Electricity Generation: Smaller is Better

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Electricity Generation: Smaller Is Better

Central station generation with unrecoverable heat loss is finished as an economically viable technology. In its place, widespread installation of smaller, more-efficient generation, close to heat loads, will come to predominate and will collapse the value of much of today's generation and transmission-- assets.

Thomas R. Casten

W hither electricity generation? The electric utility industry, long the most stable in the United States in terms of predict- ability of growth, stability of rates, earnings and mode of operation, is undergoing profound up- heaval. Many states, through their regulators or legislators, are con- sidering various forms of increased wholesale competition for electric generation and even di- rect access for retail customers. In- deed, the industry is rife with change at all levels: Transmission access has opened to all users on a comparable basis, major utilities are proposing to allow their customers to shop for power, for which they will provide delivery

Tom Casten is president and chief executive officer of Trigen Energy Corporation of White Plains, N.Y., an independent power development firm he helped found in 1986. Mr. Casten received his M.B.A. in finance from Columbia University.

and ancillary services, and utilities are preparing to de-inte- grate to functionally or finan- cially separate their generating, transmission, distribution and service functions into separate business units. Everything, it seems, is changing at once.

A relic that must also change now is the dominant paradigm of central generation as the least-cost method of electricity production. In its place must emerge a new paradigm of dispersed generation, with the formerly wasted heat recovered and used to heat industry and commercial buildings.

This article examines the rea- sons for the old paradigm, why it is changing, and why dispersed generation will change the industry as we know it. Each of the problems that now faces the in- dustr3~ its suppliers of capital, and its regulators will yield to a much easier solution, once we embrace the new paradigm and consider where it leads.

Three Insights

Twenty years ago, I had an as- signment to analyze the 25-year strategy of Cummins Engine Co. In a year's research I gained three insights which have relevance to the topic here:

(1) Major new ideas or new commercial approaches take 30 years from inception to total adoption, except in industries that are sheltered from market forces-- i.e., regulated industries in which the adoption time is 40 years. (See Figure 1.)

(2) The entire diesel engine industry was spending hundreds of millions of dollars to increase the efficiency with which their en- gines converted fuel to mechani- cal energy from roughly 33 percent to something higher. An increase in efficiency of 0.25 percent could dramatically improve market share, but researchers ig- nored the 66 percent of the fuel energy that was thrown away as heat.

(3) The electric utility indus , , which I had--before 1975--re- vered and thought to be most efficient, was converting less than 30 percent of its fuel to delivered electricity, and was neither gain- ing in efficiency nor designing for heat recovery.

I hope to explain the relevance of these insights to the future of electric generation.

A Brief History of Central Station Generation

Let's start with an historical per- spective of generating plant costs.

December 1995 65

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Figure 1: Major Idea Adoption Curve

100 __

P e 8O n

r % a

t 4o i o 2O g

0 __

Non-Regulated Regulated Industries Industries

Idea demonstrated ~ ~'~

I I 0 10 20 30 40

Years

Borrowing from Charles Bayless's article a year ago, 1 Figure 2 depicts the costs of new generating plant, with cost on the vertical axis and output (in megawatts) on the horizontal axis. The cheapest plant in 1930 produced about 50 MW, which was above the power demands of any single user at that time. It made sense for society to force electric users to purchase electricity from one central supplier, which could offer economies of scale. Electric loads were tiny then.

Cummins Engine Co.'s mu- seum has a one-cylinder engine from 1927 that powered a 7.5-kilo- watt generator. When Cummins's engineers developed a two-cylinder version with twice the horse- power, marketing found no demand for 15 kW in one factor~ so the larger engine was released with a 7.5 kW generator and an air compressor on the same shaft and sold as "A Compleat Power Plant," through the Sears and Roe- buck catalogue.

