Source-Site Ratios (Final)

Source-Site Ratios (Final) Prepared for: National Rural Electric Cooperative Association (NRECA) Energy and Power Division Prepared by: December 8, 2014

Source-Site Ratios National Rural Electric Cooperative Association (NRECA) Energy and Power Division for Authors: David Williams Contact: David Williams williamsd@powersystem.org Direct: 608.268.3557 Fax: 608.222.9378 1532 W. Broadway Madison, WI 53713 www.powersystem.org

Table of Contents 1 Introduction...1 1.1 What Is the Source-Site Ratio?...1 1.2 How is the Source-Site Ratio Used?...2 1.3 Problems with the Source-Site Ratio...2 2 Introduction to Source-Site Ratios...2 3 The EPA s Definition of Source Energy...5 3.1 The Energy Star Program...5 3.2 Source-Site Ratios...6 4 How Source-Site Ratios Are Used...8 5 How Is the EPA s Source-Site Ratio Calculated?...9 5.1 Heat Rates...12 5.2 How Heat Rates Are Used...13 5.3 Heat Rates and Renewables...14 6 The Goals of Energy Star, Revisited...15 6.1 Low Carbon Source-Site Ratio...16 6.1.1 Future Scenarios with High Renewable Penetrations...17 6.1.2 Recalculating the 2011 Source-Site Ratio...17 6.1.3 Changing Electric Grid Fuel Mixes Using the EPA Source-Site Ratio...18 7 Why Are National Source Site Ratios Used?...18 7.1 The Effect of Changing the Fuel Mix...20 7.1.1 Alternate Scenario #1: kwh Generated for Coal and Natural Gas Switched...20 7.1.2 Alternate Scenario #2: kwh Generated for Coal and Renewables Switched...22 7.2 Calculating the Source-Site Ratio by Region Washington State...23 8 Conclusion...26 NRECA ii Source Energy vs. Site Energy

1 Introduction 1.1 What Is the Source-Site Ratio? Many tools, standards, and regulations developed by federal agencies and other national organizations use the concept of source energy to evaluate and compare the relative energy efficiency of buildings that use different fuel sources. For example, this concept allows energy efficiency comparisons between buildings that use different kinds of heating systems, such as natural gas forced air and electric heating. To use this comparison method, the site energy consumption of each building or appliance in question is determined and used to calculate its source energy consumption. Roughly speaking, site energy is the energy used at the building site: for example, metered kwh of electricity or cubic feet of natural gas. Source energy includes the amount of energy that was used in getting the fuel or energy to the building. The source-site ratio is simply the ratio of the source energy to site energy; this ratio is typically used to determine how much energy is lost when raw fuels are converted to useful energy. For example, in the case of a building that uses grid electricity, source energy includes: the energy used to generate the electricity from raw fuel, the heat wasted in generating the electricity, and the energy lost in transmitting the electricity to the site. Site energy is usually easy to determine, but source energy usually varies with the energy source being considered. In the case of electricity generated from fossil fuels, the ratio of source energy to site energy using common source energy conversions methodologies can be 3.0 or higher: this reflects the fact that much of the heat produced in the combustion of fuel at power plants is not converted into electricity, simply due to the nature of the process. Further losses occur as the electricity is transported from the plant to the end-use site. To take coal as an example, around 30-40% of the heat energy released from burning coal makes it to the customer as electricity. It is this percentage (converted to a ratio) that is used by federal agencies and others to evaluate the energy efficiency of buildings and appliances. For example, the U.S. Department of Energy ( DOE ) and the Environmental Protection Agency ( EPA ), use source-site ratios in its Energy Star program to evaluate the energy efficiency of appliances and buildings. The DOE also uses source energy and site energy in its proposed revised performance standards for new federal buildings. 1 A number of other organizations use the concept of source energy in their assessments, including ASHRAE and the International Code Council ( ICC ). 2 For purposes of illustration, this paper is going to focus on the EPA/DOE s use of source-site ratios by its Energy Star Portfolio Manager tool, a popular tool that is used to rate the relative 1 The proposed regulations are 10 C.F.R. Parts 433 and 435; Fossil Fuel-Generated Energy Consumption Reduction for New Federal Buildings and Major Renovations of Federal Buildings. See Federal Register, Vol. 79, No. 198, October 14, 2014, p. 61694. 2 See, for example, DOE s Home Energy Score and Commercial Building Asset Rating programs, and DOE s proposed rules on reducing fossil fuel use at federal buildings (Docket # EERE-2010-BT-STD-0031). NRECA 1 Source Energy vs. Site Energy

energy performance of commercial buildings. The technical documentation of the Energy Star Portfolio Manager tool has a comprehensive description of the source-site ratios and conversion methodology used by the tool. The methodology used by the Energy Star tool will be referred to in this paper as the EPA method 3. Keep in mind, however, that the similar use of the sourcesite ratio (with some minor methodological differences in some cases) extends well beyond the Energy Star program, and lessons learned in this paper can be applied to other programs and standards. 1.2 How is the Source-Site Ratio Used? The ratios are used to compare different forms of energy. For example, natural gas used for heating has a much lower source-site ratio than grid electricity, as determined by the EPA method: natural gas is delivered to the end-use as-is, in other words it is not converted prior to delivery, like coal is for grid electricity. The source-site ratio for natural gas is therefore around 1.05, according to the EPA. Therefore, as will be seen below, it can seem like natural gas is the most efficient heating option in many circumstances, as it has a lower source-site ratio. 1.3 Problems with the Source-Site Ratio To calculate the national source-site ratio for grid electricity, the EPA must take into account the fact the grid electricity comes from a variety of sources, including fossil fuels, nuclear, and renewables. The problem is that each of these sources of electricity has its own efficiency. In the case of fossil fuels, the notion of efficiency is fairly clear: using the heat content of the fuel, and the heat rates of the plant, we can calculate how much of the heat energy is converted to electricity. However, for renewable sources of energy, the notion of efficiency is murky: no fuels are being consumed in the traditional sense. The EPA basically side-stepped this problem, and assigned the fossil fuel heat rate to renewable energy when calculating source-site ratios. Thus under the EPA s method, the source-site ratio for grid electricity does not change much, if at all, when nuclear or renewables are substituted for fossil fuels. This result is contrary to some of the goals that environmental programs like Energy Star are trying to achieve. This paper shows how the details of how the EPA calculates the source-site ratio, and how it is used. Once the details of the process are examined, it is clear that assigning fossil-fuel heat rates to renewable energy is problematic. The EPA should address this problem; if it does not, the result may be that natural gas is overvalued in the Energy Star programs and in other programs or standards that use the ratio. 2 Introduction to Source-Site Ratios When organizations implement energy efficiency programs, they naturally want to know how effective those programs are in other words, how much energy efficiency has been achieved? It turns out that measuring energy efficiency can be more difficult than first imagined. Sometimes 3 Although the Energy Star is a joint program of EPA and DOE, for simplicity, this paper refers to EPA and DOE s role in administering Energy Star interchangeably. NRECA 2 Source Energy vs. Site Energy

