There’s something a little stirring about the president of the United States praising your efforts. It’s particularly heartwarming when he does it before a national audience and a gathering of all the key federal policymakers. So there were understandable cheers among clean energy advocates when President Obama embraced industrial energy efficiency in his State of the Union Address.

Here’s the actual quote, delivered from the podium before a joint session of Congress:

“Of course, the easiest way to save money is to waste less energy. So here’s another proposal: Help manufacturers eliminate energy waste in their factories and give businesses incentives to upgrade their buildings. Their energy bills will be $100 billion lower over the next decade, and America will have less pollution, more manufacturing, and more jobs for construction workers who need them. Send me a bill that creates these jobs.”

Pundits, of course, have suggested several of the president’s proposals are not Republican favorites. Yet enhancing manufacturing efficiency and productivity is as bipartisan as you can get. Which party would ever be in favor of energy waste?

The challenge, of course, is having the two parties act together. Opportunities abound, including an extension of the Treasury grant program, expansion of the combined heat and power (CHP) tax credit, and a clean energy standard that highlights efficient CHP and clean waste heat recovery.

In this politically partisan era, it’s refreshing to see the liberal Brookings Institution and the conservative Hoover Institution agree on something. That something, in the wonky words of such policy reports, is: distributed power systems (DPS) have “the potential to make a significant positive contribution to the U.S. power system.” The two think-tank behemoths also found “a strong case for DPS as a resource for the defensive and offensive operations of the U.S. military.”

The report pays particular attention to combined heat and power, lamenting that CHP is “homeless” since energy efficiency advocates think it will detract from their preferred lighting and appliance standards, renewable energy advocates argue it will divert benefits from solar collectors and wind turbines, and utility lobbyists worry independent cogenerators will take away their load and customers.

The report, in contrast, argues CHP needs a home in the minds of all policymakers, since cogeneration offers environmental benefits as well as “the added security benefit of being able to operate independently of the grid and greatly superior efficiency.”

Of note, the bipartisan researchers call for placing a price on carbon, either through a tax or a cap-and-trade system, as well as a fund, such as the proposed Clean Energy Development Authority (CEDA), that finances the development and deployment of innovative technologies. The researchers also want to extend Section 1603, which provides greater access to financing for clean energy projects; that cash-grant initiative, they say, has been successful and much less expensive that a tax-equity approach.

Let’s hope congressional leaders read about the energy policies on which conservatives and liberals agree.

Probably the biggest barrier to clean energy development is the lack of markets. Utility monopolies traditionally blocked independent generators from competing with their own power plants, even if the utilities’ facilities were more expensive and polluting. Congress tackled this problem in 1978 with the passage of the Public Utility Regulatory Policies Act (PURPA) and many states responded with policies that launched aggressive growth of renewables and cogeneration. The concept was simple – clean energy projects should be able to compete with traditional generators and receive power purchase contracts equal to what a utility would pay to generate and deliver its own electricity.

PURPA’s influence, unfortunately, waned in the 1990s, largely because of continued utility opposition and the growth of wholesale-power suppliers not focused on renewables or cogeneration. Yet the challenge of creating markets for clean power remains. Without such competition, opportunities to cut costs and lower pollution are being lost.

In states that maintained power monopolies, utilities remain opposed to independent developers, preferring to build their own power plants. In many states, the regional transmission operators allow only day-ahead power markets and fail to offer the long-term contracts needed to finance clean-energy projects.

In a little understood recent decision, however, the Federal Energy Regulatory Commission (FERC) declared PURPA is still an effective tool and can be used to provide technology-specific long-term contracts for clean power. (See below for a summary of the decision.)  The case began when California passed legislation to provide standardized contracts (or feed-in tariffs) for efficient cogeneration (sometimes known as combined heat and power or CHP). Utilities fought the legislation and then challenged its implementation before the state regulatory commission and twice before FERC, which instead embraced competition and the state’s ability to set long-term power purchase agreements for cogeneration, renewables, and other specific technologies.

A new report encourages FERC to go further, to build on the California decision and encourage the development of clean and efficient power technologies. Written by Carolyn Elefant and commissioned by the Southern Alliance for Clean Energy, Reviving PURPA calls on FERC to clarify and reform the Byzantine state patchwork that sets unreasonably low prices for electricity from renewable energy and cogeneration.

