Becoming an Energy Star State:

Alternative Energy Futures For Indiana

Report on Indiana Roundtables:  Business, Research, and Environmental Interests
Convened and Facilitated by

Graham S. Toft, Senior Fellow Hudson Institute and 
Jim Wheeler, President Indiana Technology Partnership
January 2003

Support for this project was made possible by a grant from the Joyce Foundation of Chicago to the Citizens Action Coalition Education Fund.

CONTENTS

Foreword   

1.      Introduction:  Why Not an “Energy Star” State?

2.      Why Alternative Energy Options for Indiana?

3.      What We Did

4.      The Issues:  What’s On Our Minds?

5.      Bold Initiatives in Early Formulation

6.      Next Steps

7.      Who Attended?

8.      Appendices

8.1  Opportunities and Barriers Identified at the Roundtables

8.2  Strategies and Tactics Suggested at the Roundtables

8.3  Indiana Low Energy Cost State

8.4  Repowering the Midwest

8.5  Electric Motor Efficiency

8.6  Trip Report – Primen Conference

8.7  Senate Bill 463

A Joyce Foundation Funded project.

Foreword

This series of Roundtables was productive way beyond our expectations.  Indiana’s energy future is not a hot topic of public debate today.  Yet just beneath the surface we found a cadre of experts and interested parties highly energetic about the topic and anxious that the state find answers to a challenge they believe could be very serious, if left to a “wait and see” approach.

As it turns out, this discussion is strategically opportune from a long-term perspective.  In the not too distant future Indiana’s old workhorse coal-fired electric generation capabilities will begin to become obsolete.  Low cost electricity has been critically important to the electrification and productivity of Indiana manufacturing and agriculture, in particular.  Unless Indiana begins to craft creative alternative energy efficiency and supply strategies now, an insidious slippage in its competitive energy cost advantage could occur.  

Surprising to many, Indiana has an exceptionally strong homegrown new energy technology industry.  We found a network of some of the nation’s best scientists and research engineers in electric motors, hybrid and electric cars, fuel cells, power electronics, and advanced batteries.  The prospect for an Indiana “Center of Excellence” in advanced energy technology and manufacturing is tantalizing.

In keeping with the spirit of this process, we have attempted to accurately record what we did and what we learned.  This report includes a lengthy Appendix of information made available by participants attending the Roundtables.

In our respective capacities at Hudson Institute and Indiana Technology Partnership, we will be doing what we can to maintain the momentum created by this dialogue.

A special thanks to those who attended, and to the Citizens Action Coalition Education Fund for financial support.

1.  Introduction:  Why Not an “Energy Star” State?

Energy remains central to major geopolitical issues of the day.  Global hotspots such as Iraq, Venezuela, and the economic turnaround of Russia and Central European nations are intricately related to supply and price of fossil fuels.  While commentators loosely speak of the decline of the “smoke stack” economy and the rise of the services economy, mainstay hard asset industries like energy production remain more critical than ever to economic prosperity and security.

Given anticipated rising costs of energy due to shrinking global supply, and increased likelihood of supply disruptions due to terrorism, smart companies are finding ways to lower energy costs and dependency with greater internal efficiencies and making/selling high-energy efficient products.  These “energy star” companies as setting the bar for others to follow.  Likewise countries, states, and regions might become leaders in energy use, alternative production and efficiency.  It stands to reason that states highly depending on clean, affordable energy might take the lead as “energy star” states.

Indiana is already a leader in energy star home building and energy star manufacturing.  It has become a pioneer in lean manufacturing – a set of methods that squeeze out waste, including energy, in the manufacturing processes.  Indiana already possesses well-established centers of excellence in hybrid vehicles, fuel cells, distributed power and power electronics.  Why can’t Indiana extend these assets for its own competitive advantage, increasing reliability and reducing costs, while becoming an exporter of advanced energy production, technology, and services?

The benefit of becoming an energy star state are many:

• Greater homeland security.

• High efficiency/productivity improvement resulting in cost savings.

• Greater reliability called for by the telecommunications and advanced services industries.

• New jobs in advanced energy industries.

• New jobs in existing industries.

The Roundtables convened in October, along with the “Brain Trust” of Indiana engineers and scientists assembled in December, confirm that Indiana business, government, labor and education leaders should explore this potential “center of technology excellence.”

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2. Why Alternative Energy Options for Indiana?

Indiana is the most concentrated state in the nation for manufacturing and value-added agriculture.  Manufacturing and related agricultural processing counts for approximately 32% of gross state product.  Further, manufacturing wages, on average, pay approximately 30% above the Indiana average.  If it were not for the 600,000 well-paying manufacturing jobs in Indiana, it would be severely impoverished.

