Friday, June 29, 2012

How to Finance a Worthwhile Economic Boomlet

Some Vestas offshore wind turbines, care of Vattenfall (a huge electric utility largely owned by the Government/people of Sweden). Note the helicopter landing units (red) on the turbines.

Sometimes government actually has a role to play. With well over $2 trillion in corporate bucks parked idly and essentially doing nothing of productive value in the US, why not put it to work? Unfortunately, once money gets laundered through banks to other banks and to still other banks, interest rates get absurdly idiotic and usurous. And by then, many projects are no longer economically viable.....

But, with regards to financing green energy, as long as the scheme is not bogus and it has long term viable prices for the produced power, green energy bonds are really popular, even in the aftermaths of the massive frauds in housing and "financial products" - see here for and example:

http://www.sustainablebusiness.com/index.cfm/go/news.display/id/23726

However, the aftermath of the massive US bankster scams (and new ones like this: http://www.nakedcapitalism.com/2012/06/quelle-surprise-barclays-settlement-on-liboreuribor-fixing-illustrates-bank-crime-pays-well.html and http://www.nakedcapitalism.com/2012/06/london-whale-trade-explodes-current-estimate-of-jp-morgan-losses-as-high-as-9-billion.html) which then get/got transferred to Europe and elsewhere still linger on. Supposedly German banks can't finance much more than half of the offshore wind and other renewable investments needed to replace the nukes Germany is phasing out of existence:
http://www.offshorewind.biz/2012/06/25/german-banks-have-limited-ability-to-fund-offshore-wind-power/

Recently,  NY City municipal bonds due in 2045 at 3.25% were offered for sale. The money from the sale of these bonds will be used to finance the sewage plant improvements and more water delivery. For an offshore wind farm in the Great Lakes rated at 500 MW, using such money would provide a Capex cost of 6.8 cents/kw-hr! That would work out to a production cost less than 8.5 c/kw-hr... That's the power of long term low interest loans for capital intensive projects. Such a $2.25 billion project would make 35,000 job-yrs of direct employment, about 70% of which are not related to the manufacture of the actual wind turbines...

Of course, the reason that German banks don't have enough money to finance their offshore plans is because they blew it on US, Irish and Spanish (and similar) real estate speculation, or else the likes of Goldman Sachs just took them to the cleaners with gambling on commodities like oil price futures or derivatives and derivatives of derivatives. And then, looking for safety, they went and invested in Sovereign Bonds. Oh well, as WC Fields said when asked whether the card game he was playing was a game of chance, the ever so truthful answer was "not the way I play it". Of course, those banks can't explain to the German workers where so much of the money that came from the incredible productivity of German industrial workers went. But they (banksters) are really good at the politics of deflecting blame onto others - some even claim they more or less can purchase the media access to make the public think theses banks are essentially blameless in this matter. Wow, a magic trick!

But meanwhile, the capital demands of offshore wind are what they are - about $4.5 billion per GW of capacity. Recent performances of turbines in the North Sea have been extraordinary - over 50% of rated capacity for the Alpha Ventus (60 MW) project, for example. That is how Germany needs to make up for the 22 nukes they are going (or say they are going) to shut down by 2022, as PV is too expensive and just won't do for the 60% of days that are overcast as well as when its nighttime. The North Sea has the wind resource - winds average 10m/sec, and calm seas area rarity. But, offshore wind turbines don't grow on trees, and this is a capital intensive, high skill labor requiring renewable energy project. So where's the money? No money, no turbines, no turbines, no electricity, and no electricity, no civilized society in Northern Europe (and lots of places). Oh well.... In this big game of poker, somebody's hand just got called...

