Group items tagged

“In these shale gas plays no well is really economic right now,” the geologist said in a previous e-mail to the same official on March 16. “They are all losing a little money or only making a little bit of money.”

Around the same time the geologist sent the e-mail, Mr. McClendon, Chesapeake’s chief executive, told investors, “It’s time to get bullish on natural gas.”

Aubrey McClendon, whose name is not terribly familiar to people outside of the energy industry, has an enormous financial interest in encouraging customers to become addicted to natural gas so that they will keep buying even if the price shoots up – like it did in the period from 2000-2008. During that time McClendon and his company rode a wave that resulted in growing a company from tiny to huge based on debt-financed investments in leases and drilling rigs designed to produce gas in the midcontinent region of the US. A high portion of the company’s wells were stimulated with hydraulic fracturing.

When the price of natural gas collapsed in 2008, mostly as a result of the contraction in demand caused by the financial crisis and resulting economic recession/depression, McClendon nearly lost control of his company. He had to sell “substantially all” of shares at a dramatically lowered price in order to pay off creditors and meet margin calls.

No U.S. chief executive officer has bought more of his own company’s stock in recent years than McClendon, even as the shares reached all-time highs. His appetite for Chesapeake stock made him “a darling of Wall Street,” Tulsa money manager Jake Dollarhide said. But his purchases were made on margin, meaning he used borrowed money. As the value of the stock fell, McClendon was forced to raise cash to meet margin calls. Recent losses — Chesapeake shares have plummeted 60 percent in the past three weeks — left him unable to fulfill those requirements.Read more: http://newsok.com/market-slide-wipes-out-ceos-chesapeake-holdings/article/3310107#ixzz1QSst9NnL

McClendon responded vigorously to the NY Times’s suggestion that the gas revolution was more mirage than miracle in a lengthy letter to Chesapeake Energy employees that was published on the company’s public Facebook page. (Note: The timing of this letter with regard to the NY Times article is telling. The article appeared in the Sunday edition of the Times on June 26, 2011. The letter to employees included a time stamp indicating that it was released at 8:37 pm on the same day while the Facebook page indicates that it was posted to the world by 11:27 pm. In other words – there is no rest for the weary in the Internet era.)

McClendon’s letter blamed the NY Times article on environmental activists that proclaim a desire to supply all of the US energy needs from wind and solar energy. It also issued a call to action for Chesapeake Energy employees:

We hope that every Chesapeake employee can be part of our public education outreach. At more than 11,000 strong, we are an army of “factivists” – people who have knowledge of the facts and the personal knowledge and ability to spread them. You can do this by talking to your families, friends and others in your spheres of influence (schools, churches, civic organizations, etc) about the kind of company you work for and the integrity of what we do every day for our shareholders, our communities, our states, our nation, our economy and our environment. You don’t have to be an expert to stand up and tell folks that Chesapeake is committed to doing what’s right – and that commitment is expressed every day by you and your colleagues across the company.

You can also get involved by joining Chesapeake Fed PAC, our political action committee. Our opponents are extremely well funded and organized. We need to make sure our voice is heard in Washington, DC and with elected officials who are making decisions that affect our industry, our company and our ability to operate in the many states in which shale gas and oil have been discovered.

After describing how Chesapeake has 125 active drilling rigs and how it has developed a “swat team” with more than 100 employees that works with environmental groups to produce legislation designed to slow the development of new coal fired power plants and to hasten the closure of existing coal plants, Tom Price said the following:

“It’s been said before, but the demand side of the equation is extremely important right now. I mean this really is a zero sum game. I think that there are a number of very progressive utilities out there that recognize the challenges that they are facing with regard to climate change, but the Transport Rule, Clean Air Act and various others.”

I remain convinced that there is a market battle going on between natural gas and nuclear energy.

One final idea, which does not involve money going to or from government, is simply requiring that cleaner sources provide a certain fraction of our overall power generation. The many state Renewable Portfolio Standards (that do not include nuclear) and the Clean Energy Standard being considered by Congress and the Obama administration (which does include nuclear) are examples of this policy. While better than nothing, such policies are not ideal in that they are crude, and don’t involve a quantitative incentive based on real external costs. An energy source is either defined as “clean,” or it is not. Note that the definition of “clean” would be decided politically, as opposed to objectively based on tangible external costs determined by scientific studies (nuclear’s exclusion from state Renewable Portfolio Standards policies being one outrageous example). Finally, there is the fact that any such policy would require legislation.

Well, if we can’t tax pollution, how about encouraging the use of clean sources by giving them subsidies? This has proved to be more popular so far, but this idea has also recently run into trouble, given the current situation with the budget deficit and national debt. Events like the Solyndra bankruptcy have put government clean energy subsidies even more on the defensive. Thus, it seems that neither policies involving money flowing to the government nor policies involving money flowing from the government are politically viable at this point.

