Live sustainable or Die, NH

SNHU Office of Sustainability: Focuses for Innovation

The Office of Sustainability of Southern New Hampshire University (SNHU) is engaged in three broad areas of innovative work that can make significant contributions to the development of sustainable practices. Broadly these three areas are:

1. Developing A New Model for Energy Development, Purchase and Use
2. Design and Application of Renewable Energy Devices and Systems
3. Economic Means to Send Sustainable Market Signals

This work will involve the practice of both financial engineering and mechanical engineering in the development of sustainable social innovations and practices applicable to the SNHU campus as living laboratory and beyond. We will work cooperatively and in conjunction with the SNHU Schools of Business, Community Economic Development and Liberal Arts.

We are interested in exploring working relationships both with other educational and research institutions that will help further our mutual interests. We are interested in working with institutions, government entities, and businesses to advance these goals and for mutual benefit. We will develop all aspects of new sustainable practices and make them available through education and the market.

I. Developing A New Model for Energy Development, Purchase and Use

Soaring fossil fuels prices, resource wars for oil, global climate change, habitat destruction and a gathering tidal wave of species extinction have made basic transformation of energy development and use an economic, ecological, and social imperative.

Sustainable practices have begun to emerge as price signals have made renewable fuels and efficiency a way to reduce costs and increase profits.
SNHU has taken a leadership role in the development of renewable energy hedge agreements. That is one early manifestation of sustainability in the market. The renewable energy hedge is a classic example of taking advantage of market price signals to do both good and well. Economic benefit and ecological improvement are interdependent, not contradictory.

In our view, renewable energy hedges represent a good platform from which to develop an integrated new model for energy development, purchase, and use. Our efforts in these areas, as with the renewable energy hedge, will be applied, not limited to the theoretical and academic. By necessity, we must build the road as we travel.

By applying financial, engineering, regulatory, and market tools we can move with all deliberate speed to a energy system based on renewable resources, higher efficiency, lower costs, lower pollution, enhanced communication and real time control, asset building, sustainability and prosperity. In the 21st century, the consequences of energy use and economic growth must be ecological improvement, not ecological destruction. Our July 19 "SNHU Renewable Energy Hedge Seminar" is a part of this process of evolving innovative energy system development.

A. Renewable Energy Hedges

Renewable energy hedges are financial agreements between an energy user and renewable energy developers that use a traditional financial commodity tool, a contract for differences (CFD). The renewable energy hedge uses the high price of fossil fuels and the zero fuel cost of renewables to both control user energy costs and help build the renewable energy infrastructure essential to freeing us from the fossil fuel threat.

The renewable energy hedge can transform energy from a variable to a reasonable fixed cost for energy for the amount hedged and voluntarily offset user carbon emissions for energy users, while providing energy developers with an assured and reasonable income stream that facilitates renewable resource development.

We have recently completed the first of such long-term renewable energy hedges. This is a fifteen year hedge agreement for approximately 17,500 MWH/yr. between Southern New Hampshire University (SNHU) and PPM Energy, Inc. The agreement combines a financial swap based on power sold from Maple Ridge II into the NY ISO Zone E spot market, and an annual purchase of an equivalent amount of RECs provided annually by PPM from other renewable sources and not Maple Ridge. The REC purchase will completely offset all SNHU carbon emissions from electricity and natural gas purchases.

From a renewable hedge, energy producers gain stable long-term cash flows from investment grade credits at levels likely to be higher than those obtained from Power Purchase Agreements (PPAs) or from power marketers and suppliers purchasing energy for resale. Such hedges can include RECs and other environmental attributes and thus remove long-term market risk for the amount hedged.

Renewable energy hedges open an enormous market for long-term financial agreements between energy developers and energy users. Renewable energy hedges offer producers assured superior long term income flows, lower risk and lower finance costs for energy developers. Further, such hedge agreements, as we will describe below, make possible a wide range of related energy products and arrangements that will benefit both producers and users.

The hedge can work for both user electricity and heating costs. For example, in regions with natural gas on the margin in electric markets, such as the Northeast U.S., total electric and natural gas budgets can be successfully hedged and flat-lined. If the hedge includes RECs, users can voluntarily offset greenhouse gas emissions, potentially reduce their regulatory risk, or resell the RECs.

