Monday, December 28, 2009

UB 2020 - Peak Oil Ostrich Poster Child

Bottom Line: There are many solutions to the combination of "Peak Oil" and Global Warming", but most of these are not very nice, are dreadful, or worse. And odds are, you can't deal with one without the other. Figuring out ways to deal with both in a manner that puts millions of people back to work and readjusts the way income and wealth are apportioned in our country to a fairer arrangement might be the way to proceed. But unless we choose and then work for such solutions, solutions will get imposed that may well bring on a new meaning to "Dickensian".

UB2020 is a plan to expand UB significantly by 2020 - whether or not NY State has the money. A major part of it is to junk the ~ $500 million or more recently invested in converting the Main St campus to the Medical/Health Sciences campus, and move that downtown - necessitating a whole new set of buildings to be constructed. And instead of being adjacent to the Veterans Administration Hospital, the downtown UB set-up would be located next to Buffalo General/Roswell Park hospitals. This would move the Health Science faculty to near where many of the UB medical professors work for a real living (Kalieda), since them taking the train from Kaleida to the Main St Campus just doesn't cut it any more. UB2020 is also being marketed as a major boost to new business and the regional economy (a replacement for lost GM jobs?), even though the Bioinformatics part of it (designer drug synthesis/discovery - nifty and fabulously profitable drugs designed/modeled via supercomputers) has been a declining business for over a decade (the Pharma Business/R&D peaked in 1999). And even though the job and economic multipliers for those real wealth increasing industrial jobs are significantly higher than for (mostly) government and/or debt (student loans) paid for academic jobs, no matter. Of course, all those new downtown campus buildings would be tax exempt, and most of the highly paid faculty would still live in the 'burbs, taking the Kensington Expressway or I-190 in and out of work. Most of the lowly paid faculty (adjunct, grad student stipends, TA's)... well they will be scattered about, more or less like they already are - a $5000/yr job is not going to buy a house, after all. New downtown student housing is apt to have a fortress like appearance, if they even move into that area. As for existing residents...can you say diaspora? Needless to say, there is no thought in this plan (which also hides/contains a significant expansion on the Amherst Reservation) about what happens when the availability of oil is curtailed due to high prices that arise from a process called "demand destruction", similar to but more intense than the recent 2007-2008 episode.

And so, off to the races...

Introduction
The State University of New York at Buffalo has many smart people working for it (mostly as faculty); but once the gaze is placed upon their management and administration, the words "clever" and "short term" and "political" are probably better descriptors. The upper management also posses certain cultural "blind spots", tends to be somewhat Republican, fairly wealthy (do they have any impoverished friends...not likely....) and tend self-segregate with others of their economic and/or academic level (similar to the behavior of business and governmental elites). Many appear to be admirers of Friedmanite economics, sub-urban superiority as well as the slice of society that benefits from such a philosophy (it's more than just economics....). You will find numerous adherents to the idea that manufacturing is not too relevant in our country anymore (at least, to the sub-urban upper class world), financialization (the Anglo Disease) does produce real and lasting values, the "service economy" rules and that economics does not have to have any relation to the physical limits of the planet (such as net energy available for people, resource limits, population limits, etc). Perhaps the exception to this is the recent realization that Global Climate Change is being done by humans, via combustion of fossil fuels, because our atmosphere and our oceans only have a limited storage capacity, at least on a short term (= century) basis.

In any case, UB may be an educational opportunity in more ways than one. Sure, it can deliver a very decent college degree at a decent price, especially compared to such bastions of the Ivory Tower as Harvard and Yale. But the public can also get an education in cultural, economic and social class bias of UB management (which actually gets money allocated by NY State to lobby...NY State for more money as well as other perks and pet projects !). Of course, this is not just a UB phenomena; UB management seems quite typical in such behavior, especially with regards to a concept called "The Iron Triangle" - an entity composed of oil companies/countries/organizations, automobiles plus auto industry plus suburbia, and the media, all cemented together with massive quantities of cheap credit. After all, in the suburbs cars are needed to move people around, cars need gasoline to move around, and oil is needed for the trucks required to get things to malls/stores/supermarkets. Oil projects, oil distribution, automotive manufacture and sales, and sub-urbia are all expensive undertakings, and require massive chunks of long term, low interest credit to be affordable on a mass basis. Those houses are costly, need lots of "stuff" to fill them up, and tend to be less energy efficient than city living, where mass transit is possible, and McMansions in cities tend to cost a lot more due to the (usually) higher cost of land. In many ways, it seems as if humans are expected to service the cars, not the other way around, and that cars are the dominant intelligent species.... If oil becomes too expensive or just plain not available and the massive quantity of debt (for houses, cars, roads, other stuff as well as for the central power plants and continuous oil and natural gas exploration and production) can't be serviced, well, c'est la vie. Party's over, and we either evolve to something else, or devolve into a world that makes Mad Max movies look like playtime for toddlers.

At present, there are very few classes and seminars, if any, in the SUNY system, and especially at SUNYAB, dealing with Peak Oil, and related Peak Natural Gas (together as "Peak Hydrocarbons", = PH). And while the geology, finance and engineering can seem really ultra-geeky (yes, it can involve lots of math - for example, check out the "Mobjectivist" site), the most important insights on PH may be how this affects our society on numerous levels. And a big part of the cures for what ails us may involve changes in our behavior rather than more efficient drilling, or ways to design and build more nukes or coal to liquids plants. Fixing our PH problem is not just for the so-called "pro's" - it will affect us all, and it needs to be thought about, discussed and debated by us all, too. And guess who brought us to the present situation - the "pro's". Besides, since UB has pretty much blown this opportunity, dropped the ball, waffled big time, let the horse escape from the barn, etc with regards to PH, somebody else is going to have to deal with this issue. After all, better to deal with it than be dealt with....

Discussion
There is a lot of lip service to preventing the average temperature of the ecosphere from spiking, melting icesheets, raising ocean levels, bringing the tropics to the mid-latitudes, etc by almost all academics, and by the managements of academic institutions. But maybe it is time that they take another look at the way the U.S. is powered up. After all, we are a society designed to be powered up largely by oil....take away the oil, and the mass movement of people and things would be not likely to happen. You need oil to mine coal, extract natural gas, mine uranium or install wind turbines. No oil = no coal...it's pretty basic. Furthermore, no oil, no significant automotive transport is possible, so workers can't get to work, can't earn money to buy stuff (also delivered, and often made with oil and oil products), can't buy food, and more importantly, can't pay off all the debt they incurred buying that car and house and maybe the college degree(s), too. Oil is extensively involved with how food is made these days; though we could remove most or all of the hydrocarbons from farming, this will require investments and efforts (like making ammonia without fossil fuels, and running farm equipment with renewable energy/renewable fuels). Even mate selection (for the day or for life) often has a automotive component to it. Basing a society on oil (and especially suburbia.....) but forgetting to secure adequate supplies of this oil is a FUBAR of immense proportions. Since oil combustion is responsible for about 45% of all U.S. CO2 pollution, minimizing CO2 pollution would also seem to incorporate minimizing oil consumption....and hence "oil addiction". Odds are, you can never get to the initial per capita CO2 pollution suggestion (COP-15) of 2 tons per year per person without dealing with the oil issue.

Last year, UB gave out a presentation on it energy usages, and how the current management/administration were going to try and be more Global Warming savvy, and lessen the load of CO2 pollution put out by UB. However, when asked what they were going to do about the consequences of Peak Oil slamming down on New York State/UB, the moderator did a fine imitation of "Does not compute!!!!!!!!" and then it was on to the next warm and fuzzy message massaging about dealing with Global Climate Change. Maybe even a big shiny PV array on the Amherst Reservation (evidently the one on the roof of Science and Engineering Library which cost over $560,000 of NYSERDA dollars at 74 kw peak capacity/~ 8 kw average capacity did not do the trick) would send a message. I thought that they must be kidding, but sure enough, NYPA was lined up as the Sugar Daddy for a $7.5 million system (1.1 MW peak capacity, ~ 150 kw average delivered capacity). Translated, you could get more power on average out of a 200 hp biodiesel powered diesel gen-set, but evidently there is no usable message in that....
Unfortunately, there are lots of messages in the big PV array, including the "renewables are too expensive", "it's UB 2020, so money doesn't matter" to "it's NYPA money, and that is free" messages (where did that NYPA money come from, and wouldn't it be better spent helping to fend off bankruptcy for New York State?), in addition to the "wow, what nifty a Research and Development project". What R & D, indeed.....