As you see from Figure 2, for 50 years central plant technology im- proved steadily and plants became cheaper to build. The cheapest plants, on a per-unit basis, were the larger ones. By 1980, the lowest-cost generating plant was a central thermal plant with 1000- MW capaci~ But the efficiency from thermal plants essentially

peaked in the early 1960s. Remain- ing gains in efficiency were as hard to achieve as the mythical one-quarter percent increase in the fuel efficiency of a diesel engine. The "technological S-curve" had peaked.

When nuclear plants arrived, supposedly the technology of the future, they were less efficient because they had to observe steam temperature limits. Also, new environmental rules lower the efficiency of large thermal plants. Scrubbing SO2 can take up to 5 percent of a plant's electric power. Various strategies to reduce NO also reduce efficiency, Removing particulates with either bag- houses or electrostatic precipita- tors are needed for coal and #6 oil plants, and consume up to 5 percent of the electric power output of the plant.

Thermal plant design is in the last phase of an asymptotic ap-

$1MW

Thermal P lants

Gas Turb in

5O 20O 6OO 1000 MW

Figure 2: Optimal Plant Size (Per-MW Cost Curves, 1930-1990)

66 The Electricity Journal

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proach to its maximum theoreti- cal efficiency. These last percent- age points of efficiency are typically prohibitively costly We cannot and will not wring much more efficiency out of the thermal cycle, so we must look to other cycles for the next gains. We will come back to efficiency, the forgot- ten quality, in a moment.

Now look at Figure 2 for the 1990 version of the optimal plant size curve. Lo and behold, the cheapest electric generating technology is once again 50 MW. To quote the great American philoso- pher Yogi Berra, "It's d6ja vu all over again!"

F or very small gas turbine plants, ranging from 1 MW to 20 MW in size, costs are roughly 30 percent more per MW than larger GTs, but are still cheaper than new central thermal plants. But capital costs are only one part of the cost of electricity equation; we need to look at labor and net fuel costs as well.

Regulation: Failed for 20 Years

The nearly horizontal line at the bottom of Figure 3 depicts the technical paralysis that has been caused by shielding generation from market forces, the result of the industry continuing to be a regulated monopoly During the period of the greatest technological progress in the history of hu- mankind--a period overlaid with two OPEC-induced fuel price in- creases and a growing concern for the environmental impact of electric generation--the total deliv-

ered efficiency of electricity from all U.S. thermal plants, including nuclear, has grown from 29 percent to just over 30 percent.

The lack of progress in electrical generation efficiency mirrors the lack of progress made in entire economies like the USSR, where command-and-control decisions were made without regard to mar- kets. Fortunately for the U.S., we shielded only some areas of our economy from market forces, al- beit vital ones like energy conversion. OPEC countries and fuel producers have benefited from our regulation, while the con- sumer and the environment have paid a huge price.

Our failure to improve electric generation efficiency for the past two decades can be traced to two facts: (1) Nearly all new generation has been of the central station steam generator type, and (2) there is no heat recovery.

Triple Efficiency Is Proven, but Little Used

With regard to efficienc34 it is clear that we can do better. The net fuel efficiency of electric generation at several Trigen plants that were sized to fully utilize waste heat, and produce electricity as a byproduct, is also shown in Figure 3. The 130 MW of aggre- gate capacity represented here ranges from double to triple the average efficiency of central stations. These efficiencies continue to improve with added waste heat use.

Each of these plants is in the center of a city, surrounded by heat users. In spite of significant and perhaps unnecessary regulatory obstacles which increased costs of these systems, and without potential mass production economies, these trigeneration plants are saving both thermal and electric utility customers

100

90-

80- 70-

60- 5O

40-

30~

20

Trigen Oklahoma 100 o---.o--o 90

''-~nBen Philadelphia ..... 80 Trigen Kansas C i tyx - -~

70

Tri~en Trenton ~ 60 50

Trigen Nassau

al l US GeneraLion F_o_ssil &_Nuclear

40 30

20

10 0 i i i i I I i i i i i i i i i i i i

1973 1975 1977 1979 1981 1983 1985 1987 1989 1992

Figure 3: U.S. Electric Generation Efficiency vs. Trigen (Trigen units shown from date first in service and owned by Trigen).

