Capturing waste energy

January/February 2010

Addressing climate change will require limiting the use of fossil fuels and switching to non-carbon-emitting energy sources. The switch from fossil fuels, however, will not occur overnight, or even within a few years. Drastically overhauling how the U.S. generates power will take tremendous time and investment. The industrial sector often is overlooked in the debates surrounding how to feasibly reduce greenhouse gas (GHG) emissions, even though this sector holds tremendous potential to help the transition into a non-carbon-emitting future.

Wasted energy is rampant throughout the economy, including at electric power generating facilities, which burn three units of fuel to generate one unit of electricity. According to the Department of Energy (DOE), combined heat and power (CHP), which generates and utilizes both electricity and thermal energy, could produce approximately 20 percent of U.S. electricity by 2030 and save nearly 5.3 quadrillion Btu’s of fuel annually. This is nearly half of the total energy consumed by households annually. DOE suggests the rapid deployment of CHP could avoid 60 percent of the potential growth in carbon dioxide (CO2) emissions between 2006 and 2030.

As the largest energy consumer, the industrial sector uses fuel to convert raw materials and then vents enormous streams of waste energy. According to Lawrence Berkeley National Laboratory, the capture of this waste energy and the use of other clean energy technologies could reduce CO2 emissions by 17 percent. Waste energy recovery usually falls under the broad umbrella of CHP, and is referred to as “bottoming cycle,” but it is distinct from conventional CHP in several ways. The most notable distinction is that waste energy recovery requires no incremental fuel. Generating electricity from waste energy is similar to renewable generation because it is a use-it-or-lose-it source, much like catching wind, sunlight, or falling water.

With so much potential for waste energy recovery, many ask why more isn’t done to capture it. CHP already has made significant inroads, although not well recognized. According to Oak Ridge National Laboratory, CHP in 2006 provided more than 12 percent of total U.S. power, more than that supplied by nuclear reactors. Much more could be done, but standing in the way are two regulatory barriers that discourage the development of waste energy projects. First, the New Source Review (NSR) program under the Clean Air Act (CAA) has had a chilling effect on the development of waste energy recovery projects because of fears that any plant modification, including ones that increase energy efficiency, will trigger the demand for a new and expensive Title V permit and costly emission control equipment. The second barrier involves the grey regulatory treatment of waste energy within the framework of state and federal renewable and efficiency portfolio standards. Given that waste energy recovery represents the quickest, easiest, and most profitable way to reduce CO2 emissions, it is essential to address the regulatory barriers to these projects.

Fear of triggering NSR

NSR is both politically polarizing and incredibly confusing. However, the impact that the fear of triggering NSR has on proposed industrial efficiency projects is real. Generally, an existing facility triggers NSR by proposing a major modification that increases annual facility emissions.

To understand NSR’s chilling effect on waste energy recovery, consider that these projects are usually installed at the top of furnaces or boilers in order to capture the highest temperature. These projects may alter processes and thus may be construed as a major modification, triggering NSR. Projects could also increase certain pollutants while dramatically decreasing others. For instance, a waste energy project at a steel mill that captures flare gas dramatically reduces CO2 but may increase NOx. Energy policy should promote using industrial off gas to generate power instead of flaring it, but because of potential changes in emissions that could trigger NSR, these projects are not pursued.

The Environmental Protection Agency (EPA) could cure this chill by providing guidance to state regulators stating the installation of waste energy recovery projects do not trigger NSR. The key change needed is for regulators to recognize how recycled energy uses a waste product and avoids emissions from other electricity generators. EPA should not penalize waste energy recovery when it reduces GHG emissions per unit of thermal and/or electricity output. Regulatory certainty is essential to ensure potential projects move forward.

Recent signals from EPA suggest it might be ready to address the uncertainty surrounding whether waste energy projects trigger NSR. In 2007, EPA proposed an initiative for an output-based measuring metric of pounds of pollution per megawatt-hour of electricity generated. See Proposed Rulemaking for Prevention of Significant Deterioration and Nonattainment NSR, 72 Fed. Reg. 26,202 (May 8, 2007). Unlike an input-based metric that recognizes no correlation between the amount of fuel used and the amount of power produced, the output-based measurement rewards generators producing the same or more energy with fewer emissions. While the rule was not finalized, it signals acknowledgement of how NSR could discourage efficiency.