it is not just a matter of figuring out the amount of energy or capacity (in kwh or kw) that is saved or avoided by a program; as this paper will show, in some instances programs designed to help people optimize energy choices might look to the source of the energy. To see why the source of the energy matters when measuring energy performance, consider an office building that is trying to reduce its energy usage by implementing EE programs or replacing end-use appliances. For the most part, the building owners may be most concerned about how much cost they can save at the meter through reduced energy use: the focus is on reduction of cubic feet of natural gas, or kwh of electricity (and kw if there is a peak demand charge). However, other stakeholders may care about what is happening on the supply side of the meter. For example, the utility might wonder whether the EE programs can contribute to the postponement of new peaker plant construction. The state utility commission may care about statewide EE or emissions targets, and how much the building s reduction counts toward the state s overall reduction. The building owner may be concerned about a performance score given by Energy Star or another governmental organization. Furthermore, a building can consume a combination of fuels, such as natural gas, propane and grid electricity. It is difficult to determine the relative overall energy performance of an entire building when different sources of energy are being used. The metrics of source energy and site energy have been developed to help answer these questions. Site energy is a familiar concept; it is simply the amount of energy (electricity, gas, etc.) consumed at the site. In the case of most buildings, site energy is just the metered energy, as reflected in retail utility bills. 4 Source energy takes into account not just the energy consumed at the building, but also the losses incurred in production, transmission, and delivery of that energy. In the case of electricity, the source energy would include the total amount of raw fuel it would take to: (1) produce the electricity, and (2) get that electricity to the building. Figure 1 shows the difference between source and site energy in the case of a building supplied by electricity, which is in turn supplied from a coal plant. 5 4 Some buildings use energy that is generated on-site. Therefore site energy can be supplied in two main ways: by primary energy or by secondary energy. Primary energy is raw fuel burned on-site, as is the case with a building that has its own fuel oil boiler in the basement. Secondary energy is energy created off-site and delivered to the site, such as electricity generated from a coal plant that is delivered to the building. This paper is mainly concerned with secondary site energy energy from the electric utility. 5 Image taken from The difference between source and site energy, at http://www.energystar.gov/buildings/facility-owners-and-managers/existing-buildings/use-portfoliomanager/understand-metrics/difference NRECA 3 Source Energy vs. Site Energy

Figure 1 Site Energy vs. Source Energy Source energy includes the energy expended to produce the electricity in the first place so if the electricity came from a coal plant, the source energy includes the heat energy in the coal before it is burned. Each stage of the process involves losses. When coal is converted to electricity, energy is lost, and when that electricity is delivered from the plant to the end-use building, more energy is lost. Source energy does not include the energy expended to get the fuel out of the ground. Until recent years, site energy had been the traditional method for determining building efficiency. Only recently has the notion of source energy been utilized. Site energy has some advantages over source energy: Site energy is easily measured, verified and understood by the public and contractors. It shows up on meters and utility bills. Site energy changes can be measured and understood, particularly as they relate to efficiency upgrades. Consumers can measure and evaluate the savings achieved on site. This can t be done using source energy. Site energy savings show up quickly on consumers energy bills. As this paper will show, the true source energy is a changing calculation, due to changes in the sources used to generate grid electricity; however, the DOE and others use national numbers for source energy that are rarely updated and often do not reflect reality. NRECA 4 Source Energy vs. Site Energy

Consumers have direct control over site energy use, and their behavior and policy can affect site energy use. Consumers do not have the ability to easily affect source energy, and therefore cannot as effectively set policies to improve their energy usage in a way that will be meaningful to their bottom line. However, in the past ten or so years, some federal agencies and trade organizations have turned to source energy to compare buildings, instead of using site energy. For example, the EPA has determined that source energy is the most equitable unit of evaluation when comparing the efficiency of buildings that use different types of energy. The EPA uses source energy and site energy to compare the efficiency of buildings under the Energy Star program. Note: The units that are used to compare sources of energy are typically British thermal units, or Btu. Kilowatt hours and Btu are both measurements of energy. There are 3,412 Btu per kwh. However, keep in mind that this conversion (3,412 Btu/kWh) is a pure physics definition, and as such applies mainly when converting Btu to kwh and vice versa. 6 3 The EPA s Definition of Source Energy The EPA has incorporated the notion of source energy into its national energy performance ratings. The EPA administers the Energy Star program, which helps businesses and individuals save money and protect our climate through superior energy efficiency. 7 Note that protecting the climate is one of the goals of the Energy Star program. 3.1 The Energy Star Program The Energy Star program was established in 1992 under the authority of the Clean Air Act. The initial focus of the Energy Star program was a voluntary labeling program that identified and promoted energy-efficient products. In 2005, Congress passed the Energy Policy Act, which clarified Energy Star s mission. The 2005 Energy Policy Act directed in part that a program be established: at the Department of Energy and the Environmental Protection Agency a voluntary program to identify and promote energy efficient products and buildings in order to reduce energy consumption, improve energy security, and reduce pollution through voluntary labeling of or other forms of communication about products and buildings that meet the highest energy efficiency standards. 8 6 A possible source of confusion arises when heat rates are discussed later in the paper. Heat rates are similar to source energy, in that both represent the amount of energy expended in the process to get energy to the site. Heat rates are also typically expressed in Btu/kWh, but this is not a unit conversion. For example, a coal plant with a heat rate of 10,000 Btu/kWh uses 10,000 Btu to produce one kwh of electricity: this is an engineering reality, based on the efficiency of coal plants. On the other hand, one kwh of energy is always equivalent to 3,412 Btu of energy, no matter how it was produced: this is a simple matter of unit conversion. Thus, heat rate and source energy are engineering concepts, while 3,412 Btu/kWh is a physics unit definition. 7 From the page About Energy Star, at http://www.energystar.gov/about/ 8 42 U.S. Code 6294a(a) NRECA 5 Source Energy vs. Site Energy

In order to meet these goals, the EPA turned to source energy as a method to compare energy efficiency programs. The EPA describes its use of source energy in a 2011 paper (the Energy Star Methodology paper). 9 This paper is supported by the 2013 Technical Reference Guide, which explains the source of some of the metrics used in the Energy Star Methodology paper. 10 These two papers describe how source energy is used in EPA projects. The Energy Star Methodology paper states that the EPA has determined that source energy is the most equitable way to compare the efficiency performance of a diverse set of buildings: Source energy represents the total amount of raw fuel that is required to operate the building. It incorporates all transmission, delivery, and production losses, thereby enabling a complete assessment of energy efficiency in a building. 11 Note that the stated concern is determining the amount of raw fuel that is needed. This becomes important later, when renewable energy resources are considered. For the moment, note that renewables such as wind and solar do not consume fuel in the traditional sense. 12 3.2 Source-Site Ratios When site energy is used at a building, the EPA converts the site energy into source energy by using source-site ratios, which are defined as follows: The factors used to restate primary and secondary [site] energy in terms of the total equivalent source energy units are called the source-site ratios. 13 To take a simple example, the source-site ratio for electricity purchased from the grid has been deemed by the EPA to be 3.14 (the method used to determine this value is discussed in a following section). 14 This means that if one Btu of energy is consumed at the building meter, and that energy came from the electric grid, the EPA/DOE deems that on average it took 3.14 Btu of raw fuel energy at the source to produce that one Btu at the meter. Recall that one kwh of energy equals around 3,412 Btu. Therefore, if a building uses 10 kwh of grid electricity at the site, this translates into Btu of source energy as follows: Source energy in Btu = 10 kwh * 3,412 Btu/kWh * 3.14 = 107,136.8 Btu 9 ENERGY STAR Performance Ratings Methodology for Incorporating Source Energy Use, March 2011, at: http://www.energystar.gov/ia/business/evaluate_performance/site_source.pdf 10 Energy Star Portfolio Manager Technical Reference, Source Energy, July 2013, available at: https://portfoliomanager.energystar.gov/pdf/reference/source%20energy.pdf 11 Energy Star Methodology, p. 2. 12 All sources of electricity, renewables included, use energy to make equipment (e.g., build wind turbines). However, the fuel in question here is the fuel burned or consumed to generate electricity in that sense, solar and wind do not use fuel. 13 Energy Star Methodology, p. 2. 14 This ratio of 3.14 comes from a July 2013 EPA reference guide, and is based on data from the years 2007-2011. NRECA 6 Source Energy vs. Site Energy

