Industry News

From District Energy Magazine, Second Quarter, 2011

As I write this column, the tragic disaster in Japan continues to unfold after the massive 9.0 earthquake and resultant tsunami. Video footage of surging water inundating coastal communities, carrying ships, trucks and rooftops as if they were toy boats, seems almost surreal, like a Hollywood disaster movie. My heart goes out to the brave and burdened people of northern Japan. The overwhelming devastation gives one pause on the undeniable force that is Mother Nature.

Beyond even the original natural disasters, we have all been transfixed by the rapid deterioration and demise of the damaged nuclear reactors at Fukushima Dai-ichi. The evacuation zone surrounding the plants continues to expand and with each successive day, the prognosis seems to worsen and grow more complicated, more frightening and ultimately, more expensive. The desperate battle to control the unfettered heat from the damaged reactors and contain the danger of spreading radiation from exposed spent fuel rods is both gut-wrenching and, frankly, disturbing. Having worked in many power plants during my career, I am struck by the selfless bravery of the Fukushima 50, those plant workers fighting to limit catastrophe at huge personal risk. It will take some time before the root cause of the various system failures are fully understood, and with some luck, the tragic consequences of this unprecedented event will be mitigated. Clearly, the magnitude of this event and its aftermath will be measured in years and billions of dollars and ultimately lead to deeper discussion on not only the risks and benefits of nuclear power but a broader dialogue on the utility business model of few, large and remote power stations.

At this juncture, one has to wonder whether this disaster will serve as a tip­ping point away from large, remote cen­tral power stations to a more robust dis­tributed model, much as computing migrated from mainframes to servers and personal computers. One critical awaken­ing has to include recognition of the eco­nomic and environmental value of surplus heat that can be realized through integra­tion of combined heat and power rather than simply exhausting valuable thermal energy to oceans, lakes and other water­ways. One outcome from Fukushima might be to move the discussion dial from the foregone assumption of a "nuclear renaissance" as a low-carbon power source to recognition that we can no longer abide 34 percent generation 2011 efficiency at central power stations when 90 percent is achievable today with CHP in a district energy setting.

Back here in the U.S., the Obama Administration and Congress are begin­ning the next round of debate on the ever-elusive U.S. energy policy. As Mark Spurr points out in his column, the opera­tive phrase now centers around a "clean energy standard," with apparent political support from both sides of the aisle. From my personal view, the notion of a "clean energy standard" has become a catchall phrase to lump all manner of technologies and industries into a virtual grab bag of policy gifts. The biggest beneficiary to date has been the voracious appetite of the nuclear industry, prepared to gobble up over $36 billion in federal loan guarantees and other inducements intended to jump-start new construction and ameliorate investor risk. In the latest round of budget cutting, alternative energy incentives for FY 2011 got the knife while $18 billion in federal loan guarantees for nukes survived. Let's be clear, energy markets follow the money. When capital is otherwise con­strained and federal guarantees are ear­marked to backstop new U.S. reactors, other near-term, proven technologies like district energy and CHP will continue to be crowded out and largely ignored. After the nuclear industry takes its bite, there will be little left on the bone for many others, including proven, available, reliable, clean and efficient industries like district energy and combined heat and power.

In some ways, our industry has been similarly squeezed on the other side by the emergence of state portfolio policies focused almost exclusively on incentives for renewable electricity. When financial incentives tip the playing field toward specific technologies, market distortions fol­low and the level playing field that should facilitate fair competition on energy effi­ciency, economic competitiveness, system reliability and development risk is turned into a muddy morass of "unintended con­sequences." On one hand, the district energy and combined heat and power industry has grown slowly and steadily without significant direct policy supports or external incentives. We have not relied on subsidies and therefore will not suffer should they disappear. Meanwhile, over the past five years, investment capital has migrated to wind and solar, largely driven by externalities such as renewable energy credits or state-mandated utility portfolio percentages. And let's be honest, the nation's electric utilities have not embraced intermittent power supplies from sun or wind because they wanted to; it's because legislators and regulators told them they had to.