Both manufacturing and value-added agriculture are high-energy consumers.  It is not surprising then that a study in the early ‘90s by then First National Bank of Chicago identified the cost of oil as one of four key variables that explain over 80% of Indiana’s economic performance. The energy crises of 1974-1975 and 1979 had severe impacts on the state.  Since then industrial energy efficiency has improved dramatically and Indiana’s dependence on energy is not quite as serious.  Nevertheless, the cost, availability and reliability of energy remain critical to Indiana’s economic future as it transforms to advanced/high tech manufacturing and as it diversifies into high-end services.  In this context, the cost of energy, innovation and sound policy remain critically important.

In a slow growing national and global economy of the early 21st century managing business costs including energy has become a critical factor for firms seeking to shore up their earnings and profitability.  Businesses, especially in Indiana manufacturing and agriculture, are particularly watchful of the cost of energy.  But cost is only one critical attribute.  Energy reliability becomes more critical as industries become more dependent on time-sensitive delivery and information, wherein down time due to energy failure in computer systems, logistics support and customized production has serious consequences.  Energy production and utilization also has consequences for Indiana’s environmental quality.  In the knowledge economy in which Indiana now competes, residents and workers are paying a high premium to live in places with desirable amenities and clean water, air and land.  Historically, Indiana has not paid enough attention to maintaining high environmental standards.  Energy solutions must be found that are environmentally benign.

Alternative energy options offer tantalizing prospects for improved energy availability, reliability, and, down the road, cost savings while at the same time offering more environmentally sound solutions.  For a good 30 years engineers have talked about the promise of a hydrogen economy.  While this vision remains distant, developments in recent years indicate that such a future is not now outside the realm of realization.  Quite surprisingly, out of the very core of Indiana’s traditional industrial base are emerging technological innovations capitalizing on various promising energy alternatives.  To some “growing high tech” means having lots of information and computer industries.  For Indiana it could well mean having an advanced industrial economy driven, in part, by companies that innovate and produce advanced energy systems worldwide

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3. What We Did.

Three Roundtables were convened at Hudson Institute in October 2002.  Their purpose was to explore interest, expertise, and prospective strategies offered by people who work on energy frontiers in Indiana daily.  Approximately 40 individuals were invited to attend the Alternative Energy Roundtables.

Thursday, October 24th from 1:30 to 4:30 p.m., Bio Energy Technologies.

Wednesday, October 30th from 2:00 to 5:00 p.m., Distributed Power and Fuel Cells.

Thursday, October 31st from 9:00 a.m. to noon, High Efficiency Motors:  Design, Manufacture, and Utilization.

In some cases, interested individuals attended all three Roundtables, while others attended one or two. These Roundtables were convened and facilitated by Graham S. Toft, Senior Fellow, Hudson Institute and Jim Wheeler, President, Indiana Technology Partnership.

This report summarizes the findings of these meetings, outlines potential bold strategies that surfaced, and indicates next steps that might be taken by interested parties.  It’s important to stress that this is an initiative to engage business, government, education, and environmental interests in a constructive dialogue.  What was remarkable about these meetings was the degree of enthusiasm for and interest by individuals from a variety of work situations and perspectives.  What we found was a high degree of human energy and, commonality, and a willingness to explore creative solutions.   Notably, the old battle lines between economic progress and environmental quality were less evident.  Participants recognized that Indiana’s future, and that of other Midwest states, depends on finding a desirable balance between environment and the economy.  No longer are these in conflict, especially as newer technologies emerge to solve environmental problems while at the same time improving productivity and economic output.

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4. The Issues:  What’s On Our Minds?

Participants were asked to share one or two big issues, concerns, challenges they believe most central to the furtherance of alternative energy technologies.  Their comments are clustered under the major headings below:

Energy Costs, Quality and Availability.  

• Reliability of energy becomes all the more important in the knowledge economy.  Can alternative energies deliver reliability?

• How can a life cycle cost approach to energy investment be encouraged?

Regulation

• Importance of inter-connectivity of energy producers and users; dispatch reliability.

• How to establish a “green power pricing” mechanism that all can live with

• Regulatory barriers to independent power production.

• Permits to scaling up bio energy projects – can IDEM be more supportive?

• The complexity of some customers being regulated while others are not.

Bio Energy

• What is a definition of “bio energy?”  What are acceptable raw materials?

• Siting problems, including the problems of siting out-of-state waste disposal and how out-of-state waste could be used as a feedstock for bio digesters.

• The difficulty of moving out of traditional cash crops (corn, soybean) to crops for bio energy production.

• The problem of delivery, storage and keeping bio energy feed stock dry.

• The use of residues from the wood products industry – 42% of residues are a potential source, not counting kiln-dried materials. 

• Cost of bio diesel production is higher and reliable refineries and delivery mechanisms are not available.  However, there are the customers.

• Having enough infrastructure for refining and delivery to be competitive with the superior infrastructure systems of fossil fuels.

• What to do about by-products?

• What can be done with manure as a resource – landfill gas is a proven technology.  Indiana is way behind many other states in application.