The SNHU/PPM hedge settles monthly. If average price earned by the hedged portion of renewable generation is below the negotiated strike price, for example $75/MWH, between the parties, the user sends cash to the producer to make up the difference. Similarly, if monthly average income is above $75/MWH, the producer sends the difference to the user.

SNHU is assisting in further sales and development of renewable hedges and related projects. Roy Morrison of Eco Power Hedge serves as Director of the Office of Sustainability at SNHU as a consultant. The website www.EcoPowerHedge.com describes renewable hedge dynamics.

B. Renewable Energy Hedges and Smart Grid Development

The renewable energy hedge is a practical expression of the triple bottom line of sustainability with economic, ecological, and social benefits for both parties and the community. Renewable energy hedges are the kind of market-based social innovation needed to find a solution to our energy future and climate crisis. The renewable energy hedge reduces dependence on fossil fuels and the need to prepare for and to fight resource wars for oil and other fossil fuels.

Renewable energy hedges can be the basis for an effective new model for energy purchase, use and development that the Office of Sustainability is currently pursuing. We will assist energy users, both large small, in organizing themselves into cooperatives or other groups to take advantage of sustainable market opportunities and to support such market development. These new energy market groups can:

1. Use renewable hedges to control costs.
2. Develop new hedge models to allow participation of businesses and institutions of all sizes and of individuals of all income levels.
3. Use wholesale markets to purchase energy with minimal mark-ups and transaction costs.
4. Take advantage of real time energy pricing and control technologies.
5. Make optimal use of cogeneration, distributed generation, and efficiency technologies.
6. Develop new sustainable energy investment, ownership, and finance models.
7. Develop sustainable energy regulatory designs to send proper market signals for efficiency, renewable resources, distributed generation and cogeneration.

We believe this new model is a tool for the development of a smart utility grid system. This smart grid system will send proper economic signals for the optimal development and use of renewable energy resources and efficient power markets. In a smart grid system the behavior of individual users and distributed generators will help control and balance the system state. A smart grid represents the emergence of a low polluting system that builds decentralized energy user equity and controls long term costs. A fully developed smart grid system will reflect the long-term imperative of making economic growth mean ecological improvement, not ecological destruction.

C. Office of Sustainability Work on Elements of the Smart Electric Grid

Our activities include:
1. Renewable Energy Hedges (as described).

2. User Power Purchase Options including utility purchases, long term contracts, and spot power from wholesale power markets either directly or through a supplier intermediary. As a financial transaction, the renewable hedge allows user to pursue the most suitable purchase option by eliminating or mitigating the net effects of short term price volatility. The yearly hedge net result protects users from worries about annual market price swings.

Spot purchases reduce user transaction costs for energy purchases and can lead to lowest long-term costs. Spot purchases supported by hedges are clearly recommended in cases where the user’s consumption patterns match the renewable producer’s production patterns. For example, spot purchases would work well for a university with high winter and low summer use, and a wind farm with high winter output and low summer output. We are negotiating with suppliers spot market power purchase arrangements where users can take advantage of wholesale spot markets with a minimal price adder.

3. Forward Capacity Market kWh Pricing. To incorporate new Forward Capacity (FCM) charges being assessed, we are developing a system to include a price adder with the hourly spot market energy price. The adder will help send fully loaded price signals to users and properly distribute such charges. The adder is based on the probability of a given hour will contribute to a system peak. Thus, instead of merely imposing a fixed forward capacity cost per KWh, the energy cost will rise per KWh as system load increases, thus sending proper price incentives to users.

4. Real Time Pricing and Device Control. We are working on methods of transmitting ISO-NE five minute prices to users. We have a working prototype of a satellite paging network based control system. We will explore additional transmission options using the Internet, cell and satellite transmission . Real time price signals enable users to both control end use devices and self-generation based on real time price signals, and to record expense of energy consumed. Real time pricing and control will have the advantage of not just optimizing use and minimizing costs, but also effect the system state in a cybernetic fashion. Higher prices will rapidly reduce use and increase distributed generation with the effect of reducing system load and lowering prices.

5. User Investment in Renewable Energy Facilities. We are developing tools to facilitate user capital investment in renewable energy facilities. These investments can avoid credit and risk issues confronting individuals and businesses in long term hedge arrangements.