In this case, the source is the power plant (or plants) used to generate the grid electricity. As the power plant burns fuel, a portion of the heat energy is wasted, and there are further losses in getting the electricity from the plant to the building. To see how the losses occur, assume we burn a particular amount of fossil fuel and produce 10,714 Btu of heat. Much of this heat will be lost as conversion losses in the generation plant. The rest of the heat goes to power the turbines that generate electricity. Some more energy will be lost as the resultant electricity is delivered to the end-use. If one kwh is delivered at the end use, this means that 3,412 Btu was delivered, out of 10,714 Btu of heat at the generation plant. Thus the source/site ratio is 10,714 Btu of fuel consumed at the source, divided by 3,412 Btu of energy delivered at the site, for a ratio of 3.14. The 2011 Energy Star Methodology paper presents a table with source-site ratios for various fuels, and this table was updated in the 2013 Technical Reference Guide, as shown in Figure 2. In Figure 2, natural gas refers to natural gas burned on-site for heat; if the gas is burned at a generation plant and the electricity is used, then that gas would be in the Electricity (Grid Purchase) category. Figure 2 Source-Site Ratios of Various Fuels (EPA 2013) Energy Type U.S. Ratio Canadian Ratio Electricity (Grid Purchase) 3.14 2.05 Electricity (on-site Solar or Wind Installation) 1 1 Natural Gas 1.05 1.02 Fuel Oil (1,2,4,5,6,Diesel, Kerosene) 1.01 1.01 Propane & Liquid Propane 1.01 1.03 Steam 1.2 1.2 Hot Water 1.2 1.2 Chilled Water 1 0.71 Wood 1 1 Coal/Coke 1 1 Other 1 1 Figure 2 reflects certain common-sense realities. For example, consider a situation where you want to cook food on the stove in your home, and the only two options are: (1) a gas stove burner in the home, or (2) an electric stove-top, where the electricity is 100% from natural gas generation. In both options, natural gas is used, although in Option 2, much more natural gas is used, because there is heat lost in the conversion of gas to electricity, and some electricity is lost from the plant to the house. In this limited hypothetical case, a natural gas burner uses less fuel overall than does the electric stove-top. This is reflected in the source-site ratios: 1.05 for natural gas vs. 3.14 for grid electricity. However, as we will see, in real-world situations, where electricity comes from different sources, the picture is not so clear. Before getting into the details of how the ratio is calculated, it helps to see how it is used. NRECA 7 Source Energy vs. Site Energy

4 How Source-Site Ratios Are Used The purpose of the source-site ratio is to provide an equitable method for assessing the efficiency of buildings in different areas. The EPA states that: [A] comparison using site energy does not provide an equivalent thermodynamic assessment for buildings with different fuel mixes. In contrast, source energy incorporates all production, transmission, and delivery losses, which accounts for all primary fuel consumption and enables a complete assessment of energy efficiency in a building. 15 To illustrate this concept, the EPA compared six buildings with six different heating systems. The heating scenarios are shown below. 16 The six Buildings A through F are assumed to have identical construction, thermal envelope, and operating conditions. Figure 3 Comparison of Alternate Heating Scenarios Building Building Building Building Building Building A B C D E F Heating Fuel Natural Gas Natural Gas District Steam Electric Electric Electric Gas-fired Boiler Gas-fired Boiler 70% combustion efficiency District Steam Geothermal Air Source Heat Pump Electric Resistance Heat Heating System 90% combustion efficiency 80% system efficiency 55% system efficiency 95% system efficiency COP=4.0 COP=2.5 Efficient System Inefficient System Efficient System Highly efficient All buildings are assumed to deliver the same amount of heat to the building (1,000 MBtu). Building D, the building with geothermal heat has the lowest source energy, at 785 MBtu. This building uses grid electricity to run the geothermal unit, but the unit takes heat from the ground to take the building, thus it uses less energy than it delivers. system Efficient System Inefficient System Heat to Space (MBtu) 1000 1000 1000 1000 1000 1000 Site Energy (MBtu) 1250 1818 1053 250 400 1000 Source Energy (MBtu) 1313 1909 1264 785 1256 3140 Note that the U.S. source-site ratios were applied: - Electricity: 1 unit site = 3.14 units source - Natural Gas: 1 unit site = 1.05 units source - Steam: 1 unit site = 1.20 units source 15 2013 Technical Reference Guide, p. 2. 16 2013 Technical Reference Guide, p. 2. NRECA 8 Source Energy vs. Site Energy

Building F, which runs on grid electricity that is used to traditional electric resistance heat, is the least efficient building it uses 3,140 MBtu of source energy, according to EPA. This high value for the source energy is mainly due to the high source-site ratio for grid electricity (3.14), which converts the 1,000 Mbtu of site energy to 3,140 MBtu of source energy. The two natural gas buildings (A and B) have source energy values that are substantially lower than that of the electric grid building (Building F). Building A, with an efficient gas-fired boiler, has a source energy of 1,313 MBtu, well below half of Building F s 3,140 MBtu. Even Building B, which has a less efficient gas boiler, uses 1,818 MBtu of source energy, still lower by 1,000+ MBtu than Building F. So using the EPA s numbers, the implication is that natural gas is generally more efficient than electric resistance heat from grid electricity. The EPA s numbers also indicate that geothermal heat powered by grid electricity, Building D, is the most efficient of them all. 17 However, as we will see in subsequent sections, the relative efficiencies of natural gas vs. electric resistance heat (from the grid) is not as certain as EPA s building comparison makes it seem. This is due to the way the source-site ratios are calculated. 5 How Is the EPA s Source-Site Ratio Calculated? In the 2013 Technical Reference Guide, the EPA notes that grid-purchased electricity is generated through a variety of sources, including: fossil fuels (coal, natural gas, fuel oil), nuclear plants, wind, solar, biomass, and hydropower. The EPA states that [t]he source-site ratio must reflect the losses incurred when these fuels are converted into electricity, and any losses that occur on the electric grid as the electricity is transported to specific buildings. 18 The way the EPA calculates these losses is to examine the Energy Information Administration s Annual Energy Review, which contains a chart titled U.S. Electricity Flow. This chart summarizes the sources of electricity and the ultimate disposition of all electricity and associated losses. The 2011 chart is on the following page. 19 All numbers in Figure 4 are in quadrillion Btu of energy. 17 It should also be noted that some geothermal systems serve as both heating and cooling systems, thus enabling further efficiency. 18 2013 Technical Reference Guide, p. 7. 19 2011 is used because that is the last year used for the EPA s current source-site ratio (the EPA takes the five-year average from 2007 to 2011). NRECA 9 Source Energy vs. Site Energy

