Saturday, January 26, 2013

A Glimpse of the Possible (and a Good Possible, too)

 A GMK 7550 mobile crane installing a commercial scale turbine on an 80 meter (262 feet) tall tower in Texas. That state now has over 12 GW of wind turbines operating, which is barely scratching the surface of their onshore wind energy potential of around 750 GW (delivered basis). BTW, the entire country only uses around 470 GW......

In a recent news article by Bloomberg New Energy Finance, the 2012 wind energy results in the US were described. Last year, about 13.2 GW of new wind turbine capacity was installed, and to do this about $26 billion had to be spent/invested. And since the "going" wind biz investment conditions are a 60% equity/40% debt basis, somebody(ies) had to plunk down close to $16 billion in cash and then get loans for the next $10 billion to do these wind farm installations. While that is not a humongous number by today's standards, it is not chump change, either. Anyway, this is good news, whether you stick to business news or are one of those eternally optimistic do-gooders who think that the world can actually be a better place in the near future, and that we can improve upon our present lot….

This article shows a glimpse of the possible...
http://about.bnef.com/2013/01/18/burst-of-construction-in-december-delivers-record-year-for-us-wind/

Too bad this trend can't be fitted to a Gompertz curve (look it up in Wikipedia -> http://en.wikipedia.org/wiki/Gompertz_function), with exponential growth now and then a leveling off once the US electricity supply is provided by wind turbines and things go into a 20 year replacement cycle. But that would take vision, and especially "big picture vision", which seems to be sorely lacking among so many national  and national environmental leaders, whose expectations have been so severely beaten downwards. Too bad.... As we get those very proficient at identifying climatic and environmental problems but too wimped out or besotten with photovoltaic fantasies (shade of nukes and too cheap to meter) to see what is possible. But maybe it is also a distrust of anything with "industrial" attached to it; wind turbines are, after all, all about stimulating industrial output, and when you get up close and personal to them or the cranes that install them, they are not wimpy looking…,  sort of like the cranes used to put them up.

Well, it's a $26 billion for that year in sales industry that almost got annihilated by Republican Congressional insistence in 2012. As it is, 2013 will likely be a more subdued year, due to the ultra-late extension of the incentives that prop up the wind industry in the US by subsidizing low wind electricity prices to compete with highly subsidized pollution sourced electricity prices…. Many of the thousands of people who were laid off will get their jobs back for a few more years, and hopefully more than a few years. The extension of the renewable energy subsidies evidently means that any project where construction is started by the end of 2013 (even if it takes until 2014 or 2015 to complete) will get the subsidy. But this also means the the total number of people (75,000) employed in the US wind industry at its peak is unlikely to grow much. Last year about 70% of all manufactured parts for wind energy products were made in USA; that is not too likely to grow, either, though the imposition of tariffs on Chinese and Vietnamese wind turbine towers (they just got busted for rampant dumping) might boost the 70% number a bit.

In 2011, the US did about $14 billion in wind business, but a lot of the 2012 activity was due to the impending end of the tax avoidance incentives that allow wind sourced electricity to be sold at prices similar to coal, natural gas and nuke sourced electricity. However, it does show a bit of what our country is capable of, even though severely hamstrung via the convoluted incentive system. In fact, over 5 GW of capacity was installed in December of 2012, which is one of the nastiest months, weather wise, to install wind turbines (one of the windiest and coldest months of the year thought much of this country). That works out to a pace of nearly 60 GW ($120 to $150 billion) worth of turbines per year. And that is almost decent…

So, even without a lot of suitable installation equipment (such as the mobile crane in the pictures), which permit significant fast installations compared to conventional "crawler cranes" such as this red one (below), a rate of turbine installations of 60 GW capacity can be installed. As of the bend of 2012, we only have 60 GW worth of turbines installed….

top: GMK7550, from http://www.yelp.com/biz_photos/crane-service-inc-sweetwater-2?select=QgXJQsLFAbw33IMKbaCIYg#QgXJQsLFAbw33IMKbaCIYg

bottom, Manitowoc 18000 at http://www.craneblogger.com/wp-content/uploads/2011/04/m-0012.jpg

A Clipper wind turbine installation in Kansas in 2011 - also an 80m meter tall tower

Why, at that rate (and rates like that can be improved upon with a little practice), in a decade, that would be 600 GW of new installs (660 GW total) that would be producing an average of ~ 230 GW of electricity, or roughly half of what the US now consumes. That would get rid of natural gas consumption of around 7 trillion cubic feet per year (all that is now made via fracking) and half of the coal based electricity now made.

Odds are, we could do a lot better than that, since large mobile cranes like the Manitowoc GMK 7550 can be made in less than a year (jobs, jobs, jobs). These not only cut costs drastically but take a lot less time to assemble and then "demobilize" than a crawler crane. They only need 5 truckloads of parts too rig up, versus the 18 truckloads for a decent sized crawler unit. Those seem so 20th century…. Plus, these big mobile cranes are (relatively) easy to move around, and they even fit on highways…..

A GMK 7550 (used in top photo) on the road again... from
http://www.hansebube.de/vorb1/gmk7550/02gmk26.jpg

So, it's not the lack of cranes, or the lack of factory workers to make such cranes or the parts that go into commercial scale wind turbines. And it is certainly not the lack of investable money, with over $2 trillion of corporate cash parked in overseas accounts just looking for a home/investable project. Or similar sized chunks of money that could be made tat the drop of a hat by the Federal Reserve, like what was done for the big banks at the height of the Great recession fraud-fest in late 2008/early 2009.

