Wednesday, July 29, 2009

A Big New Green Energy Act Payoff in Ontario

From the Great Lakes Wind Collaborative comes news of the first major Great Lakes Offshore wind project (see In effect, a 710 MW wind turbine array is planned for Duck Island Shoal, which is on the Canadian side of the NE corner of Lake Ontario, next to Main Duck Island, of course - here's the map. It's roughly 22 miles due west of Cape Vincent, NY, in some of the shallower waters of lake Ontario, though close to the drop-off where deeper waters are the norm. in general, Lake Ontario is fairly deep (average depth is over 86 meters/282 feet, but as you get near the mouth of the St Lawrence River, it gets shallower - maximum depth is 244 meters/802 ft). This spot gets the full force of the prevailing winds across the waters, which tend to be in the direction from the exit of the Niagara River to the entrance of the St Lawrence River.

This project has been in the works for a while, but a couple of key events have made this a happening project. The island has some of the strongest average winds in Lake Ontario, according to estimates derived from the Canadian Wind Atlas - the site is predicted to experience annual average wind speeds of 8.64 m/s at 80 meters above the water; slower in summer, and a very decent 9.5 m/s in the winter. It has a fetch of the prevailing winds of over 165 miles/265 km, and being Lake Ontario, and icing is not a huge problem (though that part of the Lake may get iced up briefly, since it is shallow). It is also close enough to land to "wire up", and there is a big grid connection on the northern shore of Lake Ontario, so the electricity product can get to market. And there is a strong grid network around the edge of the lake (US and Canadian sides), a big market in Toronto and Montreal (~ 5 million people each), and pumped hydro/deferred hydro electricity storage capability en masse, should the need arise, in various locations in Ontario/Quebec and NY State.

The developer of this project is Trillium. This would be a first in many ways, including the first humongous wind turbines (5 to 6 MW size) to be used in North America. At 710 MW capacity, this would be 142 of them at 5 MW each. So far there are only 4 manufacturers of units that big (Areva (ex-Prokon-Nord), Bard, Enercon and REPower), and the latter two are busy setting up manufacturing facilities in Quebec due to the recent 2 GW RFP that they shared.

Maybe it is just coincidence, but this item about a recent revealing (and unflattering to the nuke industry) RFP bid for a pair of nukes in Ontario is good news for Trillium. It seems that in a recent bid for a pair of ~ 1 GW nukes for Ontario, the low bid came way above expectations:

"The only "compliant" bid -- one where the supplier would be sufficiently at risk if costs exceeded the amount quoted -- was reportedly a $26 billion quote from Atomic Energy of Canada, Ltd, equal to roughly $10,800 per kW. (If this sounds familiar, recall my January 2009 study estimated a new nuclear project would most likely cost approximately $10,500/kW)".

The next highest bid came from Areva:

"Another bid was reportedly received from French nuclear vendor Areva LP, which also "blew past expectations", at $23.6 billion. However, that bid was ruled non-compliant as Areva was unwilling to sufficiently shoulder the risks of cost overruns."

Let's say the size of these was 1 GW each. The delivered production capital cost (assuming 90 % uptime) would be $CAN 12 BILLION each, or $12 million per delivered MW. To put this in perspective, onshore wind turbines ($2 million/MW capacity) at a decent 30% operating factor would be $6.7 million per delivered MW, and offshore units at about $4 million per MW and a 40% operating factor come in at $10 million/MW delivered. Plus, there is a lot less lead time/construction time involved, and if one of the turbines screws up, the rest of them are still producing; but if one of the nukes screws up (and not even in a Chernobyl way, just a "does not work" way), well, there goes 50% of the revenue stream for this "paranukes" project. Ontario has a weird relationship with nukes (they use heavy water (D2O) moderated CANDU reactors), as nukes have put the province into significant debt ($30 to $20 billion for decades). They almost bankrupted the province, and enormous tax payer subsidies have gone into this financial dead chicken hung around the proverbial neck of Province. Most people in the Province are not fans of nukes, but the Atomic division of Ontario Hydro (--> Ontario Power Generation) keeps on going no matter what - like a world unto itself. For some reason, Ontario Hydro never invested even a mere $1 billion for wind turbines - maybe they were afraid they might like wind energy and dump the nuke line....

So, nukes are out, and so is the provinces 6 GW of coal burners, including that obnoxius acid gas/Hg vapor puker in Nanticoke (4 GW). This is North America's largest single point emission spot of CO2 pollution, it's 8 x 500 MW boilers are all unscrubbed of acid gases and the complex is a big contributor to particulate pollution in Buffalo, which is downwind 50 miles/80 km. Oh well, payback for so many humanoid turkeys in NY that voted Republican, maybe? Lots of lung problems, though, especially asthma....and in general, it is the less economically blessed people that get nailed with the lung problems, for a variety of reasons.