Figure 4 2011 EIA Electricity Flow In Figure 4, we see that a total of 40.04 quadrillion Btu ( Quads ) of energy was used to generate electricity in 2011. On the left of the diagram, this is broken down by fuel. In the upper left, we see that burning coal released 18.04 Quads of energy. On the end-use side, 14.01 Quads of net generation of electricity were produced. In the two Energy Star source documents, the EPA uses values from the electricity flow diagram to calculate the source-site ratio, as follows: (Energy Consumed to Generate Electricity) / (Net Generation of Electricity T&D Losses) For 2011, the source-site ratio would therefore be (all units in quadrillion Btu): 40.04 (14.01 1.04) = 3.09 The EPA takes a five-year average to calculate its source-site ratios, their reasoning being that buildings typically have multiple years of data. The source-site ratio is updated every few years; the last update was in the 2013 Technical Reference Guide, using the years 2007-2011, as shown in Figure 5. NRECA 10 Source Energy vs. Site Energy

Figure 5 EPA Source-Site Ratio for Grid Electricity, 2007-2011 Year Primary Energy Consumed for Generation Net Generation The current EPA source-site ratio for grid electricity is 3.14, down from the previous value of 3.34, as calculated in the 2011 Energy Star Methodology paper, as shown in Figure 6. T&D Losses Source- Site Ratio 2007 42.09 14.19 1.34 3.28 2008 40.67 14.02 1.04 3.13 2009 38.89 13.49 1 3.11 2010 40.26 14.06 1.04 3.09 2011 40.04 14.01 1.04 3.09 Average (2007-2011) 3.14 Sample Calculation for 2007: (42.09 / (14.19 1.34) = 3.28 Source: Electricity Flow (Figure 8.0) in the Annual Energy Review. Values in Quadrillion Btus (Quads). http://www.eia.doe.gov/emeu/aer/contents.html Figure 6 EPA Source-Site Ratio for Grid Electricity, 2001-2005 Source-Site Ratio Calculations for Electricity Year Primary Energy Consumed T&D Source-Site Net Generation for Generation Losses Ratio 2001 38.56 12.69 1.2 3.356 2002 39.56 13.1 1.24 3.336 2003 39.62 13.13 1.24 3.332 2004 40.77 13.49 1.28 3.339 2005 41.6 13.78 1.31 3.336 Average (2001-2005) 3.34 Source: Electricity Flow (Figure 8.0) in the Annual Energy Review. Values in Quadrillion Btus (Quads). http://www.eia.doe.gov/emeu/aer/contents.html The EPA source-site ratio is based on the national fuel mix used to generate electricity, as taken from Figure 4. Figure 4 indicates in the notes at the bottom that the information is obtained from tables in the EIA Monthly Energy Review ( MER ). 20 The data in the MER tables is taken from various FERC and EIA forms. 20 The following discussion uses data from the EIA May 2014 Monthly Energy Review, available at http://www.eia.gov/totalenergy/data/monthly/archive/00351405.pdf Typically, the data for the previous year is preliminary. The 2012 EIA Annual Energy Review only had preliminary data for 2011, thus a later energy review was used to get finalized 2011 numbers. NRECA 11 Source Energy vs. Site Energy

For example, the 18.04 quadrillion Btu (Quads) that coal contributes to the Energy Consumed to Generate Electricity is derived from tables in the Monthly Energy Review that report the tonnage of coal burned for electricity in the U.S. in 2011. The 18.04 Quads represent the total amount of heat produced by burning the coal some of that energy is converted to electricity and ends up in the Gross Generation of Electricity part of Figure 4, and the rest of the energy is lost as waste and ends up in the Conversion Losses area of Figure 4. Similarly, the Energy Consumed to Generate Electricity for other fuels (natural gas, petroleum, other gases, nuclear, renewable fuel ) is calculated by summing up the energy consumed by the individual fuels. This terminology is used, even though renewables don t consume fuel in the traditional sense. For each fuel, the energy used to generate electricity is calculated by using each fuel s heat rate (this will be explained in the next section). In the case of coal, the EPA determined, using the heat rate for coal, that the coal consumed for electric generation in 2011 produced 18.04 Quads of heat energy. Again, it should be noted that the efficiency of electricity sources is being measured in terms of how much fuel is used and converted to electricity. As we will see later, this measurement is problematic when it comes to renewable fuels. 5.1 Heat Rates The EIA defines heat rate as follows: A measure of generating station thermal efficiency commonly stated as Btu per kilowatthour. Note: Heat rates can be expressed as either gross or net heat rates, depending whether the electricity output is gross or net generation. Heat rates are typically expressed as net heat rates. Thus a heat rate is simply a measure of how efficiently a plant converts the heat released from the raw fuel into actual electricity. Table A6 in the Monthly Energy Review gives the heat rates for the various sources of electricity. For example, coal had a 2011 heat rate of 10,444 Btu/kWh. This means that for every 10,444 Btu of heat from coal that is produced from burning, one kwh of electricity is generated. As electricity has 3,412 Btu of energy in one kwh, this means that in 2011 a coal plant was (on average) 32.7% efficient: it produces 3,412 Btu of electricity from 10,444 Btu of coal heat. The other 7,032 Btu of heat are lost (in Figure 4 these losses are accounted for in Conversion Losses ). Natural gas plants were, on average, more efficient than coal in 2011; they had a heat rate of 8,152 Btu/kWh, for an efficiency of 41.9%. For the most part, the heat rates used are calculated from EIA Form 923 ( Power Plant Operations Report ): for example, to get the heat rate for coal, the EPA simply compares national coal consumption to national net generation of electricity from coal. 21 21 See Approximate Heat Rates for Electricity in the EIA May 2014 Monthly Energy Review, p. 181. NRECA 12 Source Energy vs. Site Energy

