PROSPECTIVE EVALUATION OF APPLIED ENERGY RESEARCH AND DEVELOPMENT AT DOE (PHASE ONE)

A FIRST LOOK FORWARD

Committee on Prospective Benefits of DOE’s Energy Efficiency and Fossil Energy R&D Programs

Board on Energy and Environmental Systems

Division on Engineering and Physical Sciences

NATIONAL RESEARCH COUNCIL OF THE NATIONAL ACADEMIES

THE NATIONAL ACADEMIES PRESS
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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase One): A First Look Forward PROSPECTIVE EVALUATION OF APPLIED ENERGY RESEARCH AND DEVELOPMENT AT DOE (PHASE ONE) A FIRST LOOK FORWARD Committee on Prospective Benefits of DOE’s Energy Efficiency and Fossil Energy R&D Programs Board on Energy and Environmental Systems Division on Engineering and Physical Sciences NATIONAL RESEARCH COUNCIL OF THE NATIONAL ACADEMIES THE NATIONAL ACADEMIES PRESS Washington, D.C. www.nap.edu

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase One): A First Look Forward THE NATIONAL ACADEMIES PRESS 500 Fifth Street, N.W. Washington, DC 20001 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This report and the study on which it is based were supported by Contract No. DE-AM01-99PO80016, Task Order No. 27, DE-AT36-03GO13073, between the U.S. Department of Energy and the National Academy of Sciences. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the authors and do not necessarily reflect the views of the organizations or agencies that provided support for the project. International Standard Book Number 0-309-09604-9 Library of Congress Control Number 2005928994 Available in limited supply from: Board on Energy and Environmental Systems National Research Council 500 Fifth Street, N.W. KECK-W934 Washington, DC 20001 Additional copies available for sale from: The National Academies Press Lockbox 285 Washington, DC 20055 800-624-6242 or 202-334-3313 (in the Washington metropolitan area) 202-334-3344 http://www.nap.edu Copyright 2005 by the National Academy of Sciences. All rights reserved. Printed in the United States of America

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase One): A First Look Forward THE NATIONAL ACADEMIES Advisers to the Nation on Science, Engineering, and Medicine The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Bruce M. Alberts is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Wm. A. Wulf is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Bruce M. Alberts and Dr. Wm. A. Wulf are chair and vice chair, respectively, of the National Research Council. www.national-academies.org

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase One): A First Look Forward COMMITTEE ON PROSPECTIVE BENEFITS OF DOE’S ENERGY EFFICIENCY AND FOSSIL ENERGY R&D PROGRAMS ROBERT W. FRI, Chair, Resources for the Future, Washington, D.C. LINDA R. COHEN, University of California, Irvine JAMES CORMAN, Energy Alternatives Studies, Inc., Schenectady, New York PAUL A. DeCOTIS, New York State Energy Research and Development Authority, Albany, New York WESLEY L. HARRIS, NAE,1 Massachusetts Institute of Technology, Cambridge MARTHA A. KREBS, Science Strategies, Los Angeles, California GEORGE W. NORTON, Virginia Tech, Blacksburg ROSALIE RUEGG, Technology Impact Assessment (TIA) Consulting, Inc., Emerald Isle, North Carolina MAXINE L. SAVITZ, NAE, Honeywell, Inc. (retired), Los Angeles, California JACK S. SIEGEL, Energy Resources International, Inc., Washington, D.C. JAMES E. SMITH, Duke University, Durham, North Carolina TERRY SURLES, Electricity Innovation Institute, Palo Alto, California JAMES L. SWEENEY, Stanford University, California JOHN J. WISE, NAE, Mobil Research & Development Company (retired), Princeton, New Jersey Project Staff Board on Energy and Environmental Systems (BEES) MARTIN OFFUTT, Study Director ALAN CRANE, Senior Program Officer JAMES J. ZUCCHETTO, Director, BEES PANOLA GOLSON, Program Associate Board on Earth Sciences and Resources (BESR) TAMARA DICKINSON, Senior Program Officer 1   NAE = member, National Academy of Engineering.