So what should we name the abysmal lack of wind installations (with the December 2012 exception)? Call it Climate Cowardice. Or maybe the fear of large scale real jobs/real wealth creation. Call it whoring for the natural gas biz (they want the wind generation to go away SO BADLY so that they can raise their prices several times above what methane prices currently are so that the money loss from fracking will be staunched) big time. 60 GW of wind installs per year is about $150 billion a year - about $115 billion in turbine sales and $35 billion worth of construction, and roughly 2.3 million job-years per year. It is a nice start on what has to be done, after all. Any objections? If so, speak now or forever hold your peace, or in a less flattering way, your piece.

So, want to make a better world, or at least the one that we have less worse than would otherwise be the case? For starts, think of the rate now demonstrated, that of 5 GW/month, and push it to around 10 GW/month. Why not make "Yes we can" into more than a hollow election campaign marketing phrase…? Besides, a lot of "crane fanatics" are out and about, and they like to take pictures of these very photogenic machines in action. So why not give them more picture taking opportunities, and make them happier?

Monday, January 14, 2013

Electricity Pricing in WNY: Gentleman, Place Your Bets


So who would design a pricing system for electricity that is best described by that roulette wheel? Well, there was a guy named Ken Lay (alias "Kenny Boy" Lay) who eventually owned a major gas pipeline company that evolved into a major perpetrator of fraud (Kenny Boy got convicted but died before doing time) and he helped design such variable pricing "competitive" systems. But NY State (and lots of other states like California (Enron robbed California and California businesses/residents something silly)) also went for the idea, which is embodied in the NYISO "marginal based pricing system" where hourly bids set the price of electricity... It turns out that such pricing schemes can be easily scammed in numerous ways (one of the reasons Kenny Boy was pushing so hard for their adoption as an electricity pricing system), especially in conjunction with natural gas suppliers and pipleline owners, as well as willing and able (to commit widespread fraud) accounting firms and big banks. SO, no wonder Kenny Boy was such a champion of "competitive pricing systems". His fraudulent scheming - which also made him very, very rich - helped send California (and the US) into a major recession in the 2000-2001 time period...

If you know where to look, there is a lot of useful data to be obtained about all kinds of subjects, and this definitely holds for WNY's electricity pricing and consumption. One example of these free data sources is the NYISO website (http://www.nyiso.com), where many of NY's electricity statistics (price, usage and much more) can be found. If you want to find out what the average price was for electricity in terms of what was paid to those who made it, NYISO is where you will find that answer, though it may not be prominently displayed. It turns out that we paid a relative pittance to those who make our electricity in 2012 - an average of 3.1 c/kw-hr. That is, for a dollar, you could heat ONE TON of water 54 F, or pump 32 TONS of water (7674 gallons, or a 10 foot cube of water) upwards 1060 ft, at least if you could access the prices paid to those who make electricity. However, by the time most people get their electricity, it costs around 15 c/kw-hr, so to pump that much water that far up to the top of a big hill might cost you 5 bucks… Anyway, that's a lot of work which could be done for you for a very low cost….

But, much like the NY Lottery, when it comes to picking the right numbers (as in, what will the average price for electricity be next year or 20 years from now on any given day), well, the operational line is "Ya never know" for NY State. Right now, electricity is amazingly inexpensive, at least with respect to how much is paid to those who make it. Especially compared to gasoline; the energy in one gallon of gasoline (118,000 Btu or 34.6 kw-hr) costs about $3/gal in bulk ($3.75/gal retail, for now), but that is only one dollar in bulk electricity prices, though to power a motor, a dollar's worth of this cheap electricity is equal to about $12 worth of gasoline at $3/gallon (100,000 gallon quantities)…

However, getting such a windfall of energy for such a low price also comes at a cost. For WNY, there is only one way that such low priced electricity can be made at anything close to that price, and that is by burning low cost coal in fully depreciated equipment while paying nothing for the proper disposal associated CO2 pollution trash. Quite frankly, natural gas is just TOO expensive a fuel to compete with  coal under current pricing arrangements. Delivered coal prices, when expressed as dollars per unit thermal energy potential, are around $2.40/MBtu (million British Thermal Units), while delivered natural gas has been priced at around $4.50/MBtu, despite the fact that a price of close to $10/MBtu (delivered) would be needed to allow most fracking based natural gas wells to be modestly profitable (and the industry likes and is used to profit levels well past "modestly profitable", so "barley profitable" just doesn't cut it). And while hydroelectricity made at the Niagara Power Project (NPP) is much cheaper to make than that from either coal or natural gas (NPP electricity costs something like 0.2 cents/kw-hr to make, or around 6% of the bulk price for coal based electricity), the cost to make NPP electricity is essentially irrelevant to what sets the price of electricity in WNY.