Meanwhile, in Japan, their newly legislated Renewable Energy Feed-In Tariff (FIT) goes into effect on July. Due to Fukushima their economy has taken at least a $50 billion hit, and at best only two of the 54 nukes (50 of which are operable, 3 that are meltdowns and one that is pretty thoroughly trashed)  are likely to be in operation for the peak of the summer, when electricity demand is at a maximum. For them, a massive installation campaign of PV will produce immediate relief from their "peak electricity crisis". And this will be facilitated by the very high price offered for PVs for the first year. By next year, Japan is likely to be the country with the highest PV installation rate. And most of these PV systems are likely to be "Made in Japan", too - that is the probably real intent of the FIT law, which is to kick start the Japanese economy. By next year, longer lead items like wind turbines and geothermal systems are also going to be undergoing a "boomlet":
http://www.eurotrib.com/story/2012/6/22/71757/9587

By offering high prices ("a premium") for rapidly installed renewable energy systems (especially PV), lots of investment can occur rapidly, and lots of installation labor can be used up. In addition, lots of expansions of existing PV manufacturing plants also can rapidly happen (demand stimulates production), and this will also generate lots of construction and supply chain business. Because it is Japan, it is unlikely that imports will be used to any significant extent, despite the tremendous worldwide glut of manufacturing capacity (worldwide sales = 30 GW/yr of capacity, worldwide manufacturing capacity = 60 GW/yr). After all, importing the PV product is not economically stimulative...., and instead is an economic drain in a country with too much labor and too little work for those workers. Several Japanese companies are already leaders in PV manufacturing, including Kyocera and Sharp.

Within a year, Japan is also likely to be undergoing a boom in wind turbine installations (wind sourced electricity is much less costly than PV, and Japan is a pretty wind resource rich country, especially offshore). They may also rapidly become world leaders in floating offshore wind farms, because the available shallow wind waters are fairly limited in Japan (waters get really deep really fast in the Pacific and in the Sea of Japan.

Of course, we could use some "economic boomlet" in WNY, too. Especially with regards to projects that decrease our consumption of polluting fossil fuels and nuke based electricity. So far, using the FIT approach with regards to energy appropriate for WNY (biomass, biogas and wind turbines) seems to be one of the best approaches available to us....

DB

Sunday, June 17, 2012

World Wind Day - June 15



From http://www.globalwindday.org/, one of the winning pictures from the Global Wind Day photo contest. This is one of the two 300 kw Enercon units that were installed at the Mawson Antarctic station in 2003. These provide about a third of the station electricity requirements, and avoid the consumption of a lot of very expensive diesel (very costly to transport it down there) - see http://www.antarctica.gov.au/living-and-working/station-life-and-activities/station-amenties-and-operations/renewable-energy/wind-power/performance. This is a really windy place - one of the windiest on earth, with an average wind speed at a 30 meter height near 9.6 m/s. These units have had an average uptime of 93% in the last 8 years.

But, what a cool picture (it's winter down there nowadays) - nifty Aurora Australias lighting, too.

World Wind Day was initiated by the European Wind Energy Association (EWEA) in 2007, and this is all about the wind biz (manufacturers, installers, workers, beneficiaries) celebrating accomplishments and planning for the future - see http://www.globalwindday.org/about-wind-day/ and for more nifty pictures, http://www.ewea.org/index.php?id=36. Plus, its a neat excuse to go visit a wind turbine and make a holiday of it. So, if you haven't already done so, take a stroll along the Lake Erie coastline in South Buffalo and check out Lackawanna's (and now Hamburg's, too) finest views of wind turbines by the water.

The wind sector is in a bit of a flux right now, and aside for the USA, making plans for the future, especially offshore wind in Europe. This is actually a central part of Germany's economic stimulus (and also industrial policy) efforts, though it occurs without any need for taxation - it is funded via electricity consumers entirely. The plan is to employ over 175,000 people in the offshore wind sector by 2020. After all, replacing all of its nukes won't come from merely being efficient. Here is an example of how this will be accomplished:



From http://www.offshorewind.biz/2012/06/12/denmark-siemens-completes-75-meter-long-rotor-blades/ - half of a Siemens B75 Quantum wind turbine blade. These will be used in the new 6 MW gearless Siemens offshore wind turbines, mostly destined for the Baltic, North Sea and Atlantic Ocean. The new blade design is supposed to be stronger and lighter weight than earlier models. Better living via mechanical and chemical engineering, and a lot of super-intensive supercomputing time for the design (for its optimal aerodynamics).