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase One): A First Look Forward BOARD ON ENERGY AND ENVIRONMENTAL SYSTEMS DOUGLAS M. CHAPIN, NAE,1 Chair, MPR Associates, Alexandria, Virginia ROBERT W. FRI, Vice Chair, Resources for the Future, Washington, D.C. ALLEN J. BARD, NAS,2 University of Texas, Austin DAVID L. BODDE, Clemson University, South Carolina PHILIP R. CLARK, NAE, GPU Nuclear Corporation (retired), Boonton, New Jersey E. LINN DRAPER, JR., NAE, American Electric Power, Inc., Austin, Texas CHARLES GOODMAN, Southern Company Services, Birmingham, Alabama DAVID G. HAWKINS, Natural Resources Defense Council, Washington, D.C. MARTHA A. KREBS, Science Strategies, Los Angeles, California GERALD L. KULCINSKI, NAE, University of Wisconsin, Madison DAVID K. OWENS, Edison Electric Institute, Washington, D.C. WILLIAM F. POWERS, NAE, Ford Motor Company (retired), Ann Arbor, Michigan TONY PROPHET, Global Supply Carrier, Farmington, Connecticut MICHAEL P. RAMAGE, NAE, ExxonMobil Research and Engineering Company (retired), Moorestown, New Jersey EDWARD S. RUBIN, Carnegie Mellon University, Pittsburgh, Pennsylvania MAXINE L. SAVITZ, NAE, Honeywell, Inc. (retired), Los Angeles, California PHILIP R. SHARP, Harvard University, Cambridge, Massachusetts SCOTT W. TINKER, University of Texas, Austin Staff JAMES J. ZUCCHETTO, Director ALAN CRANE, Senior Program Officer MARTIN OFFUTT, Senior Program Officer DANA CAINES, Financial Associate PANOLA GOLSON, Program Associate 1   NAE = member, National Academy of Engineering. 2   NAS = member, National Academy of Sciences.

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase One): A First Look Forward Acknowledgments The Committee on Prospective Benefits of DOE’s Energy Efficiency and Fossil Energy R&D Programs wishes to acknowledge and thank the many individuals who contributed significantly of their time and effort to this National Research Council (NRC) study. In particular, the Department of Energy’s Office of Energy Efficiency and Renewable Energy and Office of Fossil Energy supplied extensive data and analyses for this project. Their valuable information on and insight into advanced technologies and development initiatives assisted the committee in formulating the recommendations included in this report. The committee particularly commends the members of the expert panels, who carried out their difficult assignments with professionalism and discretion. One of the signal accomplishments of this project has been to show that such panels can be formed and complete their work quickly and with the highest standards of quality. The chair is particularly grateful to the members of the committee and to the staff of the National Research Council. This report is in every sense a product of the work of the committee members, who synthesized a number of complex issues into a coherent whole with extraordinary skill. The NRC staff included Martin Offutt, Alan Crane, and James Zucchetto of the Board on Energy and Environmental Systems, and Tamara Dickinson of the Board on Earth Sciences and Resources. The complicated committee and panel structure of this project made special demands on them, which they consistently met. Finally, Panola Golson supported the entire effort in exemplary fashion. This report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the NRC’s Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the institution in making its published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the deliberative process. We wish to thank the following individuals for their review of this report: William Agnew, NAE, General Motors (retired), William Fulkerson, ORNL (retired) and University of Tennessee, Clark W. Gellings, Electric Power Research Institute, Frank Incropera, NAE, University of Notre Dame, Trevor Jones, NAE, Biomec, Inc., James Katzer, NAE, ExxonMobil Research and Engineering (retired), Charles Lave, University of California, Irvine, Lester Lave, IOM, Carnegie Mellon University, James Dexter Peach, General Accounting Office (retired), Tony Prophet, Carrier Corporation, Burton Richter, NAS, Stanford University, and Robert Socolow, Princeton University. Although the reviewers listed above have provided many constructive comments and suggestions, they were not asked to endorse the conclusions or recommendations nor did they see the final draft of the report before its release. The review of this report was overseen by Lawrence Papay, NAE, Science Applications International Corporation (retired), and John Ahearne, NAE, Sigma Xi. Appointed by the National Research Council, they were responsible for making certain that an independent examination of this report was carried out in accordance with institutional procedures and that all review comments were carefully considered. Responsibility for the final content of this report rests entirely with the authoring committee and the institution.

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase One): A First Look Forward Contents     EXECUTIVE SUMMARY   1 1   INTRODUCTION   6      Background and Context,   6      Prospective Benefits Study,   6 2   FROM RETROSPECTIVE TO PROSPECTIVE EVALUATION   9      Introduction,   9      Essential Features of Retrospective Methodology,   9      Uncertainties of Prospective Analysis,   10      Key Findings from Example Studies,   11 3   METHODOLOGY FOR PROSPECTIVE EVALUATION OF DEPARTMENT OF ENERGY PROGRAMS   13      Introduction,   13      The Results Matrix,   13      Scenarios,   14      Guidelines for Calculating Benefits,   16      The Decision Tree Framework,   18      Simplified Model for Estimating Benefits,   25 4   EXPERT PANEL PROCESS   32      Introduction,   32      Expert Panel Composition,   32      Role of Chair and Consultant,   33      Panel Activities and Process,   33      DOE Program Information Request,   35      Duration and Frequency of the Expert Panel Reviews,   35      General Issues,   35      Quality Assurance,   36 5   RESULTS OF APPLYING THE METHODOLOGY   38      The Lighting Panel,   39      The Carbon Sequestration Panel,   42      The Fuel Cell Panel,   44