All of the above begs the question whether there is a policy available that will encourage the use of cleaner energy sources that is revenue-neutral (i.e., does not involve money flowing to or from the government), does not involve the outright (political) selection of certain energy sources over others, and does not require legislation. Enter the Dispatch Queue

There must be enough power plants in a given region to meet the maximum load (or demand) expected to occur. In fact, total generation capacity must exceed maximum demand by a specified “reserve margin,” to address the possibility of a plant going offline, or other possible considerations. Due to the fact that demand varies significantly with time, a significant fraction of the generation capacity remains offline, some or most of the time. The dispatch queue is a means by which utilities, or independent regional grid operators, decide which power plants will operate in order to meet demand at any given instant. A good discussion of dispatch queues and how they operate can be found in this Department of Energy report.

The general goal of the methodology used to set the dispatch queue order is to minimize overall generation cost, while staying in compliance with all federal or state laws (environmental rules, etc.). This is done by placing the power plants with the lowest “variable” cost first in the queue. Plants with the highest “variable” cost are placed last. The “variable” cost of a plant represents how much more it costs to operate the plant than it costs to leave it idle (i.e., it includes the fuel cost and maintenance costs that arise from operation, but does not include the plant capital cost, personnel costs, or any fixed maintenance costs). Thus, one starts with the least expensive plants, and moves up (in cost) until generation meets demand. The remaining, more expensive plants are not fired up. This ensures that the lowest-operating-cost set of plants is used to meet demand at any given time

As far as who makes the decisions is concerned, in many cases the local utility itself runs the dispatch for its own service territory. In most of the United States, however, there is a large regional grid (covering several utilities) that is operated by an Independent System Operator (ISO) or Regional Transmission Organization (RTO), and those organizations, which are independent of the utilities, set the dispatch queue for the region. The Idea

As discussed above, a plant’s place in the dispatch queue is based upon variable cost, with the lowest variable cost plants being first in the queue. As discussed in the DOE report, all the dispatch queues in the country base the dispatch order almost entirely on variable cost, with the only possible exceptions being issues related to maximizing grid reliability. What if the plant dispatch methodology were revised so that environmental costs were also considered? Ideally, the public health and environmental costs would be objectively and scientifically determined and cast in terms of an equivalent economic cost (as has been done in many scientific studies such as the ExternE study referenced earlier). The calculated external cost would be added to a plant’s variable cost, and its place in the dispatch queue would be adjusted accordingly. The net effect would be that dirtier plants would be run much less often, resulting in greatly reduced pollution.

This could have a huge impact in the United States, especially at the current time. Currently, natural gas prices are so low that the variable costs of combine-cycle natural gas plants are not much higher than those of coal plants, even without considering environmental impacts. Also, there is a large amount of natural gas generation capacity sitting idle.

More specifically, if dispatch queue ordering methods were revised to even place a small (economic) weight on environmental costs, there would be a large switch from coal to gas generation, with coal plants (especially the older, dirtier ones) moving to the back of the dispatch queue, and only running very rarely (at times of very high demand). The specific idea of putting gas plants ahead of coal plants in the dispatch queue is being discussed by others.

The beauty of this idea is that it does not involve any type of tax or government subsidy. It is revenue neutral. Also, depending on the specifics of how it’s implemented, it can be quantitative in nature, with environmental costs of various power plants being objectively weighed, as opposed certain sources simply being chosen, by government/political fiat, over others. It also may not require legislation (see below). Finally, dispatch queues and their policies and methods are a rather arcane subject and are generally below the political radar (many folks haven’t even heard of them). Thus, this approach may allow the nation’s environmental goals to be (quietly) met without causing a political uproar. It could allow policy makers to do the right thing without paying too high of a political cost.

Questions/Issues The DOE report does mention some examples of dispatch queue methods factoring in issues other than just the variable cost. It is fairly common for issues of grid reliability to be considered. Also, compliance with federal or state environmental requirements can have some impacts. Examples of such laws include limits on the hours of operation for certain polluting facilities, or state requirements that a “renewable” facility generate a certain amount of power over the year. The report also discusses the possibility of favoring more fuel efficient gas plants over less efficient ones in the queue, even if using the less efficient plants at that moment would have cost less, in order to save natural gas. Thus, the report does discuss deviations from the pure cost model, to consider things like environmental impact and resource conservation.

I could not ascertain from the DOE report, however, what legal authorities govern the entities that make the plant dispatch decisions (i.e., the ISOs and RTOs), and what types of action would be required in order to change the dispatch methodology (e.g., whether legislation would be required). The DOE report was a study that was called for by the Energy Policy Act of 2005, which implies that its conclusions would be considered in future congressional legislation. I could not tell from reading the report if the lowest cost (only) method of dispatch is actually enshrined somewhere in state or federal law. If so, the changes I’m proposing would require legislation, of course.