The other key factor in the Trillium project is Ontario's Green Energy Act, and the Feed-In Tariffs for offshore wind (about 19 c/kw-hr CAN). If Trillium can pull this project off, and the project has an average 40% net output (284 MW), revenues of close to $CAN 480 million/year could be anticipated. While that may sound like a lot (well, it is), this project could cost about $US 2.8 billion/$CAN 3.3 billion. Of this, maybe $CAN 1.4 billion will be for the actual turbines and $CAN $1.9 is for the installation part - especially jack-up barges, foundations and underwater cables/offshore transformer stations. Of course, that $CAN 1.9 billion goes into jobs, and could eventually reach 114,000 job-years (at $CAN 100,000 per job (fully absorbed cost) and a job multiplier of 5). After all, employment is mostly what commercial scale wind turbines are supposed to be all about, with by-products of home-grown, non-polluting electricity that can replace electricity made by polluting approaches (coal, oil, natural gas, nukes).

This project would be going nowhere fast if Trillium had to market this power on either the Ontario and/or NY State grids via the merchant market mode. Electricity being a relatively price inelastic commodity means that a relatively small shift in demand leads to very large shifts in price. Due to the current recession/depression in the US North Coast/Canadian South Coast region (Ontario really got hammered with the auto industry turndown), and especially the lessened industrial output/demand for electricity, the price of electricity has collapsed in NY and Ontario. Wholesale prices were less than 1.9 CAN cents/kw-hr earlier this spring, or about 10% of the price needed to make such a project economically viable. For example, if the project produces about 2.5 TW-hr/yr (= 2500 GW-hr/yr, or also = 2.5 million MW-hr/yr), odds are the 1.9 c/kw-hr would just cover the O&M part of the project, or at least an appreciable fraction of it. But that could never cover the financing part of this project. And since Ontario Power Generation (OPG) is still infatuated (it is a bizarre love affair...paid for with Other People's Money (in this case, the people of Ontario's money) in this instance) with the Nuclear Genie...well, they would/will be of no help. And if Ontario's merchant prices for (mostly polluting) power were not in the bottom of the dumpster, the presence of the Duck Island project would sink those prices (an example of Jerome's Conundrum). Rumor has it the nuke owners/entities were having to pay people to take their electricity in the some of off-peak period in April of 2009. How's that for a functional electricity market? So, the 20 year GEA contracts will make this Trillium project viable. Too bad NY State has to be left in the dust, so to speak, as they are still stuck with the merchant marketing model for wind energy - and as a result, the wind industry is kaputz in NY for a while, till prices recover, or until their Feed-In Laws (A187/S2715) get passed....

Cool. I'm jealous, but congratulations to all involved, and best of luck. Odds are, there will be even more jobs, especially for tower production/steel production (1000 tons minimum per unit). Towers made in a place like Hamilton (where a major steelworks exists) would minimize transport costs - just put them on a boat/barge, and the same goes for the foundations. Who knows, Trillium may even be able to make it worthwhile for one of the offshore manufacturers to open up blade and nacelle production in Ontario. That is one of their stated goals. And lots of money is sloshing around in Toronto these days, looking for a (reasonable probablility of a) profitable home.

BTW, here is a link to the Green Energy Act (GEA). See NY Times article, too.


Sunday, July 26, 2009

Price Elasticities and ACES

The recent ACES (American Clean Energy and Security Act) law (see summary) has some worthy goals, even though they are a bit watered down. And it may be too little too late to avert some of the nastier impacts of Global Warming, which has largely been caused via CO2 pollution (burning fossil fuels and dumping the waste by-product (CO2) into the air) of our atmosphere. One feature of this law is rumored to be a potential goldmine for firms such as Goldman Sachs (GS) is the "Cap and Trade" provision, which aims to lower CO2 emanations in a similar manner to how SO2 pollution from coal burning/other brimstone related activities was lowered in the US. Probably the last thing on earth a bankster entity like GS needs is the ability to trade, monetize and speculate in, effectively, air, especially after that cute stunt with AIG and those liar loans known as "sub-prime" (see the GS link).

So, while the ACES has good intentions, will it be able to achieve good results? Or would Feed-In Laws work better at obtaining more home-grown energy, more renewable energy installed, more jobs created and less CO2 pollution emanated? Anyway, that's what is explored in this posting. First, a view of how the law was supposed to work is presented, and then how it came to be arranged after the "legislative sausage making process" took its toll.

Many of the provisions of this law have been advocated by major environmental organizations, and by Rep Waxman, for several years, but this law only became passable (even in its current very watered down form) as a result of the 2008 Democratic victories. Some key provisions are:

a) 20% of electricity provided via utilities to come from renewable energy or increased efficiency by 2020.

b) New energy efficiency standards for buildings, appliances , industry (if it still exists...) mandated.

c) Reduce CO2 pollution by 17% by 2020 and 80% by 2050 versus 2005 levels.

d) Invest $90 billion in energy efficiency/renewable energy by 2025, $60 billion for CO2 scrubbing/burial (=CCS) by (2025?), $20 billion for electric/other powered vehicles and $20 billion for various and sundry R & D.

e) And finally, in a very contradictory, self-defeating (but politically expedient) way, "protect" consumers from energy price increases.

f) "Budget Neutral" - the income derived from selling CO2 allowances (1 allowance = 1 ton of CO2 pollution) is roughly equal to the expenditures of the ACES legislation.