Distributed Generation and Fuel Cells 

• Notre Dame has been successful in attracting federal dollars with congressional delegation support.  Electricore has obtained over $150 million in federal support.  How can Indiana ramp up such efforts?

• There is a huge market for distributed power in the automobile industry.  Further, one can take Indiana’s automobile–related generator technology and channel it to new markets – iPower in Anderson is an example.  

• The problem of coordination among various interests and sectors, fragmented by the current energy system and related legislation – need to get all parties to the table.  Need for various stakeholders to devise win-win solutions.  

• Can financial incentives be devised to encourage utilities to innovate?  

• How can state energy programs be applied to move this area forward?  

Advanced Electric Motors

• Vision:  Indiana has the potential to be the Silicon Valley of rotating machines and controls – electric generation, conversion, control and storage.

• Today the cost of energy is so low in Indiana, there is little incentive to make high acquisition costs for long-term cost savings.  With the near-term focus of business, even a two-year payback is hard to sell.

• Some good research goes on at IUPUI.

• Need for coordinated and elevated R&D program; look at Kansas Tech Enterprise Corporation and Edison Program in Ohio for funding models.

• Policy makers are stuck on the supply side – they do not look upon motor efficiency as a resource; equally not much emphasis on building energy efficiency.

• The real barriers are institutional not technological.

• Fear of losing our technology base in permanent magnets.  Magnaquench has moved its Tech Center to North Carolina; need to bring permanent magnet machines to market (Japan is leading).

• Indiana needs to organize around “centers of excellence”.  It has both large and small business good supply chain and strong talent base in rotating machines, but no coordinated effort.

Transitional Strategies

• If Indiana is to transition toward more renewable and environmentally benign technologies, participants raised the following issues:

• How to get energy issues on top of the agenda of local and state decision makers?

• How can Indiana take advantage of its strong manufacturing base to transition into advanced energy design and, advanced manufacturing and marketing?

• How to establish fully functioning demonstration systems, e.g., a “bio refinery” model that would serve target regions in the state relying on local feedstock and providing local energy needs, possibly linking to bio plastics industries.

• Need for improved state partnerships to leverage federal funds.  This is increasingly critical.

• There are a variety of interests in distributed power in this state.  They haven’t coalesced.

• A lack of funding to advance technologies compared to other states in power generation, information technology and advanced manufacturing -- need to worry about this for the state’s future.  

• Indiana is a “flux-cutting” state.  Electricity is becoming a bigger market every day.  

• The economics are tough for this technology to stand on its own as yet.  Some utilities are “testing” the water, e.g., Vectren.  IPL is doing some distributed power programming now. 

• Indiana has the potential to build critical R&D, production and marketing around energy and the environment.  There are a lot of local players here, how do we leverage into global business opportunities? 

• Distributed power and fuel cells provide opportunities for agriculture, but the path is unclear.  

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Bold Initiative 1:  Strategic BioEnergy Production  

Various interests are showing a renewed interest in bioenergy solutions.  This initiative calls for statewide resource and technology planning to locate prospective sites for bioenergy production.  The initiative is based on the Roundtables’ general consensus that bioconversion technologies are satisfactorily proven, not just in alcohol fuels but waste to energy, wind, solar, etc.  What they lack is competitive pricing in projects at scale.  And, pricing is partly a function of total systems integration at appropriate sites, integrated into existing distribution systems.

This initiative calls for the following steps:

1. Obtain planning and implementation grant.
2. Undertake a thorough scan of Indiana’s changing needs by region, on the one hand, and agricultural capabilities on the other.  
3. Search for possible bioenergy sites where agricultural production and energy distribution could meet local/regional demand. Propose system of digestion, distribution, storage of feedstock, etc.  Pay particular attention to gasification from biomoss, biomass co-firing and organic waste to energy.  
4. Identify benefiting communities, then electric pricing structure and potential role of municipal utilities.  Explore net metering policies, interconnect rules, buy-back tariffs, etc.
5. Pay particular attention to minimizing negative environmental impacts of bioenergy solutions.
6. Seek formation of a public-private venture to set up “test” facility.

Bold Initiative 2:  Public-Private Consortium for R&D/Innovation in Distributed Generation and Fuel Cells.

The President’s State of the Union Address in January 2003 adds to heightened awareness of hydrogen energy futures. The next challenge with this and related technologies is to “get costs down” by improved systems designs, not just equipment.  The “system” includes rotating machines – power electronics and controls – storage.

A major research, demonstration, and commercialization effort is realistic for Indiana given the embedded knowledge existing in industry and the remarkable talent base of research engineers.  This could be accomplished by a public-private consortium to mobilize research and commercialization of distributed generation technology and fuel cells.  Such a “pre-competitive” consortium would be modeled along the lines of SEMATEC in Austin, which enabled the U.S. microelectronics industry to turnaround.  It would bear resemblance to Indianapolis’ Life Sciences Initiative, which has mobilized the commitment of health delivery, medical manufacturing, universities and government in Central Indiana.  Indiana’s universities and corporate labs would play major roles in the consortium.

