Perhaps the single most important thing we can do to drive up our energy efficiency, lower energy costs, and bolster the overall reliability of our energy infrastructure is to overhaul our electric sector’s regulatory model to move generation away from big, remote plants and toward local generation.

From solar to CHP, we have a panoply of technologies, fuels, and companies who would participate in such a shift. Less understood is that our regulatory model creates obstacles to all of these options, unwittingly causing us to burn too much fossil fuel and pay too much for energy.

Back in January, David challenged us all to follow Michael Pollan’s lead and summarize our objectives in seven words or less. Here’s mine:

Generate energy locally. Recycle whenever possible.

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Like Pollan, it takes a book to explain the detail underlying that summary. This particular explanation is limited to a blog post below the fold.

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Why we should generate energy locally

Our electric system as first built by Thomas Edison was a local grid. His Pearl Street Station power plant was located in Manhattan, providing both electrical and thermal energy to neighboring facilities. As the industry grew, we evolved a horribly complicated system with different power plants operating at different voltages, frequencies (not to mention AC/DC) that made it impossible for any plant to connect to any other. Enter Samuel Insull, who convinced various municipal, state, and federal governments that we needed a standard electric grid and monopoly protections to ensure that utilities had an economic incentive to build the necessary infrastructure to tie all those disparate plants together.

Insull was absolutely right about the grid, and the electrification of the country that followed is a testament to his vision. But as that grid was built, we lost sight of the fact that the value of the grid is its ability to interconnect multiple generators to create a statistically robust network — not the fact that it allows for remote generation.

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And so we built a grid (good) but moved our generators away from the point of electricity consumption (bad). To understand the consequences, one need only note that Pearl Street Station recovered 50 percent of its input fuel energy as useful heat and power for resale to local customer (50 percent overall efficiency). Today’s U.S. grid is only 33 percent efficient. I cannot think of another industry that is less fuel efficient today than it was in 1880 — but this fact alone shows how we are massively over-consuming fossil fuel.

With this context, let’s look more closely at what it means to generate energy locally.

The dominant operating cost of the electric industry is fuel. Efficient light bulbs, motors, and appliances are critical to minimizing our consumption of electricity, but we cannot lose sight of the need to also drive up the efficiency with which we convert primary energy (typically, but not exclusively, fossil fuel) into electricity. Our local focus has to therefore include both generation and consumption.

Also note that our transmission and distribution (T&D) network is “leaky.” Push more current through a wire and it heats up (sometimes sagging and triggering blackouts, which is why “tree-trimming” is often cited as a system reliability measure). But that heat is lost. Nationally, about 9 percent of all the power we put into the T&D network is lost as heat, which means that we burn more fuel than we need to. Putting generation closer to the load minimizes this loss. It also saves the capital cost, which averages about $1300/kW just for the wires, or about the cost of a wind turbine.

A third point: Our electric grid is like any other network, in the sense that more independent nodes equals greater reliability. Today, our grid has about 20 percent “reserve margin” — meaning that we build 1.2 units of generation for every 1 unit of needed electricity, simply to ensure that we (almost) always have enough capacity available after random outages are taken into account. Hisham Zerriffi at Carnegie Mellon University calculated that a grid with local generation (e.g., more nodes) can deliver the same level of reliability with a less than 10 percent reserve margin. In other words, more local generation equals less money we have to spend on generation capacity.

Finally, our current remote model imposes huge costs that essentially must correct for remote generation. Power factor (a measure of the degree to which our oscillating current A/C system oscillates “in phase” with voltage fluctuation) degrades throughout the system and we install massive capacitor banks to correct for this. Local generation can correct for power factor in real time, saving system capital cost. Similarly, we keep many generators running in a voltage support function so that temporary drops in voltage can be immediately served by “spinning reserve” (essentially, a generator that is burning fuel but is not connected to the grid, and can immediately connect as called on). Local generation boosts voltage lowering the need for this grid support function.

Not just power. Edison got to 50 percent efficiency by recovering heat as well. When you build power plants remotely, it is simply too expensive to move the heat very far. The general rule of thumb in the district energy world is that it isn’t cost-effective to move heat more than a mile or two — compared to the fact that we can move power from New York to Mississippi. But those remote power plants generate a huge amount of heat. Indeed, if you ask a 7-year-old (or Matt Groening) to draw a power plant, they will inevitably draw the heat rejection system. That’s not coincidental: most of what a central power plant does is throw away heat. Meanwhile, lots of homes, buildings, and businesses buy fuel to generate heat that power plants throw away.

Local energy generation allows for simultaneous production of heat and power — and indeed, it is the most economic way to generate both.

It’s commonly assumed that distributed generation is small. It’s not necessarily. It’s distributed. In this context, local means that the energy is generated close to the point at which the heat and/or electricity is used. Doing so minimizes distribution costs and maximizes the potential for energy recycling (see next), thereby maximizing overall efficiency.

There are two ways to recycle energy, both of which are really only feasible at the local level. First, and most commonly, we can recycle the waste heat from the power plant into hot air, hot water, steam, or any other useful form so that the local facility can shut down their existing (fueled) heater. This only works locally for the aforementioned reason that it is expensive to transmit heat over long distances.

The second way is to take waste energy that is locally produced and do something useful with it. This may be waste heat from an industrial, waste gas from a landfill, wood waste from a sawmill, or any of a number of other sources. The key, though, is that none of these sources transports very well — and all of them go to waste without some way to recycle them into higher value forms. Again, absent local energy generation, you simply can’t capitalize on this opportunity.

Whenever possible
Finally, a qualifier. Realistically, we still need a grid, and we still need central generation to balance the load on that grid. We just need a lot less than we’re presently using. Our objective therefore ought not to be to categorically ban central, inefficient generation, but rather to change the rules to make that our last choice rather than our first.

What this means: If a facility has waste energy, let’s craft rules to make sure they convert that into useful energy to the maximum extent we can before we burn fossil fuel in a central plant. (Today, more often than not, the plants either throw this energy away due to a combination of utility laws and perverse environmental regulations, or they only convert that fraction of it to useful energy that ensures they will not export power to the grid.) If we build a power plant next to an industrial, let’s recover the heat to send it to the industrial rather than throwing it away in cooling towers. Use solar energy for heating and electricity rather than letting that heat dissipate. Use wind energy in the same way … but do all those things first.

(Thanks to Jon Rynn for posing the question that prompted this post!)