December 1995 67

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money and they earn a reasonable profit.

It might seem mysterious that such efficient generation is not more commonplace, 22 years after the first OPEC price shock, and 31 years after Rachel Carson's Silent Spring introduced environmental awareness into our collective thinking. Howevel recall my first insight: Major new ideas--in this case, new technologies--take 30 to 40 years to gain acceptance. But why?

Remember the typical "S- curve" of major new idea adoption? The time to fully accept major new technology has not speeded up with modem commu- nications, because the delay in im- plementation is founded in human nature.

A familiar example the replacement of vacuum tube technology with transistors--illus- trates that delay of a major new idea from inception to ubiquitous adoption may consume one human generation. After W.B. Shock- ley et al. proved in 1947 that the transistor would work, the word spread in academe. Young engineers were taught about transistors and then, alas, went to work for the Motorolas of the wor ld-- the principal producers of vacuum tube-based products. Chief engineers and senior managers who had competency in vacuum tube technology led these compa- nies.

Many of these managers be- lieved that applications for the transistor would be minor and could be addressed by advances in vacuum tubes. Perhaps they

unconsciously feared that transistors would devalue their years of vacuum tube experience. In any case, the delay of 30 years to full use of transistors is best explained by human rationalization--by managers seeking to squeeze further profit out of stranded investment, by the self delusion of peo- ple faced with unpleasant reali~, and by a lack of infrastructure to support transistors.

In 1967, fully 20 years after proof of concept for transistors, I purchased a state-of-the-art stereo amplifier at a military PX in Viet- nam. It was still filled with vacuum tubes. But by 1977, 30 years after the transistor's invention, the last vacuum tube testing machines had disappeared into mu- seums. Investments in tube production became uneconomic during the final 10 years of the S- curve. And note the debate on who would pay for stranded investment in the vacuum tube business: It never happened. Competi-

tion simply forced electronic com- panies to choose between transistors and bankruptcy.

New Power Can Be Much Cheaper

Our thesis is that dispersed power will be the dominant ap- proach to new generation, replac- ing new and even old central thermal stations. We assert this is true, that such a major paradigm shift takes a human generation or 30 to 40 years, and that dispersed power technology proved its economic merit about 1970. This means that in 1995, we are 25 years past proof of concept, and the S-curve depicted earlier should show rising installation of smaller power plants. Before we look at the building S-curve, let's look at the costs to produce new electric power, assuming recovery and use of the normally wasted heat. Figure 4 shows all available gas turbines above 3 MW, ar-

40

30

20

10

% Most

Eff icient

0 50 I I

100 150

Gas Turbine Capacity MW

0@

t I 200 250

Figure 4: Gas Turbine Efficiency


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ranged by MW output and plot- ted according to simple cycle efficienc~ A curve fit to the data shows a rapid increase in efficiency in the I to 5 MW range, and then a slow climb to the largest 250 MW machine. Curiously, the most efficient machine is not the largest, but is the GE LM6000 aircraft derivative, a 40 MW ~tr- bine. The further significance of this figure is that economy of scale is largely missing with respect to single cycle efficiency. Many offerings below 50 MW compare well with 250 MW machines.

T he recent efficiency im- provements in larger combustion turbines, particularly aircraft derivatives, will be introduced in smaller turbines. Al- though Figure 4 doesn't depict installed cost per MW, and small turbines cost more per MW toda~ significant economies of scale are possible with mass production. In future, least-cost installed capacity may well be found in I MW to 10 MW turbines.

Figures 5a through 5d tell a largely unappreciated stor~ They each show the selling price of baseload electricity needed to earn a 15-percent return on capital, after netting out the value of recovered heat and paying the fuel, labor, and other costs. The figures depict four gas turbines: a 3 MW Turbomeca, a 5 MW Al- lison, a 40 MW GE LM 6000 and an 80 MW Frame 7.