The US Department of Energy is interested in these types of consortia – those that focus on energy technology across all applications.  The DOE wants to help scale up proven technologies, including first commercial demonstrations.

Among other things the Consortium would explore the viability of:

• Maintaining competitively priced access to a range of dynamometers such as exist in Anderson, but could be lost to Indiana.
• Developing joint advanced programs of interest to defense and homeland security.
• Developing joint advanced program on the “hydrogen economy”, capitalizing on existing strengths in fuel cells.
• Exploring spin-offs of non-core energy technologies in existing Indiana companies.

Bold Initiative 3:  Create the Indiana Energy, Environment and Technology Commission and Sustainable Energy Corporation to deploy state of the art technology, to fuel competitive proposals for energy research, development, and demonstration and to provide overall policy direction.

Initiative 3A:  Create the Indiana Energy, Environmental and Technology Commission.

Indiana needs an energy vision and strategy supported by a broad base of interested parties.  The Commission would act as the state’s energy futures leader.  

The Commission would do the following:
While constantly looking for technology applications by fostering innovation, it would do homework on behalf of the state to provide governor, legislators, CEOs of utilities, members of the IURC, etc., with the best energy intelligence.  It would provide a complete information web site and bulletin board to spur dialogue on technology, markets, systems, and policy issues.  It would encourage Electricore to serve as the “chat room” for energy research and development.  It would use the State Utility Forecasting Group (SUFG) to do computer modeling of savings resulting from efficiency and the type and design of methods to capture a portion of these savings for further reinvestment under item (ii) below.

Initiative 3B:  Create the Indiana Sustainable Energy Corporation:

1. The Sustainable Energy Corporation would act as catalyst and intermediary to help government, business, and consumers make speedy transition to a new energy economy as it unfolds.  It would explore means by which the state could aggressively take advantage of off-the-shelf technology to improve energy efficiency.  State of the art electronic motors and associated electronics could dramatically improve energy use in Indiana manufacturing.  Many frontier companies are already making great strides.

2. Explore ways to capture part of the savings generated by higher efficiencies, ploughing these resources back into energy research, development and demonstration.  For example, a public benefits charge might be designed in such a way as to capture a portion of the savings created by higher efficiency.  The charge could be structured differently for consumers and businesses to reflect the benefits received from further investment in system efficiencies and alternative generation technology.

Bold Initiative 4:  Ramp up state and federal funding support.

Every effort must be made to access federal funding from the Department of Energy, Department of Defense, National Institutes of Health, National Institutes of Standards, US Department of Agriculture, and the National Science Foundation.  Historically, basic energy R&D funding comes from the federal government.  Increased spending in defense and national security only add to the amounts of federal funds in support of R&D.

Electricore and the Energy Division of the Indiana Department of Commerce should coordinate and ramp up their efforts in attracting federal dollars in support of energy research.  A request should be made to the General Assembly for a contingency fund to be used selectively to make the required matches with federal R&D funds.   It is important Indiana legislators appreciate how federal cost sharing works and how a small amount of flexible state funds could significantly improve Indiana’s prospects for attracting federal R&D funds.

This initiative is particularly important to Indiana’s small technology companies who lack the resources, contacts, and time to go after major federal funding.

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6.  Next Steps

The final step of this Roundtable process was completed in mid January with a meeting of interested parties at Hudson Institute to review a draft of this report.

Two working groups have been established as next steps:

1. Working Group on Advanced Energy Technology – a group of 20 to 25 advanced technology/Ph.D. engineers (the best in the U.S.) convened by Graham Toft and Jim Wheeler and chaired by Bill Wylam of Delco Remy.  They met for the first time on December 20, 2002.  This Working Group could be the starting point for creating the Consortium described in Bold Initiative 2.

2. The Working Group on Education, Communications, and Public Policy convened by Jim Wheeler and Graham Toft with advice from Grant Smith of Citizens Action Coalition which met for the first time November 21st, 2002.   In the first half of 2003, these Working Groups will fine-tune and expand upon all Bold Initiatives.  

Hudson Institute will participate with interested parties to pursue a major grant proposal under Bold Initiative 1.  Proposal announcements under the Farm Bill are to be made in early 2003.

Finally, the results of this whole process will be taken to interested legislators early in the New Year.  

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7.  Who Attended?