In the US, manufacturers are looking at exports as a way to keep facilities open when the US wind business grinds to a halt on December 31, 2012 with the expiration of the PTC/MACRS/Section 1603 incentives. Many "reasonable" people are finally understanding just how extreme the Republicans in the House and Senate are going to behave to stop ANY kind of economic stimulus. And installing wind turbines is just that - economically stimulating, job creating or maintaining and it avoids a whole lot of expenses to buy fuel for pollution based natural gas or coal electrical generating units. Ontario and Quebec will get even more of a boost later this year/next year as developers head north where sane energy investments are and will still be possible. Oh well, it's not as if there were not warnings that this would occur when the PTC, ITC and MACRS incentives were only extended in 2009 to the end of 2012. What were the Democrats thinking, anyway? How come they did not "man up" (or "woman up") and install it for 10 years, given the history of Republican legislative hostage taking with regards to the PTC extension? Oh well, that's a rhetorical question, as we probably don't want to stoop to such low levels of intelligence in order to come up with an answer....

Anyway, I hope your World Wind Day was a great one. And if we are lucky, there will be more to celebrate in the future, though you might have to go to Canada to do it...

DB

Saturday, June 16, 2012

Time to Demand Economic Demand


From http://en.86wind.com/?p=3069, an announcement of a major order (April 12, 2012) for Vestas from a Brazilian company. This wind farm (127 X V100 x 2 MW wind turbines) will require an investment of close $US 500 million. And it will also create a demand for about 7800 job-years of direct employment, with a multiplier effect similar to those in the steel and auto industry. Somewhere. Too bad some of that was not on the US side of the Niagara Frontier....

It will be located in the State of Rio Grand do Norte, located in the easternmost corner of Brazil next to the Atlantic. This is also one of the windier locations in South America (see http://www.contourgloballatam.com/portfolio/brazil/asa-branca/ - an example of this areas wind potential) due to the way that the prevailing tropical winds coming from the ocean flow across this flat area of land - see  http://www.gwec.net/index.php?id=118. The average output of this wind farm should be near 50% of the nameplate capacity, which is really good. And of course, this is also a great way to generate electricity without pollution. Brazil has decided to install significant quantities of wind turbines and like much of the world, in return for this project, Vestas will have to incorporate some local manufacturing content - probably the towers, and perhaps the blades. But, unlike the exception that is NY State, this is considered a fair trade.

Since the Great Recession struck following the collapse of the 2008 oil and natural gas bubble (June 2008), followed shortly by the fall of Lehman Brothers (September 15, 2008 - see http://en.wikipedia.org/wiki/Bankruptcy_of_Lehman_Brothers) and the worldwide freeze up of credit happened immediately after that event, tens of millions of people have lost their jobs and trillions of dollars of wealth either disappeared or got sucked into the bank accounts of some really wealthy people and/or corporations. It has not been a pleasant time, but the Great Recession was the culmination of years of gambling by banks, psuedo-banks and the superwealthy, years of wealth extraction by the wealthy of the world, and the inability of the Bu$h administration to keep "bubble-nomics" sustained. Eventually, too much money was being pulled out of the poor and middle class to pay debts that they incurred in lieu of getting wages commensurate with the productivity gains in our society, mostly from the majority of us. Something had to give, as the proverial pack mule of our society just got worked too hard and saddled with too much burden. This was also not unexpected - see http://www.nakedcapitalism.com/2012/05/james-k-galbraith-we-told-you-so.html. This Great Recession also was based on massive amounts of fraud - especially appraisal fraud - crimes for which none of the major beneficiaries (such as Angelo Mozilo ex CEO of Countrywide) have even done a perp walk, though a few have had to part with some chump (for them) change after stating they were not guilty of anything like fraud and insider trading... (http://www.forbes.com/2010/10/15/mozilo-sec-fraud-equities-markets-securities.html).

So, now we have an economy not performing anywhere as well as it should be, thanks to a significant degree to Republicans doing de-facto economic sabotage via blocking and hindering any kinds of economic stimulus proposed to their maximum extent possible. And for good measure, they then blame the hapless President Obama on the crappy economy - which is crappy partly due to their insistence of imposing austerity and demand killing policies as well as a scorched earth policy of fighting anything that would increase/stimulate economic demand. It worked as a campaign strategy in 2010, as Democrats stayed home in droves while legions of teabaggers dutifully did their dirty work at the polls. Maybe it will work in 2012, much to the shame of all involved and any who won't do anything to stop this toxic train wreck from occurring in the first place...