In the eight counties that make up NYISO Zone A (West Zone) - all of Niagara, Erie, Chautauqua, Wyoming as well as most of Orleans, Genesee, Livingston and Cattaraugus - electricity consumption averaged 1777 MW in 2012. The price paid to generation owners averaged $486 million for the year, though afterwords, some financial machinations happen to make that even lower. For example, all of the municipal electric utilities (like Jamestown and Arcade) get much cheaper electricity (from Niagara Falls via the Niagara Power Act of 1957) than most WNY customers get - one of the benefits of municipal ownership of the electricity distribution monopoly. But for the roughly 1 GW of WNY coal based electricity, the 80 MW of natural gas/trash/landfill gas based and 85 MW of wind turbine sourced electricity, 3.1 c/kw-hr is all they get… In some cases, the generation owners get extra money via what are known as "bilateral agreements", and there are tax avoidance based subsidies as well as tax based transfer payments (the NY Renewable Portfolio operates in such a manner), so these owners are somewhat shielded from the dire predicament of collapsed electricity pricing. Meanwhile, the coal, trash and gas burners get special payments known as ICAP and UCAP.

If previous years are any indication, we exported around $180 million/yr to import coal and natural gas that is subsequently converted into electricity worth $486 million/yr and about 8 megatons of CO2 pollutant (but hey, CO2 pollution only costs electricity consumers (via the RGGI psuedo-tax) $1.80/ton of CO2 pollutant, so it is barely noticeable). Even Alberta, the most pollution intensive province in Canada, puts a cost of$15/ton for CO2 pollution for bulk emmanators of this pollution.

So what could be obtained with payments of about $180 million/yr, plus the multiplier effects that happen when the $180 million/yr stays local? An interesting question, but one that few in this region ask; mostly we hear about complaints of the ~ $14 million/yr that is paid out for the RGGI psuedo-tax (and a lot of that from coal using companies). The RGGI might add 0.2 c/kw-hr onto consumer electricity bills, but since these fees tend to get passed along to the electricity consumers, it does not affect the two major coal users in the region, NRG and AES. Oh well, most of the RGGI income stream is supposed to go for worthwhile energy conservation or efficiency improvements…..

So what would it cost to replace the coal sourced electricity with either wind turbines or photovoltaic generation sources? It turns out that PV is absurdly expensive compared to the breakeven prices for coal OR natural gas sourced electricity, and wind is not much more that what the historical average (~ 5.5 c/kw-hr) paid to generation owners in WNY has been. However, what was paid for electricity in 2012 was the lowest recorded in the 12 years in which NYISO system has been operating. For the last four years, we have been experiencing the results of the collapse in economic demand that caused as well as resulted from the Great Recession in 2007, and which lingers on in WNY to this very day. Electricity demand functions as a pretty good indicator of regional economic output (= heavily impacted by industrial output, which is where almost all real wealth created in WNY comes from). Last year, electricity demand was essentially unchanged from 2010 and 2011, so economic recovery really has not visited WNY much (though things could be worse), and especially to the extent needed. 

To make 1080 MW on an average basis (that made by coal and natural gas), about 2700 MW of Low Wind Speed Turbine (LWST) capacity, costing around $6.75 billion, would need to be installed. Since this is a long term investment, this should be done like a typical person who buys a house - mostly with loans and equity (stashed cash) suitable for a minimal risk of repayment default. With low risk financing (= minimal probability on non-payment on loans), about 8% of the investment would need to be paid out each year to the lenders/investors for each of the next 20 years. Thus, electricity customers would be paying around $634 million/yr for this wind power (versus $295 million/yr for coal based electricity for 2012). For a more typical year where electricity was priced at 5.5 c/kw-hr, this is close to (but a bit more than) the same yearly cost ($521 million/yr)…. oh well, these are very large numbers, formed by relatively small changes in price multiplied by even bigger power consumptions…

To make 1080 MW for PV, a PV capacity of 10,200 MW would be needed; a lot more electrical energy storage than with wind also would be required (wind generally blows at all hours, while PV is generally only useful for about 8 hours per day). While installed prices for PV systems have dropped in many parts of the world, installed rates in the US have not dropped as much; this may be due to the way the subsidies for PV are arranged (based on the price of the system and not the annual energy output). Last year the average installed cost in the US was ~$5 million/MW of capacity in much of the US, though in NY State the official number is $7.53 million/MW (see https://openpv.nrel.gov/search?state=NY&zipcode=). The $51 billion needed to install so much PV capacity (a variety of sizes, places) is probably more than most are willing to pay; even half of that (super cheap PV installs) probably sets off alarm bells of panic for many electricity customers. Payments on a $51 billion PV investment to make the coal portion of our electricity would be 4.08 billion/yr (almost 14 times the present amounts paid for 1080 MW of electricity), and at a mere $25.5 billion investment, well, that's still $2.04 billion/yr (~ 7 times what is now paid for that electricity). And while such price increases would need to be phased in, there is no cure for the CO2 pollution "disease" if the transition from pollution based to renewables is not done in an expeditious manner....

Anyway, despite the massive cost differences, neither kind of renewable energy development can occur unless low cost financing is possible, where both the short term and the long term pricing insecurity is "made secure". This "casino pricing" for 2012 is shown below:



In all likelihood, no one will be loaning or investing $6.75 billion or $25.5 billion of $51 billion for a project involving renewable energy unless the prices to be paid on the projects to provide that energy are defined and agreed upon. There may be a minute fraction of "gamblers" who might take on some of the risk, though these would be heavily subsidized risks. A better way to destroy potential renewable energy development whilst having the plausible deniability of being "pro-green energy" may never be invented - all that needs to be done is to keep the future price of electricity "insecure"and renewables get blocked from the NY electricity grid. And since renewables can't provide the needed electricity for WNY, looks like we either stay hooked on coal based or else we migrate to fracking based natural gas as the source of our electricity (gas based generation accommodates variable pricing better than most other kinds of electricity generation).  Some choice, eh?

