Tenth Annual Midwest Energy ConferenceMarch 7, 2007

How Best Satisfy Midwest Electric Load Growth?

Thomas R. CastenChairman

Recycled Energy Development

Four Questions Four Questions

Where are electricity prices headed Where are electricity prices headed over next five to ten years?over next five to ten years?

What is optimal new generation?What is optimal new generation?

What blocks optimal generation What blocks optimal generation choices?choices?

What changes would induce better What changes would induce better choices?choices?

Electricity Prices Likely to Double in Electricity Prices Likely to Double in Five to Ten YearsFive to Ten Years

Emission rules force coal plants to invest $300- Emission rules force coal plants to invest $300- $800/kW and lower efficiency, or to retire plants$800/kW and lower efficiency, or to retire plants

Long-term fuel contracts below spot marketLong-term fuel contracts below spot market

Massive investment in T&D will raise ratesMassive investment in T&D will raise rates

Carbon credits inevitable, $20/ton adds 2 Carbon credits inevitable, $20/ton adds 2 cents/kWh to Midwest delivered power costscents/kWh to Midwest delivered power costs

New coal plants require 10 to 12 cents per New coal plants require 10 to 12 cents per delivered kWh, plus carbon permit costsdelivered kWh, plus carbon permit costs

These factors will add 6 to 8 cents/kWh to These factors will add 6 to 8 cents/kWh to average retail rates.average retail rates.

Midwestern Plant Closing RiskMidwestern Plant Closing Risk

Operational Operational MW of MW of GenerationGeneration

MW over 40 MW over 40 years oldyears old

Percent Percent over 40 over 40 years oldyears old

Great LakesGreat Lakes 178,887178,887 36,23736,237 20.3%20.3%

MidwestMidwest 72,75372,753 12,71812,718 17.5%17.5%

Total Total RegionRegion

251,565251,565 48,95548,955 19.5%19.5%

How Best Satisfy Electric Load How Best Satisfy Electric Load Growth and Plant Retirement?Growth and Plant Retirement?

Lowest delivered cost per kilowatt-hour?Lowest delivered cost per kilowatt-hour?

Least criteria pollutant emissions?Least criteria pollutant emissions?

Least greenhouse gas (GHG) emissions?Least greenhouse gas (GHG) emissions?

Least requirement for system redundancy?Least requirement for system redundancy?

Lowest line losses?Lowest line losses?

Best power quality?Best power quality?

Least grid vulnerability? Least grid vulnerability?

Future Generation Options

Existing Coal Fossil Plant - No new T&D

New Coal

New Combined Cycle Gas Turbine

Coal Gassification CCGT

Remote Wind

Coal Gas with CO2 Sequestration

Balanced CHP Recycled Industrial Energy

0

5

10

15

20

-10123

Average Fossil Heat Rate (Units of fossil fuel per unit of delivered electricity)

Cen

ts /

kWh

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

Costs per Delivered MWh

($20)

$0

$20

$40

$60

$80

$100

$120

$140

Conv. C

oal

ICGGT c

oal

CCGT gas

CCGT CHP

BP Turb

.

Heat R

ec.

$ p

er

de

liv

ere

d M

WH

Fuel Emissions Other Ops Amortization

Lowest Cost Central Option

Local Options that Recycle Energy

Central Gen Options

Conventional Central GenerationConventional Central Generation

Fuel

100%

33% delivered electricityPower Plant

T&D and Transformers

Pollution

67% Total Waste

Line Losses 9%

Generation:$1200-$2500/kW

Transmission:$1,400/kW

End user: .91 kW:$2,900-$4,100/peak kW

Combined Heat and Power Combined Heat and Power (CHP)(CHP)

Fuel

100%Steam

Electricity

Chilled Water

90%

10% Waste Heat, no T&D loss

Pollution

(At or near thermal users)

CHP Plants

Generation:$1,200 -$1,600/kW DG vs. CG:

Transmission $140/kW (10% CG)

End users: .98 kW$1,400 -$1,800/kW Saves $1,100-$1,700/kW

Recycled Energy Recycled Energy ((At user sites)

Waste Energy

100%

10% Waste Heat

Steam Generator

70%

Steam

25% Electricity

BP Turbine Generator

No Added Pollution

Capital costs similar to other CHP or DG plants

90 MW Recycled from Coke ProductionChicago in Background

Potential to Recycle EnergyPotential to Recycle Energy

Convert industrial waste energy into heat and power with Convert industrial waste energy into heat and power with on-site energy recycling plantson-site energy recycling plants

95,000 megawatts potential , 9,900 MW in service95,000 megawatts potential , 9,900 MW in service

Build Combined Heat and Power (CHP) near thermal Build Combined Heat and Power (CHP) near thermal users to recycle waste thermal energyusers to recycle waste thermal energy

Potential for up to ½ of all US generated power with CHP plantsPotential for up to ½ of all US generated power with CHP plants

Best New Generation: Recycle Industrial Best New Generation: Recycle Industrial EnergyEnergy

Wasted energy streams in nineteen industries could Wasted energy streams in nineteen industries could generate 19% of US electricitygenerate 19% of US electricity

Source:USEPA 2004 Study

Recycled Energy in the US

Identified Opportunities

95,000 MW95,000 MWRecycled Energy

in Service

9,900 MW9,900 MW

US Industrial Recycled Energy US Industrial Recycled Energy Potential Potential

..