Reviving PURPA provides a comprehensive review, the first in more than a decade, of the different ways by which state regulators calculate avoided cost rates under PURPA. Based on this review, the report found many alternative-energy developers face complex and difficult -cost ratemakings at the state level. Further complicating the problem, in some states like Florida, utilities are vested with broad latitude to determine the data inputs for PURPA’s calculations, thereby allowing monopolies to control the market and block clean energy projects.

This report concludes PURPA can still serve as an important policy tool for development of renewables and cogeneration. However, states need additional guidance on which avoided cost methodologies are most favorable to clean power producers as well as an understanding of the range of options – such as resource-specific avoided-cost rates and ability to account for avoided environmental costs – available to them in setting PURPA rates. Therefore, this report recommends FERC, as the agency responsible for developing the regulations that states must follow in calculating avoided cost rates, conduct a series of technical conferences on PURPA and, based on input from stakeholders, issue a policy statement to provide additional guidance on how states can allow competition and clean energy development.

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FERC’s California Decision Summary

The Federal Energy Regulatory Commission (FERC) on 21 October 2010 issued an order (Docket Nos: EL10-64-001 and EL10-66-001) clarifying that states can offer feed-in tariffs for cogeneration and other renewable resources.

The California “Waste Heat and Carbon Emissions Reduction Act” (AB 1613) required the state’s investor-owned utilities to offer long-term power purchase contracts to cogenerators that meet certain efficiency and emission standards and do not exceed 20 megawatts of capacity.  The California utilities lobbied against the legislation and then argued to FERC that the law ran counter to the Federal Power Act and the Public Utility Regulatory Policies Act.  The FERC, however, disagreed with the utility arguments and stated state commissions can set avoided cost rates for qualifying facilities.

Overturning a previous decision (SoCal Edison), FERC endorsed multi-tiered avoided cost rate structures.  The Commission specifically stated states “may take into account obligations imposed by the state” (such as AB 1613), thereby directing utilities to purchase energy from particular sources of energy or for a long duration.

FERC also found that if environmental costs “are real costs that would be incurred by utilities” then they “may be accounted for in a determination of avoided cost rates.”

The California decision opens the door to feed-in tariffs and Clean Energy Standard Offer Programs that encourage the development of specific technologies, such a combined heat and power projects or solar collectors and wind turbines.

RED and the Alliance for Industrial Efficiency have submitted comments to the Federal Energy Regulatory Commission on how CHP and waste heat recovery (WHR) projects should be compensated for the reliability and stabilization benefits they provide to the electric grid. (See also the Alliance’s comments to FERC).

FERC can simultaneously foster grid reliability and industrial efficiency. At the moment, such reliability is generally supplied by inefficient single-cycle gas turbines. WHR and CHP provide superior alternatives. Grid operators could encourage these investments by offering long-term contracts that compensate CHP and WHR project owners for the frequency regulation benefits supplied by their installations at industrial sites. Such long-term contracts are needed because CHP and WHR units require major capital investments. By compensating these distributed projects for their local power-factor support, grid operators could both balance reactive power throughout the transmission and distribution system as well as reduce line losses. At the same time, such distributed power projects would improve energy efficiency and manufacturing productivity.

The potential for WER and CHP to enhance frequency regulation is vast. The Oak Ridge National Laboratory found that efficient CHP and clean WHR can produce 156 gigawatts of new power by 2030 – equal to the capacity of more than 300 conventional power plants (assuming a conventional power plant generates 500 MW). FERC can encourage this investment by having its frequency rulemaking send appropriate price signals to WHR and CHP developers.

CHP and WHR projects, which can provide active power-factor support controlled by grid operators, could increase frequency control and grid reliability. The groups encourage the Commission and grid operators to offer long-term contracts for the grid benefits supplied by distributed CHP and WHR installations.

Bloomberg Government, a new media outlet focused on the business implications of government, recently profiled the remarkable economic and environmental benefits of waste heat recovery and other energy recycling techniques. The article also covers the efforts of members of the Alliance for Industrial Efficiency—including RED, GE, Dow Chemical, Sierra Club, and others—to ensure this clean energy solution gets the recognition it deserves in Washington.

During the last U.S. Congressional session, the Alliance advocated for industrial energy efficiency tax incentives that would increase manufacturing competitiveness, create jobs, and reduce pollution. The incentives bills, S. 1639 (sponsored by Sens. Jeff Bingaman, D-NM and Olympia Snowe, R-ME), and H.R. 4751 (sponsored by Rep. Paul Tonko, D-NY and Dean Heller, R-NV), received strong bipartisan support but didn’t make it into the final tax package.