Investments can be sized to effectively hedge an individual’s or a business’ energy use and to offset green house gas emissions. In contrast to user purchase of carbon offsets for an additional cost, capital investment can provide users with income, equity, and offsets. Investment in renewable facilities can be done individually or through cooperatives as in Denmark. Hunter Brownlie of Eco Power Hedge has extensive experience in sustainable investment, and in credit and capital markets.

Investments can be through equity, or, if equity investment is not desired by producers, investment can be in cash paid to the producer over time for a price cap hedge. The user, in effect, acquires a revenue right for a part of a facility’s output.

For example, a user could invest $1500 to cover 15 years of a $.10/KWh price cap hedge for 2 kW of installed wind farm capacity. The user would receive all the income above $.10/KWh from the energy sold into the spot market produced by 2 kW of a wind farm’s installed capacity. The cash paid by the user for 15 years of income will be kept in escrow and payments made monthly to the producer.
From this arrangement, the user gains a cash flow to hedge energy use, potentially offsetting carbon output through RECs(if they are included in the agreement),and a property right that can be sold (with cooperative approval) and inherited. These is in marked contrast to conventional REC sales where the user only receives a certificate and the sense of having purchased virtue.
6. Financing, installation, and management of distributed generation, efficiency, cogeneration and renewable resources for users.

We can arrange financing of cost effective sustainable energy projects of all sizes. We can aggregate such resources to take advantage of Forward Capacity Markets and other ISO programs, and, alternatively, avoid ISO capacity charges. We will develop credit union and other financing or lower income individuals.

D. Renewable Energy Hedge Analytic Capacity

Working with SNHU, our consultant Eco Power Hedge LLC. Has developed sophisticated Excel based analysis software that allows us working with users and developers to

Validate and quantify the hedge relationship between the energy producer’s spot market (e.g. NY Zone E) and the user’s spot market (e.g. NH ISO-NE LMP). The SNHU/PPM Energy hedge works because both spot markets have Henry HUB natural gas on the margin. As Henry Hub prices rise and fall electric prices rise and fall.

Determine future energy price scenarios based on future low, probable and high price scenarios based on our analysis of past and projected market behavior.

Size the renewable hedge based on our analysis of the hourly performance of the renewable energy facility in terms of output and revenue, and the user’s energy consumption and costs. We can determine the amount needed to be hedged for the user to maintain a flat net annual energy budget under the low, probable, and high future price scenarios that will maintain the same net level of yearly bills.

The users net annual budget for the amount hedged will be flat while the savings will vary depending on prices, as will the amount of additional expense in low energy price years. There is no free lunch for users. There is the ability to transform energy for the amount hedged from a variable to a long term fixed cost without capital expense.

Provide monthly, yearly and cumulative savings and cost data for both users and producers for the hedge under all future price scenarios considers as well as actual performance and forecasted future hedge behavior based on performance so-far.

Analyze four hedge sources simultaneously to assemble a hedge portfolio using multiple facilities for a user or producer.

Change hedge strike price and change amount of facility output hedged.

Change distribution of hedge income above the strike price from 100% to user to allow sharing of upside between producer and user in exchange for a lower strike price.

Analyze other hedge types such as a price cap hedge where user makes fixed monthly payments per kW installed to a producer in exchange for all income produced above a set point e.g. 10 cents per kWh.

II. Design and Application of Renewable Energy Devices and Systems

A. Real Time Pricing & Device Control (see I C. above)

B. SNHU Campus Heating, Cooling, Electric Generation System Modalities
We are pursuing a variety of initiatives to explore the optimization and integration of a number of technologies to provide heating, cooling, and electricity for the campus and that may have significant broader applications. We will combine, optimize, and monitor these systems. Sustainability requires both improving the efficiency of existing systems, taking advantage of available renewable resources, and efficiently using resources that are currently wasted. Results are applicable to a variety of applications in both developed and developing world.

i. Ground Water Heat Pump Optimization and Use.
SNHU situated on the banks of the Merrimack River should be able to take advantage of what soil maps indicate is an excellent ground water resource in shallow gravel beds bordering the river. In summer of 2007, we are drilling test wells to characterize flows and water quality for a ground water heat pump system. The initial application is for heating existing all electric dorms located at an elevation approximately 100 feet above the river gravel beds.

Actual net performance of ground water heat pump systems has often proven to be disappointing, we believe as a result of excessive pumping energy. We are working to optimize system design and will experiment with the use of pumps installed on the return line to generate power from return water flows. Power will be fed into a common DC bus to deduce net water supply pumping energy.