It has been said to me by those in the know that making laws is a bit like making sausages - the gory details can be less than ideal, and are not for the squeamish. And this seems to be what happens when many conflicting ideas get "blendered" into some kind of single entity, like a law. But, here goes....

The total expenditures listed above are "only" $190 billion, about 24% of the total anticipated revenue for the initial decade. The remaining 76% of estimated ACES revenues (~$710 billion over a 10 year period) presumably will be re-distributed to energy consumers (who one way or another paid for all of the ACES revenues when producers passed on the added ACES fees).

So far, the only ways that energy usage has dropped in the US has either been via recessions/depressions and/or by energy price increases. In general, when energy prices rise, energy consumption falls, and quite often energy efficiency actually increases. During recessions/depressions, consumers tend to have less money available for anything, and so demand drops for just about everything, especially energy. Unfortunately, this approach is a bit of a blunt instrument. Quite often, it can feel like "mace in your face", especially if your income is stagnant and incapable of rising over the forseeable future while energy prices rise - and not the wimpy mace that gets sprayed from a can, but THIS kind.

So, lets look at the good part (d). Let's say that half of the $90 billion goes to energy efficiency, and half to wind turbines (which produce the most energy per dollar invested of renewables right now). For the efficiency part ($45 billion), this would probably be best spent insulating homes and businesses/banning the incandescent bulb, and maybe hastening the demise of "refrigerator clunkers". Unfortunately, any savings in natural gas/oil usage for home heating would probably be balanced by substituting electrical heat for fossil fuel heat, leaving electricity consumption about where it presently is. Let's say that the other half of the $90 billion goes to wind turbines (which produce the most energy per dollar invested of renewables right now). For the other $45 billion spent on wind turbines, this would be 22.5 GW of new installed wind turbine capacity (the U.S. presently has around 30 GW of wind turbine capacityas of August, 2009), with a net average output of about 9 GW (9000 MW), or roughly that of 9 x 1 GW nukes (those would cost nearly $100 billion at an installed cost of $10,800/kw of capacity). Unfortunately, of 420 GW used in 2009 on average so far (450 GW in 2008), 9 GW is pretty close to chump change, even though that is a lot of effort. Especially over a 10 year period - 9 GW delivered, 22.5 GW capacity of $45 billion investment would be a nice ANNUAL goal, at leats intitally. That would be obtained in 3 years at a 33% growth rate from the 2008 installaed rate of 8.5 GW/yr, after all.

Anyway, given that there is about 400 GW of polluting energy (~ 250 GW coal, 100 GW nukes, ~ 100 GW natural gas) that have to be replaced with something non-polluting, the $45 billion will not go very far - maybe replace ~ 2 to 3% of the more expensive (natural gas, or Ngas) derived electricity. It simply is too little to do much good, though it is better than nothing.

But anyway, back to ACES. As stated in the summary of the bill, it is certified to be in compliance with "PAYGO" - revenues raised are at least equal to revenues expended (point (f)). One of the key provisions is the "Cap and Trade" portion, and this is where $80 billion per year gets raised, so that (approximately) $80 billion per year can get spent. Basically, all large CO2 pollution emitters will be required to purchase the right to dump CO2 pollution into the atmosphere. In this arrangement, an "allowance" is equal to 1 ton of CO2. The approximate going rate for an allowance is (initially) around $15/ton of CO2, so in theory, 5.33 billion allowances are being auctioned off...... This will raise the price of CO2 polluting energy - that is, energy made by oxidizing coal, oil and natural gas.

In 2007 the US consumed about 1.045 billion tons of coal , 23 trillion cubic feet (tcf) of natural gas and at the end of 2008, petroleum consumption had dropped from 20.5 million barrels/day (mbd) to 19 mbd. The Energy Information Agency is a great reference; for example, here is the EIA scoop on coal. So, let's put these in a common frame.

In 2007, US average coal prices were $26.30/ton (western lignite is surface mined, and goes for $8/ton as of 8-4-09, while eastern coal tends to be more expensive). The total value of coal mined was about $30 billion/yr. At an average of 2.5 tons Co2 per ton of coal, this works out to 2.6 billion tons per year (bty) of CO2 pollution. More than 95% of the coal is now used for making steam and electricity, though coal as a chemical feedstock (ammonia, methanol, acetic acid, ethylene, hydrogen, lime from limestone) will become more important as natural gas gets more expensive.

Natural gas (basically, methane) use seems to have peaked at 23 tcf per year. Since about 1010 cubic feet are in a million Btu (MBtu) worth of gas, and gas is now going for around $4/MBtu in bulk, Ngas bulk sales are now worth about $92 billion/yr. In 2008, those same sales were worth nearly $250 billion - so proper valuation of fuels/energy seems to be less than logical in our "marketplace", to say the least. Each MBtu of Ngas weighs about 44.5 lbs, and when burned (also makes 1 million Btu of heat) makes 122.5 lbs CO2, or 0.0615 tons of CO2. 23 tcf is 23 billion MBtu of Ngas, or 1.4 bty of CO2 pollution.