While present-day prices for generated electricity are absurdly low, what are they likely to be? "Ya Never know" as a pricing philosophy adds several percentage points onto loans for wind turbines in NY State, and this adds several cents/kw-hr onto needed prices for wind turbine projects, assuming that they even can be financed. And for what? This question turns out to be a very important one with respect to the future viability of renewable energy in NY State. Wind turbine owners need a long term stable price (in effect, a straight fat line on the graph) - after all, the cost to make this wind based electricity does not change over the next 20 years or so, and thus the price for that electricity does not need to change, either. This is a complete contrast to fossil fuel prices; since 2000, natural gas prices (and thus coal, because coal prices are affected by gas prices) are anything but stable. And for the last four years, natural gas has been selling below the cost to extract this from most fracking based gas projects.

Of course, there always is the biomass option. $180 million/yr would buy around 3 million tons/yr of biomass, which could be burned in the present coal burners after they get slight upgrades to burn biomass. But the longer term future for biomass is probably as a substrate for liquid fuels and chemicals, or to provide large scale industrial heating once natural gas once again gets priced in a way that couples methane to crude oil. But it's an option that could also benefit from fixed prices for electricity - long term power purchase agreements also rule for biomass, both in terms of the biomass price and the price for energy derived from that biomass.

So in the meantime, what of all the economic prospects for money making on $6.75 billion or so worth of new capital investments in WNY, or of some fraction of the 100,000 job-years of direct employment that goes into making commercial scale wind turbines? What about all the jobs that are "spin-offs" on the direct jobs. Well, what about them? If you want them, you'll have to vote for them by electing leaders who will get rid of casino pricing for renewable energy projects. It does not matter that casino pricing for renewable energy is illogical, counter-productive and that it actually RAISES the cost to make renewable energy - in fact, that is what the fossil fuel proponents consider a virtue. Actual political, cultural and social work is required to get rid of the pestilence of casino pricing for renewable electricity; without this work, the variable pricing where it does not belong will remain in effect. Without sensible pricing systems for renewables, WNY really won't ever be all renewably powered, at least in the electricity sense, until the fossil fuels get tapped out and they become so obscenely expensive that few can afford to use them. And we in WNY will continue to bleed money for imports into our region for fossil fuels to make electricity.

And we will continue to pollute our atmosphere with greenhouse gases, because maybe our climate just has not been whacked out of kilter enough.....? Although if you ask the people in the NY City metro region these days, after Frankenstorm Sandy came breezing through town maybe they are ready to deal with Global Climate Change, and that which is mostly responsible for those changes - CO2 pollution from burning fossil fuels. Of course, no one in control of mass media is likely to grant access to those pointing to the damage that casino electricity pricing does the prospects of significant renewable energy installations that could "put to bed" all those natural gas and coal burners in the near future, but that just makes it more of a challenge. Consider it the legislative and ecological equivalent of climbing Mount Marcy - the tallest mountain in NY State. Life was just too easy here in WNY, with our outrageously cheap electricity and outrageously high real unemployment rates, anyway... BTW, while this is only ~ 5200 feet above sealevel, climbing this mountain is a lot of work and probably beyond the capability of most people now living in NY State.....


Of course, if we all collectively sit on our laurels, for several years we'll probably have mighty cheap prices for electricity (that is, the generated part of the electricity, as delivery is still apt to be quite pricey). And of course, that really does not do much for job creation in the real economy; those much desired new jobs come from increases regional and national macroeconomic demand, and mostly what we are seeing in that area is shrinkage these days. But our leaders have decided that cheap electricity is better than jobs involved in manufacturing renewable energy systems. Changing that situation means changing the casino pricing system for renewables, as well as the idea that the price of renewables gets set by the prices of pollution based energy (coal, nukes and natural gas). Heck, this may even require going back another step and changing some and/or most the politicians who make these rules, and/or who appoint people who set these rules. Ugh… But, ya gotta do what ya gotta do….

Roulette Wheel image: http://desktop.freewallpaper4.me/view/original/5867/roulette-wheel.jpg
Mount Marcy picture: http://en.wikipedia.org/wiki/Mount_Marcy_%28New_York%29

Thursday, January 10, 2013

The Reserves and Resources Concept as Applied to Renewable Energy

Maybe the US Senate's very own pet snapping turtle and leader of the Republican minority, Mitch McConnell, is not telling the truth when he says that our national debt/current deficit is our country's biggest problem. This kind of weather resulting from Global Climate Change caused (mostly by) too much CO2 pollution of our atmosphere (you know, the only one we have) outranks money issues that are caused by not taxing the idle and obscenely rich enough. Map from http://fdlaction.firedoglake.com/2013/01/09/the-real-long-term-problem-is-climate-change/. Even around Buffalo, looks like it got a touch toasty, right?

