Legal

1
Legal Regulatory Considerations for Waste Heat
Development

• Current landscape future prospects

Presented by John Nimmons, J.D.
Waste Heat-to-Power Workshop University of
California Irvine March 2, 2005
John Nimmons Associates Mill Valley,
California 415.381.7310
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Topics

• Why legal / regulatory issues matter
• Characterizing waste heat its functions
• Selling waste-heat-generated power to utilities
• Federal state support for waste heat
  development
• Conclusions
• Useful next steps

3
Why legal/regulatory issues matter

• Sensible legal regulatory treatment can

• expand markets for electricity from waste heat
• improve economics of waste heat recovery through
  grants, loans, rebates, tax benefits, etc.
• raise awareness promote consideration
  adoption of waste heat options
• reduce transactional barriers cost of waste
  heat projects
• reduce regulatory barriers to waste heat
  conversion use
• minimize environmental impacts
• support efficient sustainable resource use

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Characterizing waste heatFish, fowl or ?

• Waste

• Federal (PURPA benefits)
• residual heat
• heat from exothermic reactions

• States some define, many dont. Definitions
  differ. E.g.
• energy otherwise lost (Nevada)
• energy otherwise released to the environment
  (Washington)
• produced but unused (Oregon)

• Conservation CA Pollution Control Fin. Auth.
  (CPCFA), OR, MT
• Efficiency improvement OH, OR
• Alternative energy ILL, MT
• Pollution control CPCFA
• Renewable CPCFA, CO, FL, OR, VT, WA

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Why it matters Federal PURPA benefits

• Facilities producing electricity from waste heat
  can qualify for PURPA benefits, including

• interconnection with serving utility
• power sales to serving utility at its avoided
  cost
• transmission to another utility for purchase
• non-discriminatory backup service from utility

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Why it matters Federal PURPA benefits

• Qualifying cogeneration facility

• Topping cycle operating efficiency standards
  apply

• 5 useful thermal output
• 42.5 efficiency, if natural gas or oil input
  (45 if thermal output lt 15)

• Bottoming cycle 45 efficiency (if gas or oil
  supplemental firing otherwise no efficiency
  requirement))

• Qualifying small power production facility

• waste - including residual heat - is an
  eligible energy source
• no operating or efficiency standards
• 80 MW limit at a single site

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Why it matters Federal production investment
credits

• Production credit for electricity from some
  renewables

• 1.5 / kWh credit for electricity sold, for 10
  years
• Qualified energy resources now include (among
  others)

• most biomass resources
• closed loop organic material planted
  exclusively for electricity
• open loop livestock manure bedding, forest
  residues, landscape trimmings
• geothermal energy
• solar energy
• municipal solid waste combustion

• available until 12/31/05 (but has been renewed
  before)

• 10 investment tax credit for certain energy
  property

• solar electric thermal
• geothermal

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Why it matters State local examples

• Direct financial incentives

• grants, loans, rebates e.g., CA Pollution
  Control Financing Authority, SGIP
• tax benefits (credits, exemptions,
  reimbursements, etc.) at least 7 states

• Other market support mechanisms

• renewable portfolio standards 12 states
  mandatory, 3 voluntary
• net metering about 40 states
• green pricing 32 states, over 500 utilities
  (.56.0 /kWh premium, avg. 5.50/mo.)
• public agency mandates (planning, design,
  life-cycle costing, etc.) at least 3 states
• regulatory exemptions some explicit, most
  through cogen exemptions
• RDD, planning, /or promotion at least 5
  states
• education, training assistance at least 1
  state
• emissions efficiency credits work in progress
• local zoning preferences at least 1 state

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State Portfolio Standards

• Many states have adopted portfolio standards

• Purpose to stimulate markets for clean,
  efficient resources
• Mechanism utilities other electricity
  providers must generate or acquire an increasing
  annual percentage of electricity from favored
  resources until target is reached

• Standards generally focus on renewables, but
  states define eligible resources differently

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State Portfolio Standards(potential waste heat
resources)
Solar Thermal Biomass Geothermal Landfill Gas Digester Gas Fuel Cells Waste, incl heat MSW Qualified Energy Recovery Process Other
No. of States 11 12 8 8 6 6 6 3 1 3
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Nevada RPS

• A qualified energy recovery process means

• a system that converts otherwise lost energy
  from
• exhaust heat from engines, or manufacturing or
  industrial processes
• or
• pressure reduction in water or gas pipelines
  (before distribution)
• to electricity, without additional fossil fuel or
  combustion
• up to 15 MW

• Excludes systems that use energy (lost or
  otherwise) from electric generation
• For RPS, not renewable energy as such, but a
  distinct type of renewable energy system

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State Net Metering Programs

• Utilities normally buy power at wholesale, sell
  to customers at retail
• Net metering allows self-generators to offset
  their excess production (otherwise valued at
  wholesale) against their retail purchases
• Essentially self-executing minimizes
  transaction costs for customers utilities
• States limit eligible system size
• range 10kW 2 MW
• typical 25 kW 100kW
• States define eligible resource types customers

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State Net Metering Programseligible resource
types
Solar Thermal Biomass Geothermal Landfill Gas Digester Gas MSW Fuel Cells Microturbines Cogeneration
No. of States 21 24 13 5 2 10 17 5 8
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Conclusions

• Legal regulatory treatment will strongly affect
  the direction value of waste heat development
• Waste heat is characterized in diverse ways,
  without clearly articulated policy rationale
• Waste heat projects appear eligible for important
  financial market incentives already in place,
  but largely untested so far in the waste heat
  context
• Developing coherent, consistent defensible
  regulatory policy will simplify the work of waste
  heat proponents, catalyze more widespread
  resource development

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Useful Next Steps

• Develop a more comprehensive understanding of
  the existing legal regulatory landscape
• Develop a coherent policy rationale for treatment
  of waste heat-to-power
• Develop model legislation regulatory approach
  to enhance certainty for providers customers