Attendees at the Energy Roundtables

Jake Allen, AES/Indianapolis Power & Light
Philip Anderson, Indiana Beef Cattle Association
Thomas Bailey, Cinergy
Jynell Berkshire, Allison Transmission Division of General Motors
Julia M. Blankenship, Cinergy
Faith Burns, Indiana Beef Cattle Association
James Butcher, American Electric Power
William Cai, Delco Remy America
Norm Campbell, Vectren
Yaobin Chen, Indiana University, Purdue University, Indianapolis
Peter Cho, ETechno Group
Dave Crecelius, Delco Remy
Bob Duge, Rolls Royce
Ben Dulaski, Indiana University
Jim Dunning, Electricore 
John Dunning, Electricore
Russell Eberhart, Indiana University, Purdue University, Indianapolis
Ahmed El-Antably, Allison Transmissions
Bob Fagan, LE Incorporated
Greg Grant, Delphi Corporation
Bob Hayden, Vectren
Rick Hensley, Cinergy
Geoffrey Jacks, Manufacturing Technology Center, Indianapolis
Cindy Jackson, NISource
Dick Jones, Delco Remy, retired
Sid Johnson, Industrial Research Liaison Program, Indiana University
Ralph Johnston, Systems Consulting 
Mark Kemper, AES/Indianapolis Power & Light
Pat Kiely, Indiana Manufacturer’s Association
Charles Kubert, Environmental Law & Policy Center
Kelly Laing, Environmental Law & Policy Center
Leroy Lakey, Electric Veh. International
Lisa Laughner, Rolls Royce
James Lemke, Cinergy
Gregory Ludwicki, NiSource
Steve Ludwig, Indiana Soybean Board
Ron Martin, Ramtech
Paul McGinn, Notre Dame
Phil McLoud, US Department of Agriculture
Bruce Milligan, US Department of Agriculture
Marvin Needler, Indiana University, Purdue University, Indianapolis
Chuan Pai, EDS, Purdue
Niles Parker, Indiana Department of Commerce 
William Quayle, Quayle Partners
Kaushik Rajashekara, Delphi
Ethan Rogers, Indiana Department of Commerce
Jeff Ronning, Delphi Corp.
Craig Rutherford, Lynx Motion Technology
Dan Sanders, (Energy Systems Group, LLC) Vectren
Jeff Settle, Indiana Department of Natural Resources
Grant Smith, Citizens Action Coalition of Indiana
Steve Thurston, Cummins Engine
Graham S. Toft, Hudson Institute
John Waters, Delphi Corp.
David Weinschrott, United Way of Central Indiana
Jim Wheeler, Indiana Technology Partnership
Bill Wylam, Delco Remy
George Zink, Stored Energy Engineering, Inc.

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Appendix 8.1 

Opportunities and Barriers Identified below at the Roundtables?

The following opportunities and barriers facing Indiana if it were to pursue an “energy star” strategy are summarized:

Bio Energy
Opportunities

• Fifty percent of Indiana’s land is prime farmland, second only to Illinois – potential for alternative crops to support bio energy feedstock, e.g., switch grass.

• Decentralized production of energy can make communities/ regions more economically independent.

• Bio energy projects are all already technologically proven. However, they are not economically viable, given the competing costs of coal-fired electricity.

• The electric grid is widespread and functional, making decentralized production with connectivity to the grid viable.

• Most of Indiana’s coal plants are 30 years old or more.  A potential energy crisis looms without alternative production systems.

• Indiana already possesses related industrial refining capabilities, e.g., ADM, Staley, Central Soya.

• Purdue University assets include LORRE, School of Technology and the School of Agriculture.

• Lots of farmers are currently paid not to grow anything.  Why not grow something new and different that may have a long-term benefit to the state and profitability to the farmer?  This may also present an opportunity for an invigorated cooperative extension effort?

• Indiana has a major wastewater treatment problem (one of the worst in the nation), and continuing landfill problems close to cities.  The technology for digestion of waste is now well developed, it’s a matter of making it cost efficient.

• Several bio energy technologies have been proven at scale.  We are at a point where business plans for select parts of the state could be developed to fully capitalize on Indiana farmland productivity, the agricultural sector, and support infrastructure.  This is now a known technology – it’s now a question of application to situations that can be cost effective and environmentally benign.

Barriers

• Strong institutional, public policy, and attitudinal barriers to change crop production.  

• The benefits of projects are widely dispersed and, therefore, harder to mobilize public support.

• How to ensure long-term supply of feedstock.

• Power purchase agreements are not appropriately designed.

• Indiana appears to lack the right kind of collaboration for down stream benefits.  True collaboration makes these kinds of projects work. Indiana leaders need to take a look at what’s happening in Wisconsin, Iowa and Vermont.

• Indiana hasn’t taken the time to review progress with bio energy technologies, especially waste digestion, and wood product residues. 

Distributed Generation (DG) and Fuel Cells
Opportunities

• Look to the Indiana Life Sciences Initiative for a model as to how to mobilize focus, resources, and action.