The DOE report states that in some regions the local utility runs the dispatch queue itself. In the case of the larger grids run by the ISOs and RTOs (which cover most of the country), the report implies that those entities are heavily influenced, if not governed, by the Federal Energy Regulatory Commission (FERC), which is part of the executive branch of the federal government. In the case of utility-run dispatch queues, it seems that nothing short of new regulations (on pollution limits, or direct guidance on dispatch queue ordering) would result in a change in dispatch policy. Whereas reducing cost and maximizing grid reliability would be directly in the utility’s interest, favoring cleaner generation sources in the queue would not, unless it is driven by regulations. Thus, in this case, legislation would probably be necessary, although it’s conceivable that the EPA could act (like it’s about to on CO2).

In the case of the large grids run by ISOs and RTOs, it’s possible that such a change in dispatch methodology could be made by the federal executive branch, if indeed the FERC has the power to mandate such a change

Effect on Nuclear With respect to the impacts of including environmental costs in plant dispatch order determination, I’ve mainly discussed the effects on gas vs. coal. Indeed, a switch from coal to gas would be the main impact of such a policy change. As for nuclear, as well as renewables, the direct/immediate impact would be minimal. That is because both nuclear and renewable sources have high capital costs but very low variable costs. They also have very low environmental impacts; much lower than those of coal or gas. Thus, they will remain at the front of the dispatch queue, ahead of both coal and gas.

US gas price fell from $3.88 per thousand cubic feet when the deal was struck to as little as $1.91 in April, before recovering slightly to now hover around $2.75. Today's mildly-improved US gas price is well below its peak of $14 per thousand cubic feet in 2005

hile protests in the US have largely failed to curb the shale gas industry's development, the plummeting gas price is now doing the job for them. The number of shale gas rigs operating in the US has tumbled by 44 per cent in the past year to stand at about 300 now, according to industry estimates.

Hydrocarbon producers such as Chesapeake and BHP are furiously switching their fracking resources from gas to oil, which is unlikely to suffer the same depression in its price as gas as the US has the infrastructure in place to export much of the additional oil it produces from shale. As a result, the number of shale oil rigs has leapt by 35 per cent to about 860 in the past year.

as an expected flurry of LNG export terminals begin to come onstream in about three years, fracking companies will have a valuable further outlet for their gas – the relatively lucrative European and Asian markets.

Concerning the detection of hydrogen gas in more than 1% concentration inside the pipe that connects to the Containment Vessel of Reactor 1 at Fukushia I Nuclear Power Plant, TEPCO announced on September 24 that it is highly probable that almost all the gas inside the pipe is hydrogen gas. TEPCO's Matsumoto said in the press conference, "Since there is no source for sparks, it cannot be said that there is a high risk of explosion immediately".

According to TEPCO, they measured the gas at the pipe exit several times in the afternoon of September 23. Each time, the result showed "flammable gas including hydrogen gas, over 100% ". The company plans to use the instrument that only measures hydrogen, in order to accurately measure the concentration of hydrogen.It's so TEPCO. First they used the device that could only measure up to 10,000 ppm, and that maxed out. Then they apparently used the device that could only measure up to 40,000 ppm, and that maxed out. So they brought in a bit more powerful instrument, but it measures all flammable gases including hydrogen.

This is terrifying for a utility’s creditors. The largest utilities in the United States have market capitalizations in the area of $30 billion, while most hover closer to $5 billion. If a nuclear project should fail, the utility might go completely bankrupt, leaving nothing to those foolish enough to lend them money. Accordingly, nuclear projects face higher borrowing costs than other electric projects. It doesn’t have to be this way — if reactor vendors and construction companies helped share the project risks posed by nuclear plants, borrowing costs would be lower. It is also possible for the U.S. government to shoulder some of the risk — but after Solyndra, few legislators have an appetite for letting energy companies push their risks onto the taxpayer.

Next, the United States is going to have to adopt some form of carbon tax on electricity generation, or offer a comparable subsidy to the nuclear industry. An appropriately sized carbon tax of $20/ton CO2 would raise the cost of natural-gas-generated electricity by 0.7 cents/kWh, while having a negligible impact on nuclear power

And finally, the nuclear industry is just going to have to catch some luck and see natural gas prices rise. That’s a tall order, given the new resources being opened up by hydraulic fracturing and the slowed consumption of natural gas brought about by the recession. But it’s not entirely outside of the realm of possibility — the futures market for natural gas has been wrong before.

Nuclear power is down, but not out. With a proper R&D focus, good business practices, appropriate policy, and a little luck, the gulf that separates nuclear power from its competitors may yet be bridged.