Crude oil weighs about 292 lbs per 42 gallon barrel (density of about 0.85 gms/ml, or 7 lbs/gal), and it has an empirical formula of about "CH2". Of the 19 mbd, roughly 17 mbd is used as products, while the remainder is used to power up refineries (they need lots of heat for operations such as distillation), but most of the 17 mbp of refined products are used in transportation (9 mbd of gasoline, 4 mbd of diesel fuel, 2 mbd of aviation fuel, for starts). 19 mbd works out to be 6.94 billion barrels/yr, or 1.01 bty of petroleum containing 0.87 bty of carbon (the C in CH2). Converting that to CO2, this is about 3.2 bty of CO2 pollution. At the current (8-4-09) price of crude oil of $70/bbl, this is worth $487 billion/yr (bulk price); once refined/converted to usable products, this is worth more than $1 trillion/yr.

The total CO2 pollution from these 3 sources is about (2.6 + 1.4 + 3.2) = 7.2 bty. If $80 billion per year is to be gathered in by ACES, the CO2 pollution fee would be $11.11/ton of CO2 pollutant. This fee would fall disproportionally on coal, and most insignificantly on oil:

Fuel......Co2 (bty)..........Value ($B/yr)..........CO2 fee ($B/yr).......% CO2 cost

Oil.............3.2................486...........................35................................ 7%

Most of our oil is imported (about 2/3), most gas is presently domestic (~ 85%) and essentially all coal is domestically extracted. Due to demand destruction, oil is barely used in electricity production (too expensive), but about 20% of Ngas is used to make electricity. At present, there is no ready substitute for 17 mbd of DELIVERED oil (especially in transportation). In all probability, biofuels could be used for about 3 to 4 mbd, and coal/biomass could replace the 1 mbd used in chemicals manufacture, but that still leaves a lot of oil products usage that needs to be either replaced or made obsolete via conservation/efficiency/lifestyle changes (as in getting rid of sub-urban zones in favor of cities). But that is a hard choice, and involves lots of other factors, like class warfare of the rich upon all else, racism and "economic apartheid". And that's not energy related, right.....? Meanwhile the one use which can be readily replaced is fossil fuels used to make electricity (coal and natural gas). About 40% of the CO2 pollution is a result of electricity production in the US, and ~ 35% from transportation.

In terms of what these CO2 fees, even at $11.11/ton of CO2, would mean, here is a quick estimate:

Coal.........$26.30/ton ----> $53.94/ton
Ngas.........$4/MBtu ------> $4.67/MBtu
Oil............$70/bbl --------> $75.12/bbl

As far as these price rises being a detriment to use, essentially that would be lost in the noise of day to day price fluctuations for oil and Ngas. But, coal prices, on average, would theory, wouldn't this affect coal usage in electricity production, raising the price so that renewables could compete?


Even at $53.94/ton --> $70/ton once transport is factored in, you can still make electricity a lot cheaper with coal than you can with a wind turbine, even on the Lakota Sioux lands (on the Nebraska/South Dakota border), which have average wind speeds of 8.6 m/s at hub heights, and where electricity from could be profitably made at 7 c/kw-hr on a no subsidy basis, assuming it could ever get to a market (which it can't, at present - no wires available). Actually, near Wyoming coal now goes for $8/ton, and adding $20/ton (lignite has less thermal value/less CO2 emanated/ton, and more lignite is needed to make a MW-hr of electricity than is the case for Eastern Bituminous coal) and some delivery costs makes for $35/ton coal. Great Plains utilities will still be able to produce electricity from coal for 3 c/kw-hr in old plants, even with ACES fees added in.


About that coal aspect, there is a caveat. As long as the coal burner is an old one, fully depreciated, wind can't compete, still. Of course, that's because the ACES cost of CO2 pollution is way below the estimated real cost of CO2 pollution (about $85/ton according to the Stern Report estimate). But in a new coal burning facility...coal can't compete with wind. So the result would be fewer coal burners as old ones fall apart, or, more likely, repairs ad infinitum. As for CCS, this adds to costs, and makes fossil fuel burning less incentivized....but then with ACES money, CCS users are re-imbursed...?

Each year, the number of allowances is supposed to shrink, so that by 2020, only 5.98 bty of CO2 pollution (17% less of 2005's emanations) will be emitted from the U.S., and at the $80 billion/yr value (inflation adjusted, probably), an allowance would be $13.88/ton. But this is where Goldman Sachs (GS) & Friends comes into play. In theory, if a polluter figures out a way to do what they gotta do with less CO2, they can sell those allowances to someone who can't or won't or hasn't invested in a less polluting approach. For example, coal burners in the Great Plains could substitute wind for coal, and then sell these allowances to either speculators like GS or to a utility in some skanky hot place in the US with a big AC load and few wind/hydro resources, such as in Alabama or Louisiana. If GS buys these allowances, they can pay with cash (obtained by such routes as Front Running, or via government bailouts such as the AIG route) or borrowed money, and then wait until the end of the year for these cash short utilities to need some allowances. For example, lets say the price of Ngas all of a sudden lurches upwards, and so the utility switches to a more coal/less Ngas mix. They would need to buy some allowances to make up for the increased CO2 polluting rate....and GS or someone like them would be waiting...and also in no mood to strike a bargain. Those allowances could sell for $40/ton, not the original $13.88/ton. In addition GS could sell those allowances to others, make derivatives and set up swaps based on their value, etc. GS could in theory buy up future years worth of CO2 allowances, and gamble on their value. Of course, the profits GS would make would go to their banking executives, maybe shareholdewrs, and would be unlikely to go to electricity customers. Those profits might go into renewables, or they probably would not - instead, they would go into more gambling operations, like buying up more future CO2 allowances. This would be the start of a perfcetly wonderful viscous circle, the only beneficiary being the banksters running the CO2 cap and trade casino, or playing this very rigable game. And lots of borrowed money would be used....not for renewable energy installations, but to gamble on CO2 pollutant allowance prices. And when that bubble goes "POP!", Uncle Sam will be there to bail out more "too big to fail" entities who bet other people's money (OPM) and "a sure deal".

