Executive Speeches

Remarks of Eugene W. Zeltmann, president & chief executive officer of the New York Power Authority, at the Combined Heat and Power Conference, New York, New York.

June 20, 2002

Good morning. I’m delighted to be here—not just as a representative of the New York Power Authority—a co-sponsor of this conference—but as a genuine enthusiast of distributed generation and combined heat and power projects.

I am especially pleased to join NYSERDA President Bill Flynn and PSC Chairman Maureen Helmer to help kick off this event.

Under Governor Pataki’s leadership, NYSERDA, the PSC and NYPA are vigorously coordinating efforts to address the energy challenges of New York State and to make New York a true leader in energy innovation.  Just as the technologies that are the focus of this conference combine heat and power to maximize efficiency, the agencies and authorities on the Empire State’s Energy Team are combining their skills and expertise to best serve the citizens of our state.

To be sure, we need innovative responses to the challenges we face in the energy field.

The sad fact is approximately two-thirds of the fuel used to generate electricity in the United States is wasted in the form of discarded heat. Recovering this energy for heating, cooling or other purposes is like turning the tables on entropy. And had not the science of thermodynamics proven that impossible, I might have proposed combined heat and power technology as the first real example of a Carnot engine.

Installing CHP technology, therefore, can give one the feeling of being the sorcerer’s apprentice. But it’s sorcery of the best kind. The efficiency of this technology translates into emissions per megawatt that are usually quite low and, in the case of fuel cells, effectively zero. Certainly, combined heat and power is the most practical way to reduce CO2 emissions from power plants.

These benefits have clearly appealed to Governor Pataki as he’s advanced his clean energy agenda for New York State. Last year, the Governor issued Executive Order 111, which should encourage state agencies to bring more combined heat and power projects—and other forms of distributed generation—into their energy mix.

The order requires state agencies to obtain no less than 10 percent of their energy from renewable sources—such as fuel cells, biomass or solar—by 2005, with an increase to 20 percent by 2010. It also sets ambitious energy-efficiency targets, which can be achieved in part through CHP and distributed generation.

I don’t mean to suggest that these are new and radical forms of energy production. Far from it.

At the beginning of the 20th century in the United States, distributed generation—chiefly in the form of combined heat and power systems—was quite common.

Thomas Edison was the first to generate power close to where it was used, and much of the waste steam was sold to adjacent buildings.

But after Samuel Insull created the vertically integrated power industry, users abandoned their on-site electric generation. By 1967, combined heat and power accounted for just three percent of the nation’s electricity use.

The 1973 energy crisis was what brought us back to the future.  High oil prices translated into high electric rates, which sparked renewed interest in combined heat and power technology. U.S. industries, ever alert to saving money, found they could reduce their energy costs if they left their utilities and built their own cogeneration plants.

All would have gone well. But when the abandoned utilities refused to purchase excess power from CHP facilities, the advance of the technology stalled.

These circumstances led to enactment of the Public Utility Regulatory Policies Act of 1978, or PURPA. The legislation played a pivotal role in expanding the marketplace for cogeneration by providing non-utility generators the opportunity to sell excess electricity.

Today’s movement might be called a second renaissance. It’s motivated by a need for energy reliability and a desire for green power alternatives. And it’s viewed as a solution to the congestion that often plagues transmission networks that were not designed to handle the increased demands of open access and competition.

The most familiar CHP application is at large, multi-building institutional campuses such as universities, industrial parks, hospitals and government complexes. Such facilities can use a network of pipes to shunt steam, hot water and/or chilled water and cooled air to individual buildings from a central plant.

Yet now, with the arrival of low-cost, high-efficiency reciprocating engines, micro-combustion turbines, fuel cells and heat-recovery equipment, smaller facilities can enjoy the benefits of CHP.

Perhaps it’s my background as a chemist, but I’m quite taken with fuel cells—which make electricity through chemistry, rather than combustion.

The Power Authority recently installed a fuel cell at the New York Aquarium. The project meets about 20 percent of the Aquarium’s power needs, and its waste heat helps to supply hot water for exhibits and laboratories.

This is our fourth fuel cell—and all are 200-kilowatt units.

Our first—at the Westchester County Wastewater Treatment Plant in Yonkers—is the first commercial fuel cell in the world to run on anaerobic digester gas, a byproduct of wastewater treatment. This significantly cuts the pollution that would result from burning off the gas—and helps the county meet federal Clean Air Act requirements. The fuel cell meets some of the treatment plant’s electricity needs, and the waste heat is used in the wastewater treatment process.

The other Power Authority fuel cells—like the Aquarium project—use natural gas and are located in New York City. One, at the New York Police Department’s Central Park Station, operates independently of the power system so that in the event of a problem on the system, the station will still have electricity.