Well, no doubt about it, at current rates, the world is in for a heap of self-induced trouble due to too much CO2 pollutant (CO2 from fossil fuel combustion added at a rate to the atmosphere faster than the rate at which it can be absorbed) caused by us humans, or at least a small percentage of us humans. But, there is a big caveat...you have to economically survive to the next decade before there is a serious worry about whether the 2020 Greenhouse Gas pollution targets (such as they are; based on the COP15 meeting/"Copenhagen Accord", they aren't much for the U.S.) and especially for CO2 pollution, can be met. Without a viable economy, there won't be enough fossil fuel burning to worry about.... see "We have Been Warned" and "3 Fraud Probes Target Goldman, AIG.." for some background reading on that topic. A society based on oil that gets cut off of oil will not be mass producing much CO2 pollutant as a by-product of energy production - certainly not at the current levels. And it won't be pretty....

In fact, since the peak of U.S. oil consumption (crude plus refined products) in early 2008 of 21.5 million barrels/day (mbd), our consumption has now dropped to 18.5 mbd, a drop of 14%. From a CO2 pollution (and also, balance of payments), this is great news. Each bbl of oil (say, at an average of 295 lbs/42 gallon bbl), when burned, puts forth about 925 lbs/CO2. That's a decrease of 506 megatons CO2/yr (21.5 mbd = 3600 megatons/yr) associated with a 14% consumption drop - great news, right? And at $75/bbl, that 3 mbd drop in consumption saves $82 billion/yr from disappearing overseas, and usually to some pretty despicable and corrupt governments, as well as some often equally morally wretched corporations. But, corporations aren't in the morality business, by and large, they are in the money making business, and pretty much "whatever it takes" plus "lowest common denominator" is the current operating mode. Unfortunately, this drop in consumption came about via impoverishing tens of millions of Americans, throwing another 7 million out of work, scaring the beans out of many of those "still lucky enough to have a job", and transferring a massive chunk of money (via more debt) from the lower and middle economic classes to (mostly) the top 1% and above (see Goldman Sachs article/link). Welcome to The Great Recession of 2008-2010. If we keep this up, the U.S. may match Europe in the race to do less CO2 pollution by 2020 (they propose a 20% reduction based on 1995 levels). So that India and China can more than make up for that, of course....

Peak What?
First off, a definition of Peak Oil is needed. This is what happens when the rate of crude oil and related materials production (natural gas condensates, tar sands derived crudes, heavy crude upgraded, etc) cannot be increased for any significant length of time; instead, after the peak, production rates will begin to drop. It turns out that every oil field has some maximum rate at which it can be tapped; if it is pushed too hard the field will be "damaged" and the production rate will drop drastically, as will the quantity of oil that can be extracted versus what would have been the case if it were not damaged. It's what happens when worldwide exponential increases in oil consumption butts head with a finite crude oil supply. The resulting pattern of oil production over time takes the form of that cup shaped graph known as the Hubbert Curve (also known as the Logistic Equation) that has the maximum production rate occurring when about half of the finite resource that can be extracted has been extracted. This pattern also applies to many other minerals, and is also useful in modeling populations limited by land and/or food. It's what happens "when an immovable object gets struck by an unstoppable force".

The increasing oil consumption rate occurs by increasing the per capita consumption, and/or by increasing the number of people who consume oil products. And the result will be a "hockey stick" type of graph where oil price is plotted as a function of time - it cruises along at a flat(constant) price for a while and then, to quote Emeril Lagasse, "BAM!" - it rises steeply. Once supply cannot keep up with demand on a worldwide basis, it's musical chairs in the form of a bidding war - only those who can pay the drastically rising prices get the oil, and those who cannot pay get to be the collateral damage caused by this "demand destruction". Oil is an amazingly useful form of stored energy, and lots of ways have been developed to use this energy. Of the many ways to use oil, transportation seems to be the one that cannot easily be replaced by any other energy source (electricity can be made renewably or with coal and natural gas, heat can be made using electricity, coal and natural gas). The U.S. has led the way in developing ways to employ oil, and we now have a society based on relatively cheap oil to transport goods and people.

So, the consequence of Peak Oil is not the cessation of all or even much of any oil production - large amounts will still be produced. Instead, it will be an exponentially increasing real price of oil (that is, taking inflation into account, much of which will be caused by rising oil prices). Those with usable currency will get oil, and those without will learn to do with a lot less oil, or none. And societies based on the use of oil but who don't produce enough to supply that oil will get a lot poorer really fast, as well as lowering their oil consumption in a hurry. It will also involve an enormous transfer of income and wealth from oil consuming countries that still have some wealth to oil producing countries that have enough to export. Since most oil exporting countries are afflicted with "the oil resource curse", they will need to transfer some of that oil income to other countries who make food and/or manufactured items that allow the oil to be used in so many ways (cars, military forces, air conditioners, etc). This probably will not be a steady process, but instead somewhat jagged in time; boom times culminating in oil price spikes, followed by recessions/depressions where economic demand collapses (also collapsing the demand for oil, and hence the price for oil). Repeat, until the net oil consuming countries are either too broke, or else they wise up and cease using the stuff, or at least as much of the stuff. Right now we have had essentially constant oil supply rates despite significant price rises in the last 6 years, and the trends are for less oil production in the near future, flat if we are very lucky. But once the oil is gone, it won't come back, and as oil fields get depleted, they produce less, and when more is extracted than discovered over the last 40 years...well, you don't need to be a brain surgeon to figure out the trend...

Now, some would propose substituting oil with natural gas (where possible), or manufacturing gasoline and diesel form natural gas (currently done in a few cases), but this has the effect of raising the demand for natural gas, which soon spikes the natural gas price to the thermal equal of oil. And besides, the easy gas has pretty much been tapped in North America...it's now getting quite expensive to develop "tight shale" gas. And making a few hundred thousand new wells at $10 million per well...that only sounds good if you are "in the gas bidness". 100,000 wells at $10 million each mean a $1 trillion investment in something that will be used up in less than 5 years (the average useful life of each tight shale gas well) over, say, the next decade. Talk about running fast just to stay in place..... As for coal, it's the same story. To produce 7.3 bbls of oil per ton of coal means 1 million tons of coal per day to make 7.3 million bbls/day of oil, or about 36% of current U.S. coal consumption (about 1 billion tons/yr). Coal to oil plants are incredibly expensive - a unit making ~ 80,000 bbls/day would cost $9 billion for the investment (2006, pg 15). To make 8 million bbls/day of coal based oil/gasoline/diesel would mean an additional ~ $1 trillion in investment (assumes stashing the CO2 trash from the coal to liquids facility) - again, in the next decade. And there is the problem of all that CO2 coming from the burning of that synfuel, as well as where to put the CO2 trash from the synfuels manufacture. The increase in coal usage would send the price of coal upwards significantly, further trashing the economics of this facility. Furthermore, all these facilities would need to be financially guaranteed/backed up by the U.S. government - too risky for private industry alone. They would need at least $90/bbl crude oil pricing, and that is probably an optimistic target; should oil countries decide to run these businesses into the unprofitable zone (they would be competitors), all they need to do is lower the price of oil slightly.....Anyway, there are lots of problems with the gas to liquids (GTL) or coal to liquids (CTL) approaches.

Of course, all the investment in gas wells (the "tight shale" variety) and those coal to liquids facilities would add up to about $2 trillion, and that investment would compete with a similar sized effort needed to replace the coal, old nuke and gas fired electricity generators into (largely wind based) units - that would also be around $2.5 trillion. Odds are, there are only so many trillions of dollars left in the U.S. for real investments - especially in a one decade period.

