Industry News

From District Energy Magazine, Second Quarter, 2012

Here in the U.S., like the recent "Lin-sanity" surrounding Harvard-bred New York Knicks guard Jeremy Lin, district energy has enjoyed a rare moment of visibility of late. An unheralded but tal­ented unknown, given the opportunity for some playing time, Lin has demonstrated that he has "game," can drive a winning streak and compete with the NBA big boys. In fact, his limited stature, unique Asian-American heritage and unlikely Ivy League pedigree are part of the buzz around Jeremy Lin. By the same token, dis­trict energy has lately been "discovered" by policy makers as an exciting and effec­tive approach to simultaneously winning the game of energy efficiency, emissions reduction and economic competitiveness. Relatively small and equally unknown, our industry has to prepare for the national spotlight and major league competition with bigger utility power forwards.

Recently, both U.S. Energy Secretary Steven Chu and Sen. Jeff Bingaman (D-N.M.), chairman of the Senate Energy and Natural Resources committee, rec­ognized the potential for district energy/CHP during testimony, in public dialogue and in federal clean energy legislation. This is encouraging news for our indus­try and is the result of many months—if not years—of advocacy, education and lobbying with Congress and the federal agencies. It's always better to be noticed than ignored, but the bigger question is whether district energy will still be on the floor at playoff time when the actual construction of clean energy legislation is under way. There is little chance that meaningful legislation will advance in this presidential election year, so from my view, our effort in 2012 should be a more focused offense on education and awareness to put more points on the board for the district energy industry.

One example of increased awareness occurred on Feb. 2 when Sec. Chu toured the Thermal Energy Corporation (TECO) in Houston with CEO Steve Swinson. Sec. Chu learned how the installation of 48 MW of CHP had doubled fuel effi­ciency, cut customer costs by 12 percent and reduced emissions by 302,000 tons per year while strengthening overall sys­tem reliability. This hands-on experience gave Sec. Chu a deeper appreciation for the full range of efficiency and environ­mental advantages of district energy-scale CHP. IDEA would like to assist more of our members with inviting their senators, representatives and mayors to also tour their facilities.

One week later, while speaking at a DOE electricity conference with the National Association of Regulatory Utility Commissioners, Sec. Chu related to the audience how district energy with CHP can recover and use surplus heat to simultane­ously provide power, cooling and process heat. Most recently, during testimony before the Senate Energy and Natural Resources Committee, Sec. Chu responded to a question from Sen. Jeanne Shaheen (D-N.H.) on the DOE's position on CHP, with the comment, "We are very bullish on combined heat and power." He went on to cite TECO as "an excellent example of how combined heat and power can be used ... the beauty of what they do is to use process heat for heating and to also make chilled water" and "by storing chilled water at night can cut peak power demand the following day, like a big bat­tery." He added, "Any city, any university or any hospital that has an integration of steam and chilled water in tunnels, or a big complex ... can use combined heat and power. We'd love to see it go in that direction because now you are going to 80 percent efficiency."

It is very encouraging to hear Sec. Chu relate the advantages of CHP to other policy makers. During his State of the Union address, President Obama called for investment in clean energy to produce 80 percent of U.S. electricity by 2035 and for "investment in infra­structure built to last" with an "all-of-the-above" energy policy for the U.S. economy. Clearly, district energy/CHP fits this model and provides a cost-effective path forward for our nation's cities, com­munities and institutions.

On March 1, Sen. Bingaman, a long-time champion of renewable energy, released the "Clean Energy Standard Act of 2012" (CESA) which includes favor­able treatment for CHP and important recognition of district energy. Given the current partisan gridlock, Sen. Bingaman acknowledged that his package is more a marker for further debate than likely to advance as stand-alone legislation. With Sen. Bingaman announcing he will retire from the Senate this year, we will look to his Senate co-sponsors Kerry (D-MA); Coons (D-DE); Udall (D-CO); Wyden (D-OR); Sanders (D-VT); Udall (D-N.M.); Franken (D-MN); and Whitehouse (D-R.I.) to provide ongoing leadership and support. The challenge will be to find Republican support and to build biparti­san commitment to energy efficiency, fuel flexibility and enhanced energy security enabled by district energy.