It could make sub-prime mortgages look small in comparison. And for added uncertainty, if no buyer for those allowances is found, the speculator would "eat" those allowances, take the write-off and not pay taxes... Anyway, some speculations on ACES gambling is here, along with a pertinent quote:

"We are on the verge of creating a new trillion-dollar market in financial assets that will be securitized, derivatized, and speculated by Wall Street like the mortgage-backed securities market," says Robert Shapiro, former undersecretary of commerce in the Clinton administration and a cofounder of the U.S. Climate Task Force.

The best projections on the size of the U.S. carbon market that would be created by ACES range between one and two trillion dollars by 2020. The CFTC estimates a $2 trillion carbon futures market within five years, with up to 180 million private contracts per year -- larger than the sweet crude oil and natural gas markets combined. This estimate was echoed by a Point Carbon report in 2008 on the potential impacts of the Lieberman-Warner Climate Security Act, and a recent report by New Energy Finance projects ACES will create a $1.2 trillion carbon market in the U.S. by 2020."

Some of the money gathered in from CO2 allowances will be used to subsidize wind, biomass and PV based generators, but much of it will be given back to consumers, though on a per capita instead of a per unit consumed basis. For example, this could be used to pay the cost of the tax based incentives given to wind turbine owners (PTC or equivalent and the MACRS). Right now, the PTC is only costs about $1.5 billion/yr, and the MACRS probably about $3 billion/yr, but these costs are expected to grow over time. PV subsidies have to be humongous to bring the price down to 3 c/kw-hr from the 30 to 60 c/kw-hr cost of generation (unsubsidized basis), but then there are not a lot of PV electricity actually generated and sold. The idea is that the rebates will not be associated with the increased energy cost, and instead people just will not want to pay higher costs, so they will get more efficient. And then there are all those "grandfathered allowances", so that the actual number of allowances will be fewer/prices higher. The details will get complicated.....Finally, there is the quota of 20% by 2020...what if that is exceeded. Would subsidies then get so diluted that there would be mass bankruptcies in the renewables business? Would the renewable industry halt dead in its tracks?

One of the stated worthy goals of ACES legislation is to decrease the use of coal that is converted to electricity. Thus, less CO2 pollution will result from less coal least, according to the theory. But, there is a catch. As less coal is mined, the production shut down will be the most expensive production. Coal is one of those items where the marginal price sets the industry price, and the result of less demand for coal is a lower price for coal!!!!! A lower price for coal means a lower cost to produce electricity that is made for coal. Eeeks!!!! Coal has a steep price elasticity...a small change in demand has a big effect on price. Meanwhile, the price to generate electricity from wind is barely effected by lower coal prices.

In general, it still costs between 7 to 15 c/kw-hr (unsubsidized basis) to make electricity from wind, depending on the wind resource. And in the US, it is the price of the borrowed money, the price on equity money, and whether or not there are really really rich people willing to invest in wind turbines so as to avoid paying taxes (they also make a profit on that aspect of things, too) that are the key factors in determining what the needed price for wind derived electricity needs to be. If it is a bad year at the races, and few taxes are paid by the rich/corporate sector because no profits were taxed, then few subsidies get made available for wind turbines and other renewables. The uncertainty of whether these subsidies are worth what they used to be in turn raises the interest rates on loans....and the loan payments are over 50% of a turbine cost (the rest is O & M and equity returns - equity can be worth about 30% of costs).

Since the prices for electricity get depressed in a depression/"extended" recession and tax based subsidies become less likely, the loans based on these become more expensive and the governmental subsidies required for renewables actually increase during bad times. And if interest rates start to rise (maybe China and India want their money back), then wind turbine costs/derived electricity also will go up, significantly. So, the counteracting effects of lower coal prices/higher wind turbine costs means that greater government subsidies are needed, and there is less incentive for coal burners to switch to wind. As for Ngas...that is such a wild gamble it is barley worth considering, especially since the needed price for new Ngas is over $8/MBtu, while the present price is floating near $4/MBtu (delivery/pipeline fees also add more to this). And the uncertainty in variable price markets - like NY State's NYISO - is still present. As more wind is added, more subsidies are required, and the probability that wind turbine derived electricity will be priced at less than the O&M cost of 2 c/kw-hr, increases. ACES does nothing to stabilize electricity prices at levels that make wind turbines to be viable investments...unless humongous Federal subsidies are present.