In the mining industry in general and in the oil and natural gas business in particular, there is no such thing as an essentially infinite supply, though there are seemingly minor exceptions for sand, salt, limestone and gravel. After all, the ocean is the ready ultimate supply of salt (lots of salt is made by solar evaporation of seawater), but a lot of salt is mined from from former oceanic ponds - like those in Western and Central NY. But for the really pricey stuff (diamonds, gold, platinum, rhodium, silver), and especially fossil fuels (coal, oil, methane), the deposits of significance tend to exist in patches interspersed in geographic regions/geological zones. So when it comes to the money-making aspect of the business, it helps to know how much of the goodies exist in a region and whether these can be profitably exploited (i.e. turned into money). After all, there are many deposits that are not exploitable, or to do so would cost more than can be obtained by selling these geological goodies. And the world's richest industry (presently the oil and gas industry) did not get that way by giving it away for free, or at bargains relative to what could be obtained - these fuels are sold, preferably, at as high a price as can be extracted from customers. And almost always at a profit….

Anyway, that's where the concept of the "reserves" and "resources" comes in handy. A resource (such as the Marcellus Shale gas resource) is the volume of shale multiplied by the percentage of that shale that is hydrocarbons (and is mostly methane in most of the Marcellus zone). A reserve is the quantity of the resource that can be extracted; it is always less than the resource that it comes from. Since the Marcellus Shale regions extends over perhaps 50,000 square miles, the methane resource for this area is huge - even if the average thickness of the shale is only around 100 feet thick. Complicating matters is that the shale varies in thickness and in organics content across the area (in NY State, from 1% to 11% "organics"), as it does in depth. Not all locations are "sweet spots" - thick shale with high organics content - and those actually appear to be pretty rare, such as those in north central/northeastern Pennsylvania. The Marcellus resource (Gas In Place = GIP) has been estimated at between 160 to 490 trillion cubic feet (tcf) - http://en.wikipedia.org/wiki/Marcellus_Formation - though it may be even bigger. However, since it costs between $7.5 to $10 million per well to develop a well in Marcellus Shale, and unless prodigious amount of gas is recovered from a lucky spot (the average is apparently around 1.4 billion standard cubic feet of methane per well), this will be very expensive natural gas. In effect, there is no viable reserve if the gas cannot be profitably extracted at $2.71/MBtu (a recent monthly price), which is close to the present price being paid to gas producers (Sept 2012 - see http://www.eia.gov/dnav/ng/NG_PRI_SUM_A_EPG0_FWA_DMCF_M.htm).

Reserves are a whole other matter than are the resources, and these are generally a function of the price that can be obtained for the product being mined, though in some cases, the prize located in identified fields cannot be physically delivered to customers (such as the 67 trillion cubic feet (tcf) of methane located near the McKenzie River delta (Canadian Arctic Sea coastal region)). Thus, the Arctic Sea coastline methane is a "stranded reserve" - see http://en.wikipedia.org/wiki/Mackenzie_Valley_Pipeline - since the pipeline in 2008 was estimated to cost well over $16 billion for its 758 mile length, and the quantity of natural gas available from this locale at current pipeline prices ($3.50/MBtu) is … zero. So, the GIP is irrelevant at present prices and the usable reserves will remain at zero until the price of methane rises significantly. But at past prices, maybe at times it was a viable reserve of 67 tcf. See http://www.eia.gov/dnav/ng/hist/n9190us3m.htm for the following chart:




But with renewable energy (especially solar and wind), well, they don't deplete (that's why they are called renewable), though the quantity of deliverable energy and the rate that it can be delivered definitely varies by location. But, just like the hydrocarbon biz, the usable reserves of renewable energy are also defined by the price as well as the resource which these reserves come from. Some classic examples of "stranded wind" of the US midwest, and in particular Montana, Wyoming, Nebraska and the Dakotas. In just these states, the delivered quantity of wind based electricity is close to 4 times the amount of electricity that the US is presently consuming (see http://www.windpoweringamerica.gov/pdfs/wind_maps/wind_potential.pdf - 100 meter values). However, even with the tax avoidance subsidies worth 2.8 c/kw-hr for 20 years, these awesome wind resources may as well not exist. The Power Purchase Agreement prices being offered by utilities were all of 3.5 c/kw-hr in the fall of 2012 (which is all utility customers would be paying for the generated electricity part of the electricity they would be buying), and nobody was taking them up on this "offer" for developers to lose money (gee, wonder why). So in effect, the wind reserve is only a few percent (maybe 0.1%) of the wind resource. But if the PPA price was to rise to 4.5 c/kw-hr….maybe 2.2% of that resource might get converted to "reserve" status. But that is 40 GW on a delivered basis (about 8.4% of what the US currently uses). All  for the likes of one penny per MW-hr…..

The US has a a lot of desert and semi-desert lands, places ideal for solar thermal and PV locations. In these spots, an average of 340 days of full sunshine can normally be expected, and it really does not get much better, energy wise. However, PV and solar thermal are very capital intensive ways to make electricity. Even at places where incredible economies of scale take place (a 500 MW PV project is a $1.35 billion investment) and where the PV output is an average of 20% of rated capacity, the real cost to make this electricity is near 18 c/kw-hr (@ 7.75%/20 yr financing) or 14.6%/kw-hr (@ 5%/20 yr financing), and somehow profits need to get tacked onto that. And yet, compared the 7.3 c/kw-hr needed for wind (subsidy-free basis; 4.5 + 2.8 = 7.3 c/kw-hr), it's still a very high price for electricity. Obviously, more than a penny per mw-hr…

So what constitutes a viable energy reserve? Well, there is the quantity of energy to be obtained, the rate it can be tapped and the cost of the capital investment needed to tap this. There may be a cost to store renewable electricity (as when there is an excess made compared to what is needed) as well as the cost to move the electricity from where it is made to where it is used. But then there is the willingness of customers to pay for electricity from certain ways to make it in contrast with with other ways, as evidenced either by government subsidies or just popular preferences. Is this fair? Obviously, not, but it's a bit like asking people what their favorite color happens to be. And when they have the ability to use governmental taxes (or tax avoidance based incentives, which are roundabout versions of the same thing) to pay for the "red" thing and not the equivalent "green" thing, then it's not surprising that the "red" thing can get a lot more money spent on it to deliver the same quantity of, in this case, electricity than the lower cost but less respected "green" thing.