Anyway, that brings back the idea of why all that gasoline would be needed in the first place. It's the Achilles heel of UB and the management's seemingly slavish adherence to the dictates of the Iron Triangle. UB's Amherst zone is essentially only accessible by car or the infamous "Blue Bird" buses that connect the Main St campus (with bus, train and walking access) to the Amherst zone. According to the very detailed 2004 UB Green Climate Action Report (24 MB download), electricity purchases (in 2004) averaged 24 MW while the estimated miles traveled to and from the campuses was 141 million miles and that used 6.4 million gallons of gasoline/diesel (~ 32,000 students, faculty and staff) - rides to and from UB for starting and ending semesters + spring break not included. This car transport averaged 4370 miles per person per year. Extrapolating to the 2009 year (~ 28,000 students/same staff and faculty vs. 24,000 full-time students in 2004) when 30 MW of electricity was the average electricity used would mean that 159 million miles were driven by ~ 36,000 people, using about 7.2 million gallons of fuel at 22.1 mpg (national average). At current prices, people pay about $20 million per year at $2.80/gallon to commute to and from UB. At $4.50/gallon (top pricing in 2008), UB employees and students were collectively forking over gas money at a rate of $32 million/yr.

So, let's extrapolate to the next price spike (2011-2012), when demand for oil products again comes close to the maximum world supply rate (and when speculators also add to the price spike). Prices will go to near $6/gallon for a while until these high prices precipitate another recession, at least in the U.S. (part of the price rise may be due to devaluation of the dollar versus more stable currencies, like the Euro or Yuan). Gasoline/diesel expenditures for the daily trip to the Res would rise to near $43 million/year, and average nearly $1186 per person per year. While this will hardly bother the extremely well compensated Marsha Henderson ($298K/yr) or Harvey Stenger ($273K/yr), this will put a hurt on many students and adjunct faculty. But the real damage will be to the NY State budget, which will crater as the effects of such a oil price wave move throughout the economy. In order to pay the higher costs for fuel (and this money will ALL be exported out of the state) when most NY residents are experiencing a net fall in their real income (only those above the 90% income bracket will be coming out ahead), less money has to be spent on "other". This is what sparks off severe recessions, and this may also initiate other economic disasters as financial weaknesses are revealed and made worse. And recessions mean lower tax revenues, and the inevitable cuts to programs (widows and orphans get tossed before sacrificing the SUNY system football teams, I bet).

But look on the bright side; the oil price spike in 2014-2015 probably will be even worse than the 2007-2008 one (less oil left to extract, more megafields in declining production rates) .....so don't worry too much about the 2011-2012 one, coming soon. Given current world oil consumption rates (see Hubbert Curve link) of about 83 mbd (or about 30 billion bbls/yr), about 3% of the remaining not-too-exotic crude oil reserves (about 1 trillion bbls out of the starting 2.2 trillion of readily accessible oil originally in place are still left) are being consumed each year. However, it is the RATE at which it can be extracted at some given price that determines how much oil will be produced each year - and that will soon start declining. The kicker is the marginal price of oil (price of the most expensive to produce/sell oil) that determines what the world oil price is going to be as long as supply capacity exceeds demand. However, once the demand rate exceeds supply, then the pricing mode changes to "whatever you can get" for the price. Many people think that the cost to produce most oil is what matters, but that is largely irrelevant in today's oil market. For example, most Saudi Arabian oil costs less than $5 to $10/bbl to produce, and they are one of the largest producers in the world. Many of Exxon-Mobil's domestic oil is obtained at $10/bbl or less from fully paid off oil fields - but it gets priced at the world price. Most oil extracted probably COSTS around $20/bbl to produce - it comes from wells discovered and drilled at least a decade ago. And at present, the crude oil made in the Canadian tar sands is among the most expensive, and it tends to set the world marginal oil price. Should synfuels from coal/pet coke go large scale, these will set the marginal oil price at an even higher level.

Those massive economic blows from oil price spikes followed by the collapse in high cost oil production when prices crash will actually have a devastating impact on renewable energy development in the U.S. The new oil price rises act like a tax, except that the government gets no money from this tax - the money gets either sent overseas, or diverted to major oil corporations. Given the increasingly slim prospects for big oil discoveries, the corporates might just "cash out" with the oil price spike bonanza monies rather than toast it on futile exploration efforts. The result is less money available to invest in renewable energy sources, despite the ever more apparent need to do so. Maybe the countries rolling in oil money might decide to corner the market on wind turbines, and own most of the ones installed in the U.S...... maybe. Maybe not - they may have their own troubles to deal with.

In conclusion, an alternative to car travel to and from the Amherst Reservation is needed. One 21st century approach would be an electric powered mass transit line between the Main Street Campus and the Amherst one. And maybe even other train lines connecting these lines. Or maybe UB should bail on the campus without a 21st century people transportation system, and concentrate its efforts on places with a train line. Just admit that locating a campus in the wetlands of Amherst was a mistake, and move on.

However, neither approach seems likely. There is just no push behind the UB management/administration to connect with the rest of Buffalo - and probably the same goes for the majority of sub-urbanites in Amherst/Williamsville/Clarence. After all, most of the money given to UB and/or collected via tuition gets directed to those 3 wealthy 'burbs (via salaries, businesses, and the location of the residences of the owners of those businesses); less than 15% left in the region even passes through the City of Buffalo. UB is the sub-urban goldmine, not that of the City of Buffalo, though crumbs are better than nothing. And if a con-job like the "bioinformatics" scam can be perpetuated by a concoction of UB management and desperate state of NY politicians who really did not know much about this, only the dream of it...well, getting NY State to motivate on a train line between campuses should be child's play. Except when the motivation does not exist. Anyway, while we are in an oil price valley at a mere $75/bbl, this would seem like a great time to build a train line...even if some of the road lanes between the campuses get converting to light rail. Not everyone would use the train, but lots of people (students, employees) would. And it would also allow any UB development benefits to be spread out more fairly in this region - probably along the rail line. New student housing on the Res could be avoided, and vacant/underused housing and properties along Main Street could get a shot in the arm. And of course, less oil would need to be imported, because less oil would be burned transporting people to and from UB's Amherst Res.

And for those disappointed in the apparent lack of a good result out of Copenhagen, well, Peak Oil and Peak Methane may provide some solace. See http://www.energybulletin.net/node/51097 for a summary of how resource depletion and higher prices will lower CO2 pollution rates to a much greater extent than cap and trade as well as other exotic schemes. Or some parting words from James Hansen on COP-15, or from a European Peak Oil perspective here.

http://www.energybulletin.net/node/51013


DB

Monday, December 21, 2009

The Green Energy Act of Ontario - So Far

Ontario's Green energy Act (GEA - http://www.greenenergyact.ca) was passed into law in May of 2009, but it finally went into effect in at the beginning of October. There are two main parts of this job creating (it's main intention) law - retrofitting buildings and residences with energy saving/efficiency increasing improvements (mostly insulation, better windows and better heating systems), and a Feed-In Law. The immediate goal was to create 50,000 new jobs ASAP - and to soften the blow of the downturn in the auto industry (manufacturing of the completed cars, and all those component suppliers), which has been severe in Ontario. However, the Feed-In Law (also known as FITs) provisions have been getting a lot of the attention - perhaps it is the more glamorous part of the GEA.

For the FITs, different prices were established for various technologies (wind, small hydro, photovoltaic, biomass, biogas, etc) and also for different installation scales (big PV, house sized PV, etc). The prices reflect the average cost to produce electricity from the various technologies, as well as a reasonable return on the investment (profit). In addition to the prices to be paid to renewable energy generators for 20 year periods, the generators also get preferential access to the grid. This will be implemented by awarding 20 year contracts to the various applicants to the Ontario government (you have to sign up to be eligible to receive FIT rates); otherwise you can get prevailing rates (dirt cheap right now, and a money-loser with respect to most forms of renewable energy) or whatever you can get via a PPA with a customer for this electricity (also known as a bilateral agreement. For example, under the GEA, house mounted PV panel owners get 76 c/kw-hr, and "small" wind farm arrays (10 to 20 MW each) get 13.5 c/kw-hr. These prices are far above what the current prices are in Ontario (mostly from fully paid off hydroelectric units, nukes and coal burners). Among those coal burners is that atrocity in Nanticoke, which is the largest coal fired electricity plant in North America (~ 4 GW, composed of 8 x 500 MW boilers). The Nanticoke facility is owned by the government of Ontario, has no acid gas scrubbers, and is a primary source of SO2, NOx and particulate matter for Buffalo's air. Thank's Ontario...(must be payback for our coal burners that dump on them, or maybe the recently ended Reign of Error by Bu$h & Company - both are/were bad...). In addition to the more than 16 megatons of CO2 pollution, lots of other "goodies", like 500 tons/yr of PM2.5 (less than 2.5 micron sized particulate matter) - a material notorious for aggravating asthma, as well as other lung and heart ailments.