The fuel cell has solved a major problem for the 131-year-old station—which simply didn’t have enough electricity for modern police operations. The alternative would have been to put in a new or upgraded underground power line at a cost of about $1.2 million.

Our other New York City fuel cell—at North Central Bronx Hospital—is linked to the grid. But it can also operate as a back-up system that would switch on without missing a beat in an emergency to serve designated critical hospital functions.

We also plan to install eight more fuel cells in New York City. They’ll all be at wastewater treatment plants and will be fueled by the anaerobic digester gas from the treatment process. These fuel cells are part of our voluntary program to more than offset the minimal emissions from 10 small power plants that we installed in the city last year in a successful effort to help avert blackouts and price spikes during the summer period of peak power use. I’ll have more to say about those plants a little later.

We’ve found that fuel cells have five major advantages over conventional power generators: They are more efficient in that 40 to 70 percent of the energy potential of the fuel is converted into electricity. They’re virtually pollution-free. They improve fuel diversity. They enhance energy security because—as distributed generation—they can be widely dispersed. And, they’re modular.

In theory, almost any number of cells can be connected to form a fuel-cell stack—an ideal way to add incremental capacity. In addition, high efficiencies associated with fuel cells can be maintained in units as small as 50 kilowatts. This is the most economical generation available on a small scale.

Although fuel cells came of age during the space program, their future is clearly on this earth. There’s been a lot of talk recently about the potential for fuel-cell-powered cars and trucks, and though they’re probably a decade or two away, they could have a major impact in cleaning the air and cutting dependence on foreign oil. Meanwhile, the market for residential fuel cells could materialize sooner.

Home fuel cells would run on natural gas, propane or methanol and achieve 40 percent electrical efficiency in simple-cycle operation. If excess heat was captured and reused, overall efficiency could reach 70 percent.

A number of new commercial buildings already have natural-gas-powered fuel cells that not only generate electricity, but also take on the tasks previously performed by the furnace, water heater and central air conditioner. This is clearly an emerging trend that will intensify in the years ahead. Already, the Battery Park City Authority requires space provisions for fuel cells in every commercial building under its jurisdiction.

Another form of CHP we’re getting comfortable with at the Power Authority is microturbines. At a wastewater treatment plant in Lewiston, New York, not far from our large Niagara hydroelectric project, we’ve installed two microturbines that together supply almost 60 kilowatts of electricity. That’s about one-third of what the facility uses and nearly 20 kilowatts more than the previous cogeneration system that operated there.

As with the previous system, we’ve installed a heat exchanger to capture the waste heat from power production and use it to provide hot water for the treatment plant.

This combined heat and power project is super efficient. It is also super clean, cutting emissions to the air by about 90 percent compared with the previous system. And like the Yonkers fuel cell that I mentioned earlier, it’s fueled by the gas that’s produced in municipal sewage treatment.

The typical microturbine features the engine, a generator, a control system and a recuperator, combined into a single unit. It weighs just about 165 pounds and looks a bit like those metal beer kegs popular at tailgate parties and college mixers. Since they’re modular, several of the generators can be joined together, like fuel cells, to produce more power.

Microturbines, by the way, are great for remote areas like oil rig sites and gas fields, where they can produce electricity from natural gas that would otherwise be burned off. Wherever located, and whether fueled by natural gas or opportunity fuels such as anaerobic digester gas or methane, they’re environmentally friendly.

The CHP projects I’ve mentioned are all examples of distributed generation in that they’re located at or near the customer’s facility. The benefits of that are improved security, enhanced power quality and the avoidance of transmission and distribution costs.

Traditionally, utilities recognized only one marginal electricity cost, paying little attention to the location of generators or of customers. Now, the coming of deregulation and restructuring to our industry has forced utilities to focus on the fact that something like one-third of the cost of providing electricity to a residential consumer is typically related to transmission and distribution. If a utility builds small power plants at or near a customer’s own facility, most of the delivery cost is avoided.

Actually, in remote areas, it can cost almost twice as much to distribute power as it does to generate it. In such cases, it would be more economical to pay 9 cents per kilowatt-hour for electricity from small, decentralized generators located near customers than to purchase bulk power for 4 cents per kilowatt-hour and pay another 7 cents to get it to end users.

In addition, distributed generation can yield large savings—not only by reducing the need to build power plants, but—as we’ve seen in Central Park—by avoiding upgrades to local distribution systems.

Another benefit of on-site generation is an improvement in the overall reliability of the grid, which—as I’ve indicated—is all-important these days.