Of course, part of the reason the economy is decidedly under-performing is because of the timidity of the response to the Great Recession. Economists such as Galbraith, Black, Krugman and Stiglitz were calling for a stimulus campaign based on infrastructure and renewable energy/energy efficiency to the tune of nearly $1.5 trillion for starts, and the net effect of what was passed in early 2009 was $500 billion and $300 billion in rather useless tax cuts. And while this was certainly better than nothing, it was not sufficient to create enough economic demand to employ all of the more than 7 million people who lost jobs in the 2007-2009 time period. The lack of stimulus was favored by the Bankster contingent in the Obama administration (Tim Geitner, Larry Summers, etc), and like most times, they were horribly wrong. However, the big banks were restored to their glory by loaning them money at close to zero percent, and then selling them Treasury bonds (paying 3% interest) that the government had to issue to give these banks enough money to stave off bankruptcy. And soon most of the trillions that the big banks were given was back in the gambling business (notably the oil commodity biz), though certainly not financing a lot of real economic growth.

There were some good things accomplished, and at least the steep decline in the waning days of the Bu$h 2 debacle (-8.3% economic "growth, -833,000 jobs/month lost) was halted and some steady but inadequate job and economic growth resumed. And hey, the stock markets (a proxy for corporate wealth) has risen by over 50% in 3 years, which is not too shabby. Corporate profits are at an all time high, though partly due to firing so many people and not hiring them back, and/or paying workers less wages for the same work done. The auto industry rescue was a big success, probably saving 5 million jobs in what remains of America's manufacturing sector. And then there was the Section 1603 rebates for renewable energy (took the place of the Production Tax Credit, whose usefulness faded away almost completely when corporations did not pay taxes and thus could not use tax credits and tax deductions). The Section 1603 program gave a rebate worth 30% of the installed cost of a project upon completion to "PTC worthy" entities, and it has been responsible for most of the wind turbines installed in 2010, 2011 and 2012 (the incentive ends at the end of 2012 for projects whose construction was started before January 2012).

The main problem with our economy is a lack of economic demand. That is, customers cannot buy or get loans for things, and this means that those who make these things cannot sell these things at the rate that is required for economic growth. With lackluster sales, hiring is anemic, and investments in new productive assets are not warranted, and in fact often would be money losers. The reasons for lack of demand include staggering rates of imports of manufactured goods as well as oil that is now 5 to 7 times as expensive as it was in 1998, but even more important has been stagnating wages (at best), steadily increasing costs for health care, college and oil, dreadful levels of job insecurity combined with roughly 25 million people unemployed or only partially employed. And since wages won't rise until the balance is restored in employment, which won't be obtainable until people get more money to spend on items made in this country, well, a stagnation results. Another important factor concerns who is reaping the rewards of the significant productivity gains that have steadily been occurring - see http://www.dailykos.com/story/2010/07/29/887130/-What-happened-to-productivity-gains-Income-Inequality-Kos and http://www.salon.com/2012/03/05/welcome_to_the_1_percent_recovery/. For example, in 2010, the top 1% income earners (with incomes above $913,451/yr) captured 93% of the productivity gains of workers, leaving just 7% of those gains for everyone else. In fact, the bottom 90% lost an average of $127, while the top 1% had a gain averaging over $105,637. The richer the person the bigger the gains and the poorer the person the greater the loss. Odds are, 2011 will be pretty much of a repeat. From the Salon.com article:



Cute. It's a good thing there is no such thing as class warfare, except by the rich upon all else.... otherwise, we might have to get a touch outraged by such inequality. Yeah, right...

So, if we envision the top 1% as a black hole for money, that is where it is disappearing into, past the event horizon. Some of this will get spent, but much of it will not get spent. After all, odds are the rich are pretty much set in most everything until the next Porsche model comes along, which tends to be once a year.

This brings up a big point. One of the present "framing" campaigns by the right wing-o-sphere proagandists is to portray our economy as if it was a family budget. And if more gets spent than is incoming, that family will go broke. So if society is like a family and were are spending more than we take in....well, before it gets any worse (made really bad by the Great Recession, of course). But, this is a very poisonous frame, a subtle lie with real and immensely tragic consequences.