And somewhere in this world, it will soon be important to be financially efficient when replacing CO2 pollution sourced electricity with electricity that was made with no CO2 pollution. That is, for each billion dollars invested in making electricity, how many megatons of CO2 pollution is avoided? After all, there are all these rumors that we are running out of money (actually, untrue according to both Keynesian and Modern Monetary Theory, alias MMT), but who can argue against getting the most bang (CO2 pollution prevention/replacement) for the gigabuck? Of course, what we are currently experiencing is a drastic lack of economic demand, and way too much wastage of resources on things with no real economic or environmental benefit, including at least a hundred billion dollars per year on military "R&D" and other public works projects in the military sphere. Or the roughly $200 billion/yr that could be considered to be squandered on defense of oil resources around the world. Especially if we actually put some effort into removing hydrocarbons from our energy mix….

An effort to both deal with the lack of demand (as in, ANTI-AUSTERITY - see http://www.dailykos.com/story/2013/01/06/1176856/-The-IMF-Incompetent-Ideological-or-Simply-Lying) and the Climate mess and the horrid balance of payments (we do export a lot of dollars to import ~ 10 million bbls/day of crude oil) would seem to be a good thing to do these days. Especially if we concentrated on replacing as much CO2 pollution as is possible - notably by substituting "green electricity" for pollution based electricity as well as electricity (from renewables) for heat and then comes the tough one - transportation fuels. But, two out of three isn't bad for starts. It would create a lot of jobs, stimulate a lot of economic demand and replace roughly 70% of our present CO2 pollution for this country. After all, every journey starts with that first step….

BTW, here's a comparison between $10 million worth of wind turbines installed in the US Northeast and a typical Marcellus Shale gas well (1.4 billion scf in a 20 year period, also with an "all-in cost" of $10 million) with respect to electricity that could be made. Assuming the methane gets converted at a 50% efficiency, that would be 205,038 MW-hr of electricity plus 85,750 tons of CO2 pollutant from operations. $10 million  worth of wind turbines is a pair of Vestas V-100 x 1.8 MW turbines on 95 meter tall towers (lots of other equivalent examples) which should be able to deliver a 40% net output (6312 MW-hr/yr per turbine) or roughly 252,480 MW-hr and close to zip for CO2 pollution from ongoing operations. If the CO2 pollution was priced at anything close to what it should be ($85/ton CO2 would be a good start, alias the "social cost of carbon" via the Stern Report), well, that's a $17.4 million bill, but the "social cost of carbon" is sort of like a Roofie (Rohypnol (http://en.wikipedia.org/wiki/Flunitrazepam), alias the date rape drug) slipped to the general public, followed by subsequent abuse perpetrated on the public whilst the abuser gets to (theoretically) profit. Of course, with gas prices what they are, there's not even any profit (for the methane producer) in this societal date raping. So what are so many of our political "leaders"pushing fracking the Marcellus for? Are the little crumbs in the form of political campaign contributions and those for certain promises of money-for-nothing "work" once they get out of office they are expecting worth that much to them....? Looks like the general public is not the only one getting slipped some Roofies..... and with similar effects to society that psychopaths do to unlucky coeds care of Rohypnol....

Tuesday, January 1, 2013

A 2012 Wind Wrap


It's almost 5 pm on December 31, and word is flashing around the inter-tubes (alias internet) about a possible deal with Republican Teabaggers (or just non-teabagger Republicans) with  regards to an extension of the Production Tax Credit (PTC) - see http://www.nawindpower.com/e107_plugins/content/content.php?content.10905#.UOIVjrYd4Xw. However, odds are, this won't be completed until early next year, and the deal making (also referred to as "legislative sausage making", as in you really don't want to look at what is being stuffed into the "package" and how it is being done) is going on at a furious and chaotic rate. The PTC for 2013 would be just a tiny fraction of the overall tax and spending agreement that might have to wait until the 2013 Congress begins (when a number of extremist Republican's have been replaced).

And it could still fall apart. After all, one of the primary influence peddling organization on the extreme right wing side of politics is the Koch brothers/Industries funded lobbying group called American's For Prosperity, and they have targeted the wind business (see http://thinkprogress.org/climate/2012/10/19/1045661/koch-group-campaigns-to-make-wind-tax-credit-so-toxic-republicans-wont-back-it/ and http://maddowblog.msnbc.com/_news/2012/06/12/12189492-the-wind-cries-koch-brothers?lite). This group does their owner's bidding, and a lot of Republican congresspeople and Senators also do the bidding of the AFP and related political operations, some of which are also funded by the mega-wealthy Koch brothers. The Koch's understand the hydrocarbon biz extremely well, and the wind biz has not been good for natural gas prices (wind sourced electricity replaces natural gas used to make electricity, and in turn the lowered demand for methane leads to lower prices for methane). And tiny changes in demand for gas can lead to dramatic changes in price. The "Hydrocarbon Dream" is that a slight increase in methane demand coupled to a steady of declining supply of gas will lead to sharply higher prices. This also could lead to amazing profits in the shadowy derivatives trades for natural gas (the Koch's make a lot of their money on commodities derivatives/bets for a lot of items, including oil, natural gas, refined oil products, nitrogen fertilizers and petrochemicals made from oil and/or natural gas, as well as some polymers).