Distributed generation is transmission avoided—which helps to relieve congestion and to prevent overloading of nearby substations. And when linked to the grid, such generation can also lower electricity prices.

We’ve seen these benefits with those 10 small power plants in the city that I mentioned before—and with an 11th unit we installed on Long Island.

The power from these units—which might be best termed “dispersed generation”—is distributed to consumers in close proximity.

As I said before, the small plants helped to keep the lights on and stave off price spikes last summer—most notably during an August heat wave that created record demand for power.

But they’ve also served to lower prices at other times—particularly in periods of congestion on the Con Edison 138-kv transmission system in the city areas where they’re located—so-called load pockets.

Under New York Independent System Operator rules, this congestion results in local reliability charges to every utility supplying electricity in New York City. The more limited the electricity supplies for the load pocket, the higher these “uplift” charges. So after the new plants went in, these charges fell, as did the market prices.

I should note that these natural-gas-fueled plants have also improved the environment by displacing older, less-clean power sources.

In addition, the units made a vital contribution after the terrorist attack of September 11 when the ISO, as a security measure, ordered cutbacks in the flow of electricity on transmission lines into the city and in the output of large power plants. The ISO told us to crank up the small, localized plants—and they helped to meet the city’s power needs.

Apart from the advantages I’ve mentioned, distributed generation technologies can produce revenue for non-utility owners who sell excess power to other users via the grid. This is no problem for large cogeneration units, which are qualifying facilities under PURPA. But smaller units can also benefit, provided they meet interconnection standards.

In New York, the PSC has issued standards for fuel cells and microturbines of 300 kilowatts or less—and for solar photovoltaic projects—with provisions for net metering.

The key concern has been to ensure that each new unit is connected to the grid in such a way that the 60-hertz oscillation of its generation is synchronized with the oscillation of the entire network.

Opportunities presented by interconnection promise not only new economies to distributed generators, but also improved efficiencies in wholesale electricity markets. A large enough influx of new suppliers could help weaken the market power of large wholesalers and make manipulation and gaming more difficult.

Distributed generation can be particularly valuable at times of peak demand for electricity—not only by easing strains on the grid, but by taking up the slack when the system is nearing the limits of available generating capacity.

As one example, the Power Authority has a very successful Peak Load Management Incentive Program for our government and business customers in New York City. Under the program—which is part of Governor Pataki’s coordinated statewide energy conservation efforts—we pay customers who agree to cut their electricity use by a set amount when we call on them to do so during the summer.

One way they meet their obligations is through conventional conservation measures. The other is by operating their own on-site generation.

We expect to spend about $300,000 this year—in addition to up to $4 million in conservation incentive payments—to make sure the on-site generators meet state environmental requirements.

We’re convinced this is money well spent. By cutting our customers’ peak loads, the incentive program reduces the amount of capacity we’re required to have in New York City under ISO rules. And either building or buying that capacity would cost a lot more than payments under the program.

Based on our experience, I can see a time when distributed generation could give rise to a novel kind of electric utility—one that focuses on meeting the needs of customers by turning them into independent power producers.

Indeed, distributed generation technology is likely to evolve along a path similar to that taken by computer networks, telephone switching and other large systems. That’s because future utility networks probably will manage many power sources. All customers and producers will be able to communicate freely to signal changed priorities and costs.

Direct, two-way communication between power users and the utility’s computers, using existing coaxial cables or fiber optic lines, is now possible. This allows each central power station, fuel cell, photovoltaic system and microturbine to be linked so that the grid operates as a single “smart” system, avoiding overloaded transmission and distribution lines and turning generators on and off as needed.

Buoyed by these possibilities—and by the very real promise of distributed generation technologies—the New York Power Authority is undertaking or considering a number of projects in addition to those I’ve mentioned.

Distributed generation and combined heat and power technology are moving beyond the fringe and into the energy mainstream. And just in time.

It’s clear that we must add clean new power sources and strengthen the transmission system if we are to meet future electricity needs in New York and other parts of the nation. Yet—for various widely reported reasons—a number of companies that had planned to build new plants are changing course. Transmission investment—always a difficult proposition—is largely on hold.

Distributed generation—and particularly CHP—have the potential to help fill the gap for the short term. Looking further ahead, they could transform the ways in which we make electricity and the manner in which we use it.

We are today in a critical period that could well determine if distributed generation and CHP do, in fact, assume their rightful places in the nation’s energy mainstream. Fulfilling that promise will require that we build on our momentum, capitalize on our opportunities and recognize that this will be a long process marked by many challenges—some now unforeseen.

The novelist Louis L’Amour may have said it best: “There will come a time when you believe everything is finished. That will be the beginning.”

Thank you—and have a great conference.

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