Our economy is NOT like a family. In an economy, your spending is someone else's income, and their spending is your income. If one spends more than the other earns, a bubble forms. And if one spends less than the other earns, a recession will occur. But if both spend less, that means that both will earn less, and that recession will become a depression. This can quickly devolve into what is known as the deflationary death spiral.

The bottom 90% are still losing money, while the top 1% cannot spend it fast enough (there is well of $2 trillion in cash that corporations have stashed in the last three years). Corporations are "deleveraging" as fast as they can, spending less, stashing away more, in addition to what the wealthy are doing. And unless that money is put to work fast, it can ALL go away. This is why taxing rich people and spending that money on poor people has such strong economic growth associated with it at the present time - besides, that money will just trickle back up the economic pyramid, anyway.... But, even if the rich do not get taxed, the US Federal government can now borrow money at essentially 0% or lower real interest rates (less than the rate of inflation). If that money is put to work on building wind turbines, train lines, roads, repairing bridges, new electricity transmission lines, new sewage lines (a Buffalo special), insulating schools, etc and not squandered on new oil wars or other similarly stupid stuff (like tax cuts for the rich, sports teams, gambling palaces, etc), good things will happen.

Right now, whoever does it (rich people, Federal Government, state and local governments, corporations) - investing  renewable energy, in transportation that avoids the use of oil as well as heating systems that avoids the use of natural gas are very wise ideas, ones that will be quite a demand stimulant. Like the half a billion dollar wind farm in Brazil, this will put people to work making these (in Europe, South America and maybe even in North America) and the 8000 parts that go into them and put people to work installing them, and maybe put people to work building the things that install and transport wind turbines (special truck/train cars, cranes, cement trucks, other construction equipment, electrical likes/substations, etc). And by avoiding squandering money on new nukes or to buy fossil fuels to make electricity, society is ecologically and economically better off.

So, come election time, people should be demanding an increase in economic demand. It really does not matter if it is private or public - and it does matter what it is spent on - but money has to start getting put back to work. If it is not, our recent "Great Recession" will be just the warm-up act for the Great Depression 2, and aside from a few wealthy Republicans, who needs that, anyway?

DB

Thursday, June 7, 2012

WNY's Supercheap Electricity in 2011-2012

In case you didn't notice, the generated portion of your electricity bill is very low by historical standards these days, and it was also that way in 2009, 2010 and 2011. Of course, the rest of the bill is pretty much the same as it always was, which means that the total bill was not too much different. However, this has really big consequences for the WNY economy....

Anyway, if you are reasonably efficient with electricity and use the average (550 kw-hr/month) or less per household for this region, you paid more for the delivery of electricity than you did for the actual electricity that was made. You may have also heard that NRG is planning to shut it's Dunkirk unit after spending lots of money to upgrade the pollution controls, or that the AES Somerset unit went into bankruptcy recently. Lot's of people blame cheap natural gas prices as the main culprit, but apparently that is just not so for this part of NY State, and has little factual basis...

The summary and some details of NY's electricity for 2011 - the 2012 "NYISO Gold Book" just came out - it can be found here: http://www.nyiso.com/public/webdocs/services/planning/planning_data_reference_documents/2012_GoldBook_V3.pdf - it's kind of difficult to find. It lists the electricity outputs of all generators in NY State.  The 4 big generators in this region are the NYPA hydroelectric complex (now rated at 3100 MW), as well as the AES Somerset (686 MW rated), NRG Huntley (380 MW rated) and NRG Dunkirk (540 MW rated) coal burners. Last year the hydro unit averaged 1670 MW  delivered (above average), AES Somerset averaged 420 MW (61%) and the two NRG units 226 MW (42%) and 160 MW (42%); the NRG outputs are lower than average.

Most of the NYPA electricity from the Falls is shipped out of the region to Municipal Electric Utilities (MEUs) in NY and neighboring states, though some local ones get this electricity (notably Jamestown). This arrangement is specified in the 1957 Niagara Power Act, which allowed NYPA/NY State to build the facility. Less than 500 MW is used locally by various industrial firms; four firms alone use about 280 MW, because electricity is more of a raw material than an incidental factor in the cost of production and operations, like it is with Geico (also a NYPA electricity recipient, for some reason not connected with them being owned by the owner of the Buffalo News, of course). The big coal units produced an average of 806 MW, while the Jamestown facility averaged less than a 4 MW output.