We have assumed that fuel for boilers would be the same fuel and same cost as the gas for the

turbine, and that the replaced boilers are 75 percent seasonally efficient, a generous assumption based on our data from hundreds of sites. We assumed a staff for the largest machines of 19 and 18 persons, respectivel)$ and for the small machines a net five and three persons, reflecting the fact that these machines would be installed in facilities with existing boiler operators who would tend both boilers and turbines.

The figures show baseload heat in mmBtu on the horizontal axis, and net cost per MWh on the vertical axis. The graphs show the re- quired selling price of electricity per MWh for each machine, for each amount of heat recovered. For the large machines, we assume combined cycles in the three heat recovery cases.

The first point on each curve is the selling price per MWh needed to cover all costs and earn a 15-

percent return on investment from simple-cycle operation. As one recovers heat, the price needed for electricity drops. The second point on each curve is the net cost per MWh to produce a 15- percent return on investment after "selling" all of the recovered waste heat at its full replacement cost. For the two larger machines with combined cycles, we assumed 15 percent of the steam went to the condensing turbine to keep blades cool. The two smaller turbines without a combined cycle sell all recovered steam as heat.

The third point on each curve is one familiar to all IPPs. Conven- tional supplementary firing has been added, using some exhaust oxygen to roughly double the heat produced. In the large machines, we assume production of high pressure steam, which is then sent through a back pressure turbine to produce additional elec-

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We can write "The end" to .large central station plants.

December 1995 69

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Figure 5a: Price of Electricity as a Function of Heat Sink (Conventional Boiler Efficiency = 75%)

$/MWh

6O

40

20

Gas $3.00/MMBtu Return on Assets 15%

- - GE F rame 7 - 80MW

- S imple Cyc le E f f i c iency

@ - Exhaust Heat Recovery - Modest Supplementary Fired - Maximum Supplementary

Fired

i i

0 i i I I

5O0

tricity before exhausting to a proc- ess or heating load. This is the last point of the curve I have ever seen published--i.e., where a small portion of the turbine's exhaust oxygen is used for further combustion.

100 Percent of Fuel Is Converted to Heat

The fourth point on the curves is something new to many energy professionals, but is a technique covered by 1950 and 1958 expired patents. Here, all of the preheated exhaust oxygen is combusted with supplementary firing, and virtually 100 percent of the added boiler fuel is converted to useful heat. Boilers capable of this feat have been produced for 30 years. They operate at heat output levels from minimum, where just exhaust heat is recovered, to a maximum output of five times the recovered heat, all at near-perfect fuel conversion.

Fully supplementary firing the exhaust of an 80 MW GE Frame 7

i i I i i i i

1000 1500

MMBtu/hr

produces an amount of heat larger than most heat loads, or "heat sinks." For example, one of the largest breweries in the world has roughly 700 mmBtu per hour steady steam load, only one half the heat output possible from a fully fired 80 MW turbine. Very few industrial applications can use all the supplementary fired heat one could produce from a single 80 MW gas turbine. There is also a utility application for the remaining waste heat: The exhaust from a GE Frame 7 could

provide preheated combustion air for a very large utility boiler of the type some utilities might see as "stranded."

Figure 5b adds a second smaller gas turbine, a GE Frame 6 with 40 MW output. Note that the full use of exhaust produces roughly the heat needed by a very large industrial load. A few of these large heat sinks exist where 40 MW turbines could be installed to produce and sell electricity at under 2 per kWh.

Figure 5c is the same as 5b, but has a shaded area where there are already assembled heat loads. Modest 300-bed hospitals have steady base loads of around six mmBtu and larger medical cen- ters can reach 70 or 80 mmBtu base loads. The largest universi- ties have up to 130 mmBtu/hour base loads, and common industrial base loads rise to 250 mmBtu per hour. Above that, the already assembled heat loads are largely city-wide district heating net- works, and there are only a few such loads--less than 300 in the

$ /MWh

60

4O

0





- Exhaust Heat Recovery

- Modest Supplementary Fired - Maximum Supplementary ....

