1. Darden School Social Responsibility and Entrepreneurship April 2, 2007 Recycling Energy: Profitably Mitigating Climate Change Tom Casten Chair, Recycled Energy Development LLC Founder, former CEO Trigen & Primary Energy

2. Presentation Summary  Human actions are changing the climate, threatening life as we know it.  Conventional wisdom says a cooler planet will cost money. This assumes current heat and power generation is economically optimal.  Perverse regulations block efficient energy generation, forcing us to pay to destroy our planet  Recycling presently wasted energy is the key to profitably mitigating climate change  Organizations I have led have put over $2.0 billion to work in 250 local generation plants The worst of those plants uses half the fossil fuel of conventional generation and saves money. The worst of those plants uses half the fossil fuel of conventional generation and saves money.

3. An Inconvenient Truth  Al Gore describes global warming as an ‘Inconvenient Truth’ – a reality that we would rather not face.  Why inconvenient? Conventional wisdom assumes energy conversion is optimal; thus mitigating climate change will increase energy costs Conventional wisdom assumes energy conversion is optimal; thus mitigating climate change will increase energy costs  Why wrong? The energy system is not optimal The energy system is not optimal Electric generation efficiency peaked in 1960, creates 38% of US GHG Electric generation efficiency peaked in 1960, creates 38% of US GHG

4. Conventional Central Approach 1960 Data (& 2003 Data) Pollution Fuel 100 units Power Plant = 67 units Waste Energy 33 units Electricity End User Waste Heat Transmission Line Losses 3 units (7.5%)

5. What is Recycled Energy?  Recycled energy is useful energy derived from: Exhaust heat from power generation or industrial processes Exhaust heat from power generation or industrial processes Tail gas that would otherwise be flared Tail gas that would otherwise be flared Pressure drop in steam or any gas Pressure drop in steam or any gas  Promoting energy recycling is a ‘blue box’ energy policy

6. Typical Industrial Recycling Potential  Steel blast furnace gas and exhaust heat  Refineries and chemical factories  Natural gas pumping station exhaust  Pressure drop at gas delivery points  Glass & fiberglass factory exhaust heat  Sewage gas, landfill gas, biomass, construction waste, recycled carpet, other  All process thermal users, housing complexes, all central chilling users

7. Local Generation that Recycles Industrial Waste Energy Electricity Steam Hot Water End User Site Energy Recycling Plant Electricity Process Fuel Finished Goods Waste Energy Saved Energy Input

8. Local Generation that Combines Heat and Power Production Pollution Recycle Waste Heat CHP Plant End User Site 33 units Waste Energy = 66 units Useful Work 33 units Electricity 33 units Thermal Energy Fuel 100 units

9. Local Generation Plants we have built that recycle waste heat Denmark Electric Efficiency

10. Industrial Energy Recycling 90 MW Recycled from Coke Production

11. Best New Generation: Recycle Industrial Energy  Wasted energy streams in nineteen industries could generate 19% of US electricity Source:USEPA 2004 Study Recycled Energy in the US Identified Opportunities 95,000 MW Recycled Energy in Service 9,900 MW

12. These options are a ‘Convenient Truth’ Energy Recycling Profitably Mitigates Climate Change  Recycling industrial waste energy could produce 20% of US electricity, fuel free  Combining heat and power generation (CHP) produces electricity with half the fossil fuel of conventional central generation  Recycling waste energy will improve US competitive position

13. What About Economies of Scale? Skeptics claim local generation will raise capital costs

14. Economies of Scale? Central versus Decentralized Generation Transmission & Distribution $1380 $138 $1,242 1000% Generation Central Generation $890 Local Generation $1,200 Savings (Excess) of Central vs. Local Generation $310 Central generation capital as a % of local capital 74% Total / kW of Generation $2,270 $1,338 $1,068 213% KW required/ kW Load 1.44 1.07 0.37 135% Total costs/ kW New Load $3,269 $1,432 $1,837 228%

15. Lowest Cost Central Option Local Options that Recycle Energy Central Gen Options

16. Cost and CO2 per Delivered MWh Local Plants that Recycle Energy Central Plants

17. Other Recycled Energy Benefits  Induces new investment  Creates high quality jobs  Creates new revenue streams for industry  Improves industrial competitiveness  Significantly reduces health and environmental costs, saving public sector costs

18. Why Don’t Markets Force More Efficiency and Recycling?  Markets need accurate price signals: energy is subsidized  Markets require free entry & exit: illegal to run a private wire, utilities not allowed to fail  Markets need level playing field: Central generation is financially guaranteed Central generation is financially guaranteed Old plants allowed up to 100 times more emissions than new plants Old plants allowed up to 100 times more emissions than new plants  Perverse incentives distort market decisions: Under typical rate structures, 5% electric sales drop causes 59% drop in utility profits, 12 to 1 ratio. Under typical rate structures, 5% electric sales drop causes 59% drop in utility profits, 12 to 1 ratio. Thus, utility CEO’s are closet opponents of end use efficiency and sworn enemies of local generation Thus, utility CEO’s are closet opponents of end use efficiency and sworn enemies of local generation

19. Conclusions: A Convenient Truth Energy Recycling Solves Multiple Problems  Entrepreneurs should be encouraged to ‘mine’ industrial waste energy, create added revenue streams for industry  This requires better governance Remove barriers to efficiency Remove barriers to efficiency Pay local generation for values it creates Pay local generation for values it creates Remove perverse incentives for utilities to increase sales and fight efficiency Remove perverse incentives for utilities to increase sales and fight efficiency

20. Denmark Changed in Two Decades Source: Danish Energy Center

21. Comparative Deployment of Combined Heat and Power in 2004 Feasible Target of 30% CHP in US

22. My Goal: Change the Way the World Makes Power Lead the way to profitably reducing GHG emissions, raise income and mitigate climate change

23. Thank you

25. Future Generation Options Renewable Energy Options Central Generation Options No incremental fossil fuel line Recycled Energy Options Avg. Industrial Power Price 5.5¢ / kWh (33% efficiency) (50% efficiency) (100% efficiency) (net fossil savings) Avg. Retail Power Price 8.1¢ / kWh