Locally we used around 1790 MW on average (from the NYISO website) in 2011. Of that our five wind farms of note (Steelwinds, Whethersfield 1 and 2, Sheldon and Bliss) produced an average of 87 MW, the local trash burner (Coventa) in Niagara Falls made 27 MW and local landfill gas units made 21.2 MW. The 526 MW of rated capacity of local natural gas fired generators averaged 31.3 MW, or not quite 6% of their capacity. If this strikes you as an enormously bad investment of the owners, you're right, it is. Natural gas supplied less than 1.7% of WNY's electricity last year, despite the low prices for gas, ones which are below the marginal price needed to justify fracking for gas in new wells. Way below that price.... After all, wind energy provided almost 2.9 times as much electricity as did natural gas, and when the 6 turbine Lackawanna addition and the Stony Creek (~ 90 MW in Orangeville, located in Wyoming County) wind farms are taken into account, wind will provide over an average of 100 MW of electricity to WNY.

Anyway, here's the totals and how we can estimate how much hydroelectricity (which costs less than 0.2 cents/kw-hr to actually make, and about 10 times that to transmit....) or imports of electricity from outside of Zone A (basically 7 WNY counties) was used in WNY in 2011. The values listed  are in average MW, which are the MW-hr/yr made divided by the 8760 hours that were in 2011.

Coal      810.2
Wind       86.8
Ngas       31.3
Trash      26.6
LFG        21.2

Total     976.1

Since we used 1790 MWand made 976.1 MW, the difference is 813.9, or close to 814 MW. What was really different from last year is the smaller amount of coal based electricity made in 2011 (1066 MW in 2010) and larger amount of hydro that was dumped onto the WNY market - 1670 MW in 2011 versus 1432 MW in 2010. The change in coal generation (-256 MW) almost exactly mirrors the change in output from the NYPA Niagara Power Project (NPP) of +248 MW.

When NPP electricity is bid onto the NYISO Zone A market (once per hour), it can go for as little at $2/MW-hr (0.2 cents/kw-hr) - even less than the 1 c/kw-hr that wind can be bid in for (which is the marginal cost of production for a modern, commercial scale wind turbine). Nobody can undercut NPP electricity without going into negative territory - that is, PAYING somebody to take electricity - which actually happens in Europe on really windy days with low demand for electricity.

The reason that the local coal burners are in a world of hurt has nothing to do with low natural gas prices - in 2011, it was from the increased NYPA output at the NPP. Last year was rainy and maybe NYPA was allowed to take larger quantities of water at night or during the non-touristy part of the year. And maybe the more efficient units recently installed at the NPP are starting to come into effect. Maybe in a drier year, less NYPA juice will get generated. By the way, the cost to make electricity from natural gas  at some of these facilities (like in Lockport) might justify on-site usage but not export of electricity (that way General Motors, who owns the Lockport factory which gets its steam and electricity from a gas fired 221 MW co-gen facility, would not have to pay National Grid those onerous transmission and demand fees). At $2.33/MBtu (today's Henry Hub spot market price for Ngas) and $1.3/MBtu gas estimated transmission fee the delivered price would be more than $3.66/MBtu. At a 50% thermal efficiency, a gas fired plant would need about 4 c/kw-hr to make it worthwhile to make electricity (2.5 c/kw-hr for the fuel and 1.5 c/kw-hr to cover expenses). Since recent prices have averaged 2.5 c/kw-hr and last year's average price was near 3.4 c/kw-hr, using below the cost to make it fracked gas to make electricity is pretty much a brain dead certifiably stupid thing to do if the goal is to be profitable. However, if the goal is to lose money, it is a fine idea - IN FACT, SHEAR GENIUS!

Seriously, next time somebody tells you that low natural gas prices are the cause of the demise of the Dunkirk coal burner, there is a one word appropriate response called for - LIAR. Maybe if you wish to be charitable, you can use more words, such as "Wow, that's mighty ignorant of you." Your choice.

DB

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