There is no accepted way to calculate the heat rate for renewable energy (solar, wind, biomass, hydro, etc.). This is because renewables such as wind do not produce electricity by means of burning a fuel to create heat, and so the notion of a heat rate is hard to apply. The May 2014 Monthly Energy Review recognizes this problem, and says the following about heat rates for renewables (p. 181): There is no generally accepted practice for measuring the thermal conversion rates for power plants that generate electricity from hydro, geothermal, solar thermal, photovoltaic, and wind energy sources. Therefore, EIA calculates a rate factor that is equal to the annual average heat rate factor for fossil-fueled power plants in the United States (see Electricity Net Generation, Total Fossil Fuels ). By using that factor it is possible to evaluate fossil fuel requirements for replacing those sources during periods of interruption, such as droughts. Thus, in Table A6 in the 2014 MER, renewables have a designated heat rate of 9,716 Btu/kWh for 2011, which is a blended average of the fossil fuel plant heat rates. The EPA gives renewables the fossil fuel heat rate because it says that fossil fuels will replace renewables in times of drought or other interruptions. 22 But since renewables do not use fuel in the traditional sense, assigning heat rates to them is somewhat misleading. The problems with using the fossil fuel heat rate for renewables are seen even more clearly when we examine exactly how the heat rates are used to calculate the source-site ratio. We discuss this in more detail in Chapter 6. 5.2 How Heat Rates Are Used The source-site ratio is determined from the U.S. Electricity Flow diagram (Figure 4). The ultimate sources for the fossil fuel input in the Electricity Flow chart are EIA Form 923, wherein the power plants report the amount of fuel consumed. The Gross Generation of Electricity is derived from sales and use data. For example, for coal the EIA sums up all coal consumed for electricity, and converts that to Btu using the heat content of coal. Therefore in the Electricity Flow diagram, the Energy Consumed to Generate Electricity from coal (18.04 quadrillion Btu in 2011) is derived from the total amount of coal consumed. Note that heat content is different than heat rate. Heat content is all the heat that is given off when the fuel is burned; heat rate is the portion of that heat that is not lost, and is converted to electricity. 23 Thus, the overall calculation of the source-site ratio for fossil fuels is as follows: 22 By droughts they are possibly referring to hydro-power, although the presumed unreliability of renewables is not discussed in any detail. 23 Therefore: Heat content * plant efficiency = Gross generation of electricity. Recall that plant efficiency is derived from heat rate: (heat rate) / (heat content) = plant efficiency. NRECA 13 Source Energy vs. Site Energy

1. For each fuel, determine how much of that fuel is used to generate electricity (from utilities and EIA forms). 2. For each fuel, use the heat content of the fuel to determine how much heat energy is generated when the fuel is burned. For coal in 2011, this was 18.04 Quads (see Figure 4); for natural gas, 8.05 Quads. 3. Add up all the heat energy from the individual fuels to get Energy Consumed to Generate Electricity (40.04 Quads in 2011, see Figure 4). (For a moment we are skipping over how the EIA calculated the energy consumed for renewables.) 4. Determine Net Generation of Electricity (from utility sales data and EIA forms) and T&D losses. In 2011 it was 14.01 Quads. 5. Calculate the source site ratio; in 2011 it was: 40.04 (14.01 1.04) = 3.09 However, the Energy Consumed to Generate Electricity is calculated differently for renewables. The question is: where does the 5.14 Quads for renewable energy come from in Figure 4? 5.3 Heat Rates and Renewables In the case of renewables, the 5.14 quadrillion Btu value in Figure 4 is derived differently. It is not derived from the heat content of renewables on EIA Form 923 renewables don t have a heat content in the traditional sense. PSE s analysis is that the 5.07 Quad is obtained by the following method (table created by PSE): Figure 7 Calculation of Renewables Energy Consumed to Generate Electricity in Figure 4 Renewable Source Billion Billion Btu Quadrillion Btu kwh Generated Generated Generated Quadrillion Btu Consumed to Generate Electricity 2011 Heat Rate % Efficiency Conventional Hydro 325.1 1109241 1.11 3.17 9756 35.0% Wood Biomass 0.33 Waste Biomass 0.29 Geothermal 16.7 56980 0.06 0.16 9756 35.0% Solar/PV 1.8 6142 0.01 0.02 9756 35.0% Wind 119.7 408416 0.41 1.17 9756 35.0% Total Renewables 463 1580780 1.58 5.14 2011 Energy Review Table 8.2a, p. 224 2011 Energy Review Table 8.4a, p. 233 2011 Energy Review Table A6, p. 326 NRECA 14 Source Energy vs. Site Energy

In this table, the kwh generated for hydro, geothermal, solar and wind is taken from Table 8.2a in the 2011 Annual Energy Review (in red). That kwh is then converted to Btu, then the efficiency of renewables is factored in, using the EPA renewables heat rate of 9,756 Btu/kWh, as if those sources were plants that generate heat. (9,756 Btu/kWh translates to 35.0% efficiency.) The biomass energy consumed is taken from Table 8.4a in the 2011 Annual Energy Review (in green). The energy consumed to generate electricity sums to 5.14 quadrillion Btu, which matches the value in Figure 4 (at bottom left). Thus, the 3.17 Quads for hydro in Figure 7 is back calculated : it would take 3.17 Quads at 35.0% efficiency to generate 1.11 Quads of hydro power. But the 3.17 Quads consumed is a fiction it is not measured from heat content in any real since, like it was for coal. To summarize, the energy consumed for coal, natural gas, and nuclear are calculated from EIA forms and the amount of fuel consumed. For renewables (except for biomass), the energy consumed is a fiction of sorts, because wind and solar and hydro don t consume fuel in the traditional sense. For renewables, the energy consumed in Figure 4 is calculated using the energy generated by those sources, and then working backwards as if those sources had a heat rate of 9,756 Btu/kWh. In PSE s opinion, this assignment of a fossil fuel heat rate to renewables is contrary to the goals of the Energy Star program. This decision does not give the proper incentive to develop electricity powered by renewable sources. 6 The Goals of Energy Star, Revisited As stated earlier in the paper, the goals of the EPA Energy Star program are: to identify and promote energy efficient products and buildings in order to reduce energy consumption, improve energy security, and reduce pollution through voluntary labeling of or other forms of communication about products and buildings that meet the highest energy efficiency standards. The choice to assign a fossil fuel heat rate to renewables seems to be partially in conflict with these goals. So does the decision to use a national source-site ratio, rather than a regional one. In this section the renewable heat rate is discussed; the next section discusses the nation/regional source issue. As stated in the May 2014 Monthly Energy Review, there is no accepted way to set the heat rates of a renewable energy source. Wind and solar plants do not burn fuel in the traditional sense of the word, and so heat is not lost in the conversion of wind to electricity. Thus there are no conversion losses. The heat rate is more appropriate when all electricity is generated by burning fuels, and the concern is to minimize the use of those fuels. In PSE s view, renewables should not be assigned the fossil fuel heat rate. The reasoning behind this is that renewables do not burn fuel, and do not have carbon emissions, and so should not NRECA 15 Source Energy vs. Site Energy

count a the fossil fuel rate for the source-site ratio. After all, the purpose of the source-site ratio, as described earlier, is as follows (bolded emphasis added): 24 When primary energy is consumed on site, the conversion to source energy must account for losses that are incurred in the storage, transport and delivery of fuel to the building. When secondary energy is consumed on site, the conversion must account for losses incurred in the production, transmission, and delivery to the site. The factors used to restate primary and secondary energy in terms of the total equivalent source energy units are called the source-site ratios. Whether heat and electricity used at a building come from fuel burned on or offsite, there is always a potential for inefficiency in the conversion of primary fuels, and there is also a potential for loss when either primary or secondary fuels are transmitted/distributed to individual sites. These inefficiencies represent energy that was embodied in an original primary fuel, but that was not ultimately used at the building: potential heat, work, or electricity was sacrificed. If the losses were reduced, the building could operate with less overall fuel consumption, produce lower CO2 emissions, and cost less to operate. The EPA comparison of buildings using source energy accounts for these losses, providing a complete energy assessment of the building. In addition, source energy comparisons generally reflect energy costs and carbon emissions more accurately than site energy. This description emphasizes the need to conserve the primary fuels, and to have overall less fuel consumption. However, if no fuel is being consumed, it is unclear why fossil-fuel heat rates for renewables should be used in the source-site calculation. One option would be to set the heat rate of a renewable resource at a very low level 3,412 Btu per kwh, perhaps, or 3,668 (which has 7% transmission losses factored in). This would cause renewables to have a heat rate that reflects no conversion losses, which would mean that an electrical generation system with 100% renewables would have a source-site ratio of 1.00, or perhaps slightly over 1.00 with T&D losses. A case could also be made that renewables use no fuel in the traditional sense, and therefore should have a heat rate of zero. The effect of this would be to remove the renewables from the Energy Consumed to Generate Electricity portion of the EIA Electricity Flow diagram, when calculating the source-site ratio. 6.1 Low Carbon Source-Site Ratio If lower heat rates are used for low carbon electricity sources such as renewables and nuclear, the source-site ratios would need to be adjusted accordingly. Presumably, as renewables gain a 24 2011 Energy Star Methodology, p. 2. NRECA 16 Source Energy vs. Site Energy

