Full Of Hot Air

Ohio Needs To Stop Talking About Energy Solutions And Embrace What's Already Available

Sean Casten has for years been peering into the abyss that is energy consumption in the United States. And for years he's been nagged by the opportunities that drift away - through the staggering amount of heat that escapes out of the nation's industrial smokestacks every day.

Casten, now the president and CEO of Chicago-based Recycled Energy Development (RED), has been at the forefront of developing technology and encouraging policies to convert all that hot air into usable energy. His most recent focus is waste-heat recovery boilers, which are based on technology that's been around for decades. Hitched on top of a smokestack, these devices absorb the heat coming out and use it to boil water. The resulting steam turns a turbine to generate electricity, at once dramatically reducing energy costs and carbon emissions.

Among RED's first projects is a 75-year-old silicon-alloy plant in West Virginia, where furnaces spew 2,000-degree hot gases every day. RED will invest $55 million in upgrades to capture those fumes and generate about 40 megawatts of electricity - almost one-third of the plant's power needs (also enough to power 25,000 homes).

If all the United States' available waste heat was captured and recycled, government studies estimate, 40 percent of the nation's total power supply could be replaced - and 400 coal-burning plants could be shut down. An evaluation by RED of select industries in Ohio conservatively estimates waste-heat recovery opportunities to be close to 2,000 megawatts.

In some cases, factories could produce more electricity than they need and - in theory, at least - sell it cheaply. But since 2000, there have been only three installations of waste-heat recovery plants in Ohio. The obstacles lie in the myriad laws that protect private utilities and their bottom lines.

There are actually two ways to re-use hot gases generated in many industrial processes. In addition to waste-heat recovery, which is retrofitted onto existing plants, there's combined heat and power, or cogeneration. This refers to factories, power plants and large institutions like college campuses that are built with waste-heat-capturing systems already in place, generating both heat and electricity from the single fuel source - be it coal, natural gas or oil - that is burned up front. Smart Papers, an independent paper manufacturer in Hamilton, Ohio (north of Cincinnati), has done on-site cogeneration for years. In April, the company's new owners began construction on a $30 million enhancement of the cogeneration operations. When the project is completed, four state-of-the-art steam turbines and other equipment will weave through Smart Papers' facility, taking the hot waste gases produced during the paper-making process to make additional heat and also electricity, maximizing the company's use of energy.

By April 2009, Smart Papers' new and improved cogen plant will be able to produce nearly 40 megawatts of power - 25 more than the factory needs. For the time being, however, Smart Papers' example is a tough act to follow.

A host of federal and state laws work together to ensure that the nation has an adequate and stable electricity supply. They do so in part by guaranteeing utilities profitable returns. The practice dates back to the early 1900s, when the country was first powering up and needed to shore up companies as they made major capital investments in power plants.

The result is a semi-monopoly and state regulations that serve the interests of utilities' revenue streams more so than customers' monthly bills. Many see this as an outdated system, one which blocks innovation and competition just as the world's energy demands verge on surpassing existing power supplies. Attempts to restructure the electricity industry and increase choice in Ohio have been halfhearted at best.

In 1999, Ohio's legislature passed an energy bill that addressed competition in the electric-utility world. The new rules were complex; the lingering problem is that they applied to those running large, centralized power plants, connected to thousands of customers across the state through the power grid. In other words, only large, private utilities could compete.

And the 1999 law didn't touch distribution. Local utilities control power lines, and other companies wanting to deliver power through those lines must deal first with the companies that own them. This prevented third-party providers, however large, from entering Ohio's energy markets. The shortsighted '99 law also undermined waste-heat recovery and cogeneration systems. In theory, plants like Smart Papers that generate more electricity than they need can sell the excess to neighbors or on the open market. But it's hardly happening in Ohio. Interconnection - gaining permission to access the grid and distribution lines - is simply too cumbersome.

Another barrier, standby charges, has kept many of Ohio's industrial sites from adopting cogeneration technologies. Standby charges are rates customers pay to get emergency power from the local utility should on-site operations fail.

The 1999 energy bill required that utilities provide standby power, but didn't specify at what cost. So standby charges have been prohibitively expensive. Cuyahoga County recently considered an on-site cogeneration plant to power and heat its Cleveland government offices. The deal-breaker was high standby backup power fees demanded by First Energy Corp.

"Utilities discourage on-site generation," says Richard Stuebi, a senior energy policy consultant with the Cleveland Foundation. "With high standby charges, the economics of on-site generation go down because I always need backup power if my on-site generation goes offline."

Last year, the Public Utilities Commission of Ohio (PUCO) told utilities that they must offer market rates for standby power. However, little has changed. PUCO reports that most Ohio utilities still use predetermined, contract-based standby power rates.