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase One): A First Look Forward 6   CONCLUSIONS AND RECOMMENDATIONS   48      Value of Proposed Methodology for Decision Making,   48      Balance Between Analytic Rigor and Practical Utility,   49      Need for Adequate Resources and Management Priority,   50      Priorities Identified for Phase Two of This Project,   50     REFERENCES   52     APPENDIXES         A  COMMITTEE BIOGRAPHICAL INFORMATION   55     B  STATEMENT OF TASK   59     C  PRESENTATIONS AND COMMITTEE MEETINGS   60     D  LETTER REPORT   62     E  PROSPECTIVE EVALUATION OF DOE PROGRAMS: A PRELIMINARY METHODOLOGY   70     F  REPORT OF THE PANEL ON BENEFITS OF LIGHTING R&D   75     G  REPORT OF THE PANEL ON BENEFITS OF SEQUESTRATION R&D   89     H  REPORT OF THE PANEL ON BENEFITS OF FUEL CELL R&D   102     I  THE LIGHTING CASE STUDY RECAST AS A DECISION TREE   120     J  EXPECTED BENEFITS RESULTS AND REPORT GUIDANCE   121     K  INFORMATION REQUEST TO THE DEPARTMENT OF ENERGY   124

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase One): A First Look Forward Tables and Figures TABLES 3-1   Effect of Applying a 3 Percent Discount Rate to a Lump Sum Cash Payment,   17 3-2   Expected Benefits Calculation Given Three Possible Outcomes,   17 3-3   Expected Benefits Calculation Given Four Possible Outcomes,   18 3-4   Expected Benefits Calculation Given Four Possible Outcomes, One of Them “Extraordinary,”   18 3-5   Effect of Next-Best Technology on Expected Benefits,   19 F-1   Benefits Corresponding to $50 Million per Year Budget (Full Funding),   78 F-2   Benefits Corresponding to $25 Million per Year Budget (Reduced Funding),   79 F-3   Probabilities of Technical Success at Selected R&D Funding Levels,   80 G-1   Top-Level Carbon Sequestration Roadmap,   91 G-2   Actual, Requested, and Expected Funding, by Year, for Carbon Sequestration R&D,   92 G-3   Cost of Electricity With and Without Capture and Compression,   95 G-4   Range of Electricity Cost Increases Used by the Panel,   95 H-1   Fuel Cell Program Probability of Achieving Ultimate Goals,   104 H-2   Characteristics of Fuel Cell Distributed Generation Versus Next-Best Technology,   112 H-3   Benefits Calculations for Solid State Energy Conversion Alliance (SECA) Program for Three Global Scenarios,   112 H-4   Benefits Calculated by DOE for All Combinations of Global Scenarios and R&D Success,   113 H-5   Method 1 for Calculating Benefits,   114 H-6   Inputs and Assumptions Used in Method 1,   114 H-7   Method 2 for Calculating Benefits,   115 H-8   Capital Costs and Heat Rates Used in Method 2,   115 FIGURES ES-1   Decision tree,   3 ES-2   Results matrix for evaluating benefits and costs prospectively,   3

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase One): A First Look Forward 2-1   Matrix for assessing benefits and costs retrospectively,   9 2-2   Results matrix for evaluating benefits and costs prospectively,   10 3-1   Results matrix for evaluating benefits and costs prospectively,   14 3-2   Decision tree,   20 3-3   Example of decision tree applied to advanced lighting programs,   21 3-4   Benefits of energy efficiency advances,   26 3-5   Benefits of energy efficiency advances,   27 3-6   Benefits of resource supply enhancement,   29 5-1   Probability of technical success,   40 5-2   SSL Program prospective benefits, reduced budget,   41 1   Matrix for assessing benefits and costs retrospectively,   65 2   Matrix for assessing benefits and costs prospectively,   66 E-1   Matrix for assessing benefits and costs prospectively,   71 F-1   Trends in solid state lighting efficacy,   77 F-2   Solid state lighting economic benefits at a budget of $25 million per year,   79 F-3   Probability of technical success,   80 F-4   SSL Program prospective benefits, full funding,   81 F-5   SSL Program prospective benefits, reduced budget,   82 G-1   Schematic illustration of benefits calculation,   92 G-2   Cost and amount of zero-emissions electricity based on simplified calculations roughly matching DOE’s assumptions,   93 G-3   Cost and amount of zero-emissions electricity for one possible path through the decision tree,   96 G-4   The range of expected cost improvements predicted by the panel members,   97 G-5   Panelists’ assessment of cost reductions translated into expected benefits with and without sequestration risk,   98 G-6   Prospective benefits matrix for the Carbon Sequestration Program,   99 H-1   Prospective benefits matrix for the vehicle fuel cell program,   106 H-2   Prospective benefits matrix for the Solid State Energy Conversion Alliance (SECA) program,   111 J-1   Template for presenting panel results,   122 K-1   Program Assessment Summary (PAS) form, to be completed by DOE,   125