larger and larger share of the electricity produced in the United States, it would make less and less sense to assign the fossil fuel heat rate to renewables. 6.1.1 Future Scenarios with High Renewable Penetrations As the penetration of renewables gets higher, the EPA s source-site ratio becomes less and less useful. For example, recall the EIA s justification: By using that factor [the fossil fuel heat rate for renewables] it is possible to evaluate fossil fuel requirements for replacing those sources during periods of interruption, such as droughts. 25 If the U.S. generated 95% of its energy from renewables, and 5% from fossil fuels, the inapplicability of the EIA s justification would be obvious: in this hypothetical, grid electricity would be mostly fossil-fuel free, and using a fossil fuel heat rate for renewables would be inappropriate. In this hypothetical case, using the EPA s source-site ratio would cause consumers to use natural gas appliances, when electric appliances would be environmentally preferable. Of course, the 95% renewables assumption is a long way off. In 2013, only around 12.5% of kwh were produced by renewables, not 95%, but it still is misleading to assign the fossil fuel heat rate to renewables. Doing so treats electricity from renewables that same as electricity from fossil fuels (with respect to the source-site ratio). This does not appear to promote the EPA s goals to reduce energy consumption, improve energy security, and reduce pollution. If the U.S. changed from 12.5% of electricity from renewables to 25%, the source-site ratio would barely budge, depending on exactly what fossil fuels were replaced by renewables. 6.1.2 Recalculating the 2011 Source-Site Ratio What would the 2011 source-site ratio for grid electricity look like if we used a more appropriate heat rate for renewables? If instead, for 2011 we used a zero heat rate for renewables, the ratio would change substantially. Renewables would be removed from the energy consumed to generate electricity category. The calculation of the source-site ratio would change from (all units on left-hand side in Quads): To: 40.04 (14.01 1.04) = 3.09 40.04 5.14 (14.01 1.04) = 2.69 There is also the question of whether nuclear power should be included in the Energy Consumed to Generate Electricity category. Like fossil fuel power, nuclear power does consume fuel, and it does have a heat rate (10,452 Btu/kWh in 2011). However, the emissions of 25 May 2014 Monthly Energy Review, p. 181. NRECA 17 Source Energy vs. Site Energy

nuclear fuel are (for our purposes) essentially zero, and if a goal of the Energy Star system is to lower emissions, an argument can be made that nuclear should be left out of the Energy Consumed to Generate Electricity category as well. If nuclear is left out as well, the source-site equation becomes: 40.04 5.14 8.26 (14.01 1.04) = 2.05 Thus we see that assigning different heat rates to renewables and nuclear can drastically change the source-site ratio. 6.1.3 Changing Electric Grid Fuel Mixes Using the EPA Source-Site Ratio In the previous section, we saw how changing the heat rates for renewables might affect the source-site ratio. But what if we stick with the EPA heat rate for renewables, and we change the fuel mix used to generate electricity? It must be kept in mind that the source-site ratio is derived from the Electricity Flow diagram, and so it is hard to compare alternate fuel mixes. In 2011, the U.S. electric power sector generated 1,715 billion kwh from coal, and 489 billion kwh from renewables. If these two numbers reversed, how would this affect Figure 4? This will be explained in Section 7. 7 Why Are National Source Site Ratios Used? Before we address how the ratio might change if we alter the fuel mix, first we should consider why the EPA uses a single ratio for the entire country. The EPA uses one source-site ratio (the most current ratio is 3.14) to cover all electricity purchased from the grid, despite the fact that electricity comes from a variety of plant types (coal, gas, nuclear, renewable) in a variety of combinations across the U.S. The EPA s reasoning is worth examining in detail: The efficiency of secondary energy (e.g., electricity) production depends on the types of primary fuels that are consumed and the specific equipment that is used. These characteristics are unique to specific power plants and differ by region. For example, some regions have a higher percentage of hydroelectric power, while others consume greater quantities of coal. The goal of the ENERGY STAR program is to provide comparisons of building energy efficiency relative to a national peer group, and therefore it is most equitable to employ national-level source-site ratios.. There are a few reasons why national source-site ratios provide the most equitable approach: 1. Fixed Geography. The geographic location is fixed for most buildings; there is no opportunity to relocate the building to a region with more efficient electrical production. NRECA 18 Source Energy vs. Site Energy

2. Interconnected Grid. For most buildings, it is not possible to trace each kwh of electricity back to a specific power plant. Across a given utility region, the grid is connected and the electric consumption of a specific building cannot be associated with any individual plant. 3. Building Focus. The key unit of analysis for Portfolio Manager is the building. It is the efficiency of the building, not the utility, which is evaluated. Two buildings with identical operation and energy efficiency will receive the same ENERGY STAR score regardless of their geographic location or utility company. According to the EPA, the use of national source-site ratios ensures that no specific building will be credited (or penalized) for the relative efficiency of its utility provider. However, using a national number means that the source-site ratio is not connected to the actual fuel mix, which varies from region to region. But how would things look if we did vary the ratios by region? Assume instead of one national source-site ratio, we had ratios that varied from state to state. As stated in the 2013 Technical Reference Guide, the EPA estimates that the mix of electric production in the U.S. is around 66% fossil fuels, 21% nuclear, and 13% renewable. However, in some regions, the mix is much different. Before getting to how the source-site ratio might vary by region, it is important to remember how the EPA calculates the ratio. The first thing to note is that the source-site ratio is not calculated directly from the mix of source fuels by percentage of kwh produced. The EPA calculates the source-site ratio in a roundabout way. For each fossil fuel, the EPA calculates the amount of fuel used for electricity generation using the heat content of that fuel, and then uses heat content to figure out how much energy is consumed to create electricity for that fuel. In the case of renewables, this energy consumed is a fiction. The EIA then sums up the total energy consumed for the use of electricity for the various fuels to get the Energy Consumed to Generate Electricity value on Figure 4. Then the EPA looks at the total electricity generated (less transmission losses), and divides that amount into the amount generated. Whatever is not net generation of electricity, or T&D losses, is assumed to be conversion losses. Energy consumed for electricity (net generation T&D losses) So to calculate the source-site ratio for a region, we would need: = Source site ratio The total fuel of each type consumed in the region, and the heat content for that fuel The total net generation for the region The total T&D losses for the region The EIA does not present this information by region. For example, there is no available energy consumed or net generation data by NERC region. In many cases, even though the electric production differs by region, the difference is not enough to affect the ratio very much, as shown in the next section. NRECA 19 Source Energy vs. Site Energy