Anyway, as soon as enough renewables are lined up, Nanticoke is supposed to be going down...

In a nutshell, the GEA has proven to be very successful, initially, based on preliminary applications. For the initial 2500 MW, over 8000 MW were applied for - and this most likely does NOT include the bulk of the offshore wind farm applications (100 of them; at an average of ~ 200 MW, that would be 20,000 MW of capacity...). The 2500 MW initial limit was chosen because that's all the excess transmission capacity that currently exists (mostly to the big market of metro Toronto). But, shutting down Nanticokes's coal burner will free up 4 GW of high voltage, high capacity lines....

So, here are some of the initial results:

This link provides a summary of the initial 3 months of the Ontario Green Energy Act (GEA).

http://fit.powerauthority.on.ca/Page.asp?PageID=924&ContentID=10616

For the bulk of the electricity, over 1022 FIT applications with a total of more than 8000 MW of capacity were applied for. Over 6300 MW was wind based - this would be about 2100 MW on a delivered basis. Since there is presently only 2500 MW of available transmission capacity, they will triage these applications. There are also numerous "micro-FIT" projects that have been approved and these will have no effect on transmission.

Hydro One (the transmission part of Ontario Hydro, the government owned electrical provider for most of the province) is in the process of completing a 1500 MW expansion of the Bruce Peninsula to Toronto metro upgrade. The plans for several upgrades costing $2.3 billion and to employ 20,000 people for several years are listed here: http://fit.powerauthority.on.ca/Storage/97/10761_FITMap03.swf. Those 20,000 jobs are not included in the GEA estimate of the creation of 50,000 jobs (minimum). In addition, as the Nanticoke coal burner is phased out (4000 MW) this Lake Erie to Toronto line will also become available - notably to the offshore wind farms planned for the north shore of Lake Erie.

Of the FIT applications, 79% were wind by capacity, and on a delivered basis, 5% "other" (biogas, small hydro) and the remainder solar PV. In terms of delivery, about 10% other, >85% wind and <5% solar PV. If just the "other" and the wind parts were installed, this would represent an investment of over $13 billion, and would be enough to replace the Nanticoke coal burner (a major polluter of Buffalo's air). There are also several "Big Hydro" schemes for northern Ontario and offshore wind farms that are NOT included in the identified FIT projects. Those offshore and big hydro projects will be enough to free up Ontario from the use of ANY coal or Ngas as well as nukes. Hopefully those big hydro ones will be run-of-river and not eco-destructive dams.

Also of note on the transmission front in Ontario is the connection of the Northern and Eastern shore of Lake Superior (the windiest part of that lake is the eastern part). More important than the wind is the pumped hydroelectric potential. On average, there are cliffs/steep ridges of between 200 to 400 feet within a mile of the Lake (and often just a hundred feet or so). This will allow Ontario to easily store 10 to 20 GW and several hundred GW-hrs of electrical energy/power at a price of 1 c/kw-hr for the capital and about 2 c/kw-hr for the loss in storage (about 20% is lost/80% is recovered when electricity is stored as pumped hydro). This is how you can convert a massive province such as Ontario (size wise it is huge at 9 times that of NY, population wise about 2/3 the size of NY at 13 million) to all renewable electricity, with NO fossil fuels usage of note and NO NUKES. Cool, eh?

So, Ontario is off to a great start. The 8 GW of renewable capacity would represent about $16 to $20 billion of capital investment, worth about 256,000 job-years of employment, assuming all was made in Ontario. But, in this initial round, not everything will be made in Ontario - so it's a great potential for a lot of NY businesses supplying components to the Ontario wind industry. A lot of that non-Ontario content may come to the Great Lakes states - for example, Timken (bearing) in Ohio, Michigan and Minnesota iron ore, and transformers made by Niagara Transformer in Cheektowaga. And maybe PV grade silicon from the recently opened Globe facility in Niagara Falls. It will also be interesting to find out where those 100 offshore wind projects fit into the GEA scheme of things.

Anyway, this is what NY State COULD be doing. Instead, we are doing essentially nothing in terms of renewable electricity generation, because right now such projects are money losers in a system where the price of renewables is tied to the price of coal and possibly natural gas. Even though there is no coal or natural gas cost to generating the electricity made with wind, run-of river and tidal turbines. That is the price of no Feed-In Law in NY State. Perhaps we should get smart and adopt this Feed-In Law approach, or, as a second best alternative, a Power Purchase Agreement system like that used in Quebec. Maybe the Ontario/Quebec Canadian health care system also might rub off on us....(just wishful thinking on that).

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Why is this (manufacture of renewable energy systems, and installation of them) so important, economically and socially? Well, consider the first year of the Obama Administration, where most of the financial effort has been aimed at "reviving the financial industry", after the greed and stupidity of the leaders of this industry brought the world to the brink of another Great Depression (1929-1939). As it was, the 2008-2010 period will be known as "The Great Recession" - not that there is anything worthwhile about it. In particular, trillions of dollars (estimated at at least $17 trillion) have been loaned/given/created/written off at essentially no cost/deferred to what are known as "Too Big To Fail" (TBTF) banks/financial entities, many of whom are now correctly categorized as "Shadow Banks" and/or "Zombie Banks". A devastating critique of the Obama rescue effort from a liberal/progressive and energy analyst approach (lengthy, but with many references/links, and VERY educational) can be found here: http://www.energybulletin.net/node/51013.

The Ontario GEA efforts bolster the real economy, increasing the real net worth of the province and surrounding areas by taking raw materials, labor, skill and knowledge to make electricity producing arrangements that makes home-grown, essentially pollution free energy. If the world, or at least the Canadian part of it, is to maintain a viable climate, it has to limit the quantity of CO2 pollutant dumped into the atmosphere in the next 20 to 50 years. And that can be done by either crashing and trashing the world economy (this depresses energy consumption, thus limiting CO2 pollution, largely by depressing oil consumption - and is evidently the current approach) to a much greater extent than happened in 2009-2009, or else electricity can be made without the use of fossil fuels (energy without CO2 pollution). The bolstering of the real economy employs people, increases the real wealth of Ontario and surrounding Great Lakes states, and injects money into the lower and middle income portions (people) of the economy. The Ontario GEA will also boost the tax revenues of the province, as no tax giveaways were needed to finance these capital improvements. The capital improvements installed under the aegis of the GEA will be paid off by electricity customers of Ontario by amortizing the debt of long time periods, and the debt repayments are made possible by the long term fixed prices set by the GEA FIT prices. The lessened fossil fuel consumption resulting from less oil and natural gas consumption for home/office heating, and the avoided natural gas consumption that happens when gas burning electricity plants are NOT installed but instead wind turbines are used, will also help matters considerably.