Fired ....

t i a i I i i i i

0 500 1000 1500

MMBtu/hr

Figure 5b: Price of Electricity as a Function of Heat Sink (Conventional Boiler Efficiency = 75%)


Figure 5c: Price of Elecicity as a Function of Heat Sink (Conventional Boiler Efficiency = 75%)

$/MWh

60

40

20





@ - Exhaust Heat Recovery - Modest Supplementary Fired - Max imum Supp lementary

Fired ....

0 0 500

U.S. Multiple heat users would have to be further joined together to have larger base heat loads. Even a 40 MW turbine is too big for nearly all of the already assem-

bled heat loads. Figure 5d adds two smaller tur-

bines generating 3 and 5 MW. Note that the full heat, produced with 100 percent of their exhaust oxygen burned, falls in the area of assembled heat loads. It shows that the most economical machine size is up to about 10 MW.

At a 93-percent annual load factor, the small turbines, with all of their exhaust supporting heat production, can earn a 15-percent return if they obtain $0.005 or 0.5 per kWh (or $5 per MWh). Obvi- ousl~ if you reduce extra heat production during some parts of the year, the net cost of electricity in- creases.

Many of these situations, where electricity can be made for $5 to $10 per MWh, are available, but

the electric to heat ratio is very small. As one makes less use of the unburned oxygen, selling

i i I i i i i

1000 1500

MMBtu/hr

prices per MWh needed to earn a 15-percent return on investment rise to $38/MWh. We see many opportunities to use enough of the unburned oxygen annually to

be able to sell power at 2.0 to 2.5c/kWh.

Heat Use A l ready Assembled

We estimate that 9.1 quadrillion Btus of annual consumption is as-

sembled in 5 mmBtu per hour or greater base loads. These assem-

bled loads could use the heat cur-

$ /MWh

60~- -


rently wasted from more than 2000 gigawatt-hours of electrical

generation. This is heat presently wasted from 76 percent of the total fossil and nuclear generation in the U.S.

Figure 6 is a reasonableness check. It depicts the 30.2 quadrillion Btus of fossil energy con- sumed by the residential, commercial and industrial sectors in the U.S. in 1992, exclusive of electric purchases. The two broken- out portions of the pie represent the recoverable heat from all fossil and nuclear generation in the U.S. Full heat recovery would displace only 10.8 Quads, or 36 percent of the residential, commercial and industrial sectors' fuel consumption. The already assembled heat sink is nearly large enough to utilize all of the waste heat--i.e., 9.1 Quads, or 76 percent of available waste heat. More heat sinks can be assembled by connecting buildings via district steam or hot water net- works.

40

20

0 1 D , ,

0 500

I - - GE F rame 7 - 80MW - - GE Frame 6 - 40MW .... Allison - 5MW m Turbomeca - 3MW

........... - S imple Cyc le E f f i c iency

- Exhaust Heat Recovery - Modest Supplementary Fired - Max imum Supp lementary

Fired

i i I J i h i

1000 1500 MMBtu/hr

Figure 5d: Price of Electricity as a Function of Heat Sink (Conventional Boiler Efficiency = 75%)

December 1995 71

................... ........ .............. I

Figure 6: Total Fuel for U.S. Heat Production, 1993

Remain ing fuel for heat production: 58%

Existing central / steam systems: 16% of total heat Recoverable heat from all U.S.

electric generation: 42% of total heat

Blocks to Waste Heat Use

There are several major problems to using the presently wasted heat from electric generation. The generation is almost al- ways in the wrong places; it uses technology that was not designed to recover heat; and its operation is shielded from market forces. The regulated and regulators mis- takenly assume new generation is needed only when demand ex- ceeds present capacity. By focus- ing on capacity only, regulators miss the importance of efficiency in determining lowest-cost production. Old, inefficient plants can be mothballed and replaced by new efficient plants and produce net reduction of costs per kWh. Under regulatory logic, we would wait to construct more-efficient capacity until the economically obsolete capacity can no longer operate physicall~ what- ever the cost of operation.