According to the USGS website, under the undated heading, “Can we cause earthquakes? Is there any way to prevent earthquakes?” the agency notes, “Earthquakes induced by human activity have been documented in a few locations in the United States, Japan, and Canada. The cause was injection of fluids into deep wells for waste disposal and secondary recovery of oil, and the use of reservoirs for water supplies. Most of these earthquakes were minor. The largest and most widely known resulted from fluid injection at the Rocky Mountain Arsenal near Denver, Colorado. In 1967, an earthquake of magnitude 5.5 followed a series of smaller earthquakes. Injection had been discontinued at the site in the previous year once the link between the fluid injection and the earlier series of earthquakes was established.” Note the phrase, “Once the link between the fluid injection and the earlier series of earthquakes was established.” So both the U.S Army and the U.S. Geological Survey over fifty years of research confirm on a federal level that that “fluid injection” introduces subterranean instability and is a contributory factor in inducing increased seismic activity.” How about “causing significant seismic events?”

Fast forward to the present. Overseas, last month Britain’s Cuadrilla Resources announced that it has discovered huge underground deposits of natural gas in Lancashire, up to 200 trillion cubic feet of gas in all. On 2 November a report commissioned by Cuadrilla Resources acknowledged that hydraulic fracturing was responsible for two tremors which hit Lancashire and possibly as many as fifty separate earth tremors overall. The British Geological Survey also linked smaller quakes in the Blackpool area to fracking. BGS Dr. Brian Baptie said, “It seems quite likely that they are related,” noting, “We had a couple of instruments close to the site and they show that both events occurred near the site and at a shallow depth.” But, back to Oklahoma. Austin Holland’s August 2011 report, “Examination of Possibly Induced Seismicity from Hydraulic Fracturing in the Eola Field, Garvin County, Oklahoma” Oklahoma Geological Survey OF1-2011, studied 43 earthquakes that occurred on 18 January, ranging in intensity from 1.0 to 2.8 Md (milliDarcies.) While the report’s conclusions are understandably cautious, it does state, “Our analysis showed that shortly after hydraulic fracturing began small earthquakes started occurring, and more than 50 were identified, of which 43 were large enough to be located.”

Sensitized to the issue, the oil and natural gas industry has been quick to dismiss the charges and deluge the public with a plethora of televisions advertisements about how natural gas from shale deposits is not only America’s future, but provides jobs and energy companies are responsible custodians of the environment. It seems likely that Washington will eventually be forced to address the issue, as the U.S. Army and the USGS have noted a causal link between the forced injection of liquids underground and increased seismic activity. While the Oklahoma quake caused a deal of property damage, had lives been lost, the policy would most certainly have come under increased scrutiny from the legal community. While polluting a local community’s water supply is a local tragedy barely heard inside the Beltway, an earthquake ranging from Oklahoma to Illinois, Kansas, Arkansas, Tennessee and Texas is an issue that might yet shake voters out of their torpor, and national elections are slightly less than a year away.

The information released yesterday by the EPA was limited to raw sampling data: The agency did not interpret the findings or make any attempt to identify the source of the pollution. From the start of its investigation, the EPA has been careful to consider all possible causes of the contamination and to distance its inquiry from the controversy around hydraulic fracturing. Still, the chemical compounds the EPA detected are consistent with those produced from drilling processes, including one -- a solvent called 2-Butoxyethanol (2-BE) -- widely used in the process of hydraulic fracturing. The agency said it had not found contaminants such as nitrates and fertilizers that would have signaled that agricultural activities were to blame.

In the WEO’s central New Policies Scenario, which assumes that recent government commitments are implemented in a cautious manner, primary energy demand increases by one-third between 2010 and 2035, with 90% of the growth in non-OECD economies. China consolidates its position as the world’s largest energy consumer: it consumes nearly 70% more energy than the United States by 2035, even though, by then, per capita demand in China is still less than half the level in the United States. The share of fossil fuels in global primary energy consumption falls from around 81% today to 75% in 2035. Renewables increase from 13% of the mix today to 18% in 2035; the growth in renewables is underpinned by subsidies that rise from $64 billion in 2010 to $250 billion in 2035, support that in some cases cannot be taken for granted in this age of fiscal austerity. By contrast, subsidies for fossil fuels amounted to $409 billion in 2010.

Here’s the summary of the main points, released today by the agency: “Growth, prosperity and rising population will inevitably push up energy needs over the coming decades. But we cannot continue to rely on insecure and environmentally unsustainable uses of energy,” said IEA Executive Director Maria van der Hoeven. “Governments need to introduce stronger measures to drive investment in efficient and low-carbon technologies. The Fukushima nuclear accident, the turmoil in parts of the Middle East and North Africa and a sharp rebound in energy demand in 2010 which pushed CO2 emissions to a record high, highlight the urgency and the scale of the challenge.”

