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Decentralized Energy:

Generating Energy Close to Point of Use


Energy Efficiency, Energy Security, Renewable Energy: Taking Forward
the Gleneagles Dialogue and the G8 St Petersburg Summit

July 25th 2006

Jeff Bell – Research Executive


World Alliance for Decentralized Energy (WADE)
What is Decentralized Energy (DE)?

Electricity production at the point of use, irrespective of


size, fuel or technology – on-grid or off-grid:

• High efficiency cogeneration (CHP)


• On-site renewable energy
• Industrial energy recycling and On-site power

• Otherwise known as:


• Distributed Generation, Captive Power, Embedded Generation,
Microgeneration, CHP, CCHP, Trigeneration, etc.

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Decentralized Energy – The Main Choices

Gas Turbines
Reciprocating Engines
Large & small
Rooftop PV

Fuel Cells Stirling Engines

Microturbines

On-site wind
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About WADE

 Non-profit research & promotion organisation


created June 2002

 WADE is supported by:

 National DE organisations
 UK CHPA, USCHPA, Cogen Europe etc.

 CHP/DE companies with international interests


 Thermax, Capstone, Siemens, Caterpillar , Solar Turbines,
FuelCell Energy, MTU, Marubeni, Primary Energy, Wärtsilä, etc

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WADE Network of DE Promotional Organisations

2nd (Amsterdam, 2001)


7th (Prague, 2006)
6th(NYC, 2005)
1st (Washington, 2000) 5th (Beijing, 2004)

3rd (Delhi, 2002)

WADE Network
4th (Rio, 2003)

Other Events:
In train
1. DE Conference, Toronto, September 2006
WADE Annual International Conferences
2. Sugar Bagasse Cogeneration, Bangkok, November 2006
3. C20 Event, Municipal Energy Self Sufficiency, NYC, April 2007?
4. DE and Energy Security, ? , 2007
5. 8th Annual DE Conference, ? , 2007

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WADE Research

DE Market
data

Future Studies:

Onsite Power in the


Cement Industry,
August 2006

Cogeneration and
the CDM,
September 2006

Onsite Power and


Security, ?

Sector Specific Research on


DE Research Specific Challenges
facing DE
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Energy Madness – worldwide energy waste
Prioritize opportunities:
Electricity Generation Worldwide (TWh) 1. Efficiency:
• End Use Efficiency
• DSM
• Supply Side
2. Renewables
3. CCS etc..

(Source: International energy Agency 2002)

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WADE Mission

Source: Danish Energy Center

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Global DE Statistics
Source WADE Annual World Survey of DE 2006

DE share as % of total power generation

10.0

20.0

30.0

40.0

50.0

60.0
0.0
Denmark 53.0
Finland 38.0
Netherlands 38.0
Latvia 37.5
Czech 26.4
Hungary 21.5
Germany 20.5
Turkey 17.6
Slovakia 17.5
Poland 17.2
Japan 16.7
Portugal 15.0
Austria 13.6
India 12.1
Canada 11.4
SouthAfrica 11.1
Estonia 11.0
WORLD 10.4 Where does your country stand?
Chile 10.0
China 10.0
Korea 9.8
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Lithuania 9.7
Mexico 8.4
Uruguay 8.0
Luxembourg 7.9
Greece 7.8
Spain 7.8
Belgium 7.5
Italy 7.4
UK 7.2
Sweden 6.8
Slovenia 5.9
Indonesia 5.6
Uganda 5.6
Australia 5.4
France 4.9
US 4.1
Thailand 3.4
Brazil 3.3
Ireland 2.5
Argentina 1.9
Different Areas Require Different Approaches

 Off-grid  On-grid
 Micro-grids  Micro-grids
 Village scale renewables  Community scale renewables
 Small scale industrial CHP  Industrial CHP, large and small
 Building-integrated Cooling
Heat and Power

 Small wind  Microturbines


 Solar PV  Fuelcells
 Micro hydro  BIPV

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Different Areas Require Different Priority Applications

 Water pumping  Buildings:


 Rural electrification  Universities
 Hotels
 Textile mills  Supermarkets
 etc
 Sugar mills
 Community Heating and
 Food products
Cooling
 Forestry
 Heavy Industry
 Petrochemical plants
 Steel plants
 Cement
 Etc
 Individual homes

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World All-Energy Investment, 2001 - 2030
Network investment needs
exceed generation needs
by 17%
Gas
19%

Coal
46% Power generation
2%

Electricity
60% 54% Network T&D
Oil
19%

$5.2 trillion of investment

Source: International Energy Agency, 2003 Reference Scenario – Business-as-Usual

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IEA Analysis - DE Scenario is lower cost

OECD Investment in Reference (BAU) and Alternative Policy Scenarios, 2001-2030

4000 20% lower investment


need; CO2 emissions
remain at 2000 level Alternative scenario:
3000 More cogeneration
More efficiency
$US billion

More renewables
2000
IEA comment:
“However, the reliance
1000 on more expensive
generating options in
the Alternative Policy
0 Scenario is likely to
Reference scenario Alternative scenario result in higher
electricity prices.”
Distribution
Transmission
Generation (new and refurbishment)
Source: International Energy Agency, 2003

