros: High visibility, great application
Cons: High visibility, too many controls
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