As was stated earlier, this is one complicated arrangement - way more than has been described here. ACES is better than nothing, but it does not appear to provide the incentive that a Feed-In Law would do for renewable energy developers, and the manufacturers of these systems. And instead of just adding a CO2 pollution tax on producers/importers of coal, oil and Ngas, it sets up a casino with the likes of GS as ringmasters. Hopefully those speculators will be watched like hawks looking over a rodent containing neighborhood, but the US Treasury Dept and related agencies do seem to be somewhat infested with GS "graduates". Anyway, the good news about ACES is that Feed-In Laws are not proscribed; ACES would work so much better with Feed-In Laws than without them. Perhaps the focus then could be shifted onto petroleum (the biggest CO2 polluter in the US at present, and a major economic problem due to the export of money needed to pay for the import of petroleum), and how to drop the usage of oil products in transportation by a combination of greater fuel efficiency, less miles traveled in cars, more trains used instead of trucks for long haul transport of goods, and more electrically powered mass transit. However, replaing coal and Ngas with wind is technically and socially the easy way to knock off about 3 gty CO2 pollution - that this puts off the socially more complicated question of the fate of sub-urban zones, which are foolish endeavors from a petroleum use minimization perspective, but quite popular with America's wealthy elite (top 10% of incomes). Besides, we went to all that effort in money and resources to segregate America into rich and poor, black and white, etc.......why mess what works for the well off?

"Post Sausage"
A great summary of what happened to the auction plan can be found at and some more information on GS can be found here. The bottom line is that the number of allowances to be sold by the Federal Government will be smaller than the tonnages indicated by fossil fuel consumption/CO2 pollution rates, at least in the initial years. Trade offs (especially to the so-called Blue Dog (= chickens?) Democrats were needed to pass the legislation, and quite often, rural district coal burners got waivers from the need to buy allowances (they got free allowances). And thus less money will be available for efficiency and renewable efforts when they are most needed (as in now). In addition, there is the questionable wiscome of CCS - many view this as a sop to powerful legislators coming form coal states. CCS can work right now - it is just costly. Scrubbing CO2 is more or less kindergarten for Chemical Engineering, and all kinds of routes are available to scrub CO2 from air, and also well practiced (a lot of CO2 removal occurs when raw natural gas is converted into pipeline grade). But, this involves big capital investments, lot of energy use, and the need to stash the strash ina safe manner for at least the next millenium. The owners of coal burners know that raising the cost of electricity lowers their profits, will encourage energy efficiency, less electricity demand and eventually it will make more sense to go the wind route, and thus make their current cash cow of a coal burner (almost invariable already fully depreciated/paid off) less of an asset to milk and more of a economic turkey....Besides, they might try co-generating more, or actually finding a use for the waste heat, which can be about 2/3 of the energy liberated by coal combustion. In the U.S., only about 7% of electricity made is co-gen derived. For example, S.1621 (2009) is a sensible bit of proposed legislation to support.

The Contrast with Feed-In Laws:
It turns out that one of the origins of the Feed-In Law was in the US in WW2. The War effort required a massive increase in industrial activity - and that meant a lot more electricity - cogen, onsite or utility - was required, rapidly. The government offered utilities cost plus a profit deals to utilities and utilities went to town, borrowing money and installing generation plants at a dizzying pace. In addition, if private industry could not do, the Federal Government would - many of these facilities were sold off after the war (hydroelectric being the exception).

Since the fedreal Govenrment has almost totally wimped out with respect to installing wind turbines (the TVA and US Defense Dept (on bases) owns a few), the task falls on individuals, companies, municipalities, cooperatives and other government entities (universities, for example) to pick up the baton, so to speak. And this will require huge capital outlays to install mass quantities of wind turbines, and most of this will be done with mass quantities of borrowed money. To minimize the cost of borrowing this money (i.e. obtaining lower interest rate for longer periods of time), the risk factor on these lonas needs to be minimized. The way to minimize this risk is to increase the likelihood that these loans will be repaid with the proceeds of the sale of electricity, and/or government subsidies.

Since this is now 2009, the debt of the Federal government is over $10 trillion; massive debts for several years will occur for several years as a result of the economic FUBAR/hangover from the Bu$h2 binge of fiscal irresponsibility (fiscal responsibility only seems to apply to Democrats since the Reagan regime....). So the U.S. Federal Govt. is way less than broke. It's even worse for states, who have to run balanced budgets. Thus, governmental subsidies seem to be a stupid idea, especially since there is so much need in other areas (health care, Food Stamps, Unemployment monies, aid to states, etc), at least for the next few years.