Gas compressor stations: 16,200 GWhGas compressor stations: 16,200 GWh

Flare & stack gas: 148,000 GWhFlare & stack gas: 148,000 GWh

Steam pressure drop: 78,000 GWhSteam pressure drop: 78,000 GWh

Estimated exhaust heat: 300Estimated exhaust heat: 300,000 G,000 GWhWh

Total Potential: 492,000 GWhTotal Potential: 492,000 GWh

Est. Recycled Energy Cap. 95,000 MWEst. Recycled Energy Cap. 95,000 MW

For all remaining thermal load, install CHP plants, For all remaining thermal load, install CHP plants, fueled with gas, coal, and biomassfueled with gas, coal, and biomass

CO2 Emissions Per Delivered MWHBy Generation Type

0

0.2

0.4

0.6

0.8

1

1.2

1.4

Conv. Coal IGCC Coal CCGT gas CCGT CHP BP Turbine Recycled Energy

Power Generation Approach

To

ns

CO

2 p

er

De

liv

ere

d M

Wh

Tons CO2 per delivered MWH

Central Generation Options Local Generation Options

$0

$20

$40

$60

$80

$100

$120

$140

Conv. Coal IGCC Coal CCGT gas CCGT CHP BP Turbine RecycledEnergy

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Delivered Cost per MWh Tons CO2 per delivered MWH

Cost and CO2 per Delivered MWh

Local Plants that Recycle Energy

Central Plants

Unique Midwest Option for Unique Midwest Option for Load GrowthLoad Growth

Induce CHP at every ethanol plantInduce CHP at every ethanol plant

50 MW each plant, 90% efficient, avoids 50 MW each plant, 90% efficient, avoids transmission investments, less GHG,transmission investments, less GHG,

ANDAND

Slashes cost of ethanolSlashes cost of ethanol

Ethanol Hosted CHPEthanol Hosted CHP

Local Boiler, Local Boiler, Central Central ICGCCICGCC

50 MW Gas 50 MW Gas CHP local CHP local generationgeneration

Local Local savings savings versus CGversus CG

Fossil Fossil MMBTU/hrMMBTU/hr

645645 412412 36%36%

Tons CO2 per Tons CO2 per yearyear

467,000467,000 213,000213,000 54%54%

Fossil BTUs/ Fossil BTUs/ Gallon EthanolGallon Ethanol

34,60034,600 200200 98%98%

Cost/delivered Cost/delivered kWhkWh

$0.11$0.11 $0.07$0.07 36%36%

CO2/Year from 55 Million Gallon CO2/Year from 55 Million Gallon Ethanol Plant & 50 MW Electricity/hrEthanol Plant & 50 MW Electricity/hr

050

100150200250300350400450500

Boiler, central ICGCC CCGT Gas Turbine CHP

M Tons CO2/year

What Blocks Optimal Local What Blocks Optimal Local Generation?Generation?

Conventional wisdom is biased to CGConventional wisdom is biased to CG CG easier to plan and controlCG easier to plan and control

Decisions based on cost at generation plant, Decisions based on cost at generation plant, instead of on cost of delivered kWhinstead of on cost of delivered kWh

Monopoly protection creates barriers to local genMonopoly protection creates barriers to local gen

Local gen not paid for values it creates, including Local gen not paid for values it creates, including T&D capital savings, line loss avoidance, CO2 T&D capital savings, line loss avoidance, CO2 reduction, and health savingsreduction, and health savings

Central gen and associated T&D guaranteed by Central gen and associated T&D guaranteed by rate payers, local gen not guaranteedrate payers, local gen not guaranteed

What Would Induce Optimal What Would Induce Optimal Generation Choices?Generation Choices?

Long-term contracts for best delivered kWhLong-term contracts for best delivered kWh

Pay local generation plants for grid supportPay local generation plants for grid support

Factor in health and environmental costs in Factor in health and environmental costs in generation decisionsgeneration decisions

Insure new industrial energy recycling Insure new industrial energy recycling plants against risk of host ceasing to plants against risk of host ceasing to supply waste heatsupply waste heat

Monetize carbon emissionsMonetize carbon emissions

SummarySummary

Power prices will likely double in 5-10 yearsPower prices will likely double in 5-10 years Best option for new generation is local Best option for new generation is local

generation that recycles waste energy.generation that recycles waste energy. CHP at ethanol plants saves 36% to 54% CHP at ethanol plants saves 36% to 54%

versus new central coal plant generation, versus new central coal plant generation, and makes ethanol competitiveand makes ethanol competitive

Barriers and denial of benefits blocks good Barriers and denial of benefits blocks good generation choicesgeneration choices

Regulators can fix the bias and induce best Regulators can fix the bias and induce best new generation.new generation.

Thank you for listening!