What is most frustrating about the lack of coherent U.S. energy policy is our tendency to throw money at the "next new thing" or to commit taxpayer resources to massive, long-duration proj­ects that won't save a Btu or deliver a kilo­watt for at least a decade or more. Nuclear is a hugely capital-intensive industry that seems to attract the "bigger is better" crowd, where massive construction and government backstopping are predicated on promises of jobs or the long tail of property and income tax revenues. District energy and CHP, on the other hand, are essentially scaled to local needs and indi­vidually may only require between $50 and $400 million over a decade of down­town development. But district energy can deliver savings to the local economy much more promptly as technologies are read­ily available. Another technology grouped in the "clean energy" category is carbon sequestration, which has yet to be proven to work on any reasonable scale. While I understand the need for investing in R & D to solve the carbon problem for coal, there is a huge policy gap that leap­frogs truly cleaner and more economical solutions like CHP and instead drives capi­tal to questionable CCS and economically risky nuclear facilities.

Meanwhile, growing political turmoil in the Middle East and a strengthening domestic economy are combining to put upward pressure on the price of oil, now hovering around $100 per barrel. The price at the gasoline pump, which is the most widely recognized market signal for high energy prices, is once again approaching $4.00 per gallon. In a perverse way, high commodity energy prices have tradition­ally been "good" for the district energy/CHP industry, as the potential for energy savings expands and shortens the amor­tization of energy efficiency investments. In the U.S., we tend to cycle between anxiety and amnesia over our energy conundrum. Economic anxiety encroaches on the national psyche when the price at the pump nears $4.00 per gallon and dis­sipates quickly back to complacency once the price slides back to $3.00 range.

Institutions and cities across the United States have invested in district energy and CHP to exert more control over their local energy economy rather than be victimized by distortions in commodity fuel markets. Energy effi­ciency never goes out of style, but it is not always an easy sell. At our recent Campus Energy Conference, a panel of university utility leaders explained how it can take many years to gain financial approvals to build CHP on campus, with one sharing that in the time it took to finally launch CHP, he had to re-educate three different university presidents. At District Energy St. Paul, they now serve twice the square footage of customer space with the same volume of fuel as 20 years ago while customer energy intensity has declined over 19 percent since 1980. And every year, over $12 mil­lion in local biomass fuel expenses recir­culates in the local economy rather than flowing offshore or out of the region.

For the U.S. clean energy standard to be truly effective, it is essential that thermal energy be fully considered. At our upcoming 102nd Annual Conference in Toronto entitled District Energy/CHP 2011: Essential Infrastructure for Energy-Efficient Communities, we will focus on effective policies for launching new district energy investments. Governors, mayors and economic development officials understand that attracting industry often requires competitive energy services. Municipal district utilities can deliver multiple value streams to a community in the form of stable energy prices, additional revenue sources and local job creation. When a district energy system can utilize local fuels like biomass or landfill gas, energy dollars recirculate in the local economy. With the economic scale that district energy infrastructure provides by aggregating the heating or cooling needs for dozens or even hundreds of customer buildings, communities can afford to tap surplus industrial heat or renewable resources like lake water for cooling as Enwave Energy Corp., our conference host, has implemented for downtown Toronto.

As you will see in this issue of the magazine, all across Canada communities are embracing district energy infrastructure as a critical resource to improve environ­mental performance and drive sustainable economic development. Our industry needs to better understand political and economic motivations while we build awareness of how district energy can fill that gap today. Energy policy will demand a suite of tech­nologies and solutions because there are no silver bullets, just silver buckshot. Clearly the tragedy in Japan should not be simply exploited for political leverage, but if noth­ing else, policy makers have to incorporate the new frightening reality that comes when nuclear assets fail and a large per­centage of generation capacity is crippled. To ignore the economic and environmental fallout would be a disservice to the many brave souls who struggled to stop the chain reaction at Fukushima Dai-ichi with the hope of preserving a quality of life for their families and other citizens on the island of Japan.