1. RED | the new greenwww.recycled-energy.com 1 CHP: One of the answers (but not the question) Presentation to Efficient Enterprises: Powering American Industry Sean Casten, President & CEO Recycled Energy Development, LLC June 23, 2009 US Capitol Building, Room HC-7

2. RED | the new greenwww.recycled-energy.com 2 Asking the right questions Technology-specific questions have minimal policy merit. How could we deploy more CHP, how much CHP could we deploy, how does CHP work are not especially enlightening. Much more constructive to ask questions about how to better realize our goals How can we quickly and cost-effectively lower CO2 emissions? How can we enhance the competitive position of the US economy? How can we induce rapid, large scale private sector investment in the nation’s aging (and increasingly, unacceptably dirty) energy infrastructure? Understanding the potential for CHP is key to answering these questions – but it is not the question.

3. RED | the new greenwww.recycled-energy.com 3 Things you think are true aren’t. 1.The past is a good predictor of the future 2.The US energy sector is too big, too capital-intensive and too politically powerful to accommodate rapid, transformative change. 3.Significant reductions in CO 2 emissions will require increased energy costs and/or technological breakthrough In other words: Unexpected, transformative changes can quickly reduce our CO 2 emissions and grow our economy… so long as we don’t constrain our future with our present conventional wisdom.

4. RED | the new greenwww.recycled-energy.com 4 Transformative changes in our fossil energy use are inevitable. Current fossil fuel extraction rates are unsustainable 50% of all the coal we have ever burned has been burned since 1970. 50% of all the oil we have ever burned has been burned since 1986. 50% of all the natural gas we have ever burned has been burned since 1990. Our choice is one of adaptation: Proactively, by increasing our energy efficiency? Reactively, forced to act by resource constraints? “If you choose not to decide, you still have made a choice” (Neal Peart)

5. RED | the new greenwww.recycled-energy.com 5 Transformative shifts in our fossil fuel use are inevitable.

6. RED | the new greenwww.recycled-energy.com 6 Things you think are true aren’t. 1.The past is a good predictor of the future 2.The US energy sector is too big, too capital-intensive and too politically powerful to accommodate rapid, transformative change. 3.Significant reductions in CO 2 emissions will require increased energy costs and/or technological breakthrough

7. RED | the new greenwww.recycled-energy.com 7 Potential pace of electric sector reform: 20% of US fleet built in just 10 years! Source: US DOE, Energy Information Administration (www.doe.eia.gov)www.doe.eia.gov 1992 Energy Policy Act opens competitive markets FERC Order 888 mandates non-discriminatory transmission access Final FERC rehearing of 888

8. RED | the new greenwww.recycled-energy.com 8 New England’s FCM success is even more dramatic. Source: ISO-NE; website and personal correspondence. Typical NE power peak = 19,000 – 24,000 MW All time peak = 28,160 MW (8/6/06) ISO-NE’s forward capacity market closed their first capacity auction on 3/1/07; they have now completed two forward capacity auctions (FCAs) FCM allowed demand resources (including, but not limited to CHP and other behind-the-meter generation) to bid into markets and compete with new-build generation to meet system supply needs. As of their most recent auction (FCA#2), they have 2,936 MW of demand resources that have been brought forward under this program. Met over 10% of the system peak in under 3 years without building a single power plant.

9. RED | the new greenwww.recycled-energy.com 9 Things you think are true aren’t. 1.The past is a good predictor of the future 2.The US energy sector is too big, too capital-intensive and too politically powerful to accommodate rapid, transformative change. 3.Significant reductions in CO 2 emissions will require increased energy costs and/or technological breakthrough

10. RED | the new greenwww.recycled-energy.com 10 CO 2 reduction is not constrained by technology nor economics. 1.Non-renewable CO 2 release comes from the combustion of (previously sequestered) fossil carbon fuels. Uniquely among pollutants, the thing which causes the pollution costs money; ergo, reducing CO2 pollution saves money. If done with greater efficiency, this cost reduction need not be coupled to a reduction in standard of living. 2.Current regulations generally do not encourage energy efficiency, and in some cases discourage it. Clean Air Act has the right intent, but is methodologically flawed; efficiency doesn’t count as a pollution control strategy! Ditto for modern utility regulation, which keeps the power flowing, but does not allow utilities to use cost-control to maximize profits. 3.Most US energy capital stock is old; to the degree it was optimized, it was for yesterday’s energy prices.

11. RED | the new greenwww.recycled-energy.com 11 The costs of current policy, and potential for CHP. Energy waste = Economic / Environmental opportunity

12. RED | the new greenwww.recycled-energy.com 12 RED | the new greenwww.recycled-energy.com Homer Simpson’s plant wastes lots of energy.

13. RED | the new greenwww.recycled-energy.com 13 RED | the new greenwww.recycled-energy.com So do ours.

14. RED | the new greenwww.recycled-energy.com 14 RED | the new greenwww.recycled-energy.com Energy flows in the US electric sector.

15. RED | the new greenwww.recycled-energy.com 15 RED | the new greenwww.recycled-energy.com Energy flows in a fueled CHP plant (“topping cycle cogen”)

16. RED | the new greenwww.recycled-energy.com 16 RED | the new greenwww.recycled-energy.com Energy flows in an energy recycling plant (“bottoming cycle cogen”)

17. RED | the new greenwww.recycled-energy.com 17 CHP’s local nature gives it an innate capital cost advantage. US Average Capex ($/kW installed) Central Approach Local Generation $1,000 - $3,500 $1,200 - $4,000 $1,400 $140 1.44 1.07 GenerationT&D Line Loss & Redundancy Total $ per new kW load $1,430 - $4,430 $3,460 - $7,000

18. RED | the new greenwww.recycled-energy.com 18 Supporting data from FERC Courtesy Jon Wellinghoff

19. RED | the new greenwww.recycled-energy.com 19 Total potential for additional US CHP is massive and transformative. DOE estimate: 135+ GW of opportunity for fueled-CHP EPA estimate: 65+ GW of opportunity for power generation from currently wasted energy (including, but not limited to waste heat). In total, represents 20% of entire US generation fleet Taking capacity factor into account, represents approximately 40% of total US power consumption. If fully deployed, would reduce total US CO 2 emissions by 20% AND would lower our cost of energy.

20. RED | the new greenwww.recycled-energy.com 20 Achieving this level of CHP has already been done by many of our trading partners. Source: Energy & Environmental Analysis

21. RED | the new greenwww.recycled-energy.com 21 What CHP looks like: steel manufacturer in Gary, IN. 95 MW of power recovered from the exhaust of 268 coke ovens. Saves host ~$40 million/year with no marginal fuel combustion or CO 2 release. Generates more clean power in 1 year than all the world’s grid- connected solar panels (with less CO 2 /MWh!) Courtesy Primary Energy

22. RED | the new greenwww.recycled-energy.com 22 What CHP looks like: silicon manufacturer in Alloy, WV. RED will recycle hot gas to generate 45 MW of power from waste heat on 120 MW furnace Competitive with West Virginia (coal) power prices.

23. RED | the new greenwww.recycled-energy.com 23 Ask the right questions What regulatory barriers exist to energy efficiency (in all its flavors), and how can we remove them? Lesson from FERC 888 / FCM: unleashing a flood of private sector investment need not require tearing down an entire dam – we simply need to remove the critical bricks, and let the blocked resource do the rest of the work for us. How do we reward the goal, instead of the path? More incentives for CHP / solar / wind / nuclear / clean coal are not the answer; experience teaches that approach will cause massive unintended consequences. We have enough time to change course – barely.