Even if doesn't pass as drafted, CESA is an important step forward. It sets the table for ongoing discussion and provides our industry a seat at that table. Moreover, the bill also addresses an important "ask" IDEA has been mak­ing on Capitol Hill for many years: that clean energy policy not be solely limited to technologies that produce electricity, but also provides appropriate and pro­portional treatments for thermal energy applications. We have argued that many thermal energy solutions, such as deep lake water cooling or waste heat recovery, should be recognized and included in clean energy policies. A section of the Act specifically calls out "Clean Energy Resources That Do Not Generate Electric Energy" and calls for "DOE, within three years of enactment, to submit to Congress a report examin­ing mechanisms ... addressing clean energy resources that do not generate electric energy but that may substantially reduce electric energy loads, including energy efficiency, biomass converted to thermal energy, geothermal energy col­lected using heat pumps, thermal energy delivered through district heating sys­tems, and waste heat used as industrial process heat." IDEA intends to work col­laboratively with DOE and other agencies to fully assess the potential for thermal district energy, CHP and waste heat recovery as intended in the Act.

The release of CESA opens a new window of opportunity for district energy. The legislation also includes nuclear energy and carbon sequestration as clean energy, which by comparison are dramatically more capital-intensive and financially risky but enjoy the backing of powerful corporate interests. Carbon capture and sequestration (CCS), in its present form, exists only in small-scale pilots. In 2011, major utility-grade CCS implementation projects were abandoned by host utili­ties citing regulatory reluctance to allow project cost recovery in rate base. The host utilities decided that if their rate-payers (or shareholders) were primarily responsible for cost recovery for a testbed technology with potentially broader national benefits, that it was not in their parochial interest to underwrite the risk of early-stage imple­mentation. It's equally likely that discour­aging early test results and cost overruns were cause for discontinued investment.

Another concern will be balancing the competing interests of the district energy/CHP industry with the capital demands of nuclear and CCS. Entrenched utility interests accustomed to regulation are generally motivated to ingest huge amounts of capital yet, without regulatory guidance, are still largely indifferent to energy efficiency. Part of our strategy must be to educate regulators that more effective policy should leverage efficiency for profitability or shareholder return and no longer simply reward capital additions.

If CESA 2012 is intended to shape utility behavior through policy and pricing signals to influence technology adoption in the market, then district energy/CHP can compete from a number of important per­spectives. Our technology is commercially available and does not require decades to construct or billions in capital risk. Speed-to-market favors CHP since the design and implementation process is only a couple of years, compared to a decade or more for a nuclear plant. Fuel flexibility is another strategic advantage, enabling our plants to respond quickly to changing market and supply conditions.

Following the logic of Sec. Chu, it stands to reason that the ripest, low hang­ing fruit would be to install cogeneration in existing thermal-only district energy plants. When you look at the opportunities for 50 or 100 MW for an urban applica­tion, the capital risks are nominal com­pared to those for a massive nuclear plant or unproven CCS technologies. The chal­lenge for our industry will be to ramp up nationally to achieve significant economic scale where investment-grade capital can actively engage in our sector. Individual projects may be financeable through economic development bonds or project financing, but a longer-term vision to fully build out the sector with robust public-private partnership investment is needed to reach our full potential.

I think the time has come for the U.S. electricity industry - and its regulators - to reconsider the "mainframe model" of large, remote central station plants and adapt to a more responsive, localized, flex­ible and highly efficient CHP distributed generation model. It is long past time that we plug the leak of wasting useful thermal energy in the electricity generation sector by integrating district energy to move the efficiency needle forward from 32 percent, where it has stagnated since Eisenhower was president.

To properly position district energy/CHP in a clean energy policy will demand our continued commitment. Just like com­peting in pro basketball, it will be up to us to stay in shape, earn our playing time so that our number is called when real policy negotiations start and the playoffs for clean energy legislation begin. We will need to continue to advise the DOE and build deeper support with members of Congress. We will need to research and offer rational guidance to policy makers about where and how to implement CHP in district energy systems. We need to contribute to the policy playbook and learn how to break the regulated utility press so that our speed and agility are properly valued.