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WADE Economic Model

 Object
 To compare cost of DE and of central power in providing
new electricity demand growth over next 20 years

 Model ‘builds’ new capacity to meet demand


growth and replace old plant
 Takes account of peak time network losses

 Can be applied to any country / region / city in the


world

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The DE Model – Inputs and Outputs

Existing capacity and generation by technology Capital


Costs
Pollutant emissions by technology

Heat rates, fuel consumption and load factor by technology Retail


Costs
WADE
Capital and investment costs by technology and for T&D
Economic Fossil Fuel
Operation and maintenance (O&M) and fuel expenses by technology Model Use

System growth properties


CO2 and
Existing yearly capacity retirement by technology other
Pollutant
Emissions
Future growth in capacity by technology

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Applications of the WADE Economic Model

WADE would like to see


model work replicated:
In major cities
In provinces/states
In more countries

 Australia - Commonwealth Scientific and Industrial Research Organisation


 Canada - Federal Government of Canada (Natural Resources Canada)
 China - UK Government (Foreign Office), for China
 EU - European Commission – DG-FER programme
 Ireland - Government of Ireland (Sustainable Energy Ireland)
 Sri Lanka - European Commission
 Germany - IZES for the Ministry of Environment
 UK - Greenpeace UK
 USA - Primary Energy Inc.
 City of Calgary- Federal Government of Canada
 Province of Ontario- Federal Government of Canada
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An Example – UK Application – Scenarios

Delivered Costs

9.00
Retail Costs (p/kWh)

8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
Centr Nucl

DE

DE

DE

DE

DE

DE
CG

CG

CG

CG

CG

CG
DE/Renew

Low Fuel High Fuel No Nuclear No New No Nucl & No Greenpeace


Price Price Centr Gas Dmnd Grw th

Scenario
O&M Fuel Capital T&D

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IEA Analysis – T&D Savings from Decentralized Energy

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Policy and DE

What policies affect DE investment?


Example Policy Drivers

1. Targets
2. Feed-in Tariffs
3. Renewable Portfolio Standards
4. Disclosure labeling on power bills
5. Public Benefits charges
6. Carbon taxes

Example Policy Obstacles

1. Interconnection standards/rules.
2. Settlement rules

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Financing and DE

Financial Drivers
1. Guaranteed financing for DE
2. Favorable loans for DE
3. Government buy-downs for residential, commercial scale
systems
4. Import-export duty exemptions
5. Grants

Financial Obstacles
1. High Transaction costs
2. Shortage of precedence
3. Lack of institutional capacity

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DE and the Gleneagles Dialogue?

Economic Development:  Overall reduced energy costs:


 Lower capital costs
 Lower delivered energy costs

Climate Change:  Reduced emissions, and other


air pollutants

 Less Import Dependence


Energy Security:
 Increased Grid Reliability

 More democratic energy system


Poverty:
 Better access to energy

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Thanks!
www. localpower.org

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PART 2.
Climate for Decentralized Energy

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What makes up the climate for DE?

Factors that make investment in DE attractive have to


in the context of factors which make it unattractive.

The climate is made up of ideals and realities.

Drivers + Obstacles = Climate.

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Drivers/ Obstacles

 Grid Extent (geographic)


 Grid Extent (constraints)
 Fuel Access (natural gas, biomass etc..)
 Generation Capacity (surplus or shortage?)
 Heat Loads
 Cooling Loads
 Power Loads
 Public perception (environmental concerns)
 Policy (interconnection and settlement)
 Financing/economics

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Grid Extent (geographic)

Is the demand for power near the T&D network?

 If not then DE is an ideal solution.


 Onsite power applications are a much cheaper
alternative to grid extension

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Grid Extent (capacity)

Transmission or distribution bottlenecks?

 If so DE may be attractive alternative to T&D


upgrades.

 Even non-dispatchable capacity can offer grid relief


when generation coincides with demand
e.g. solar powered air conditioning or refrigeration

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Fuel Access

Natural Gas:
 Distribution network in place?
 Sparkspread (i.e. differernce between price per unit
of electricity and natural gas – High electricity price
combined with low gas price makes CHP attractive)

Biomass:
 Distribution network in place?
 Fuel seasonal? (e.g. sugarcane)
 Sufficient storage space for fuel? Biomass is a low
energy density fuel compared to fossil fuels.

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Generation Capacity

 Generation Capacity (surplus or shortage?)


Power surplus due to lumpy nature of central
investment.Reduces incentive for conservation.

Centralized
capacity
spending
Demand (GWh)

Decentralized
capacity
50MW investment

Power shortage due to long


lead times for central plants

1 5 10
Year

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Heat Loads

Is there local demand for heat?


 CHP investments are heat driven
 Is there need for space heating?
 Are there any factories that need process heat?
 Food processing?
 Mills?
 Manufacturing facilities? etc.