In contrast, the focus in the U.S on the "unreal" economy of TBTF banks and related entities like Hedge Funds, insurance companies and ultra-wealthy people has an opposite effect. One nifty Zombie Bank trick is for the Fed to loan TBTF banks money at 0% interest on the assumption that they will loan it to small and medium sized businesses - but by and large, those loans from TBTF entities to the real economy are not occurring. That is because these smaller businesses have no additional customers for their products, and without buyers for their goods and services, loans to increase the production capacity are worse than stupid - they are an invitation to bankruptcy. So instead, the Zombie Banks buy up Treasury Bonds yielding a 3% interest rate using Fed money provided at 0%, and make some easy, no risk money as well as perpetuating a pretense that the economy is improving for the vast majority of people. The T-Bills will be paid off via increased debt on the U.S. Government, and, if we ever come out of this financial hole, via taxpayer dollars. In effect, this is a transfer of debt from private wealthy entities like Citibank to the U.S. Government, and a transfer of taxpayer monies to the TBTF corporations like Citibank. The private sector equivalent of this valueless added effort is the proposed sale of NBC-Universal to Comcast (a monopoly) for $53 billion. The sale will result in lots of lay-offs, and no new net investment or jobs, as well as hefty investment banking fees that will be paid off via higher cable TV and internet rates. In either case, virtually no spin-off into the real economy occurs, and this money also does not finance any other renewable energy investment - it goes hunting for more of the "easy" speculation/finance stuff. Bummer.....

The contrast is a pretty stark one. And even the meager (at least, based on the need for it) renewable energy efforts in the U.S. are muted by the tremendous subsidies given to the upper income bracket entities and individuals which are used to "induce" investment in renewables in the U.S. An increasing trend is the foreign ownership of these developments - mostly because foreign entities have the money to invest in U.S. renewables - notably commercial scale wind farms - while U.S. money for such investments sits idly by or else no longer exists. The combined PTC/MACRS subsidies for wind farms mean that between 65 to 75% of the capital investment made by the private entities is refunded by the U.S. Federal Government via avoided taxes in a convoluted 6 to 10 year time period. If foreign owned, those wind farm investments result in a huge outflow of taxpayer money OUT OF THE COUNTRY. Just what we need right now - a worsened balance of payments situation. And by failing to provide long term, viable prices for this renewable electricity, the installed cost of them is significantly ramped upwards due to the high risk associated with the variable electricity pricing (results in higher interest, shorter term loans for these investments) that is common in much of the U.S.

Oh well, hopefully 2010 will be an improvement. After all, there is SO much room for improvement. Who knows, maybe we will even be blessed with the rapid unemployment of Tim Geithner and Larry Summers in January of 2010... After all, isn't HOPE supposed to be a cornerstone of the Obama Administration?

DB

Saturday, December 19, 2009

Pumped Hydro The Great North Coast Battery

There are many opponents of renewable energy who site the "unreliability", most notably of wind and solar PV derived electricity. For the US North Coast, and much of the northeast, solar PV is most likely going to remain a niche play, and not a major source of electricity. However, it does produce electricity during daylight hours only, and in the summer, this often corresponds to significant (and expensive) peak power, and decreasing the peak demand can do wonders to chopping the price for that peak electricity. Solar PV is a very good way to generate electricity at the house level (got a roof?); though expensive in the NE part of North America, it is also a prodigious job producer, especially if Feed-In Laws are in place.

But, for mass quantities of renewable electricity at affordable prices, this region is well set up for wind turbines. We are not the windiest location on the Continent - for that you need places like wind canyons (Oaxaca in Mexico, Tehachapi in California), the just plain windy regions like the Great Plains of the US, or the Atlantic coastline of "the Maritimes" in Canada (Newfoundland and Labrador being the winners) and the Aleutian Islands of Alaska, which are incredibly windy even by Great Plains standards. Much of the Great Lakes, Atlantic, Gulf of Mexico (GOMEX) and Pacific coastal regions - especially offshore - are also very windy. The combined Canadian and U.S. potential for wind sourced electricity is probably much more than 30 times the current consumption/generation rate (for ALL sources) of electricity for the U.S. and Canada. So there is no shortage of potential for the wind.

And if you interconnect the windy areas of large regions (say, those in the NE part of North America, or even just the U.S.), it turns out the electricity output from decently dispersed arrays of wind turbines will be very flat and very stable. This is because winds tend to travel across our continent in "cells" flowing from high pressure regions to low pressure regions in a west to east pattern. When it is not windy in Buffalo, it probably is in New York City, or Bar Harbor, Maine. And vice versa. So it all evens out. But, that is also a bit of a problem (just a bit), because electricity usage (= demand) tend to be cyclical on a daily and also weekly basis, greatest in the late afternoon/early evening, and least in the 11 pm to 7 am time slot. But, as more natural gas heating gets displaced with renewable electricity, maybe this will even out a bit. Nevertheless, there is either a need for electrical energy storage, or else a lot of peak electricity production.

Anyway, this story from Michigan puts this into perspective.

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A recent news item from M-Live was recently sent out concerning a proposed commercial scale offshore wind farm near Ludington, Michigan (the very small town of Pentwater). Since these news feeds tend to evaporate after a bit, here is the essential part of the story from M-Live:

Developers of proposed $3 billion Lake Michigan wind farm say project would hurt view, help economy

By Dave Alexander | Muskegon Chronicle

December 15, 2009, 10:59PM

map wind farm.jpg SCOTTVILLE -- The first off-shore utility-scale wind farm proposed for this side of Lake Michigan was presented Tuesday night.

The massive 100- to 200-turbine project was outlined by a Norwegian wind development company Havgul Clean Energy AS for the waters off northern Oceana and southern Mason counties.

The $3 billion Aegir Offshore Wind Farm is being suggested for a 100-square-mile area from the Ludington Pumped Storage Facility south to Silver Lake State Park near Mears.

The 300- to 450-foot-high turbines would be built as close as two miles offshore from Silver Lake to 41/2 miles off the Ludington shoreline.

The more than 150 people at the first public presentation on the project were overwhelmingly opposed to the plan. Objections ranged from the effect on views from beaches to concerns for property values.

However, a minority of the audience at the meeting at West Shore Community College was supportive, based on job creation and wanting alternative energy.

"We have something we think is a good idea," said project manager Harald Dirdal..

"We are not here to force this upon you. We are not going to do this if your county (officials) say no."

The project, being proposed in conjunction with Minnesota-based Scandia Wind Offshore, would take five to 10 years to complete and needs numerous approvals from federal, state and local governments.

Havgul and Scandia officials are gauging public opinion on whether to proceed with extensive economic and environmental studies that would several years and cost $10 million, Dirdal said.

Some said they heard enough.

The most vocal opposition at the meeting appeared to be from the Pentwater area, which is in the middle of the impacted coastline.

"We are almost 100 percent reliant on tourism," Pentwater Township resident James Holbrook said. "The view of is critical. We are selling scenery, and that's the lake."

Photos shown of the development did not hide the project's visual effect.

"Yes, it will change the view from the shoreline, and that is a negative," Dirdal said.

"If I had a house on the beach, (the view) would be more beautiful without a wind turbine. I recognize that."

The tradeoff is economic development and an estimated thousands of jobs during the five to seven years of construction, Dirdal said.

He added the wind farm would employ 100 to 200 people when operational.

Unemployment in October was 12.8 percent in Mason County and 15.9 percent in Oceana County, according to the Michigan Department of Labor & Economic Growth.

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Discussion

So, a bit of translation may be required. The going rate for a world scale modern offshore wind farm is about $4 million per megawatt of capacity. A $3 billion proposed wind farms would be roughly a 750 MW (capacity) wind farm. Given the winds in that part of Lake Michigan (average wind speed is near 8.5 m/s at 80 meters above the water surface, which is a very decent wind resource), the average net output of the wind farm should be at least 40%. Thus, a 750 MW wind turbine array should have an average delivered output of around 300 MW. This offshore complex could displace the old 313 MW Cobb power plant near Muskegon, for example; it's two boilers are each over 50 years old, so by now that facility should be fully depreciated.....

There is about 2000 MW of fossil fuel based generation near the Holland to Ludington area on the Lake Michigan coast, including the 1540 MW Campbell complex (670 MW coal, the rest in oil and natural gas "peaker" units - it emitted 9 megatons of CO2 pollutant in 2008) in West Olive township. Much of this relies on that wonderful lake water cooling - it tends to make such plants more thermally efficient than ones cooled with a cooling tower. Most of the electricity made on the Lake Michigan east coast tends to be exported to the Detroit metro area, or many of the other large cities in inland Michigan, line Lansing, Ann Arbor, Kalamazoo, Grand Rapids, etc.