Meanwhile, over at the American Wind Energy Association (AWEA), their CEO for the last 4 years, Denise Bode, "unexpectedly" resigned (or was forced out). She had used a strategy of trying to reach out to Republicans/conservatives to stress the positive aspects of wind turbines - after all, most of the "Great Plains states" are ruled by very conservative Republicans these days, and these states (North Dakota, South Dakota, Iowa, Kansas, Oklahoma, Texas, Nebraska, Wyoming, Montana) have absolutely staggering wind resources, worth far more than the hydrocarbon reserves remaining in these states, some of which are considerable. This hydrocarbon wealth includes the Bakken oil shale, worth roughly $300 billion (3 billion bbls of recoverable oil at $100/bbl, though the amount recoverable is a function of the obtainable price); but the neat thing about the wind is that it does not deplete and does not pollute groundwater or air or the atmosphere with CO2 pollution. Unfortunately, she ran into a wall of "Don't care!" - even her time as head of the "American Clean Skies Foundation" (natural gas lobbyists) and the Independent Petroleum Associations of America was of no use in trying to convince the conservative Republicans to approve the PTC extension for the last 4 years. So, out she goes (back to "tax lawyer" status), along with a lot of recently and soon-to-be fired employees of the AWEA. See http://en.wikipedia.org/wiki/Denise_Bode.

Actually, one of the messages she was conveying - that wind turbines are economic growth and financially a great thing for farmers, construction workers and manufacturing industries, as well as the communities/states in which they were installed/made - was the problem. No one seriously denies the positives of the wind biz except for the deluded or the completely compromised, but these conservative Republicans did not want economic growth occurring in 2012 - an election year. They wanted low, no or negative economic growth, and they were hoping that would translate into a defeat to their political opponents in Federal and state elections. To make them happy, Ms. Bode should have promised these Congressman that more wind turbines would mean a worse local/regional economy. In other words, a touch of Colbertian Logic ("logic" employed by satirist Steven Colbert) would have been mores appropriate.. see http://en.wikipedia.org/wiki/Truthiness)

Even the hidden benefits to the wealthy/super-wealthy, who are the core group that almost all Republicans support (in order to get funding from, among other reasons…), were not convincing enough arguments able to persuade the Defenders of the Wealthy (Republicans, though plenty of Democrats are in that boat, too) to the pro-PTC extension side of things. The Investment Tax Credit and also Production Tax Credits only apply to PASSIVE income - rent, royalties (books, music, movies, fees for hydrocarbon extraction) or interest/dividend income for corporations (not for individuals). And they really only make sense if you are in the top marginal income tax rate category. Even the Section 1603 grants only applied to those with a suitable "Production Tax Credit worthy" income. The most important incentive is the MACRS (Modified Accelerated Cost Recovery System - alias rapid depreciation), where "paper losses" equal to the installed cost of a wind turbine (includes soft costs, turbine and construction labor) can be allocated over a 6 year period (20%, 32%, 19.8%, 11.56%, 11.56%, 5.68% for years 1 through 6). These losses, as well as any interest paid on loans, are then deductable from taxable "active" income, and these losses, multiplied by the top marginal rate, can be converted into "avoided taxes" if the turbine owner has other taxable income. Such possibilities only apply to wealthy individuals and corporations….

Still confused? Here is an example for the Hardscrabble Wind Farm (near Herkimer, NY), which is owned by Iberdola (they own NY State Gas & Electric, Rochester Gas & Electric, and have considerable "tax appetite"). Note: this is an example of what could have been done, not actually what was done in this instance. This 74 MW (capacity) project - 37 x 2 MW turbines - was installed in 2009-2010, and it cost $200 million (it featured 100 meter tall towers, not the standard 80 meter ones) to complete the project. The estimated output was stated at roughly 200,000 MW-hr/yr (a 30.83% average net output).

The MACRS deduction would be valued at around $86 million (35% Federal, 8% NY State marginal tax rates). The ITC (if that route was chosen) or the Section 1603 would be worth $60 million (30% of the installed project cost). The PTC would be worth only $44 million over a 10 year period (200,000 MW-hr/yr at $22/MW-hr for 10 years) - obviously not as good a deal as the ITC tax credit or Section 1603 grant routes.

The ITC-MACRS arrangement would yield $146 million, initially, while the MACRS-PTC would be worth $130 million in avoided taxes. And then there is the interest paid on project loans. Since the going rates for loan/capital investment was 40% debt/60% investment in 2009, at an interest rate of 6% (Iberdola is a good credit risk), 6 years of interest payments would have been around $25 million, which yields around $11 million in avoided taxes. The most likely total avoidable taxes would be around $157 million over a 6 year period. Iberdola's net cost of the wind farm after 6 years would be around $43 million, not ~ $200 million. Not bad if you can get it…… 78.5% of the capital investment can be recouped through avoided taxes in six years, provided they paid that much tax.. which the Iberdola subsidiaries most certainly did. The $157 million in avoided taxes over a six year period ($146 Federal, $11 million NY State) is an average of $26 million/yr, though it is extremely "front loaded" in that most of this is recovered in the initial three years.