The costs to society of this flawed logic are immense. If society would adopt a new paradigm---dispersed generation of electricity with waste heat recover~ built now to displace physi- cally operable but uneconomic generating capacity, the benefits would be surprisingly large.

Dispersed Generation Is Being Built

What is the evidence for dispersed generation and smaller plants? Figure 7 shows the average size of generation additions each year for regulated rate base additions only, and for all power plants built to sell electricity The data excludes "inside the fence generation," which is typically smaller yet. In 1977, the average size of a new generating plant peaked at 550 MW. It has since fallen by an order of magnitude to 50 MW in 1993. The average size of new generation will continue to drop.

Figure 8 shows what may be the start of the S-curve of dispersed generation. It depicts the annual additions of power by IPPs each year. It shows relatively little construction by non-utility generators (NUGs) from 1968 to 1980, after which NUGs began to build several gigawatts of new

MW 700

600

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400

300

200

100

0 I 1966

PURPA ' Utility I

. -.o-- Utility +J

I t I i t - - t - - I I F - t~-q - - I I I I ~ 1 I I I I I I I I I 1969 1972 1975 1978 1981 1984 1987 1990 1993

Figure 7: Average Size of Power Plant Capacity Addtions


Figure 8: Non-Rate Based Generation Annual Additions

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1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992

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relatively dispersed generation per year.

Conclus ions

Several conclusions should now be evident:

1. The central electric generating plant without heat recovery is finished as an economically viable technology;

2. The price of electricity will drop significantly;

3. Presently assembled heat sinks could use nearly the full amount of heat now wasted by all the present fossil and nuclear generation, which would greatly reduce fuel use and pollution;

4. Transmission is overbuilt to serve central generation, the old paradigm. Growth of dispersed power will greatly lessen the need for transmission, and energy will move by gas pipes instead of electric wires;

5. Stranded cost recovery is "a dog that won't hunt." The more prices rise to recover the capital of inefficient generating plants, the faster ratepayers with assembled

heat loads will self-generate, out- side the reach of the regulators.

This leads to the final observa- tions, which tie into my initial question: "Whither electric generation?"

The paradigm of central station generation is based on technology that predominated from 1930 though 1970. But small generation technology began to exceed thermal plant technology 25 years ago. Still, largely shielded from market forces, the electric industry has clung to the old paradigm, going so far as to use the new combustion turbine technology in central power plants where the heat cannot be recovered. But im- proving technology and its application has an impact on optimal electrical generation, on the need for regulation, and indeed on nearly everything connected with electricity.

The regulators, the regulated, the change agents, the manufac- turers of equipment, and the pol- icy makers are striving to improve and are open to new technology, but will miss the real

gains of heat recovery until yester- day's central generation paradigm is overturned.

However important technological changes have been, we have seen that it takes 20 to 30 years to build infrastructure to support a major new idea, after which change occurs very rapidly. The old landscape becomes unrecog- nizable five to eight years after that point. Much infrastructure supporting dispersed generation has been built. Are we about to en- ter that period of rapid change with respect to electric generation? Is the world about to embrace dispersed, fully heat-recovered generation?

Economic gas turbine generators have ended the need to regu- late generation. Widespread installation of more-efficient generation close to heat loads will collapse the value of much of today's generation and transmission assets.

Charles Handy in his book The Age of Unreason, summarized the impact of the kind of ideas dis- cussed here. He said: "Assume discontinuity in our affairs .... and you threaten the authority of the holders of knowledge, of those in charge, or those in power. ''2 In this case, I could add, you may threaten those who make power.

Endnotes:

1. C. Bayless, Less is More: Why Gas Tur- bines Will Transform Electric Utilities, PUB. UT|L. FORT. Dec. 1, 1994.

2. CHARLES HANDY, THE AGE OF UNREA-

SON (Harvard Bus. School Press, 1990).

December 1995 73

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Electricity Generation: Smaller is Better