1. 10 th Annual IOF WV Symposium November 9, 2006 Energy Recycling – A Convenient Truth! Thomas R. Casten Past Chairman & CEO Primary Energy, LLC

2. An Inconvenient Truth  Al Gore has described global warming as an ‘Inconvenient Truth’ – a reality that we would rather not face  Present and coming policy changes mandate GHG (Greenhouse Gas) reductions  Conventional wisdom: restrictions will increase energy costs and penalize industry

3. More ‘Inconvenient Truths”  Richard McCormack: US industrial production shrinking at alarming rate  Grid electricity cost is certain to rise due to CAIR, rebuilding US T&D system, and permanently higher fossil fuel prices  US fossil fuel addiction dictates foreign policy (and expensive wars), bloats balance of payments deficits, and exacerbates pollution control costs

4. ‘A Convenient Truth’ Energy Recycling  US industrial waste energy could produce 20% of US electricity Recycling creates significant new revenue streams for US manufacturers and reduces emissions Recycling creates significant new revenue streams for US manufacturers and reduces emissions  Power generation that recycles waste heat uses half of the fossil fuel of conventional generation Recycling cuts power costs, reduces emissions Recycling cuts power costs, reduces emissions  US industries single best hope to regain competitiveness: recycle waste energy

5. Examining Energy Trends  New work by Robert U. Ayres examines relationship of energy, conversion to useful work, and GDP (Gross domestic product)  Raw energy use and GDP do not correlate, economists treat energy as simply a 4% factor in overall economy  Ayres finds changes in useful work explain over 50% of past century’s economic growth

6. Economic Growth Driven by Improving Energy Efficiency  Long trend of falling energy use per dollar of GDP, does not correlate with rising GDP  However, also long trend of increasing efficiency of converting exergy (potential energy) to useful work  Useful work per $ of GDP has been remarkably constant, explains over half of economic growth  Trends of energy efficiency have reversed, largely due to electric industry stagnation

11. Exergy Conversion to Useful work by Sector Exergy Conversion to Useful work by Sector  Look at the % of exergy converted to useful work in low temperature heat, high temperature heat, lighting, and electricity  Electricity is by far the most efficient way to use energy, but  Efficiency has stagnated in electricity production Stagnant power industry efficiency is key to many US problems, including industrial competitiveness, pollution, jobs, balance of payments, and global warming Stagnant power industry efficiency is key to many US problems, including industrial competitiveness, pollution, jobs, balance of payments, and global warming

18. Industry Has Options Recycle energy to reduce cost and reduce pollution

19. 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%)

20. Decentralized Generation Option Combined Heat and Power 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

21. Defining Recycled Energy  Recycled energy is useful energy derived from: Exhaust heat from any industrial process or power generation Exhaust heat from any industrial process or power generation Industrial tail gas that would otherwise be flared, incinerated or vented, Industrial tail gas that would otherwise be flared, incinerated or vented, Pressure drop in any gas Pressure drop in any gas

22. Industrial Energy Options Electricity Steam Hot Water End User Site Energy Recycling Plant Electricity Process Fuel Finished Goods Waste Energy Saved Energy Input

23. Primary Energy’s Approach 90 MW Recycled from Coke Production

24. Comparative Deployment of Combined Heat and Power in 2004

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

26. Power Cost and CO 2 Policy Choices Cost down Cost / MWh Cost up CO 2 down CO 2 /MWh CO 2 up Coal gasification, CCGT, Cost up, CO 2 up Central generation with coal, no criteria pollutant control Cost down, CO 2 up Wind, Geothermal, CO 2 sequestering, on grid solar Cost up, CO 2 down CHP, industrial energy recycling (Requires local generation) off grid solar, local hydro Cost down, CO 2 down Cost and Emissions Today Policy Goal

27. How Can WVA Governance Spur Reduced Energy Costs & GHG  Modernize old rules that are now barriers to modern technology  Enable recycled energy projects to capture more of value they create Reward local generation for avoiding T&D capital and line losses Reward local generation for avoiding T&D capital and line losses Pay part of health and environmental savings to energy recycling facilities Pay part of health and environmental savings to energy recycling facilities

28. More Specific WVA Suggestions  Provide open standard offer for power from energy recycling facilities  Provide limited loan guarantees for industrial energy recycling plants, valid only if waste energy supply ceases  Identify specific barriers to efficiency and enact new rules that serve the social purpose but do not block efficiency.

29. Convenient Truth: Energy Recycling Solves Multiple Problems  WVA can ‘mine’ industrial waste energy, create added revenue streams for industry Recycle presently wasted energy streams to provide affordable, clean energy Recycle presently wasted energy streams to provide affordable, clean energy  Requires unconventional, innovative governance Remove barriers to efficiency Remove barriers to efficiency Pay part of health savings to recycled energy facilities that create those savings Pay part of health savings to recycled energy facilities that create those savings Pay T&D savings to energy recycling facilities Pay T&D savings to energy recycling facilities Permit energy recycling as pollution control device Permit energy recycling as pollution control device

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

31. Conclusions:  Local pollution, global warming, and industrial competitiveness are all serious problems  The only ‘double dividend’ approach is energy recycling -- clean energy solutions that reduce costs and emissions  Our collective future depends on how fast governments remove barriers to efficiency and encourage clean energy

32. Thank you for listening

34. 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%