The use of coal – which met almost half of the increase in global energy demand over the last decade – rises 65% by 2035. Prospects for coal are especially sensitive to energy policies – notably in China, which today accounts for almost half of global demand. More efficient power plants and carbon capture and storage (CCS) technology could boost prospects for coal, but the latter still faces significant regulatory, policy and technical barriers that make its deployment uncertain.Fukushima Daiichi has raised questions about the future role of nuclear power. In the New Policies Scenario, nuclear output rises by over 70% by 2035, only slightly less than projected last year, as most countries with nuclear programmes have reaffirmed their commitment to them. But given the increased uncertainty, that could change. A special Low Nuclear Case examines what would happen if the anticipated contribution of nuclear to future energy supply were to be halved. While providing a boost to renewables, such a slowdown would increase import bills, heighten energy security concerns and make it harder and more expensive to combat climate change.

The future for natural gas is more certain: its share in the energy mix rises and gas use almost catches up with coal consumption, underscoring key findings from a recent WEO Special Report which examined whether the world is entering a “Golden Age of Gas”. One country set to benefit from increased demand for gas is Russia, which is the subject of a special in-depth study in WEO-2011. Key challenges for Russia are to finance a new generation of higher-cost oil and gas fields and to improve its energy efficiency. While Russia remains an important supplier to its traditional markets in Europe, a shift in its fossil fuel exports towards China and the Asia-Pacific gathers momentum. If Russia improved its energy efficiency to the levels of comparable OECD countries, it could reduce its primary energy use by almost one-third, an amount similar to the consumption of the United Kingdom. Potential savings of natural gas alone, at 180 bcm, are close to Russia’s net exports in 2010.

In the New Policies Scenario, cumulative CO2 emissions over the next 25 years amount to three-quarters of the total from the past 110 years, leading to a long-term average temperature rise of 3.5°C. China’s per-capita emissions match the OECD average in 2035. Were the new policies not implemented, we are on an even more dangerous track, to an increase of 6°C.“As each year passes without clear signals to drive investment in clean energy, the “lock-in” of high-carbon infrastructure is making it harder and more expensive to meet our energy security and climate goals,” said Fatih Birol, IEA Chief Economist. The WEO presents a 450 Scenario, which traces an energy path consistent with meeting the globally agreed goal of limiting the temperature rise to 2°C. Four-fifths of the total energy-related CO2 emissions permitted to 2035 in the 450 Scenario are already locked-in by existing capital stock, including power stations, buildings and factories. Without further action by 2017, the energy-related infrastructure then in place would generate all the CO2 emissions allowed in the 450 Scenario up to 2035. Delaying action is a false economy: for every $1 of investment in cleaner technology that is avoided in the power sector before 2020, an additional $4.30 would need to be spent after 2020 to compensate for the increased emissions.

TEPCO says there is no danger of explosion because no oxygen was detected in the pipe. The company will inject nitrogen in the pipe on September 29 to expel hydrogen.

The high concentration of hydrogen was found in the pipe that was to be used as part of the filtering system to suppress the leak of radioactive materials in the Containment Vessel. TEPCO will measure the levels of hydrogen gas in the similar pipes in Reactors 2 and 3.

It is considered that hydrogen gas was generated when the nuclear fuel was heated to high temperature right after the accident and the cladding and water reacted. If there are more than 4% hydrogen and more than 5% oxygen in the atmosphere, the chance of explosion increases. It is possible that there is hydrogen gas in the upper part of the Containment Vessel and in other pipes. The company says it will take measures to address hydrogen gas before proceeding on any work from now on.Looking at TEPCO's handout for the press on September 28 (Japanese only for now), all they will do is to try to expel hydrogen in the pipe alone by injecting nitrogen from the far end of the pipe. They must be operating on the assumption that all the hydrogen in the pipe is from the initial zirconium cladding and water interaction, not the recent or on-going radiolysis, and once the hydrogen currently in the pipe is expelled, that will be the end of the story.

SUMMARY OF ESTIMATED CAPITAL AND OTHER COSTS   The estimated capital costs and other costs for decommissioning the nuclear plants, restoring the sites, building out renewables, wind and solar energy balancing plants, and reorganizing electric grids over 9 years are summarized below.    The capital cost and subsidy cost for the increased energy efficiency measures was not estimated, but will likely need to be well over $180 billion over 9 years, or $20 billion/yr, or $20 b/($3286 b in 2010) x 100% = 0.6% of GDP, or $250 per person per yr.     Decommission nuclear plants, restore sites: 23 @ $1 billion/plant = $23 billion Wind turbines, offshore: 53,300 MW @ $4,000,000/MW = $213.2 billion   Wind turbines, onshore: 27,900 MW @ $2,000,000/MW = $55.8 billion Wind feed-in tariff extra costs rolled into electric rates over 9 years: $200 billion  Solar systems: 82,000 MW @ $4,500,000/MW = $369 billion Solar feed-in tariff extra costs rolled into electric rates over 9 years = $250 billion. Wind and solar energy balancing plants: 25,000 MW of CCGTs @ $1,250,000/MW = $31.3 billion Reorganizing European elecric grids tied to German grids: $150 billion