• This is an existing industrial cluster.  Major manufacturers and research capabilities are focused on DG and Fuel Cell Conversion in Central Indiana Region/State.  Further, the region has low occupancy costs, lower compensation, and is a great place for engineering-intensive industrial technology companies.  Venture capital is not so much a problem, but capital for research and early start-up remains an issue.  In short, this is a great place for incubation.  It does need improved private equity capital and creative debt capital for “next step” development, for expanded R&D and early prototype and market trial phases.

• Programs are working in other states.  For example, Wisconsin’s public benefits charge is not onerous and is providing a funding resource for research and innovation.

• Several of Indiana’s comparative advantages also apply to surrounding states.  This presents the opportunity to form some kind of multi-state initiative/cross state partnership using many Midwest -- spanning industrial companies and first class Midwest research universities.

• Electricore has already brought in 150 million dollars to energy-related research in the state.  Electricore could expand its efforts and be a model.  Other cost share models worth looking at are those in Boston, Atlanta, and Hawaii.  

Barriers

• The most significant barrier is the fact that energy is adequately available at low cost today and no shortfall is imminent.  State energy policy is to cope with demand growth by the installation of peaking power plants fueled by natural gas.  In the long run this will likely increase the cost of energy in the state and put the state’s manufacturing and related industries at some disadvantage.  However, in the short-run, the market signals are not strong enough to initiate an aggressive alternative energy response.  That means that the market opportunities for these developments will initially lie out of the state, while taking advantage of in-state technology and industrial advantages.

• The state has some large private sector interests who could mass the resources to move the technology forward internally.  IPower, initiated by Delco Remy, is an example.  

• The system of electric generation, and energy production overall, is marked by territorial fragmentation of markets, or as one person described its “Swiss cheese utility system.”

• Economically and technologically the appropriate cross over point between centralized generation and distributed power remains unclear.

• The fact that utility regulations do not encourage real time pricing puts certain power solutions at a disadvantage.  Real time pricing would spur users to take account of real cost variations on a daily basis and seasonal basis.

• Indiana doesn’t seem to have the political energy or will to create an energy efficiency utility like that in Vermont or to initiate a public benefit charges to support long-term energy research and innovation.

Advanced Electric Motors
Opportunities

• Indiana has an incredible industrial base in rotating motors.  Expertise exists in Evansville, Ft. Wayne, Anderson, and Indianapolis, to name a few.  However, there is little collaboration between key players.

• The Anderson Council on Economic Development has put together a database on electric motor technology.  Some leaders in Anderson are drawing attention to the potential.  The presence of iPower there is helping elevate the opportunities.

• The Indy Partnership (Central Indiana’s economic development marketing organization) is encouraging a supply chain strategy, as part of its cluster focus.  Already a very strong supply chain exists in the rotating motors industry.

• Some municipalities, such as Anderson, have their own municipal utilities.  These small/mid-size utilities could be significant players in advancing both higher efficiency motors and distributed generation.  There is a need to educate the municipal utilities, possibly through The Indiana Municipal Power Authority.  Some might be promising locations for test projects.  

• Indiana does have net metering provisions in its alternative regulatory plans mechanism.  Utilities need to file for such provisions.

• Indiana has a large architectural engineering and construction sector, including major contractors such as Hunt and Geupel DeMars, major property management companies such as Duke and Simon, and significant architectural engineering consulting expertise.  A way might be found to bring these actors to advance energy efficient property design.

• The new airport expansion provides an opportunity to include new energy management systems that can be showcased to the world.

• Significant opportunities for small new innovative business growth in advanced electric motors can build off 50 plus years of traditional electric motor business in Indiana.

Barriers

• Corporations are in the mode of seeking near-term cost cutting tactics.  While reinvestment in advanced machinery has a long-term cost consequence, it may not show up rapidly enough on the quarterly bottom line.

• The state lacks a vision and plan for promoting energy efficiency and demand side approaches.

• Even within business and industry there is no collaborative vision for high-energy efficiency.

• In undertaking construction projects, some U.S. cities are requiring that a significant percent of budget be spent on the arts and design to improve the community aesthetics.  The same could apply to energy efficiency.  Local governments in Indiana could consider such an approach for new public buildings.  There is an appropriate role for government to foster long-term pay back approaches by being an informed consumer.  

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Appendix 8. 2  

Strategies and Tactics Suggested at the Roundtables

Bio Energy

• Document the need strategies, even sense of urgency -- broad-based coalition:  industrial and consumer.  Because there is no immediate threat, parties are complacent.

• Get small piece of pie of energy market.

• 1 to 2% of electricity. 

• Needs to be the same plan for agriculture, utilities and community.

• Explore ways for farmers to move out of soybean and corn.

• Different incentives

• Different capital equipment “new paradigms.”

• Role of the Nature Conservancy in IL.

• Integrate data available and document out of state projects.

• Landfill gas in CA, CO, and MA.

• PA in livestock digestion.

• WI.

• Gasification of biomass in VT.

