Wednesday, July 9, 2008

Cogeneration overregulation

As a follow up to a post I made about energy incentives in America, I found this article from Forbes about the regulatory impediments to electrical cogeneration – that is, producing power and trapping the excess heat and using it to heat nearby buildings. These sorts of projects are most economical for large institutions, who have enough demand for electricity that they have on-site generators, which are close enough to the buildings to allow the heat to be piped in. In some cases, the efficiency boost can be dramatic: the article says that some power plants run at 30% efficiency, which can be raised to 80% if a cogeneration plant is used.

The types of regulations that hamper the construction of cogeneration plants are pretty typical, but drive home the detrimental effect of these sorts of regulations on small firms and preclude well-functioning markets by putting up barriers to entry:

"It's one thing to absorb regulatory or legal review or another round of process on a five- or six-megawatt project," says Thornton. "But to have that same process applied to a one-megawatt project? The benefits don't outweigh. … Not when the utilities can do this rope-a-dope." [...]

Utilities that want to can often hit projects with repeated delays. Elliott describes the sort of scenarios he's seen. "Require an interconnection study, takes 60 days, present the study, 60 days to do that, the utility takes 90 days to review that, then if they have any questions, you have another 30 days. … When it adds up, it may take a year or two or three. And time is money."

Some time and money are, of course, needed to ensure that the system integrates properly, Elliott says, but gratuitous delays have "killed more CHP projects than anything else," he says.

So it's a bit weird that even after acknowledging the regulatory impediments to the free market increasing efficiency and decreasing pollution, the article leaves you with the impression that deregulation in this specific field and new regulations on emissions are somehow linked:

"There are enlightened utilities and regulators who see carbon trading … and energy efficiency as part of the new mix going forward," Thornton says. "But I'm not ready to say we're one big happy family and everyone is kumbaya."

Maybe it's just me, but given that we've identified places where the free market would do better than a regulated market, it seems like we should first deregulate, and see if that results in the desired effect rather than imposing new regulations (i.e., carbon trading and carbon taxes).

(HT: Knowledge Problem)

1 comment:

miggsathon said...

Great post. I'm associated with Recycled Energy Development (RED), a company that does cogeneration -- which is a form of what we like to call energy recycling. Not only are SOME power plants 30% efficient; that's essentially the AVERAGE efficiency of a typical power plant in this country. (The average is around 33%.) And that's not even counting "line losses" as power travels miles and miles to consumers, or the high cost of the infrastructure required to maintain this system.

In any event, RED is getting plenty of business because energy recycling is SO efficient that even despite the regulatory obstacles, there are plenty of options to reduce greenhouse gases profitably. But if policymakers removed the obstacles, they'd transform the world. Indeed, EPA and DoE estimates suggest we could reduce greenhouse pollution by at least 20% through energy recycling. And that's while we CUT energy costs. We need to get the message out there that the dichotomy of profit vs. the planet is truly a false one, but only if we let the market do what it does.

Incidentally, I'm in favor of both opening the market and having a cap-and-trade system, because I think we need to ensure that overall emissions go down considerably. But either one would be a fine place to start.