District Energy 2012 Q2

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 utili-
ties 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 imple-
mentation. It’s equally likely that discour-
aging early test results and cost overruns
were cause for discontinued investment.

Our technology is commercially
available and does not require
decades to construct or billions
in capital risk.

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.