RENEWABLE ENERGY AND ENERGY EFFICIENCY TARGETS   In September 2010 the German government announced the following targets:   Renewable electricity - 35% by 2020 and 80% by 2050 Renewable energy - 18% by 2020, 30% by 2030, and 60% by 2050 Energy efficiency - Reducing the national electricity consumption 50% below 2008 levels by 2050.  http://en.wikipedia.org/wiki/Renewable_energy_in_Germany   Germany has a target to reduce its nation-wide CO2 emissions from all sources by 40% below 1990 levels by 2020 and 80-85% below 1990 levels by 2050. That goal could be achieved, if 100% of electricity is generated by renewables, according to Mr. Flasbarth. Germany is aiming to convince the rest of Europe to follow its lead.

Biomass: At the end of 2010, about 5,200 MW of biomass was installed at a capital cost of about $18 billion. Biomass energy produced was 33.5 TWh, or 5.5% of production. Plans are to add 1,400 MW of biomass plants in future years which, when fully implemented, would produce about 8.6 TWh/yr.   Solar: At the end of 2010, about 17,320 MW of PV solar was installed in Germany at a capital cost of about $100 billion. PV solar energy produced was 12 TWh, or 2% of total production. The excess cost of the feed-in-tariff energy bought by utilities and rolled into the electricity costs of rate payers was about $80 billion during the past 11 years.   Most solar panels are in southern Germany (nation-wide solar CF 0.095). When skies are clear, the solar production peaks at about 7 to 10 GW. Because of insufficient capacity of transmission and quick-ramping gas turbine plants, and because curtailment is not possible, part of the solar energy, produced at a cost to the German economy of about 30 to 50 eurocent/kWh is “sold” at European spot prices of about 5 eurocent/kWh to France which has significant hydro capacity for balancing the variable solar energy. http://theenergycollective.com/willem-post/46142/impact-pv-solar-feed-tariffs-germany  

Wind: At the end of 2010, about 27,200 MW of onshore and offshore wind turbines was installed in Germany at a capital cost of about $50 billion. Wind energy produced was 37.5 TWh, or 6.2% of total production. The excess cost of the feed-in-tariff energy bought by utilities and rolled into electricity costs of rate payers was about $50 billion during the past 11 years.   Most wind turbines are in northern Germany. When wind speeds are higher wind curtailment of 15 to 20 percent takes place because of insufficient transmission capacity and quick-ramping gas turbine plants. The onshore wind costs the Germany economy about 12 eurocent/kWh and the offshore wind about 24 eurocent/kWh. The owners of the wind turbines are compensated for lost production.   The alternative to curtailment is to “sell” the energy at European spot prices of about 5 eurocent/kWh to Norway and Sweden which have significant hydro capacity for balancing the variable wind energy; Denmark has been doing it for about 20 years.   As Germany is very marginal for onshore wind energy (nation-wide onshore wind CF 0.167) and nearly all of the best onshore wind sites have been used up, or are off-limits due to noise/visual/environmental impacts, most of the additional wind energy will have to come from OFFSHORE facilities which produce wind energy at about 2 to 3 times the cost of onshore wind energy. http://theenergycollective.com/willem-post/61774/wind-energy-expensive

A 2009 study by EUtech, engineering consultants, concluded Germany will not achieve its nation-wide CO2 emissions target; the actual reduction will be less than 30%. The head of Germany's Federal Environment Agency (UBA), Jochen Flasbarth, is calling for the government to improve CO2 reduction programs to achieve targets. http://www.spiegel.de/international/germany/0,1518,644677,00.html   GERMAN RENEWABLE ENERGY TO-DATE   Germany announced it had 17% of its electrical energy from renewables in 2010; it was 6.3% in 2000. The sources were 6.2% wind, 5.5% biomass, 3.2% hydro and 2.0% solar. Electricity consumption in 2010 was 603 TWh (production) - 60 TWh (assumed losses) = 543 TWh http://www.volker-quaschning.de/datserv/ren-Strom-D/index_e.php  

Hydro: At the end of 2010, about 4,700 MW of hydro was installed. Hydro energy produced was 19.5 TWh, or 3.2% of production. Hydro growth has been stagnant during the past 20 years. See below website.   As it took about $150 billion of direct investment, plus about $130 billion excess energy cost during the past 11 years to achieve 8.2% of total production from solar and wind energy, and assuming hydro will continue to have little growth, as was the case during the past 20 years (almost all hydro sites have been used up), then nearly all of the renewables growth by 2020 will be mostly from wind, with the remainder from solar and biomass. http://www.renewableenergyworld.com/rea/news/article/2011/03/new-record-for-german-renewable-energy-in-2010??cmpid=WNL-Wednesday-March30-2011   Wind and Solar Energy Depend on Gas: Wind and solar energy is variable and intermittent. This requires quick-ramping gas turbine plants to operate at part-load and quickly ramp up with wind energy ebbs and quickly ramp down with wind energy surges; this happens about 100 to 200 times a day resulting in increased wear and tear. Such operation is very inefficient for gas turbines causing them to use extra fuel/kWh and emit extra CO2/kWh that mostly offset the claimed fuel and CO2 reductions due to wind energy. http://theenergycollective.com/willem-post/64492/wind-energy-reduces-co2-emissions-few-percent  