One of the more amazing engineering projects in Michigan is the Ludington Pumped Hydro Complex (LPH) (343 kb .pdf) - or here - near Ludington. In the brochure put out by Consumers Power (CMS), one of the co-owners (the other is Detroit Edison), they describe the facility as one of the biggest batteries in the world. There are 6 massive pump-generators that either pump water from Lake Michigan an average of 363 feet into an 842 acre reservoir or let the water flow back to the lake and generate electricity. It can go from zero to ~ 1872 MW in less than 5 minutes, and can easily provide a back up in case one of the 1500 MW nuke complexes (for example, Fermi 2; Fermi 1 had a partial core meltdown in the late 1960's, in case you were wondering whatever happened to Unit 1) trips out due to a safety alarm/scramble, which DOES happen on occasion. If the PH facilities were not available, much of the grid in the Lower Peninsula part state would most likely "trip off".

The LPH facility can store and generate electrical energy as required. It is connected to the other main parts of the Michigan electrical grid with some major wires and substations, more or less equal to those at either side of the border at Niagara Falls. It is tailor made for wind turbines - either onshore or offshore.

At an average wind speed of 8.5 m/s, the proposed offshore turbines would be generating some power about 85% of the time, and generating their full 750 MW potential about 15% of the time. However, this will happen more or less randomly with respect to the time of day, although afternoons (peak demand) will tend to be slightly greater energy making periods, especially in the summer, when cool lake breezes flow on shore as the land heats up the air over the land. If you are interested, here is the probability curve for winds with an 8.5 m/s average wind speed.

Placing wind turbines in such an area as this sort-of shallow part of Lake Michigan (which gets deep really fast in comparison to Lake Erie and Lake Huron) seems like a match made in heaven. But, there are a couple of flies in the soup, so to speak. One is the attitude of the residents (either full or part time), and the other has to do with the price required to generate the electricity.

Actually, once the turbines are manufactured and installed, the so-called marginal operating costs (basically the maintenance and insurance) is really cheap - somewhere between 1 to 2 c/kw-hr. However, paying back the investment is the hard part - unsubsidized, it would be about 12 to 15 c/kw-hr, and subsidized (that is, using the MACRS rapid deprecation tax deductions and the PTC tax credit) it would be around 8 to 10 c/kw-hr, assuming favorable financing was possible. Those tax credits/deductions would be worth about $1.9 BILLION over the initial 10 years, but would only work if the owners had enough alternative taxable income which which to deduct/get credited, and in an era of uncertain petroleum and natural gas prices, that could be a big financial risk. The favorable financing would need to include a Power Purchase Agreement to purchase all of the energy made at some fixed cost for at least 20 years, thus minimizing any risks due to variable electricity prices. Such prices, for Michigan, are very high, since most of the electricity in the state is made using old, depreciated, fully paid off and then some coal burners and nukes - typical generated prices are in the 3 to 4 c/kw-hr (but not the same as the residential rates, for sure!).

But the other fly - the view - is a pretty absurd one, not based on any logic or facts, just uninformed perception. It turns out that near shore wind turbines can be quite the tourist attraction - Toronto's (on land) or Copenhagen's Middelgrunden (20 turbines offshore, but VERY visible to just about everyone in the city. In the vacation island of Samsoe, the initially frowned upon 20 x 2.3 MW offshore turbines are now highly regarded - and a tourist attraction, no less. The same goes for the two 0.9 MW turbines located at the sewage plant in Mackinaw City - also very visible from several miles of coastline. In a recent study, wind turbines were shown to have essentially no effect on property values (so they neither depressed property value OR caused local property taxes to rise through property asset valuation increases). Of course, there is only a limited time in which offshore wind turbines could be seen in Lake Michigan - fog, snow (more than in Buffalo, usually), rain, mist, and other weather that keeps people indoors, not to mention the buggy season, which prevents people from being outside unless significantly lathered up with bug repellent for most hours of the day.

And then there is the jobs issue. The $3 billion in installed cost represents about48,000 job-years of employment, somewhere. Obviously, in a state with a formerly prodigious manufacturing capability like Michigan's, with moribound iron and copper mines, as well as a steel and concrete industry in the pits, this project will attract a lot of support. It would be a shame to have most of the work involved in making and installing these done by either foreign nationals (but Indians, Pakistanis and Phillipinos work so inexpensively....) or in offshore manufacturing - especially Europe, where high quality turbines can be made (evidently not possible in China, at least by Chinese owned/government owned companies). Such turbines could involve about 1000 tons of high strength steel per unit - and with 150 to 300 of them, that's also work and business that is highly sought after.

Finally, with regard to what really makes this project valuable - the Big Battery of the LPH complex. The reservoir was made by paving over the base (a big sand dune) with asphalt to retain the water. It has 6 massive generators, each rated at 325 MW. But not every pumped hydro unit has to be so big, in terms of reservoir size for example, there are the Seneca, Muddy Run, and Blenheim-Gilboa examples (see here for a list of them). A taller hill means less water storage is needed for a given energy storage. And engineering resiliency is achieved by having numerous units of a decent size instead of only a few massive ones, though at the cost of slightly higher construction costs per unit of energy storage. In many cases, Pumped Hydro facilities work well in conjunction with being parks -Blenheim-Gilboa being a good example of this. And if a Keynesian stimulus is what is needed to kick-start a depressed and under-performing economy - pumped hydro facilities are just the ticket. Lots of construction, and a lot of specialty manufacturing tailor made for the manufacturing heart (or what's left of it) the U.S. You can even use PH facilities with sea-water - which means that the combination of steep hillsides next to the ocean and tall hills/small mountains that are so evident from Southern California to the Canadian border is absolutely ideal for electrical energy storage. This could also be especially good for parts of Maine along the area near Camden, or near Bar Harbor, where this could work nicely with tidal power facilities.

So much of the northeast part of the U.S. has a combination of decent steep hills next to water - either as rivers or lakes. This applies to the entire Appalachian Mountain range, and a lot of New York's Finger Lakes/Adirondak Mountains/Catskill Mountains (near where the Gilboa facility is located). Pennsylvania is noted for its hilly terrain so it also has a significant pumped hydro capacity well in excess of the current two facilities. There are plenty of untapped massive sand dunes in Michigan near Lake Michigan, and Lake Superior also has an awesome storage capacity. For the U.S. portion, this stretches from International Falls to near Marquette, Michigan (several hundred miles), while for Ontario, this goes from near Sault St Marie to International Falls (sort of related to Frostbite Falls for you Rocky and Bullwinkle fans) - a distance of at least 400 miles. In short, more pumped hydro capacity than will ever be needed. The general rule of thumb is about 1 MW of pumped hydro per 5 MW of wind, though this depends on the ratio of peak usage to average usage, and also just how interconnected the grid is. For the midwest, an area of 400 miles x 400 miles (roughly the size of the two Dakotas) - also about the size of a combined New York and Pennsylvania.

So, if you want to see an America - or even a large part of America - whose electricity is entirely provided by renewable energy (and mostly wind at that) - pumped hydro is going to be a part of that vision. Or if you are a bit ticked off by the (for now) really lame outcome of the COP15 sessions - well, here is a way towards eliminating the 40% of CO2 pollution emanated by the US - that's the part going into electricity production, or better phrased, the by-product of all those gigawatt-hours. Check it out - and then advocate for it. It's the only way we can get past the (no more than) 20% wind power in the mix roadblock. After all, most of America still thinks that there is no way to store lots of electricity. So who says we are a knowledge based society?

DB

Sunday, December 13, 2009

The Merit Order Riddle

Introduction

From http://images1.fanpop.com/images/photos/2100000/riddler-teaser-batman-2115970-375-569.jpg

How can you introduce more expensive electricity (on average) electricity into a system and yet drive the average price down?

OK Riddler, that's easy, when you have a Feed-In System for renewables in a market based electricity system, like New York's.

But we don't happen to have a Feed-In System in NY State. So what happens then, wiseacre?

Well, that's easy, too. All the renewables drive themselves out of business. Which is what should happen to you, Jokester....