EPA’s newly created flexible permit program addresses some of the chilling effects of NSR and might improve the process for certain waste energy recovery projects. When renewing permits, major sources may opt to use flexible permits and identify proposed waste energy recovery projects with minimal emission impacts to the permitting authority, allowing the authority to include conditions for the project in the permit, thus not jeopardizing the facilities operating status. Unfortunately flexible permits are unlikely to provide a solution for the steel mill that wants to stop flaring its gas because the change in emissions is still going to trigger NSR. Despite these positive steps, EPA has yet to propose a fix-such as output-based standards-that would bridge the gap between industry and environmental regulators regarding NSR’s impacts.

Waste energy recovery in a regulatory grey area

Waste energy recovery typically does not qualify as renewable under state Renewable Portfolio Standards (RPSs) that require utilities to obtain a certain percentage of their power from clean resources. Yet waste energy recovery projects burn no additional fuel and cause no incremental emissions. Their output is as clean as that from solar collectors and wind turbines. In fact, waste energy recovery at steel, silicon, and cement manufacturers drastically reduce the energy consumed and emissions needed to manufacture solar panels and wind turbines because these raw materials are the primary inputs used to produce renewable technologies. Unfortunately, energy laws and the market have yet to place a value on lifecycle emission benefits.

When energy laws do recognize waste energy, it is generally under efficiency standards that provide few incentives to developers. Efficiency standards certainly hold tremendous potential, especially for promoting green building codes, adequate weatherization, and compact florescent lights, but they do not provide a value mechanism to incentivize waste energy development. Renewable standards, in contrast, create demand that translates into a premium price for renewable energy. Although several states permit electricity generation from waste energy to qualify as a renewable resource, the idea has not gained mainstream acceptance. Waste energy recovery offers a clean source for heat and power that does not require the burning of additional fossil fuels or cause any additional emissions, similar to the resources promoted under an RPS.

Recent federal policies aimed at encouraging industrial efficiency projects are just beginning to take effect. Most noteworthy is the 10 percent investment tax credit for CHP. Legislation pending before Congress includes provisions aimed at encouraging the development of waste energy projects, but these projects are not recognized as RPS eligible. Waste energy recovery uses the same energy twice, yet it is not encouraged in any meaningful way as a generation source, only as a measure to increase efficiency.

Well intentioned states, like Ohio, have crafted provisions to encourage the development of industrial waste energy projects. In 2008, Ohio’s S.B. 221 created a two-tiered RPS system that qualifies energy from waste energy recovery under an “advanced energy resources” tier. The statute provides that electricity generation from waste energy recovery systems must meet the needs of a customer’s facility, meaning an industrial waste energy recovery project must sell back to the host and the utility can claim credit towards meeting its RPS obligation. While the utility may claim credit for the project, the industrial facility or waste energy developer receives little or no value. Without a clear market mechanism to provide value for the industrial host or waste energy developer, there is little incentive to develop efficient and clean projects that capture waste energy.

Policies that restrict the generation from industrial waste energy for onsite consumption or that limit net exports to less than 50 percent also discourage development. The House climate and energy bill, H.B. 2454, permits the electricity generation from CHP to meet energy efficiency goals but limits net sales of electricity by the facility to no greater than 50 percent. Restricting the generation to onsite consumption is incredibly limiting. This forces projects to generate at the same cost as the industrial rates provided by utilities rather than at the rate utilities would pay to develop and deliver new power from centralized facilities. Not all waste energy recovery projects can secure financing by selling the generation at the lowest rate offered by the utilities, and in those cases the projects cannot be developed. By limiting where a waste energy project can sell its generation, these policies fall short.

Several states, particularly Massachusetts, New Jersey, and California, have developed the most effective programs to provide value for capturing waste energy. California is a leader in promoting waste energy projects with provisions in its 2006 climate change legislation AB 32. California proposes 4,000 megawatts (MW) of installed CHP to meet the climate change goals of obtaining 1990 emission levels by 2020. To help reach the target, rulemaking is underway to create a feed-in tariff for CHP systems under 20 MW (AB 1613). Feed-in tariffs, which require utilities to purchase electricity from generators of renewable energy, are an incredibly successful mechanism, as evidenced in Germany by the rapid deployment of solar, because they provide a clear pricing signal that offers clean energy developers a market.

The enactment of a waste energy recovery target or goal, ideally within the framework of the federal RPS, could unleash the deployment of projects that cut GHG emissions and lower energy costs. Waste energy projects also help the industrial host operate more efficiently and competitively. Removing regulatory barriers and creating incentive mechanisms could induce waste energy projects that are among the quickest and easiest ways to reduce our carbon footprint, lower fossil fuel use, and switch to non-carbon-emitting energy generating sources.

Melissa Mullarkey is a public policy associate at Recycled Energy Development.

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