Terry Surles, Director Technology Systems Division California Energy Commission

1. California’s Efforts In Addressing New Electricity MarketsAsia Pacific Economic Cooperation (APEC)Expert Group on New and Renewable Energy Technologies Terry Surles, Director Technology Systems Division California Energy Commission

2. GDP (2000)

3. California Energy Perspective • Previous system wasn’t broken • Market power became concentrated • profits up by selling more for less • No price signal for end users • Loss of momentum on demand side management • 10 GWh saved by early 1990’s • Restructuring derails utility DSM • 1.4 GW of renewable cancelled • “No need” • Price was above cost to utilities • Results • Demand up 0.7%, price up 130% • Blackouts with 28 GW laid, with ~50 GW capacity

4. Production of Electricity by Source - 1999 Wind/solar-0.1 Geothermal- 0.4 Imports- 1.2 Oil- 3.2 Wind/solar- 1.6 Geothermal - 4.8 Biomass/waste- 2.0 Oil- 0.2 Imports NG-15.5 Hydro- 32.6 Coal- 51.9 15 Nat Gas 8.5 Hydro 18 Imports 20 Nuclear Natural Gas 31 15 Coal Hydro 51 15 Nuclear 13 Coal 276 TWh 3,678 TWh

5. CA Energy Use by Sector (1999) Transportation 49%

6. Peak Demand is Increasing Faster than Newly Installed Capacity Megawatts

7. Contribution to ISO Peak DemandAugust 16, 2001 (MW) Commercial AC Commercial Lighting Residential AC Other

8. Rising Peak Demand Threatens Reliability and Power Quality California Stage 1-3 Alert Number of Statewide Electricity Alerts by Year

9. Peak Demand Influenced by Economics and Weather

10. Adjusted for weather and Economic Growth Actual Summer 2001 Peak Demand Reductions

11. Factors Contributing to Demand Reduction - Electricity price increases - Public awareness of crisis and voluntary conservation - Demand reduction programs, 20/20 Program - State and regional economic recession - Increased supply

12. Next Steps • Diffuse excess market power • Address potential for supply overshoot • Change buyer’s mentality • Education - it’s more than flicking a switch • Take control - it’s not a tax • Develop alternatives • Demand side • Supply side • Enabling technologies

13. Public Interest Energy Research (PIER)

14. California has Established a $62M/yr Public Interest Energy Research Program (PIER) California’s Energy Future Quality: Reliable and Available Economy: Affordable Solutions Environment: Protect and Enhance

15. Vision Statement The future electrical system of California will provide a clean, abundant and affordable supply tailored to the needs of “smart”, efficient customers and will be the best in the nation. Tailored, clean, abundant, affordable supply Smart, efficient customers

16. Our R&D Program Must Address Future Market Scenarios Regulated Status Quo • New energy systems • Same players Centralized De-centralized • Same energy systems • New players Supermarket of Choices De-regulated

17. Technology Development Continuum From Innovation to Market New Energy Idea Proof of Concept Demonstrations Techn. Develop. Self Sustaining Market Certification Internat. Market Valley of Death Renewable Energy Program Export Program PIER Program (RD&D)

18. Funded Program Areas to December 2001(in millions) Supply $82 Renewables, EPAG Demand $50 Buildings, Ind/Ag/Water $48 Strategic, Environmental

19. PIER Objectives: Meeting Ratepayers Needs • Tangible products reach market • legislative justification • Prepare for the next crisis • end use energy efficiency • Distributed energy sources • supply alternatives • demand side management • enabling systems • externalities (environment, resource, security), climate change

20. Berkeley Lamp • Technical Success:Validated energy savings

21. PIER Buildings Program HighlightsNight Breeze • Provides ventilation and cooling at night, reducing or eliminating the need for air conditioning during the day

22. High Performance Fume Hood • reduces airflow and energy requirements by 30-50% • flow reduction from each hood cuts energy costs by $1000/yr • maintains or enhances worker safety • ASHRAE standard test achieved containment with 70% flow reduction • with 30,000 hoods in state, the new Hood could save about 360 million kWh/yr, totaling nearly $30 million

23. PowerLight Corporation Building-Integrated PV Roof System

24. The Wind Turbine Company • Design, develop and demonstrate a utility-scale wind turbine • Horizontal axis, two-blade, downwind design • Prototype developed for PIER and tested at NREL rated at 250 kW • Commercial prototype demonstration sited at the Fairmont Reservoir in LADWP territory for a 500 kW - scaled up to 750 kW - wind turbine demonstration to begin in October 2001 • Goal is to produce electricity  $0.035 cents per kWh per 100 unit wind farms with wind resources  15 mph.