Discussion
Well, enough with the imaginary comic or movie plot lines. And welcome to the strange world of variable (by the hour) electricity pricing in a NYISO (New York Independent System Operator) like arrangement. Maybe this picture might be more appropriate:

From http://www.alice-in-wonderland.net/pictures/mad-hatter-pictures.html

The NYISO system is really not designed for renewables; but it is well suited to electricity generators who use a fuel to produce electricity, and where that fuel is a major cost of doing business. It's also a great place to gamble on electricity prices, should that be your thing. Renewables, on the other hand (and except for biomass fuels like wood chips) have essentially no fuel cost component, and over the course of a year, essentially constant production costs. What's the gambling fun with that...?

Actually, if fossil fuel prices were stable, in general, so would be NYISO prices. And if there was effective price equivalency between all fuels used, then profits from generating electricity using different fuels would approach "competitive" levels, and NOT be extraordinary. But for most corporations (who only want competition for suppliers and not for customers), such a situation is thoroughly hated. After all, what in that world could justify huge salary bonuses, as well as commodity speculation fees, and "take-over fees"? Besides, equivalent competition between oil, Ngas and coal is now a figment of imaginations past, and is even less likely to occur in the future as we approach a "Post Peak Oil" world.

The key to understanding this riddle is what is known as "merit order pricing". In summary, only the lowest prices from a set of offered prices are selected for any given hour; and there are 24 bidding sessions in a day. Thus, if you bid too high, you don't get to sell your electricity, in theory. However, here's the kicker - of all the prices selected, everyone gets the highest price of the selected set.

But, some generators have to get money from their electric energy generation whenever their units make electricity. For example, wind turbines owners need to sell as much electricity made from their turbines as they can - which means, whenever the wind is present in the right speed ranges. They can't afford to tell the NYISO that the price is too low - any price is better than no price. Natural gas burners, on the other hand, can choose not to generate if the price is too low to justify burning all that gas. Thus, wind turbine owners will bid low, just to get their electricity sold, even if it is below the cost they need to pay back the loans/equity investors, and also their O&M costs. And even if they lose money on some hours, the hope is that they will get a high enough price during enough other hours to "make the numbers".

Perhaps some examples would help explain this situation. Let's take a mix of generating sources listed below:

Source ....Fuel Price...... Fuel Cost .......... Electricity Cost ........ Bid Price (example)
.................$/unit........... $/MBtu .............. cents/kw-hr .......... cents/kw-hr

Coal ........ 48/ton ........... 2.00 .................... 2.00 ......................... 2.5
Ngas, c .... 6.00/MBtu ... 6.00..................... 5.60 .......................... 6.0
Ngas, s .... 6.00/MBtu ... 6.00..................... 7.70 .......................... 8.0
Oil ........... 2.00/gal ...... 13.80................... 13.30 ......................... 13.5 (oil in 100,000 gal barges)
Wind ..... na .................... na ....................... 7.00 ......................... 2.0

In this case, the price of coal is $48/ton, natural gas (Ngas) is $6/MBtu (delivered), c is for a combined cycle (50% efficient), s is a single cycle (33% efficient) and oil is $2/gallon; the fuel prices have been converted to a common term ($/million British Thermal Units, or $/MBtu). The thermal efficiency of the coal and oil units is assumed to be 40%. The wind derived electricity is expected to get lots of subsidies, so it's cost would be lowered from around 10 c/kw-hr (unsubsidized) to 7 c/kw-hr (with PTC/MACRS subsidies). There could be a number of coal, Ngas and oil based providers, but within each group, prices will tend to be very similar, because all the generators tend to by their fuel at prices the same as or similar to the others. In effect, coal competes with coal, Ngas combined cycle competes with Ngas combined cycle, etc; however, Ngas cannot compete effectively with coal due to the manufacturing cost of the electricity. And oil is in a league of its own.

Further, let's assume these reflect Western New York (WNY) conditions in the NYISO Zone A region. Here, there is 1600 MW of coal based electricity generation (AES Somerset, Huntley, Dunkirk and the 60 MW co-generation unit in Niagara Falls, plus a 60 MW co-gen trash burner). Zone A would also get some of the excess hydropower (production cost of 0.25 c/kw-hr) from NYPA, assuming the industrial users for it either cannot consume it or have been forced out of business by psuedo-slave (or actual slave) labor wages in China. But, we'll ignore the NYPA power effect for now. However, some of the coal derived power may already be spoken for by customers using bilateral agreements (in effect, a power purchase agreement (PPA) for some period of time). So, in this example, the following maximum amounts of power could be obtained:

Coal ......... 1500 MW
Ngas, c ...... 400 MW
Ngas, s ...... 200 MW
Oil ............. 400 MW
Wind ......... 0, 100, 200, 400 MW (varies)

The average price for electricity over the course of a day would depend on the demand for electricity. Lets assume that no wind is available for a day with the following load profile:

1600 MW 25% of the day = 6 x 1 hrs
1900 MW 25% of the day = 6 x 1 hrs
2100 MW 12.5% of the day = 3 x 1 hrs
2300 MW 12.5% of the day = 3 x 1 hrs
2000 MW 12.5% of the day = 3 x 1 hrs
2200 MW 12.5% of the day = 3 x 1 hrs

The average load over the day would be 1950 MW, and the "apparent" average NYISO price for such a scenario would be 8 c/kw-hr (needs 50 MW of Ngas s electricity). However, the real average NYISO price would be 8.689 c/kw-hr because oil had to be used when the power exceeded 2100 MW. The coal based generators would receive a considerable "excess profit" of $88,125/hr averaged for the day (or above what their bid was at 2.5 c/kw-hr; their excess profit averaged 6.189 c/kw-hr over the course of the day). That amounts to $2.115 million/day of "above expected" income, as even at 2.5 c/kw-hr, they are making some money. The money spent by consumers on this day for their generated electricity would be $4.067 million. The effect of oil on the price is quite significant, even though only 1.9% of the energy generated for the day is derived from oil. Although 77% of the electricity is manufactured from coal that is bid in at 2.5 c/kw-hr, none of the lower cost effect from this coal is seen. Ngas is used for 21% of the electricity made; it seems to have the dominant effect on the price. Just using the weighted averages would give a price of 3.47 c/kw-hr, which is a far cry from what occurs in this case.

However, when 100 MW of wind is added for 75% of the day (1600,1900, 2100, 2300 MW load periods), the average daily price drops a bit, down to 7.791 c/kw-hr. The excess coal profit would be $75,000/hr ($1.8 million/day), and the daily electricity sales would have been $3.73 million. The wind owner would have lost $52,500/day (mostly due to the 6 hours per day when no wind was converted into electricity, and the 6 hours per day when the NYISO price was 2.5 c/kw-hr). Consumers would have saved $336,024 on this day due to the presence of the wind defraying some oil usage, or 8.3% of the cost versus the no wind scenario. Of course, the wind turbine owner(s) could not keep this up indefinitely. Over the course of a year, that would add up to a loss of $19 million to the owner(s) of the wind turbines. To supply 100 MW delivered, about 300 MW capacity (costing $600 million to buy/install) would be required, on average.

But, if there was a Feed-In Law in effect, and wind derived electricity (for 10c/kw-hr, for example) was injected into the grid, the NYISO price...would be the same as in the above paragraph (7.791 c/kw-hr). However, excess Feed-In law cost (100 MW for 18 hrs/day * $20.29/MW-hr) would be dispersed among all customers ($36,522/day). The savings ($336,024/day) coming from the 100 MW of wind derived electricity added to the mix and displacing Oil and Ngas s sourced electricity would more than overcome the $36,522/day FIT cost versus the no-wind scenario. This averages about a 1% increase in the cost of the electricity versus the NYISO + wind scenario, where the wind turbine owner lost a lot of money. That $36,522/day adds up to 0.078 cents/kw-hr......The Feed-In option would result in slightly higher overall electricity prices for all customers versus the non-Feed-In law with 100 MW of wind, but that situation is economically not viable. In addition, all the tax breaks given to the wind turbine owners (to allow them to have a production cost of 7 c/kw-hr instead of 10 c/kw-hr) only benefit the ultra-rich of the world, and the lack of taxes paid by them has to get made up by others - in general, those with lower incomes (the non-ultra rich) living in this country.