So, any upgrades in our electricity grid should probably be paid by electricity consumers. This can easily be done via long term, low interest loans, where the capital expenditures are paid off over time in a steady way. The monies for these repayments of principal + the interest would come from a faily simple formula:

Sales = Price1 * Quantity Made = Price2 * Quantity Sold

It turns out that electricity sales have been fairly constant since 1980 - in general, growing at slow rates of ~ 1%/yr - some years more, some less. If any gains in efficiency/uses of solar residential heat are equalled by substitions of fossil fuels (electric cars, electricity substituting for natural gas for heat), the term "Quntity Made" and "Quantity Sold" will stay fairly constant. For that portion supplied by wind, it turns out that wind on any given site tends to be pretty consistant. For example, for the US Coast Guard Station in Buffalo:

Year.............Speed (m/s at 9.1 meter height)

2003............ 4.373
2004............ 4.378
2005............ 4.139
2006............ 4.506
2007............ 4.554
2008............ 4.661

Average........ 4.435

This varies by -6.67% to + 5.09%, and these speeds tend to even out more as the height above the ground increases (the speed at ground level depends strongly on wind direction). And changes in speeds in one area get averaged out by changes in other areas, especially as the distnace between those areas is increased (this is a function of the spatial covariance of winds).

So, if you have a fairly constant wind resource, your sales per year would only vary drastically if the price varies drastically. or, to turn that around, annual sales will stay fairly constant as long as the price is fairly constant. Obviously, a small money buffer would be needed, but what is not collected one year is likely to be collected in another; the money buffer is simply good sense.

Thus, massive loans (in the aggregate) can only be repaid by either a contant cash flow, or else a variable cashflow supplemented by tax money from Uncle Sugar. Since Uncle Sugar is borke, that leaves option 1 as the viable one. And that is the essence of the Feed-In Law. The direct result of that is lots of jobs manufacturing and installing the "capital infrastructure upgrade" to our electricity production system. The by-product is lots of renewable energy, and lots of CO2 pollutaion averted. All at no tax loss to the government.

Oh well.


Thursday, July 23, 2009

The Windy Way...

In case people haven't got the message, North America has a lot of wind energy potential. Here is an article ( that discusses a brief scientific, peer reviewed article (6 pages). Here is a summary of this:

The potential of wind power as a global source of electricity is assessed by using winds derived through assimilation of data from a variety of meteorological sources. The analysis indicates that a network of land-based 2.5-megawatt (MW) turbines restricted to non-forested, ice-free, non-urban areas operating at as little as 20% of their rated capacity could supply >40 times current worldwide consumption of electricity, >5 times total global use of energy in all forms. Resources in the contiguous United States, specifically in the central plain states, could accommodate as much as 16 times total current demand for electricity in the United States. Estimates are given also for quantities of electricity that could be obtained by using a network of 3.6-MW turbines deployed in ocean waters with depths <200 meters."

Some previously publicized efforts at putting more renewable into our country's electricity supply include EA2020 (Energize America with a minimum of 20% by 2020) or the more recent (and wimpier) plan of 20% by 2030 (NREL/AWEA). These goals are better than nothing, but don't seem to even scratch the surface of what the recent PNAS report says. As the saying goes, no guts, no glory....

The bottom line is that there is many times the current U.S. usage of electricity (450 GW average) available from winds and commercial scale wind turbines. Not just a few times, but several times over. And when we consider currently used hydropower, geothermal and biomass combustion, and then consider doable run-of-river, geothermal, tidal and solar thermal/PV, that's even more renewable potential, or less wind power required. And even if electricity usage is doubled (to replace the fossil fuels used for transportation, and the natural gas/fuel oil used
for heating), still not a problem. Also, the wind resources of Canada are very similar to those of the U.S., and Canada has about 10% of the U.S. population.

So, here is a possible new way to view this ... conundrum, or public ignorance writ large. The first step is to set a viable goal - in this case, 100% renewable electricity, sometime before 2050. Like 2020 or 2030. Then work backwards to 2009, and figure how to proceed until all the coal, oil and gas burners have been replaced, and the old nukes have been mothballed. Since the required price for electricity from a new nuke will be north of 20 c/kw-hr even without proper waste disposal sites and catastrophic insurance (these will raise costs even more, even if they are/were theoretically possible), it does not look like new nukes will be plauging us. After all, why would you install a nuke at 20+ c/kw-hr when wind is available at less than 10 c/kw-hr?

OK, the goal is established, and some laws are passed that take the gambling out of electricity prices. Banks are actually happy, as they can loan out some of the mountains of hot money they are sitting on but can't find a home for, as wind turbines could now be a happy (and profitable) home for this money. Maybe even governments will step up and install some HVDC lines so that wind variations across the country can be leveled out (if it's not windy in one place, it is in another). Thus, we can have a huge baseload supply of electricity supplied by wind.

But what about the daily variations (for example try this nysio page:, which gives this graph:

So, even if a "basket" of wind farms was employed that were all located at a considerable distance form each other and were all connected with a function grid/set of high voltage lines, there would still be a problem. The net output of this "basket" would be a constant baseload. There would still be the variation is demand, which needs to be supplied. With a grid, supply must equal demand, and a lot of the variation is supplied by "peaker plants" - normally natural gas and oil based (and to some extent, coal). With turbines, electrical production is whatever the wind supplies, while with the combustion systems, it depends on the rate at which fuel is combusted (and this can be easily adjusted). Another option is pumped hydro facilities - and there is over 18 GW of such facilities in the US. With these, water is pumped up a hill to a pond using excess electricity made during low demand times (typically 11 pm to 7 am), and then flows downhill through generators (which often double as the pumps, too) to convert the potential energy (= stored energy) of water up a hill into electricity. The efficiency of these systems varies between 75 to 85%. Pumped hydro systems are very cost-effective; the major operating cost is the capital needed to build them and the efficiency loss (inevitable). However, when compared to batteries (55%) or hydrogen fuel cells (net = 40%), pumped hydro looks really good. NY presently has two (Niagara Falls and Benheim-Gilboa...see NYPA's website), and there are 2 more on the border (Niagara Falls, Ont and the Seneca project at the Kinzua Dam).