Even without regional energy consumed or net generation data, regional source-site ratios can be estimated. However, to do so, we must make certain assumptions about the net generation of electricity, and the energy consumed to generate electricity value. As we will see, as long as EIA values for heat rates are used, the source-site ratio will not change much from region to region. The reason for this is that the EIA uses the fossil-fuel average heat rate for all renewables; thus it makes little difference whether renewables are prominent in the mix. 7.1 The Effect of Changing the Fuel Mix In this section, we show the effect of changing the fuel mix on the source-site ratio. We use 2011 data in this section, as 2013 data is still being revised. Figure 8 shows the source-site ratio for 2011, as calculated by the EPA. The consumption numbers on the left are from Table 8.4a in the 2011 Annual Energy review. The electricity net generation is taken from Table 8.2a. The 5.14 Quads of energy consumed for renewables is calculated as shown in Figure 7 in a previous section. It should be noted that the source-site ratio is calculated from data that comes from two different types of sources: (1) the amount of fuel used to create electricity ( consumption for electricity generation by energy source ), and (2) the amount of electricity actually generated ( electricity net generation ). Consumption for Electricity Generation by Energy Source (quadrillion Btu): Table 8.4a Figure 8 Source-Site Ratio for 2011 Electricity Net Generation (Quads)* Source Coal 18.044 14.01 Petroleum 0.291 T&D Losses Natural Gas 8.051 1.04 Other Gases 0.091 Nuclear 8.259 Source-Site Ratio: Other 0.162 3.09 Renewables 5.14 40.04 * Source: Table 8.2a, converted to Quads 7.1.1 Alternate Scenario #1: kwh Generated for Coal Switched to Natural Gas In Figure 9, we show how to back calculate fuel consumption data from generation data. In that figure, the billion kwh generated is taken from Table 8.2a of the 2011 AER. The kwh is converted into Quads, and then the Quadrillion Btu Consumed is calculated using the 2011 heat rate of coal plants. One thing to note about this calculation is that the data from the fuel side does not always exactly match the data from the generation side. This is because in Figure 4 the two sides are calculated independently; whereas the conversion between the two in Figure 9 uses the heat rate. NRECA 20 Source Energy vs. Site Energy

For all each type of fuel, a different heat rate is used (Table A6 in the 2011 Annual Energy Review). The heat rate actually varies from plant to plant, and by sub-type of fuel (especially for coal). Therefore, if we start with 1,734.3 billion kwh of electricity generated from coal, and work backward to the Btu of coal consumed to get that generation, we get 18.06 Quadrillion Btu of coal consumed. This is close to, but not exactly the same as, the 18.04 Quadrillion Btu of coal consumed (as calculated from the consumption side). The back calculation for natural gas is also shown. Figure 9 Back-Calculation of Consumption for Electricity Generation (Coal and Natural Gas) Coal Natural Gas Billion kwh Generated 1734.3 Billion kwh Generated 1,016.60 Quadrillion kwh Generated 0.0017343 Quadrillion kwh Generated 0.0010166 Quadrillion Btu Generated 5.9174316 Quadrillion Btu Generated 3.4686392 Heat Rate of Coal 10415 Heat Rate of Natural Gas 8185 Efficiency of Coal 0.33 Efficiency of Natural Gas 0.42 Quadrillion Btu Consumed 18.06 Quadrillion Btu Consumed 8.32 When calculating alternate fuel scenarios, we need the back-calculations, because we will not have any actual consumption data to use for the consumption for electricity generation this is the data that is on the left-hand side of the electricity flow diagram (Figure 4). In Figure 10 and Figure 11 we show how the ratio would change if all coal generation (in kwh) was switched to natural gas, while keeping the net generation at 14.01 Quads. 26 The consumption for electricity generation would not remain constant, since the two types of plants have different heat rates. Therefore, based on the new generation inputs, in Figure 10 we reversecalculate the quadrillion Btus consumed. (This is the same method used to come up with the 18.06 Quad for coal in Figure 8.) Figure 10 Alternate Scenario #1: All Coal kwh Repalced by Natural Gas Coal Natural Gas Billion kwh Generated 0 Billion kwh Generated 2,750.90 Quadrillion kwh Generated 0 Quadrillion kwh Generated 0.0027509 Quadrillion Btu Generated 0 Quadrillion Btu Generated 9.3860708 Heat Rate of Coal 10415 Heat Rate of Natural Gas 8185 Efficiency of Coal 0.33 Efficiency of Natural Gas 0.42 Quadrillion Btu Consumed 0.00 Quadrillion Btu Consumed 22.52 Figure 11 shows that the source-site ratio would then be 2.81 (the numbers in red have changed, based on the calculations in Figure 10). This reflects the fact that natural gas has a better heat ratio than coal. However, since the heat rates for coal, natural gas, and nuclear are relatively 26 This scenario is unlikely, as coal is a baseline fuel, and natural gas is an intermediate/peaker fuel. NRECA 21 Source Energy vs. Site Energy

close to each other (10,415, 8,185 and 10,452 Btu/kWh, respectively in 2011) 27, changing the mix of those three will not typically change the source-site ratio by more than 5% or so. Figure 11 Alternate Scenario #2: All Coal Replaced with Renewables (estimated) Consumption for Electricity Generation by Energy Source (quadrillion Btu): Table 8.4a Electricity Net Generation (Quads)* Source Coal 0 14.01 Petroleum 0.291 T&D Losses Natural Gas 22.52 1.04 Other Gases 0.091 Nuclear 8.259 Source-Site Ratio: Other 0.162 2.81 Renewables 5.14 36.46 * Source: Table 8.2a, converted to Quads 7.1.2 Alternate Scenario #2: kwh Generated for Coal and Renewables Switched Figure 12 shows the source-site ratio if the coal 2011 net generation in kwh is switched to renewables, such that renewables now generate 2,254.4 billion kwh, and coal generates no kwh. The source-site ratio is now 2.99. This shows the absurdity of using the fossil-fuel heat rate for renewables: a shift from coal to renewables would obviously be an efficient switch by the EPA s stated goals, but the switch would barely be reflected in the source-site ratio at all. In fact, replacing coal with natural gas produces a better ratio (2.81) than if coal is replaced with renewables (2.99). This is because natural gas has a better heat rate than renewables in Table A6 of the 2011 Annual Energy Review. Figure 12 Source-Site Ratio for 2011 with Renewables and Coal Switched (Estimated) Coal Renewables Billion kwh Generated 0 Billion kwh Generated 2,254.40 Quadrillion kwh Generated 0 Quadrillion kwh Generated 0.0022544 Quadrillion Btu Generated 0 Quadrillion Btu Generated 7.6920128 Heat Rate of Coal 10415 Heat Rate of Renewables 9756 Efficiency of Coal 0.33 Efficiency of Renewables 0.35 Quadrillion Btu Consumed 0.00 Quadrillion Btu Consumed 21.99 27 Note: these figures are based on the 2011 Annual Energy Review; in later reports they are revised slightly. NRECA 22 Source Energy vs. Site Energy