25. Technical Support for DG Interconnection Standards • Reduces average cost of interconnection fees to consumers by 37% • Supports Rule 21 by resolving technical safety issues • Establishes technology & size neutral review process • Identified testing and certification requirements • Enables insertion of new generation (e.g. renewables) into the grid

26. Real Time Transmission Line Monitoring/Rating • tension monitoring increases transmission capabilities by 15-30% • highly accurate - measures line sagging to within 1-3 inches • increased safety - provides the actual real time rating and provides alarms of impending clearance violations • system 1-3 were built for utilities in Virginia, Colorado and Finland • 200th system was sold on 8/4/00. The systems are in use on five continents by 70 utilities.

27. Alzeta Gas Turbine Semi-Radiant Burner (GTSB) • PIER is helping develop low- or no- emission electric production methods, including gas turbines for use in DG • Alzeta’s GTSB combustors successfully demonstrated simultaneous readings  2 ppm emissions of NOx, CO and unburned hydrocarbon on gaseous fuels during prototype testing. • Goal is to lower cost of emission reduction by $100/kW for smaller facilities • Alzeta has paid $24,464 to date in royalty repayment to the PIER Program based on direct sales and licensing of the product

28. California’sRENEWABLE ENERGY PROGRAM

29. Renewable Generation Issues • Developers of new renewable energy projects currently face a high degree of uncertainty • The biggest impediment to further development of renewable projects is the lack of a stable market with buyers willing to provide adequate price certainty

30. Renewable Energy Program OBJECTIVES • To facilitate the development of a self-sustaining, consumer-driven renewable energy market in California. • To encourage market-based development of new and emerging renewable resources. • To maintain the benefits and diversity of the renewable energy industry and move towards market competitiveness with the broader electricity industry.

31. California’sRenewable Energy ProgramAt a Glance • $540 million in program funding (1998 - 2002) • Market-based support for supply and demand sides of renewable energy market by providing: • Production incentives for existing and new renewable electricity generation • Capital cost buydowns to install on-site distributed generation systems • Rebates to customers who purchase renewable electricity • Consumer education

32. Renewable Generation By Type GEOTHERMAL BIOMASS WIND SOLAR

33. Investment Plan Renewable Energy Consumption Targets

34. Investment PlanRenewables Generation Goals

35. California Energy CommissionEnergy Technology Export Program • Role: Promote California Energy Technology Exports • Results: Stimulated Over $400 Million in Export Sales

36. Energy Technology Export Program Focus • Assist Small and Mid - Size Companies • Develop International Energy Projects (<$100Million in Capital Costs/Project) • Feature Clean Combustion Power Plants, Energy Efficiency, Industrial Cogeneration, Renewable Energy • Asia and Latin America Concentration

37. Recent Projects • Wind Power Projects (16.5 MW) - Greece • Clean Coal (CFB) Power Plants - China • Industrial Cogeneration (12 MW) - Thailand • Hotel Energy Efficiency Retrofits - Mexico and Panama • Geothermal Power Plant (5 MW) - Vanuatu • Electric Bicycle Kits (2,000 Units) - China

38. Identify/Evaluate Export Opportunities Target Markets Scouting Missions Identify & Qualify Projects Energy Audits of C/I Sector Projects Matchmaking Conferences & Trade Missions Project Feasibility Funding International Energy Fund Facilitate Project Development Company Directory Technical Advice Financing Advice Advice to Foreign Governments Program Functions

39. Market Niches • Utility-Scale, Grid-Connected Power Generation • Commercial Building Energy Efficiency Retrofits • Industrial Cogeneration/Onsite Power • Off-Grid or Mini-Grid Power Systems

40. International Project Financing • Pre-Investment: CEC Intl Energy Fund • Pre-Development: E&Co./Rockefeller Foundation/Venture Capital • Project Financing/Project Development: • EXIM Bank: >$10 Million • IFC/REEEF: 25% Debt/Equity • Equity Investors/Equity Funds • Multi-Lateral Banks: World Bank, ADB • Dresdner Bank

41. CO2 per Capita (1999)

42. CO2 / GDP (1999)

43. Factors Contributing to Demand Reduction • Electricity price increases • Public awareness of crisis and voluntary conservation • Demand reduction program, 20/20 program • State and regional economic recession • Increased supply

44. Next Steps: • Diffuse excess market power • Address potential for supply overshoot • Change buyer’s mentality • Education - it’s more than flicking a switch • Take control - it’s not a tax • Develop alternatives • end-use energy efficiency • distributed energy resources • enabling technologies for DSM and real-time pricing