Wind energy is often sold to the public as making a nation energy independent, but Germany will be buying gas mostly from Russia supplied via the newly constructed pipeline under the Baltic Sea from St. Petersburg to Germany, bypassing Poland.   GERMANY WITHOUT NUCLEAR ENERGY   A study performed by The Breakthrough Institute concluded to achieve the 40% CO2 emissions reduction target and the decommissioning of 21,400 MW of nuclear power plants by 2022, Germany’s electrical energy mix would have to change from 60% fossil, 23% nuclear and 17% renewables in 2010 to 43% fossil and 57% renewables by 2020. This will require a build-out of renewables, reorganization of Europe’s electric grids (Europe’s concurrence will be needed) and acceleration of energy efficiency measures.   According to The Breakthrough Institite, Germany would have to reduce its total electricity consumption by about 22% of current 2020 projections AND achieve its target for 35% electricity generated from renewables by 2020. This would require increased energy efficiency measures to effect an average annual decrease of the electricity consumption/GDP ratio of 3.92% per year, significantly greater than the 1.47% per year decrease assumed by the IEA's BAU forecasts which is based on projected German GDP growth and current German efficiency policies.

The Breakthrough Institute projections are based on electricity consumption of 544  and 532 TWh  in 2008 and 2020, respectively; the corresponding production is 604 TWh in 2008 and 592 TWh in 2020.   http://thebreakthrough.org/blog//2011/06/analysis_germanys_plan_to_phas-print.html http://www.iea.org/textbase/nppdf/free/2007/germany2007.pdf   Build-out of Wind Energy: If it is assumed the current wind to solar energy ratio is maintained at 3 to 1, the wind energy build-out will be 80% offshore and 20% onshore, and the electricity production will be 592 TWh, then the estimated capital cost of the offshore wind turbines will be [{0.57 (all renewables) - 0.11 (assumed biomass + hydro)} x 592 TWh x 3/4] x 0.8 offshore/(8,760 hr/yr x average CF 0.35) = 0.0533 TW offshore wind turbines @ $4 trillion/TW = $213 billion and of the onshore wind turbines will be [{0.57 (all renewables) - 0.11 (assumed biomass + hydro)} x 592 TWh x 3/4] x 0.2 onshore/(8,760 hr/yr x average CF 0.167) = 0.279 TW of wind turbines @ $2 trillion/TW = $56 billion, for a total of $272 billion. The feed in tariff subsidy for 9 years, if maintained similar to existing subsidies to attract adequate capital, will be about $150 billion offshore + $50 billion onshore, for a total of $200 billion.    

Note: The onshore build-out will at least double Germany’s existing onshore wind turbine capacity, plus required transmission systems; i.e., significant niose, environmental and visual impacts over large areas.   Recent studies, based on measured, real-time, 1/4-hour grid operations data sets of the Irish, Colorado and Texas grids, show wind energy does little to reduce CO2 emissions. Such data sets became available during the past 2 to 3 years. Prior studies, based on assumptions, estimates, modeling scenarios, and statistics, etc., significantly overstate CO2 reductions.  http://theenergycollective.com/willem-post/64492/wind-energy-reduces-co2-emissions-few-percent   Build-out of PV Solar Energy: The estimated capital cost of the PV solar capacity will be [{0.57 (all renewables) - 0.11 (assumed biomass + hydro)} x 592 TWh x 1/4]/(8,760 hr/yr x average CF 0.095) = 0.082 TW @ $4.5 trillion/TW = $369 billion. The feed in tariff subsidy, if maintained similar to existing subsidies to attract adequate capital, will be about $250 billion.   Reorganizating Electric Grids: For GW reasons, a self-balancing grid system is needed to minimize CO2 emissions from gas-fired CCGT balancing plants. One way to implement it is to enhance the interconnections of the national grids with European-wide HVDC overlay systems (owning+O&M costs, including transmission losses), and with European-wide selective curtailment of wind energy, and with European-wide demand management and with pumped hydro storage capacity. These measures will reduce, but not eliminate, the need for balancing energy, at greater wind energy penetrations during high-windspeed weather conditions, as frequently occur in Iberia (Spain/Portugal).  