• Chicago city commitment to buy 20% of green power.  Can Indiana Association of Cities and Towns/mayors drive the development?  Also, municipal power producers – members of IMPA.
• Make the case for jobs.  Jobs are becoming a real issue in Indiana. Renewable strategies create jobs – See Job Jolt report.
• Use today’s proven technology; find best locations for biomass generation and remove regulatory barriers.
• Eco-Industrial Parks.  Colocate with industrial parks.  Denver example; identify “energy zones”.
• Leverage Purdue’s interest in economic development, knowledge of biomass energy production, and previous cost-benefit assessments of biomass production.
• Explore full range of regulatory strategies:

• Removing barriers.

• Adding conservation/renewables set-asides.  Improving inter-connectivity standards (this would also help distributed generation and fuel cells).  

• Avoid regulatory issues by using bio fuels for heat not electricity: steam turbines; district heating and cooling.

Electric Motors
Strategies

• Electrification is a growth market everything is becoming more electric including auto market.

• Indiana can deliver the products.  But it is not engineering the applications of new equipment -- not taking a systems approach to design and implementation, to avoid oversize/super size – right size things.  

• A different institutional structure could mobilize partnerships for research, development and marketing.  What is the role of existing institutions like IMA?  Industrial consortia would help bring down costs.

• Need an educational process using such products as the Repowering Report.  Need major documentation on the issues as a basis to get a strategy dialogue.  Also need increased awareness among firms and workers of who we are as an energy center of excellence.

• Determine promising markets for PM (permanent magnet) – military is one.

• Magnaquench moved its Tech Center to Raleigh Durham, NC.  How does Indiana continue its cluster advantage?  One way is to have superior testing capabilities, especially dynamometers.  PM machines must be measured, as a system, not just individually.  New testing facility at Rose Hullman.

• Where are centers of excellence in the universities?  

• Indiana could become “The Silicon Valley of rotating motors and controls.”

• Allison largest team in country/world.

• Indianapolis/Anderson was historically the world’s center of rotating machines.

• Specialty shops throughout the region – “can get anything made”.

Distributed Generated Power and Fuel Cells
Strategies

• Need to explore existing initiatives, e.g., NISource activities with CHP market.

• Significant opportunities in the 24/7 market for hotel, health/hospital settings, financial services where high reliability required.

• Probably need to link with a broader Midwest coalition.

• Develop Crane facility as a national fuel cell center.  Core of the challenge with DG field is field testing – very expensive!!  Also Crane has strong capabilities in power electronics. 

• Important to reexamine the rate structure and regulatory climate to make DG more attractive in Indiana. Take a look at regulatory assist efforts in New Hampshire.  Need to meet with IURC Commissioners and building code officials. 

Appendix 8.3

Indiana’s Energy Cost Advantage

The energy market has always been a topic of much discussion, especially given the fears of decreasing supplies in conjunction with the recent tensions in the Middle East and the events of September 11th.  Through it all, though, Indiana has been able to remain competitive in the energy market, keeping prices and costs low and revenues high, giving it a great advantage in the energy market.

Source:  Energy Information Administration, State Energy Price and Expenditure Report, 1999.  http://eia.doe.gov/pub/state.prices/data/

Source:  Energy Information Administration, State Energy Price and Expenditure Data System, 1999.  http://eia.doe.gov/pub/state.prices/pdf/rank.pdf

Indiana also ranked well in energy sold.  Indiana was twelfth in the nation through April 2002 in average retail sales of electricity, selling over 31.8 million kilowatt-hours.  The region is very competitive in this area, and Indiana ranked fourth among its neighboring states. 

Source:  Energy Information Administration.  Data are from EIA-826 “Monthly Electric Utility Sales and Revenue Report with State Distribution.”  http://www.eia.doe.gov/cneaf/electricity/epm/epmt47p1.html

Much as it did in the selling of energy, Indiana also scored well in the revenue earned from retail sales.  Overall, Indiana ranked fourteenth in the nation with about 406 million dollars of revenue through April, 2002.  Indiana was fourth in the region behind Ohio, Illinois, and Michigan, all of whom were in the top ten for the country. 

Source:  Energy Information Administration.  Data are from EIA-826 “Monthly Electric Utility Sales and Revenue Report with State Distribution.”  http://www.eia.doe.gov/cneaf/electricity/epm/epmt49p1.html

Overall, Indiana is very competitive in the energy market, ranking thirteenth out of the fifty states and District of Columbia in average total energy costs and sixth in electricity prices.  In terms of annual retail sale of electricity, Indiana was twelfth in the US, and it was fourteenth in terms of total revenue earned.  In Indiana, costs and prices of energy are low and sale and revenue from energy is high.  This gives Indiana a great advantage in the energy market.  By keeping energy costs relatively low, Indiana will in turn help to keep its prices low and pass these savings on to the consumer.  