For Smart Papers' President Dan Maheu, even such a market route is unacceptable. He says that the amount of emergency power his company would need, should on-site generation fail, is simply too much and too costly. So the company is going it alone.

"We'll take the risk," he says. "There'd be no point [in paying standby fees]. The extra costs don't make economic sense." To compensate, Smart Papers has safety nets in place. "We're not doing it foolishly," says Maheu. "We're flexible and have multiple generators. You could arrange yourself like us, but you have to spend a lot of money to do it." Most other companies aren't willing or able to take the chance.

Smart Papers also had the advantage of being the only customer on a transformer station that was feeding it power via regional supplier Duke Energy's distribution channels. Maheu bought the station, allowing him to connect to the power grid and directly buy and sell electricity (after a long-drawn-out, paper-intensive licensing and permitting process). Now Smart Papers' cogeneration facility can sell its excess power as an independent retail supplier, albeit through complex arrangements and memberships that allow access to wholesale electricity markets.

Outside of such agreements and the pure luck and ability to buy a transformer station, selling electricity as an independent retailer is a much more difficult proposition.

PUCO allows independent retailers, like cogen facilities, to sell power at cheaper rates negotiated with particular customers. But there's a catch: It's illegal to build a power line from, say, a paper manufacturer with a few extra megawatts to the Staples store down the street. The cogen plant must ask to use the local private utility's power lines, and the customer would pay the added transmission, distribution and meter-reading surcharges to the private utility. The result: little if any savings.

So while independent power networks, with the promise of bringing down energy bills, are quite possible in Ohio, PUCO senior staff expert Jan Karlak concedes that "we don't have too many people doing it."

Ned Ford, the energy chair for Sierra Club's Ohio chapter, says it is policy hurdles like these, along with the complexity of cogen projects, that deter many companies from even considering such alternatives. A typical cogen facility involves multitudes of permits and licenses that have to go through state regulators and local utilities. "Maybe they don't want to wait two years to break ground," says Ford.

Still, the Likely cost savings and reductions in greenhouse gases are enticing.

At one Arcelor Mittal steel mill in Indiana, a field of "coke" ovens burn coal in an oxygen-deprived environment and release huge amounts of heat - 2,500 degrees worth. Until 10 years ago, excess hot gas simply floated away. Then boilers were installed atop the coke ovens, and now the mill gets half its electricity needs - about 250,000 megawatts - from recycling waste heat. This saves tens of millions of dollars a year and reduces CO2 emissions.

Studies show that fossil fuels burned for heat and power are behind 70 percent of the nation's greenhouse-gas emissions (versus 20 percent from cars and trucks). If the country's waste-heat recovery capabilities were fully realized, emissions could go down 20 percent - a number not even possible by taking every single passenger vehicle off the road.

"Waste heat is a natural resource that's cheaper than any other resource," remarks RED's Sean Casten. His company is poised to bring advanced cogen technology to Ohio, but first he needs some assurances. RED, after all, needs to make a profit.

"Ohio needs to change how the electric industry is regulated," he says. "But this is also the most politically difficult barrier to overcome. In the meantime, it's easier working with SB 221," Ohio's most recent energy bill, passed earlier this year.

SB 221 set forth an "Advanced Energy Portfolio" (AEP). By 2025, electric utility companies must get 12.5 percent of their power supplies from renewable sources, like wind, solar and ethanol. The remainder can come from things like "clean coal" (a misnomer that doesn't replace fossil fuels, but only subjects them to cleaner emissions standards) or recycled fuel sources like waste heat or biofuel.

Casten is eagerly awaiting PUCO's thoughts on the matter. He needs to know what portion of the AEP will have to come from sources like waste-heat recovery. "Right now it's amorphous. What will the specific benchmarks be for different energy markets?" (Recent draft rules state that 12.5 percent can come from "advanced energy," including waste-heat recovery and cogen. The rules are available at www.puco.ohio.gov, under case docket 08-888-EL-ORD.)

The amount of waste heat included in Ohio's AEP has the potential to radically shift how utilities handle cogen projects - from actively discouraging them to finally getting involved in the business of installing and operating them on customer sites. If utility CEOs need cogen opportunities in order to fill an AEP quota, then suddenly Casten and like-minded entrepreneurs have a reason to come here. "We need clarity on how the AEP translates into dollars," says Casten.

Cleveland Foundation's Richard Stuebi seems optimistic about how the AEP will play out. In May, shortly after SB 221 passed, Stuebi addressed a group of more than 300 gathered at an "Entrepreneurs for Sustainability" networking event.

"The energy industry has to be reinvented in the next 50 years," said Stuebi. "It will need new business models, new technologies. The recent energy bill creates somewhat of a market for green jobs. Hopefully, we can be at the epicenter of new energy technologies. It will all depend on how PUCO finally rations out the AEP standards."

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