Some states (such as NY, Iowa, Minnesota) also have added incentives. NY has its Renewable Portfolio Standard incentive (see 4th and 5th Tier bids: http://www.nyserda.ny.gov/en/Program-Planning/Renewable-Portfolio-Standard/Main-Tier-Solicitations.aspx) which average ~ $20.47/MW-hr for 10 years for the Hardscrabble facility. This works out to around $40.93 million; the RPS is paid out from a small sales tax (= a regressive tax) called the Systems Benefit Charge on electrical customers. After all of the incentives, the net cost for the project (originally was $200 million) would be around $2 million, with $198 million of avoided taxes/grants/taxpayer subsidies. Again, not bad if you can get it. After the 10 year period, the wind farm could be making a profit of ~ $8 million/year if electricity prices paid to generators are around 5 c/kw-hr, and this could be expected for the next 15 years ($120 million profit). And if the electricity price goes up…. more profits.

Anyway, the subsidies/avoided taxes are dribbled out over time, so the net benefits to owners are less than what they appear to be in this simple analysis. But they are not that different……

The wind industry in the US installed roughly 6 GW of capacity in the last 3 months of 2012, a rate of around 24 GW/yr. So this is the presently achievable installation rate, in one of the worst weather periods of the year. About 12 GW of capacity (about 4 GW net output) will get installed in 2012, worth roughly $24 billion. The 60 GW of wind turbine capacity should deliver about 20 GW on average, about 4.2% of the electricity sold on the US grid. The basic reason for the opposition to wind turbines is the ~ 30 GW installed in the last four years. This turns out to be a very significant threat to profits in the natural gas industry right now, but also in the near future. The 20 GW of average electricity output is roughly what would be made by burning 1.5 trillion cubic feet/yr (tcfy) of natural gas, which would raise US demand for Ngas to around 26 tcfy from 24.5 tcfy. The extra 1.5 tcfy should allow for higher prices for Ngas, and thus for coal, and this would also raise prices for electricity made from coal and Ngas, though by how much is difficult to say. All of the higher prices would translate into either profits or lessened losses (including the roughly $300 billion in investor/shareholder value has been wiped out in the last 5 years in this Ngas industry….. in a real nice bit of "oops"). And since profits for both coal burners and nuke owners are a function of the Ngas price (low Ngas prices lead to minimal, if any profits for coal and nuke based generation owners), those very powerful interests are also not happy with increased wind turbine installations….

At the installation rates of recent years, at least 40 to 60 GW of wind capacity could be installed in the next four years. This would be the equivalent of destroying 1 to 1.5 cfy of additional Ngas demand. Consumers of Ngas - mostly those who use it for heat - should be overjoyed with more wind turbine installations, as it is keeping their heating bills lower than would be the case if these turbines were not installed. Ditto for consumers of electricity, or those who use Ngas as a chemical feedstock. BTW, 1.5 tcfy of Ngas is roughly 92 megatons of CO2 pollution per year and avoiding that extra load on our planet's atmosphere would be a good and wise thing (the US dumps about 5600 megatons/yr of CO2 pollutant into the air each year, so 92 megatons/yr is only 1.6% or so or the national load, but still...).

So, this boils down to the needs of the many (Ngas and electricity consumers) versus the needs of a few (Ngas producer owners, oil companies (lots of Ngas is made as a by-product from oil production)). It's also the needs of the many (essentially all of the people and other lifeforms on the planet) versus the small number who profit from higher Ngas prices that result from increased usage of Ngas to make electricity, and the methane leaks and CO2 pollution from drilling for and burning all that methane. And while our electricity prices might rise a bit over a decade if we dump Ngas in favor of wind for electricity production, in the short term, increased wind turbine usage will lead to lower heating bills for the hundreds of millions of those who use Ngas for heat in this country....

Of course, the subsidies and incentives needed to make wind turbine sourced electricity able to be sold at prices that Ngas, coal and nuke based electricity are sold for are a hair brained and convoluted way to do things. And also do things in a way that pretty much ONLY benefits the rich and the really, really rich, or big corporations who end up not paying taxes via the PTC/ITC/MACRS tax avoidance schemes. There is the "Quebec approach" (second best, using bids to provide given quantities (quotas) of subsidy-free wind sourced electricity) and then the Feed-In Tariff (FIT) pricing systems, which also do not need any tax avoidance subsidies at all and which deliver lots of renewable electricity at lower real prices than can be done via subsidies or quotas. And after all, who ends up paying the taxes that the uber-wealthy individuals and big corporations do not pay? Odds are, it mostly gets paid by "the many" and not "the few". It would be a lot better if plans to get the wind biz off the subsidy dole had been implemented four years ago when Obama came into office. It has to be done one of these days, anyway, as waiting for Ngas and coal based electricity to rise to the point where wind power does not need subsidies (such as bulk generated electricity prices in the 8 to 10 c/kw-hr range) has not produced the desired outcome of renewable energy advocates.

Vulcan logic or Colbertian logic. That's what we are facing for 2013. And right off the bat, too.

Title Picture: http://www.evwind.es/wp-uploads/2012/07/gamesa_wind_energy_corporation.jpg

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