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Appendix 8.4

Repowering the Midwest:  The Clean Energy Development Plan for the  Heartland

Environmental Law and Policy Center
Chicago
Excerpts from “Repowering the Midwest” Report

Reaping Energy Efficiency Opportunities

Indiana has tremendous opportunities to invest in energy efficiency technologies that will reduce pollution, save money and create jobs.  This will produce the following benefits:

1. Reduce net electricity costs by $731 million by 2020.
2. Save 41,752 GWh of electricity – equal to about 15 large power plants by 2020.
3. Reduce electricity demand 17 percent by 2010 and 29 percent by 2020.
4. Cost less – at an average cost of 2.4 cents/KWh – than generating, transmitting and distributing electricity.

Deployable and Renewable Resources and Efficient Generation

Indiana has the opportunity to develop wind, biomass and solar power, which provide environmental benefits, improved reliability, and economic development in the growing renewable energy business sector.  Furthermore, Indiana can develop new efficient generators such as Combined Heat and Power (CHP), using natural gas.  Together, the opportunities shown in Figure 1 could provide eight percent of Indiana’s generation capacity by 2010 and 23 percent by 2020.

The Clean Energy Development Plan’s benefits can be achieved at a modest cost, as energy efficiency savings offset the cost of new generation.  In Indiana, it would increase overall electricity costs by about 1.5 percent in 2010 and 3.4 percent by 2020.

Table 1:  New Generation Resources in the

Clean Energy Development Plan 

21^st Century Policies for Modern Technologies

Smart policies can overcome the many market and regulatory barriers that energy efficiency and renewable resources face.  To achieve the Clean Energy Development Plan in Indiana, the key policy actions are to:

1. Establish an Energy Efficiency Investment Fund to support energy efficiency initiatives with a non-bypassable charge of 0.3 cents/KWh.

2. Manage the Indiana Energy Efficiency Investment Fund by an independent third-party administrator overseen by a board composed of regulators, state energy offices, and consumer, efficiency and environmental advocates.

3. Evaluate and update Indiana’s efficiency standards and building codes.  Establish or reinforce monitoring and enforcement practices.

4. Establish an Indiana Renewables Portfolio Standard that requires all retail electricity sellers to provide eight percent of their electricity from renewables resources by 2010 and 20 percent by 2020.

5. Establish a Renewable Energy Investment Fund to support emerging renewable technologies, with a non-bypassable charge of at least 0.1 cent/KHw.

6. Ensure that transmission pricing policies and power pooling practices treat renewable resources fairly and account for their intermittent nature, remote locations, or smaller scale.

7. Remove barriers to clean distributed generation by:  (1) expanding Indianapolis Power and Light’s net metering policy to include wind and to be offered by utilities statewide; (2) establishing standard business and interconnection terms; (3) establishing uniform safety and power quality standards to facilitate safe and economic interconnection to the electricity system; and (4) applying clean air standards to small distributed generation sources, thereby promoting clean power technologies and discouraging highly polluting diesel generators.

The Economic Impact of “Repowering the Midwest.”

A December 2002 report released by the Regional Economic Application Laboratory (REAL) of the University of Illinois estimates very positive economic impacts for the Midwest and Indiana of the Clean Energy Development Plan of the Heartland proposed in “Repowering the Midwest.”

Below are excerpts of key energy efficiency implementation impacts:

The results of REAL’s study indicate that the energy efficiency measures outlined in Repowering the Midwest’s Clean Energy Development Plan will generate as many as 84,000 jobs by 2010 (over and above a business-as-usual baseline) rising to 141,000 jobs by 2020.  These jobs will generate local income – direct and indirect – of up to $1.8 billion by 2010 rising no $3.2 billion in the year 2020.  The plan will increase Midwest economic output by as much as $7.1 billion by 2010 rising to $12.7 billion by 2020.

Many of largest beneficiaries of a conversion to energy efficiency are manufacturers already located in the Midwest.  More workers will be needed, for example, to make triple-glazed windows for Andersen Windows, smart thermostats for Honeywell and Johnson Controls, energy efficient lightning equipment for Osram, Sylvania, and Energy Star appliances for Whirlpool.

Table 2:  Energy Efficiency Implementation Impacts

Each state in the region has different manufacturing capabilities and, thus, different economic impacts from implementing  the energy efficiency plan.  Highly industrialized states such as Illinois, Indiana, Michigan, and Ohio achieve the most substantial job gains from increased use of clean energy efficiency technologies.  The REAL model incorporates these variables to compute the average state-by-state impacts described in Table 3.

Energy efficiency installations will create new jobs in nearly all economic sectors – the largest gains are in trade (39 percent), professional and personal services (24 percent) and manufacturing (20 percent) as shown in Figure 5.  These gains are partially eroded by a loss of jobs in the utility sectors as demand for electricity flattens out.

Table 3: Energy Efficiency Impacts by State