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.

More than 200 companies signed a full-page advertisement placed in three Capitol Hill newspapers declaring industrial energy efficiency will put a million Americans to work. The ad, coordinated by The Pew Charitable Trusts, explains that U.S. utilities and factories send enough heat up their chimneys to power all of Japan. But with existing, proven technologies, we can harness that wasted energy, dramatically cut electricity costs, and make our manufacturers more competitive.

The print ad references the Oak Ridge National Laboratory study explaining how increased use of combined heat and power would “spur more than $200 billion in new private investment in the U.S., and create up to 1,000,000 jobs.”

Signers include major corporations like DuPont and Dow Chemical Company, labor unions like Sheet Metal Workers’ International Association and United Steelworkers, trade associations like the American Gas Association, environmental groups like the Union of Concerned Scientists, and small firms like Recycled Energy Development.

Learn more about industrial energy efficiency here.

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.

A recent study by Oak Ridge National Laboratory finds efficiency, particularly combined heat and power (CHP), would make U.S. industry become more competitive as it also cuts manufacturers’ energy costs and greenhouse gas emissions. “The U.S. industrial sector,” state the researchers, “presents a large and significant opportunity to promote a clean energy economy.”

Oak Ridge sought to overcome a variety of non-technical barriers to industrial energy efficiency, including capital rationing, efficiency as a non-core investment, lack of knowledge and specialized expertise, and utility disincentives. Of its seven policy options, the laboratory highlights output-based emission standards and a federal energy portfolio standard with CHP – proposals that long have been a focus of Recycled Energy Development.

An innovative financing option is Oak Ridge’s call for tax-lien financing of industrial efficiency improvements. Also known as Property Assessed Clean Energy (PACE), this program would allow municipalities to establish clean energy taxation districts that issue tax-free bonds for certified energy-efficiency and alternative energy projects. The federal government would offer loan guarantees to provide security for the bond purchasers as well as provide a standardized format for the application process.

For more details please read the full report – Making Industry Part of the Climate Solution.

The Alliance for Industrial Efficiency recently submitted comments to the Environmental Protection Agency (EPA) on its “Boiler MACT,” a set of rules to reduce hazardous air pollutants from the nation’s industrial boilers. (MACT stands for the “maximum available control technology” standards that must be met by these boilers.) The Alliance views the rules as an important means to enhance industrial efficiency, especially through the use of waste heat recovery (WHR) and combined heat and power (CHP) projects.

Among the Alliance’s comments are:

• EPA should clarify that coal-fired facilities seeking to incorporate clean and efficient combined heat and power or waste heat recovery are eligible for a one-year compliance extension.
• EPA should modify the output-based alternative compliance mechanism to allow more facilities to benefit.
• EPA should clarify that facilities may simultaneously adopt the alternative output-based compliance standard and average emissions.
• EPA should preserve the energy assessment requirement, but make this requirement more robust by expanding the definition of cost-effective energy efficiency improvements.
• EPA should refine its engineering cost analysis to account for savings identified in the energy assessment.

The comments were submitted on behalf of the U.S. Clean Heat and Power Association, Avalon Consulting, Cummins Power Generation, DCO Energy, Enercon Engineering, Energenic, Mechanical Contractors Association of America, National Electrical Contractors Association, Ohio Business Council for a Clean Energy, Recycled Energy Development, Sheet Metal and Air Conditioning Contractors’ National Association, Texas CHP Initiative, The Association of Union Constructors, and Veolia Energy North America.

On a separate but related issue – this time on hazardous air pollutants from larger, utility-scale boilers – RED’s Melissa Mullarkey delivered testimony at an EPA hearing in Chicago. Among Melissa’s key points:

• The final Utility MACT rule should provide a benefit greater than 5 percent for CHP’s avoidance of transmission and distribution losses.
• EPA should clarify that facilities seeking to incorporate clean and efficient CHP are eligible for a one-year compliance extension.

Should the EPA adopt these suggestions, U.S. industry will become more productive and competitive, create jobs, as well as reduce pollution.

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.

The Creating Climate Wealth Summit—to be held in Washington, D.C. on May 3 and 4—will feature a track on distributed generation. The Carbon War Room, the conference’s organizer, says, “With new power plant regulations set to retire 20 percent of all coal capacity in the USA and transmission projects still facing stiff barriers, it looks like distributed generation is the way to go.”

The distributed generation track will focus on solar power, small wind, geothermal, and cogeneration. The local nature of the power production gives end users control over their electricity source and price. It also enhances security by avoiding large blackouts and vulnerabilities associated with the electricity grid.

Co-chairing the distributed generation working track are RED’s Sean Casten and Doug Payne, co-founder and executive director of SolarTech. Read more about the Creating Climate Wealth Summit.

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.

December was a great month for those of us who get excited when energy recycling gets the attention it deserves. First, Congress passed the bipartisan tax bill, and it included the extension of the Treasury Grant Program for combined heat and power (CHP). Then, McClatchy Newspapers ran an outstanding article on the economic and environmental benefits of energy recycling.

The article appeared in a whole slew of papers and websites across the country, from Northern California to North Carolina, and featured RED CEO Sean Casten. Sean highlighted RED’s work to make American manufacturers more energy efficient, and noted that it’s imprudent for our country to continue wasting such massive amounts of energy.

The article also quotes Rob Thornton of the International District Energy Association, who explained that most American power plants are only 33 percent efficient, meaning that most of the energy is wasted as heat and only a third is converted to useful electricity. That, as Thornton said, “is like buying a six-pack and the guy smashes four bottles before he hands it back to you.”

Anyone who reads this article will be glad, then, to learn that policymakers are catching on to the importance of energy recycling and have extended the Treasury Grant Program for CHP through the end of 2011. This is good news for the economy and the environment.

Prior to the financial crisis, many clean energy projects relied upon private sources of capital to get off the ground. The economic downturn dramatically reduced the availability of private financing, severely limiting the funding sources for renewable energy projects. Created in 2009, the Treasury Grant Program defrays some of the cost of constructing a CHP facility by allowing companies without taxable income to instead take approved tax credits as grants.

The program is needed because many CHP developers have little or no tax liability and therefore wouldn’t receive the benefits of a traditional tax credit. It will help more CHP projects get going, which will lead to improved energy efficiency, economic growth and a cleaner environment.

So, we’re closing out 2010 with some really good news. May 2011 bring even more.

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