For pumped hydro to work, one needs a hill and a water supply, coupled to a grid connection. Many pumped hydro systems were installed to deal with a problem that nukes have - they can suddenly cut out for unexpected (safety) reasons - better than to be unsafe. When they cut out, often more than 1 GW will instantly drop off the grid, and this needs to be rapidly made up for, or the grid will collapse, and blackouts/brownouts will result. As the the number of peaker plants (gas ones are relatively cheap to build) have proliferated, the need for pumped hydro has dropped, but as the price of gas increases, the need for pumped hydro (as the low cost option increases).

But it is with wind turbines that the potential of pumped hydro really becomes apparent. To run a grid on (largely) wind, you need a storage system. Interconnecting grids can work to some extent, and using hydroelectric dams as "deferred" hydro can be helpful, but eventually, some storage will be needed. Other storage systems can be biomass based (using ethanol/biodiesel in peaker plants, wood instead of coal, and hydrogen derived fuels such as ammonia, methanol, ethanol, Fischer-Tropsch liquids in these peaker plants), but these fuels tend to be expensive and would be very useful in other applications - especially transportation. Right now, Europe is building a lot pf pumped hydro facilities (mountains in Norway/Sweden, and the Alps/Pyrenees, for starts).

Not all regions of the U.S. have pumped hydro possibilities - for example, Florida and Iowa have water but no hills of consequence, Arizona and Nevada tends to have mountains but not much water - but a lot do have a big pumped hydro potential. In particular, large sections of the Great Lakes, the northeast, the Appalachian range, Arkansas-Missouri, some parts of the Rockies and the West Coast (slat water can also be used as the storage medium). Usually, the tough part is to calculate the optimum quantity needed - often a function of natural gas price/peaker power costs. But, pumped hydro systems respond rapidly, and are extremely dependable. they are also a great way to provide construction employment for those economic "rough patches". These also require very small ponds to store huge quantities of energy, and the bigger the hill, the smaller the needed pond size. Finally, tidal energy systems (where power production stops/slows 4 times per day) can also benefit enormously using pumped hydro. NY has a 2 GW average potential for tidal in Long Island Sound that is potentially nicely coupled to NY City, with its huge load - and the Gulf of Maine/Bay of Fundy probably has 50 GW of "underwater turbines" (no ecologically damaging dams) possibility.

Some possible pumped hydro mega-projects (that is several ~ 1 GW sized projects) include the Lake Superior region, Maine and central NY/Pennsylvania. The Lake Superior region (Minnesota to western parts of Michigan's Upper Peninsula) could be used to buffer the outputs from the upper Great Plains (Dakotas/Minnesota/Iowa) and to supply the Chicago-Detroit-Toronto-Cleveland regions. NY and Pa have lots of tall hills/small mountains near water - for example, the southern part Canidaigua Lake and the other Finger Lakes would be fine pumped hydro sites. NY pumped hydro could supply the Toronto to NYC/Philadelphia region. Typical pond sizes are anywhere from 100 to 500 acres for a dent (more than 500 feet) drop. Maine's coastal mountains/hills could store energy from onshore and offshore wind farms as well as the Gulf of Main/Bay of Fundy tidal systems, and could service the NYC to Boston area.

All of these would require major connection lines, and HVDC is an obvious candidate - with less than 3% losses per thousand miles of wire. In general, a 500 Kv set of 4 wires (HVDC only needs 2 wires per set) should be able to supply 1.2 MW each. And given the water/hill potentials, we have hundreds of MW of electrical storage possibilities.

So, that is how we get to close to 100% renewable electricity in this country. But the design, construction and operation of this is the EASY part. The hard part is coming up with a logical way to pay for this. Actually, that is also easy - customers pay for these massive capital expenditure over 25 to 50 year time frames via the electricity purchased. The tough part is getting a viable economic system to encourage renewable power installation - like Feed-In Laws for generation. After all, without a large supply of renewables (more than 20% supply), there is no need for the pumped hydro storage. While that is just politics, maybe that's the problem - that, and the idea that renewables are free, and the electricity made from them is the next best thing to "too cheap to meter".

Of course, the alternative to the massive wind/massive pumped hydro/massive tidal system is CO2 pollution, natural gas depletion, Global Warming and massive unemployment (quite the yucky thing). Installing renewables on this scale would employ more people than were employed in the auto industry - in the 1980's. Building the grid/storage and energy generation systems could employ millions, which would employ about 5 people for each one employed in the manufacture and installation of these systems (multiplier effect). It is the 21th century stimulus our economy needs - and a Keynesian stimulus with no increase in government debt. But it will not happen unless the customers of this electricity are willing to pay about 10 c/kw-hr for the generated part of their electricity.



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