RED’s Tom Casten, quoted in the piece, gets right to the point: “[Waste heat recovery] is a tremendous opportunity to cut costs, the amount of fuel we are burning, and to cut CO2.”

Exactly. So it’s time to enact legislation that puts energy recycling on the same footing with other clean energy sources like wind and solar.  The article explains why:

• “As much as 20 percent to 50 percent of the energy that manufacturing processes consume is released as waste heat, according to a 2008 Energy Department report. That power can be used by the factory where it’s captured, sold to the local power grid, or both.”
• “Heat vented from facilities such as steel mills, cement kilns, glass manufacturers and natural-gas compressor stations could generate enough clean energy to power more than 7 million homes, based on a study by ICF International … That is the equivalent of $4.3 billion in annual electricity costs.”
• “Together, waste heat and cogeneration can provide as much as 20 percent of the nation’s electricity by 2030, equal to the amount now generated by the nuclear-power industry, [according to] the Oak Ridge National Laboratory.”

Tax incentives for energy recycling would also help industry meet planned EPA carbon dioxide emissions standards. The EPA’s recently issued guidance for greenhouse gas emissions permits (PSD and Title V Permitting Guidance for Greenhouse Gases) makes energy efficiency the centerpiece of its compliance options. It recognizes energy recycling techniques including waste heat recovery and combined heat and power (CHP) as cost-effective ways to cut greenhouse gas emissions in the industrial sector.

Sen. Bingaman plans to work with Sen. Snowe to advance the tax breaks this year, according to a statement issued by his staff on Dec. 17.

So there you have it. Let’s hope this is the first of many big stories in 2011 on benefits of waste heat — and that this is the year Congress gives it its due.

Too often, the business community and the Environmental Protection Agency seem to be at odds. But recently, the EPA has earned praise from a variety of business groups for recognizing energy recycling as a good way to cut greenhouse emissions.

EPA’s recently issued guidance for greenhouse gas emissions permits (PSD and Title V Permitting Guidance for Greenhouse Gases) makes energy efficiency the centerpiece of its compliance options. It recognizes energy recycling techniques including combined heat and power (CHP) and waste heat recovery as cost-effective ways to cut greenhouse pollution in the industrial sector. It also explicitly mentions CHP and waste heat recovery as Best Available Control Technologies (BACT), which will allow industrial plants to employ energy recycling techniques as a way to satisfy EPA’s permitting requirements.

This decision caused the Alliance for Industrial Efficiency to praise the EPA in a comment letter written on behalf of several businesses and business organizations, including RED, the Glass Manufacturing Industry Council, Mechanical Contractors Association of America, National Electrical Contractors Association, Ormat Technologies Inc., and The Association of Union Constructors.

The beauty of the EPA move is that it’s as good for the economy as it is for the environment.  As the EPA recognizes, energy recycling offers proven techniques that can dramatically improve the energy efficiency of industrial plants. It’s a win-win that reduces emissions andenhances the competitiveness of American manufacturers by reducing energy costs, typically a top operating expense.

As RED’s Tom Casten said, “It’s a myth that we can’t grow our economy and reduce greenhouse emissions at the same time. By improving the efficiency of large industrial plants, which account for about one-third of total U.S. energy demand, we can lower energy costs, increase productivity, create jobs and help the planet.”

Of course, more can be done, and the Alliance is calling on the EPA to strengthen its proposal by requiring all facilities to consider CHP and waste heat recovery at the beginning of the permit process. It also recommended the EPA create a comprehensive, searchable database of BACT determinations and available technologies for all industrial sectors, to ensure that regulated entities can consider all available options.

We hope the EPA agrees to these recommendations. They’ll make a good decision even better.

A growing coalition of business, labor, and environmental groups has rallied together to support investment tax credits for combined heat and power and energy recycling projects. The Alliance for Industrial Efficiency sent letters to the Senate Finance Committee and House Ways and Means Committee, urging them to include an industrial energy efficiency provision in their final tax packages.

Since I last wrote about this effort, the coalition has grown to 122, and now includes such new notables as the United Steelworkers, The Pew Environment Group and ArcelorMittal.

Why are organizations with such varied interests uniting on this issue? Because energy recycling dramatically improves industrial energy efficiency, and therefore increases manufacturing competitiveness and creates jobs — all while reducing pollution.