Demand for heat is the single biggest driver for CHP

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Cooling Loads

Cooling Loads
 More demand in Equatorial Regions/Developing
Nations
 Can be combined in CCHP applications

Space cooling (air conditioning) and process cooling


applications

If there is a predictable need for cooling/heating then


CCHP will likely be economic and power will
become a valuable biproduct.

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Power Loads

Is there demand for Power?


 Demand for power secondary to heat as driver for
CHP
 Demand for reliability/independence from grid key
driver

Power driver most relevant to building sector especially


e.g hospitals, colleges, schools, condos

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Public Perception (opinion of DE)

Do people want DE or care about it?

 Public support for/demand for DE is the single


biggest driver for DE investment because it
influences so many other factors

 That people don’t or care about the benefits of DE


is the most important obstacle.

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Public Perception (environment and DE)

Is there demand for DE because of its environmental


benefits compared to central generation?

 DE results in fewer GHG


 DE reduces other air pollutants associated with
central power
 DE results in fewer overhead power lines

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PART 3.
Experience from Abroad

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Policy Drivers

 EU Level
 European Cogeneration Directive
 European Energy Efficiency for Buildings Directive
 European Emissions Trading Scheme

 Case Studies
 Portugal
 Belgium
 United Kingdom
 USA
 Japan

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European Cogeneration Directive

 Directive number 2004/8/EC

 Builds on Common Rules for the Internal Market for Electricity


Directive
 Came into effect in 2004
 Legally binding
 Member states must address key barriers to CHP
 Member states are encouraged to develop their own, more
specific and ambitious rules for promoting CHP

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European Cogeneration Directive

 5 main drivers

 Obliges the Commission to establish criteria for high-efficiency


CHP (Article 4)
 Obliges members to implement certification system to
guarantee that CHP power is from plants that meet
established criteria (Article 5)
 Obliges members to evaluate the national potential for CHP
and report progress in realizing it (Article 6, Article 10).
 Obliges members to address grid connection barriers
(Article 8)
 Obliges regulatory authorities of member states to make
transparent back-up and top-up tariffs (Article 8)

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European Energy Efficiency for Buildings Directive

 Directive number 2002/91/EC

 Came into effect January 2003


 Applies to buildings over 10002 feet
 Obliges each Member State to define minimum energy
standards for buildings
 Calculation process “ must account for the positive influence
of electricity produced by CHP”
 Ultimate aim to harmonize standards for all Member States.

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European Energy Efficiency for Buildings Directive

 3 possible drivers for DE

 Members could require developers to integrate possible


benefits of DE into building energy performance calculations
 Members could require mandatory DE feasibility studies for
new buildings and major renovations
 Members could simply require DE to be installed to obtain the
energy performance certificate

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European Emissions Trading Directive

 Directive number 2003/87/EC

 Driven by Kyoto commitments


 Came into effect January 2005
 Legally binding
 National Allocation Plans have now been submitted by all
Member States

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European Emissions Trading Directive

 Scheme will promote DE directly


 Member States in their national allocation plans can provide
incentives for further DE development
 e.g. In the UK a number of permits have been set aside for
new entrant CHP projects.

 Scheme will promote DE indirectly


 General increase power prices expected from the scheme
will make onsite generation comparatively attractive.
 Because DE results in lower carbon emissions projects will be
better suited for carbon constrained market.

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Portugal

 Feed-in Tariffs
 Renewables and CHP of any scale are guaranteed generous feed-in
tariffs
 Eff
 carbon savings
 reduced network use

 PRIME Program
 Many costs incurred by investors in renewables, efficiency and CHP,
are eligible for up to 50% capital cost reduction
 Eligible costs include materials, feasibility studies, land, field trials,
transport etc…

 Tax deductions
 The government is currently considering a new tax
regime which may favor DE applications
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Belgium

 CHP certificate Scheme


 Cap and trade type scheme to promote CHP
 Must be “high quality”, commissioned after January 2002 and
generate energy savings in the region
 All electricity supply companies not submitting sufficient
certificates are subject to a fine

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United States

 National CHP Roadmap (Strategy Document)


 Has put CHP on political agenda
 Set target of 92GW by 2010
 Identified main barriers

 State Initiatives
 California: air pollution regulations are based on useful energy
output rather than pollution in exhaust per fuel input.
 New York: “systems benefits charge” charges small surplus on
every kWh used and funds collected used to finance up to
50% of DE projects
 Pennsylvania: RPS requires renewables and CHP

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Japan

 Rational Use of Energy Law (1993)


 All factories must hire energy manager and prove energy
efficiency measures including CHP are being taken whenever
possible
 Energy Master Plan
 Targets for biomass, MSW, and fuel cells as well as
reciprocating engines
 Feed-in Tariffs
 Net metering for PV
 Financing
 Low interest loans for CHP and renewables
 Rebates for renewables

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Remaining Obstacles

Similar obstacles remain in place in many places all


over the world

1. Lack of clear interconnection rules/step-by-step


procedures because of concerns over:
 safety,
 power quality,
 dispatch.
2. Lack of clear settlement rules.
3. Lack of financing for those who do decide to invest in
DE

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