When 400 MW of wind is added at the same time intervals, the NYISO price would drop to 5.744 c/kw-hr, due to the replacement of all the oil and some of the Ngas. Customers would save much more than with the 100 MW scenario, a total of $1.38 million/day versus the no wind case. However, the wind turbine owners would have collectively lost $408,000/day, because they need an average of 7 c/kw-hr to break even, and they are only getting 5.744 c/kw-hr. They would be losing $4500 per hour for 50% of the day (prices at 2.5 c/kw-hr) and $3500/hr for the 25% of the day when they are not generating any energy. Thus, with 4 times the wind injected into the grid, the result is losses over 7.8 times as great for the wind turbine owners!

Again, with a Feed-In Law, the NYISO prices would be the same as without this useful renewables incentive. However, the price paid to the wind owners (10 c/kw-hr) would amount to $720,000/day. Since the NYISO price is less than the FIT price, the extra $306,432/day (difference between 10 c/kw-hr and 7 c/kw-hr for the energy made by the wind turbines) would need to be charged back to all of the customers, which works out to 0.654 c/kw-hr. Thus, the average electricity price would be 6.4 c/kw-hr (= 5.744 + 0.654), which is still less than the 8.689 c/kw-hr for the no-wind case. And, by losing $408,000/day on the electricity, those turbine owners could not stay in business for long.

Now let's say that electricity usage drops by 200 MW for each hour listed in the "High Demand Scenario" (HDS) due to The Great Recession, to these values, a drop of about 10% in consumption:

1400 MW 25% = 6 x 1 hr/day
1700 MW 25% = 6 x 1 hr/day
1900 MW 12.5% = 3 x 1 hr/day
2100 MW 12.5% = 3 x 1 hr/day
1800 MW 12.5% = 3 x 1 hr/day
2000 MW 12.5% = 3 x 1 hr/day

Average = 1750 MW

In the no wind scenario, the average price for the electricity would be 5.866 c/kw-hr; the lower price results from no oil being used to make electricity, as well as 6 hours per day when only coal (bid in at 2.5 c/kw-hr) was used. The excess coal gain would also drop to $46,875/hr, or about $1.125 million/day. Total generator sales would be $2.464 million/day. The weighted average of all prices would be 3.04 c/kw-hr, and almost 2.8 c/kw-hr (or 52% of the actual value) would be taken off the price charged to consumers.

With 100 MW wind added in the same periods as listed above, the NYISO price would drop to 5.586 c/kw-hr, with total sales of electricity of $2.436 million. The excess coal gain would be $1.035 million, and the loss to the turbine owners would be $81,000/day, clearly still not a feasible situation.

In a Feed-In law arrangement, the initial NYISO price would be the same, but the $36,522/day extra would need to be distributed over the 1750 MW (0.09 c/kw-hr). Thus, the overall price in this arrangement would be 5.676 c/kw-hr (= 5.586 + 0.09), and customers would be saving a net of $88,200/day versus the no wind scenario IN SPITE of paying the higher Feed-In Law rates for wind energy.

Without a Feed-In law, very high prices for electricity are needed in a NYISO like system in order to make wind turbines economically viable. The other option is that taxpayers will need to make up the difference. This can arise from many things - no coal (or nukes), or high Ngas and oil prices. For example, if oil and Ngas prices doubled and coal usage was dropped to 1200 MW, wind turbines would be profitable (an extra $93,000/day). But if oil and Ngas prices remained the same, the wind turbines would still be money-losers to the tune of $19,500/day.


Now, keep in mind, this is a simple model - the actual NYISO system is far more complicated. But, the merit order effect and the beneficial effect of Renewable Feed-In Law priced energy on European electric grids HAS been demonstrated. For example, see http://europe.theoildrum.com/node/5354 which references some reports by the EWEA.

What This Means
The more wind that is put into this model, the lower everyone's electricity prices get, since the higher priced oil and single cycle Ngas generators are no longer needed as much or at all to supply the load. Similarly, if the overall electricity demand drops, electricity prices drop significantly, again for the same reason. When both situations coincide (more wind, a drop in demand), the NYISO generator price drops the most. And as a result, the wind turbine owners lose ever larger amounts of money, even though customers get a greater bargain for their electricity.

The owners of the coal burners are the prime beneficiaries of this system, as long as they are using coal burners with effectively no capital costs (old, fully paid off plants). If a new coal burner was inserted into the system (such as the proposed $2.3 billion, 630 MW IGCC coal burner, now abandoned, that was proposed for Huntley), it would be much higher priced than the electricity from the old coal burner. For example, prices of at least 10 to 12 c/kw-hr (before any CO2 stashing efforts are added) would be needed. This would make the old coal burners even more profitable facilities to operate.... The coal burner owners would also benefit enormously when the prices of Ngas and/or oil rise. Perhaps this is why NYPA was asked to provide a PPA for the proposed new Huntley facility (NYPA declined, citing the high cost of this coal derived energy as the reason for doing so).

In this model, the price of coal has effectively no impact on the price of electricity until the cost of making electricity is more expensive than it is with Ngas. At present, an old coal burner has an electricity production cost of about 40% of that using Ngas. Ngas plants can reduce costs by co-generating (selling turbine exhaust steam), but so can coal based facilities. Similarly, the cost to produce wind electricity (7 c/kw-hr) has very little effect on the NYISO electricity price (up or down), at least in this model. In NYISO markets where there is no coal generation (or nukes), prices would almost exclusively based on the Ngas price.

In a market like this one, wind is generally very unprofitable unless the price of electricity is significantly boosted by high Ngas and oil prices/lower coal usage, so that the overall system price rises to a level needed to keep wind profitable. The best alternative would be for wind turbine owners NOT to participate on the NYISO spot market, and instead sell their power via PPAs/bilateral agreements (same thing, essentially), if a Feed-In Law system is not possible. However, they must compete against old coal and old nuke facilities, which have lower production costs as presently defined for these PPAs. In general, they need a combined price (sum of purchased price and "bonus bucks" like RECs, RPS payments, etc) of about 7 c/kw-hr in a decently windy location, and that price is higher than coal or nuke based electricity, and at present, some Ngas based electricity.

Thus, unless old coal burning facilities are removed (and these are the lowest cost electricity producers under current arrangements, where CO2 pollution and the health effects of coal combustion (estimated as $62 billion/yr for the U.S.) are never taken into account by the originator of the problems), and replaced by MORE EXPENSIVE natural gas burners, there is less than zero incentive to install wind turbines. See the Physicians for Social Responsibility Coal Report for more on that coal use vs. public health topic (adds about 3.4 c/kw-hr to coal derived electricity).

If a Feed-In Law arrangement is used, where any wind generated is given priority access to the grid and at fixed prices, the same price lowering initial effect is seen on the Spot Market as without a FIT arrangement. However, even after the extra FIT price is added back to the electricity prices, the overall electricity price is STILL cheaper than in the no wind scenario, significantly. The advantage of this arrangement is that a wind turbine owner does not keep going broke/require additional taxpayer subsidies. And since they remain profitable no matter what happens to overall electricity demand or to Ngas and oil prices, manufacturing of these systems locally is possible because as more wind is added to the grid, no effect on profitability of wind turbines is observed. After all, if the customers of the wind turbines are making a profit selling electricity, more will probably want to do the same. Furthermore, the most likely other effect of the Feed-In Law and of continued additions to the grid mix of wind turbines is that the "extra gain" of old coal burners DECREASES. Without the wind turbines, coal burners become significantly more profitable than when wind turbines are present. This is an important behavior modification incentive...more wind means less profitable coal burners because overall grid prices are dropped by reducing the Ngas and oil used to make electricity.

Another way to make wind turbines economically viable is to raise the cost of polluting electricity, via import duties for imported Ngas, as well as CO2 pollution taxes for these fossil fuels. But that will raise everyone's electricity very significantly in a short period of time, and that would be extremely unpopular. Furthermore, unscrupulous multinational wind turbine owners could then raise their prices, requiring higher CO2 pollution taxes/disincentives. As the saying goes, here is no such thing as a free lunch....

Oh well, hopefully that was not too confusing.....

DB

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