1. Legal & Regulatory Considerations for Waste Heat Development Current landscape & future prospects Waste Heat-to-Power Workshop University of California Irvine March 2, 2005 John Nimmons & Associates Mill Valley, California 415.381.7310 Presented by John Nimmons, J.D.

2. 2 Topics Why legal / regulatory issues matter Characterizing waste heat & its functions Selling waste-heat-generated power to utilities Federal & state support for waste heat development Conclusions Useful next steps

3. 3 Why legal/regulatory issues matter Sensible legal & regulatory treatment can – expand markets for electricity from waste heat improve economics of waste heat recovery through grants, loans, rebates, tax benefits, etc. raise awareness & promote consideration & adoption of waste heat options reduce transactional barriers & cost of waste heat projects reduce regulatory barriers to waste heat conversion & use minimize environmental impacts support efficient & sustainable resource use

4. 4 Characterizing waste heat Fish, fowl or …? Waste Federal (PURPA benefits) residual heat heat from exothermic reactions States: some define, many dont. Definitions differ. E.g. – energy otherwise lost (Nevada) energy otherwise released to the environment (Washington) produced but unused (Oregon) Conservation – CA Pollution Control Fin. Auth. (CPCFA), OR, MT Efficiency improvement – OH, OR Alternative energy – ILL, MT Pollution control – CPCFA Renewable – CPCFA, CO, FL, OR, VT, WA

5. 5 Why it matters: Federal PURPA benefits Facilities producing electricity from waste heat can qualify for PURPA benefits, including: interconnection with serving utility power sales to serving utility at its avoided cost transmission to another utility for purchase non-discriminatory backup service from utility

6. 6 Why it matters: Federal PURPA benefits Qualifying cogeneration facility Topping cycle: operating & efficiency standards apply 5% useful thermal output 42.5% efficiency, if natural gas or oil input (45% if thermal output < 15%) Bottoming cycle: 45% efficiency (if gas or oil supplemental firing; otherwise no efficiency requirement)) Qualifying small power production facility waste - including residual heat - is an eligible energy source no operating or efficiency standards 80 MW limit at a single site

7. 7 Why it matters: Federal production & investment credits Production credit for electricity from some renewables 1.5¢ / kWh credit for electricity sold, for 10 years Qualified energy resources now include (among others): most biomass resources closed loop organic material planted exclusively for electricity open loop – livestock manure & bedding, forest residues, landscape trimmings geothermal energy solar energy municipal solid waste combustion available until 12/31/05 (but has been renewed before) 10% investment tax credit for certain energy property solar electric & thermal geothermal

8. 8 Why it matters: State & local examples Direct financial incentives grants, loans, rebates – e.g., CA Pollution Control Financing Authority, SGIP tax benefits (credits, exemptions, reimbursements, etc.) – at least 7 states Other market support mechanisms renewable portfolio standards – 12 states mandatory, 3 voluntary net metering – about 40 states green pricing – ~ 32 states, over 500 utilities (.5–6.0¢ /kWh premium, avg. $5.50/mo.) public agency mandates ( planning, design, life-cycle costing, etc.) – at least 3 states regulatory exemptions – some explicit, most through cogen exemptions RD&D, planning, &/or promotion – at least 5 states education, training & assistance – at least 1 state emissions & efficiency credits – work in progress local zoning preferences – at least 1 state

9. 9 State Portfolio Standards Many states have adopted portfolio standards Purpose: to stimulate markets for clean, efficient resources Mechanism: utilities & other electricity providers must generate or acquire an increasing annual percentage of electricity from favored resources until target is reached Standards generally focus on renewables, but states define eligible resources differently

10. 10 State Portfolio Standards (potential waste heat resources) Solar Thermal Biomass Geothermal Landfill Gas Digester Gas Fuel Cells Waste, incl heat MSW Qualified Energy Recovery Process Other No. of States111288666313

11. 11 Nevada RPS A qualified energy recovery process means: a system that converts otherwise lost energy from – exhaust heat from engines, or manufacturing or industrial processes or pressure reduction in water or gas pipelines (before distribution) to electricity, without additional fossil fuel or combustion up to 15 MW Excludes systems that use energy (lost or otherwise) from electric generation For RPS, not renewable energy as such, but a distinct type of renewable energy system

12. 12 State Net Metering Programs Utilities normally buy power at wholesale, & sell to customers at retail Net metering allows self-generators to offset their excess production (otherwise valued at wholesale) against their retail purchases Essentially self-executing – minimizes transaction costs for customers & utilities States limit eligible system size range: 10kW – 2 MW typical: 25 kW – 100kW States define eligible resource types & customers

13. 13 State Net Metering Programs: eligible resource types Solar Thermal Biomass Geothermal Landfill Gas Digester Gas MSW Fuel Cells Microturbines Cogeneration No. of States21241352101758

14. 14 Conclusions Legal & regulatory treatment will strongly affect the direction & value of waste heat development Waste heat is characterized in diverse ways, without clearly articulated policy rationale Waste heat projects appear eligible for important financial & market incentives already in place, but largely untested so far in the waste heat context Developing coherent, consistent & defensible regulatory policy will simplify the work of waste heat proponents, & catalyze more widespread resource development

15. 15 Useful Next Steps Develop a more comprehensive understanding of the existing legal & regulatory landscape Develop a coherent policy rationale for treatment of waste heat-to-power Develop model legislation & regulatory approach to enhance certainty for providers & customers