Consumption for Electricity Generation by Energy Source (quadrillion Btu): Table 8.4a Electricity Net Generation (Quads)* Source Coal 0 14.01 Petroleum 0.291 T&D Losses Natural Gas 8.051 1.04 Other Gases 0.091 Nuclear 8.259 Source-Site Ratio: Other 0.162 2.99 Renewables 21.99 38.84 * Source: Table 8.2a, converted to Quads 7.2 Calculating the Source-Site Ratio by Region Washington State If we did calculate the source-site ratio by region, what would happen in a region with high renewable penetration? Consider Washington State, which in 2012 had the following generation breakdown by source (in MWh): 28 Figure 13 Washington State 2012 MWh by Source Source MWh Total 116,835,474 Coal 3,762,957 Hydroelectric Conventional 89,464,355 Natural Gas 5,437,593 Nuclear 9,333,709 Other 146,910 Other Biomass 238,989 Other Gases 405,337 Petroleum 26,713 Pumped Storage 43,551 Solar Thermal and Photovoltaic 794 Wind 6,599,766 Wood and Wood Derived Fuels 1,374,801 In Figure 14, we have calculated what the Btu consumed by source would be for Washington State using the 2011 Annual Energy Review heat rates. These numbers are plugged into a spreadsheet to calculate what the source-site ratio would be in Figure 15. 28 Net Generation by State by Type of Producer by Energy Source, at http://www.eia.gov/electricity/data/state/ NRECA 23 Source Energy vs. Site Energy

Figure 14 Source Washington State Btu Consumed for Electricity (EPA Heat Rates) MWh Trillion Btu Heat Rate Efficiency Trillion Btu Consumed for Generation Coal 3,762,957 12.83921 10415 0.33 39.19 Natural Gas 5,437,593 18.55307 8185 0.42 44.51 Nuclear 9,333,709 31.84662 10452 0.33 97.56 Other 146,910 0.501257 9756 0.35 1.43 Other Gases 405,337 1.38301 9756 0.35 3.95 Petroleum 26,713 0.091145 10984 0.31 0.29 Renewables 97,722,256 333.4283 9756 0.35 953.38 Total 116,835,475 398.6426 1140.31 In Figure 14 we took the gross generation of electricity, and using the 2011 Annual Energy Review heat rates, back-calculated the Btu consumed value for each fuel. In Figure 15 the source-site ratio was then calculated the same way as in previous instances. The ratio comes in at 3.08, despite the fact that Washington gets the bulk of its electricity from hydro. Figure 15 Washington State Source-Site Ratio (EPA Heat Rates) Trillion Btu Consumed for Generation Electricity Net Generation (trillion Btu) Source Coal 39.2 398.6 Natural Gas 44.5 T&D Losses* Nuclear 97.6 27.9 Other 1.4 Other Gases 4.0 Source-Site Ratio: Petroleum 0.3 3.08 Renewables 953.4 Total 1140.31 *Assume at 7% Figure 16 shows what the ratio would be if instead we used a heat rate of 3,412 Btu/kWh for renewables (e.g., unity): the ratio is now 1.40. This is obviously more in line with what we would expect for a state with such high renewable penetration. NRECA 24 Source Energy vs. Site Energy

Figure 16 2012 Washington State Source-Site Ratio (Revised Heat Rate for Renewables) Consumption for Electricity Generation by Energy Source (quadrillion Btu): Table 8.4a Electricity Net Generation (Quads) Source Coal 39.2 398.6 Natural Gas 44.5 T&D Losses* Nuclear 97.6 27.9 Other 1.4 Other Gases 4.0 Source-Site Ratio: Petroleum 0.3 1.40 Renewables 333.4 Total 520.36 *Assume at 7% Therefore we see that in Washington State, it makes a great deal of difference which method of calculating the source-site ratio is used. In the next figure, we revisit the building example used by the EPA (shown earlier in the paper in Figure 3). The numbers in red show what would happen if we assumed these buildings are in Washington State and used a source-site ratio of 1.40 for grid electricity. As we see, Buildings D and E and now by far the most efficient, and even Building F is close to the most efficient gas building (Building A). Figure 17 Comparison of Alternate Heating Scenarios Using Revised Ratio Building Building Building Building Building Building A B C D E F Heating Fuel Natural Gas Natural Gas District Steam Electric Electric Electric Heating System Gas-fired Boiler 90% combustion efficiency 80% system efficiency Gas-fired Boiler 70% combustion efficiency District Steam Geothermal Air Source Heat Pump Electric Resistance Heat 55% system efficiency 95% system efficiency COP=4.0 COP=2.5 Efficient System Inefficient System Efficient System Highly efficient system Efficient System Inefficient System Heat to Space (MBtu) 1000 1000 1000 1000 1000 1000 Site Energy (MBtu) 1250 1818 1053 250 400 1000 Source Energy (MBtu) 1313 1909 1264 350 560 1400 Note that the U.S. source-site ratios were applied: Electricity: 1 unit site = 1.40 units source Natural Gas: 1 unit site = 1.05 units source Steam: 1 unit site = 1.20 units source NRECA 25 Source Energy vs. Site Energy

8 Conclusion The difference between the source-site ratios in Figure 15 and Figure 16 shows the inadequacy of the EPA s method of calculation, and of other methods and programs that use a similarly calculated source-site ratio. Under the EPA s method, and similar methods used in other regulations, codes, and standards, a state that mostly uses hydro power still has a source-site ratio of 3.08. The current national average, which is based on a mix that is mostly fossil fuels and nuclear, has a 3.14 ratio. EPA is caught between a rock and a hard place they do not wish to have a separate source-site ratio for each state or utility, and this is a reasonable wish, as it could make programs confusing. It is certainly true that we might not want to deem a building efficient in one state, and inefficient in another, when the two buildings are identical. On the other hand, the current method of calculating the ratio does not appear to incentivize a switch to renewables when renewables are used in place of fossil fuels, the ratio does not decrease much, if at all, due to the fact that the fossil fuel heat rate is used for renewables. The end result is that natural gas systems/appliances are overrated when compared to their electrical counterparts. It is outside the scope of this paper to formulate an entire substitute system for the EPA to use to evaluate its Energy Star program. However, it is clear that at some point the method will probably need to be modified or replaced. Right now only around 13% of United States kwhs come from renewables. If a higher percentage of the kwh came from renewables, everyone would recognize the current source-site ratio method to be inadequate. As the trend of more renewables continues, this metric becomes more and more problematic. This is especially true because the government has established this metric as a tool to help consumers make choices about energy use, and instead the tool is providing increasingly sub-optimal results. In light of the intended goals of the source energy conversion metrics, it may make the most sense to migrate to regional source-site ratios in cases where policy makers wish to use source energy over the simpler and easier to understand site and cost metrics. The fact is, in Washington State, where a large majority of the kwh comes from hydro-electric power, it makes no sense to give grid electricity such a high source-site ratio. Doing so would overrate the use of natural gas in that region and in similar regions. NRECA 26 Source Energy vs. Site Energy