District Energy - 2010 4th Quarter

In matters of climate and energy policy, IDEA has also been actively educating Congress and EPA staff on the risk of unintended consequences in greenhouse gas (GHG) emissions regulations. We have explained that cogeneration – producing both useful heat and power – may actually increase on-site emissions when compared to boilers for heat and purchased electricity, and therefore the cost of surrendering emissions allowances may increase with cogeneration. But regional GHG emissions will decline and those reductions should be properly credited back to the more efficient and cleaner cogeneration source. While the likelihood of congressional action on climate change seems increasingly remote, the EPA seems fully cognizant of the policy discrepancy as evidenced by its recent amendment on the voluntary reporting for GHG emissions. Highly efficient CHP should be encouraged and not be burdened by new climate rules, but there is no certainty that common sense will prevail in this arena, and thus IDEA must be ever vigilant in representing our members.

Likewise, in Boiler MACT, IDEA has submitted comments to EPA on the complex compliance challenges for industrial boilers ( http://tinyurl.com/32t79df). IDEA obviously supports clean air but we also recognize that complicated compliance thresholds are likely to ensnare many of our member facilities. In promulgating policy, the U.S. Environmental Protection Agency (EPA) must be made aware of the costs and unintended consequences of multi-pollutant emissions regulations. Further, the data resources and procedural flaws in the analysis have led to thresholds for multiple pollutants that seem to conflict with best industry practices and set nearly unachievable targets. In this instance, the policy confusion could fundamentally overwhelm our industry and cause significant expenses and delays. For instance, if biomass becomes overly regulated and marginalized as a renewable option, what option will hundreds of solid fuel boilers on college campuses pursue? If natural gas becomes the overwhelming default option due to perceived risk avoidance, the long-term consequences of resource dependence and supply imbalance could affect other aspects of the economy.

Similarly, the recent Manomet study of biomass has sent a chill across the biomass sector, but the inaccurate headlines and poor reporting have unfairly tainted the industry. (See article on page 29.) In most cases, district energy systems utilize biomass fuel in the form of wood waste, tree trimmings, pallets and construction-derived wood waste. It is rare that virgin forests are utilized as the principal fuel source, and thus it should not form the default condition for comparison of carbon absorption. How is it that 32 percent of all the energy in Sweden is derived from biomass in a sustainable and environmentally sound manner, while U.S. policy seems to obfuscate and complicate biomass combustion? How is it that across Scandinavia, policies encourage communities to invest in district heating networks to keep the energy dollars recirculating in the local economy, generating municipal revenue from operations that fund schools, parks, libraries and community infrastructure rather than spending energy dollars on fossil fuels from foreign suppliers?

Energy and environmental policies should stimulate greater fuel flexibility, enhance lower-carbon solutions and improve the domestic trade balance.

Energy and environmental policies should stimulate greater fuel flexibility, enhance lower-carbon solutions and improve the domestic trade balance. Thinking about where district energy and CHP fit in the larger legislative landscape, it becomes increasingly important that we describe district energy in a more holistic context. We need to move district energy out toward the blue ocean of sustainable community objectives rather than swim in the bloody red ocean of competing for marginal share of power markets with other ESCO-based efficiency measures or heavily subsidized renewable projects.

As part of IDEA’s mission to educate
policy makers as well as mayors, college
presidents, architects and developers, we
need to provide compelling case studies
that illustrate the full value stream of
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district energy. For instance, Thermal Energy Corporation (TECO) in Houston recently added 48 MW of cogeneration, enabling the central plant to supply mission-critical heating and cooling to

16 million square feet of highly specialized healthcare space. In analyzing its track record, TECO determined that over the past 20 years, the rates charged to its customers have increased at half the rate of inflation. TECO customers are paying less today than 20 years ago due to regular investments in more efficient central plant operations. Additionally, the value of customer real estate has been enhanced as each building has avoided direct capital costs for equipment, replacement, maintenance and service. Instead, the hospitals were able to allocate mechanical and equipment space to a higher, more desirable use and share proportionately in their combined energy asset. And recently, on a brutally hot day in August, when the ERCOT grid set a record demand of 65,000 MW with a coincident peak rate of $2,000 per MWh, TECO did not need to purchase a single kilowatt from the grid.

The McKinsey Global Institute calls CHP one of the most cost-effective near-term solutions to climate change and states that policy uncertainty – not technology – is the hindrance. The U.S. Department of Energy Clean Energy Application Centers are working to increase the share of electricity generated by CHP from 9 GW today to 20 GW by 2030. Achieving this would reduce CO2 emissions equivalent to removing 150 million cars from the road. But in order to move this ahead, we need to address the policy clutter, call out capricious and anti-competitive standby rates, and comment on complicated regulations that may otherwise put a chill on highly efficient CHP in industrial and commercial markets. We need to play a leading role in writing the policy papers affecting our future so that we don’t get whacked over the head in surprise.