As our own Tom Casten put it, “The industrial sector is a huge consumer of power, yet it’s often overlooked in the quest for energy efficiency. Manufacturers that recycle their waste energy can typically cut energy expenses by 20 percent, making them more competitive while slashing carbon emissions. Companies can then reinvest those savings in hiring more workers and expanding production.…

The industrial energy provision can already be found in S. 1639 (sponsored by Sens. Jeff Bingaman, D-NM and Olympia Snowe, R-ME), H.R. 4751 (sponsored by Reps. Paul Tonko, D-NY and Dean Heller, R-NV), and in the House Ways and Means Committee’s draft energy tax package. If enacted, the bipartisan provision would create and preserve jobs within the industrial sector, including for the manufacture, installation, and operation of combined heat and power and waste energy recovery equipment.

Recycled energy, which captures waste energy from industrial facilities, now receives no tax benefits. Combined heat and power, a highly efficient process that generates both electricity and heat on site (also known as cogeneration or CHP), currently obtains only a 10 percent investment tax credit for the first 15 megawatts of a project limited to 50 megawatts in size. The legislative proposals in the House and Senate would encourage more large-scale projects by removing the cap, applying the tax credit to a project’s first 25 megawatts, and adding a 30 percent tax credit for recycled energy and combined heat and power projects with efficiencies above 70 percent. For comparison, the average U.S. power plant is only 33 percent efficient.

At the end of the day, it’s a small change to the tax code that can make a very big difference for our economy and the planet. Let’s hope our elected leaders are listening.

The Industrial Energy Consumers of America (IECA) just released the results of a comprehensive study on how to improve industrial energy efficiency. It makes an important point: it pays to invest in recycled energy.

Conducted by Keybridge Research and the University of Maryland’s Inforum Modeling Project, the study looked at IECA’s Sustainable Manufacturing & Growth Initiative policy recommendations, which include investment tax credits for combined heat and power (CHP) and recycled energy, a Clean Energy Standard Offer Program (CESOP) and other proposals. The researchers found that implementing IECA’s recommendations would dramatically improve American manufacturing competitiveness and:

• Increase real GDP by $77 billion in 2020.
• Increase cumulative employment by 9.4 million job-years in 2010-2030.
• Increase cumulative private investment by more than $1 trillion in 2010-2030.
• Increase family income by an average of $788 (0.68%) in 2020.
• Increase cumulative net exports by $392 billion in 2010-2030.
• Reduce energy-related GHG emissions by 13% in 2020.

The study goes on to say that “the net fiscal cost associated with the IECA recommendations would be less than 0.1% of discretionary government spending between 2011-2030, and would result in a cumulative increase in real GDP growth that is approximately 20 times greater than the cumulative net fiscal cost — providing U.S. taxpayers with significant ‘bang for the buck.’”

It was Sean Casten in 2009. Now it’s Craig Bennett in 2010. 
 
The prestigious Chicago Council on Global Affairs has again recognized the caliber of RED’s management team by naming Craig Bennett to its Emerging Leaders Class of 2010. 
 
Established in 2008 with support from the McCormick Foundation, the goal of the program is to identify and engage future thought leaders who will help Chicago compete and thrive in the global era. Each Emerging Leaders class examines, discusses, and makes recommendations on timely policy issues such as energy and the environment, the global economy, foreign policy, and migration.
 
Craig is a vice president and associate general counsel at RED and has ten years experience in the energy industry. He’s also a general in the Army National Guard.  We’re proud that the Chicago Council has recognized his expertise and look forward to seeing the work of the Class of ’10. 
 
By choosing RED executives two years in a row, the Chicago Council is clearly taking notice of the potential of energy recycling to change the way the U.S. makes power. 

RED Chairman Tom Casten has a new piece in the Chicago Tribune about the need for a sensible energy policy that rewards efficient, clean power generation like energy recycling.

He writes: “The dramatic images of the oil spill in the Gulf of Mexico serve as a stark reminder that America needs to transition to a new clean energy economy… For the last 30 years, I have watched America increase our energy dependence and lose our competitive edge, in part because of a grossly inefficient energy system… Despite its potential to cut energy costs and greenhouse emissions while preserving manufacturing jobs, energy recycling languishes in the U.S. because of outdated and badly misguided energy policies… By enacting meaningful clean energy legislation, the federal government can finally unleash a wave of American innovation, cutting our dependence on fossil fuels while we develop both cleaner and cheaper domestic power.”

Read the full op-ed here.

Photo courtesy of NOAA.