It is well known that pumps may become generators in particular configurations. Information is not generally available on specific pump behavior, use and optimization. We are undertaking a test program to study and document pump characteristics and performance optimization as generators.
Pumps may provide an attractive low-cost option for power generation in the developing world. Low cost pumps, in contrast to more expensive turbine generators, combined with simple pipe, penstocks and battery systems can produce low-cost power in a wide variety of situations.

ii. Use of Water Vapor as Refrigerant to Replace Freon in Heat Pump Use
SNHU campus heat pump development will include study and potential use of water as sustainable refrigerant medium. We will examine the adaptation of existing water vapor compression distillation systems to provide hot and/or cold water for campus use. This can include the production of ice or ice slurry for storage banks for cooling.

iii. Sewage System Heat Reclaim and Use in Heat Distribution
We will examine and study use of campus sewage system as heating resource, first, with a heat exchanger system installed on the outside of sewer lines. The initial application will be for use with ground water source heat pump system for electric dorms (under Bi above) using heat exchanger system on the outside of the pipe.

Second, we will attempt to use the sewer system as a way to potentially back feed warm wet air to terminal building heat exchanger units. The use of such systems can also improve efficiency of sewage system operation by increasing temperature that will reduce sewage biological oxygen demand (B.O.D.), We will also be examining the use of a new micro-filtration sewage system that will allow safe large scale use of gray water for campus irrigation and sewer system use.

iv. Wood Chip Gasification and Pyrolosis

We are examining the use of wood gasification to supply wood gas for diesel and spark engines for cogeneration. We are currently weighing the relative merits of a New Zealand and a Canadian gasifier. As a fuel source, we are considering both wood chips generated from New Hampshire saw mills and recycled wood chips from Walmart store pallets. The sustainable sourcing of such materials are part of our concerns to develop a sustainable wood fuel cycle.

In addition, we will also consider the use of wood pyrolysis oil for turbine and diesel engine use. It may make more sense to transport such a liquid fuel from a sustainable regional production facility , instead of chips, for applications where chips are not readily available on site or nearby.

III. Economic Means to Send Sustainable Market Signals

A sustainable market system must have some basic characteristics. As the rate of pollution increases, the rate of profit must decrease. What’s polluting must be more costly. What’s sustainable must be cheaper. Economic growth and profit must mean ecological improvement, not ecological destruction. SNHU institutional practice, in the here and now, must reward and therefore encourage economically sustainability efforts.

i. SNHU Valuing and Rewarding Sustainability Institutionally
Working will William McGarry, Vice President for financial Affairs, we are developing systems to quantify economic savings from sustainability operations and using a substantial fraction of such savings to fund and endow further sustainability work.

ii. Sustainable Utility Market Rules
The Office of Sustainability has filed as an intervenor in a New Hampshire Public Utility Commission (NHPUC) rate case on appropriate new rate designs for distribution utilities that will appropriately reward sustainable practices including distributed generation, renewables, co-generation, and smart grid operation. We will present to the NHPUC a new market design that rewards, and not penalizes, distribution utilities for sustainable conduct.

iii. Ecological Taxation Policies
How can we make market systems send signals for sustainability? How can we monetize businesses triple bottom line of sustainability : the economic, the ecological, and the social? How can we make higher profits and economic growth a force for ecological improvement?

We are developing an ecological consumption taxation models that can send market price signals for sustainability throughout the economy and along supply chains for all goods and services.

An ecological value added tax, or E-VAT, levied on all goods and services at the point of purchase is an effective way to send price signals. The more polluting, depleting, or ecologically damaging, a good or service, the higher the tax rate. As pollution increases, prices will increase, and rate of profit will decrease. An ecological value added tax can be phased in to replace all taxes on income and use the market price system as a basic tool for sustainability and prosperity Our hearts tell us what we should do. Market prices tells us what we will do.
Markets, Democracy & Survival by Roy Morrison, an ecological value added tax monograph, will be available on-line shortly, and published in fall 2007. It details an E-VAT for the U.S., to replace all income taxes, combined with a negative income tax to maintain tax equity for the 40% of families will lowest income, and with a National Trust for investment in sustainability to overcome market failures.

Roy Morrison & Associates, LLC
Eco Power Hedge, LLC

603-485-8046 (fax)
P.O. Box 201, Warner, NH 03278