European-wide agreement is needed, the capital cost will be in excess of $150 billion and the adverse impacts on quality of life (noise, visuals, psychological), property values and the environment will be significant over large areas.    Other Capital Costs: The capacity of the quick-ramping CCGT balancing plants was estimated at 25,000 MW; their capital cost is about 25,000 MW x $1,250,000/MW = $31.3 billion. The capital costs of decommissioning and restoring the sites of the 23 nuclear plants will be about $23 billion.   Increased Energy Efficiency: Increased energy efficiency would be more attractive than major build-outs of renewables, because it provides the quickest and biggest "bang for the buck", AND it is invisible, AND it does not make noise, AND it has minimal environmental impact, AND it usually reduces at least 3 times the CO2 per invested dollar, AND it usually creates at least 3 times the jobs per invested dollar, AND it usually creates at least 3 times the energy reduction per invested dollar, AND it does all this without public resistance and controversy.   Rebound, i.e., people going back to old habits of wasting energy, is a concept fostered by the PR of proponents of conspicuous consumption who make money on such consumption. People with little money love their cars getting 35-40 mpg, love getting small electric and heating bills. The rebound is mostly among people who do not care about such bills.

A MORE RATIONAL APPROACH   Global warming is a given for many decades, because the fast-growing large economies of the non-OECD nations will have energy consumption growth far outpacing the energy consumption growth of the slow-growing economies of the OECD nations, no matter what these OECD nations do regarding reducing CO2 emissions of their economies.   It is best to PREPARE for the inevitable additional GW by requiring people to move away from flood-prone areas (unless these areas are effectively protected, as in the Netherlands), requiring new  houses and other buildings to be constructed to a standard such as the Passivhaus standard* (such buildings stay cool in summer and warm in winter and use 80 to 90 percent less energy than standard buildings), and requiring the use of new cars that get at least 50 mpg, and rearranging the world's societies for minimal energy consumption; making them walking/bicycling-friendly would be a good start.   If a nation, such as the US, does not do this, the (owning + O&M) costs of its economy will become so excessive (rising resource prices, increased damage and disruptions from weather events) that its goods and services will become less competitive and an increasing percentage of its population will not be able to afford a decent living standard in such a society.   For example: In the US, the median annual household income (inflation-adjusted) was $49,445, a decline of 7% since 2000. As the world’s population increases to about 10 billion by 2050, a triage-style rationing of resources will become more prevalent. http://www.usatoday.com/news/nation/story/2011-09-13/census-household-income/50383882/1

* A 2-year-old addition to my house is built to near-Passivhaus standards; its heating system consists of a thermostatically-controlled 1 kW electric heater, set at 500 W, that cycles on/off on the coldest days for less than 100 hours/yr. The addition looks inside and out entirely like standard construction. http://theenergycollective.com/willem-post/46652/reducing-energy-use-houses

Before entering into the non-profit world, he entered into the family business of oil industry analysis and claims to have achieved a fair amount of financial success. As Lundberg tells the tale, he stopped “punching the corporate time clock” in 1988 to found Fossil Fuels Policy Action.I had just learned about peak oil. Upon my press conference announcing the formation of Fossil Fuels Policy Action, USA Today’s headline was “Lundberg Lines up with Nature.” My picture with the story looked like I was a corporate fascist, not an acid-tripping hippie. The USA Today story led to an invitation to review Beyond Oil: The Threat to Food and Fuel in the Coming Decades, for the quarterly Population and Environment journal. In learning for the first time about peak oil (although I had questioned long-term growth in petroleum supplies), I was awakened to the bigger picture as never before. Natural gas was no answer. And I already knew that the supply crisis to come — I had helped predict the 1970s oil shocks — was to be a liquid fuels crisis.

As Oil Guru, Dan [Lundberg, my father] earned a regular Nightly Business Report commentary spot on the Public Broadcasting System television network in the early and mid-1980s. I helped edit or proof-read just about every one of those commentaries, and we delighted in the occasional opportunity to attack gasohol and ethanol for causing “agricultural strip mining” (as we did in the Lundberg Letter).

I slept on it and decided that I would not participate in this corrupt conspiracy. Instead, I had fun writing one of Fossil Fuels Policy Action’s first newsletters about this “bridge” argument and the background story that the gas industry was really competing with fuel oil for heating. I brought up the AGA’s funding for enviros and said I was rejecting it. I was crazy, I admit, for I was starting a new career with almost no savings and no guarantees. So I was not surprised when my main contact at AGA called me up and snarled, “Jan, are you on acid?!

Here is a quote from his July 10, 2011 post titled Nuclear Roulette: new book puts a nail in coffin of nukesCulture Change went beyond studying the problem soon after its founding in 1988: action and advocacy must get to the root of the crises to assure a livable future. Also, information overload and a diet of bad news kills much activism. So it’s hard to find reading material to strongly recommend. But the new book Nuclear Roulette: The Case Against the “Nuclear Renaissance” is must-have if one is fighting nukes today.

He goes to say the following:The uneconomic nature of nuclear power, and the lack of energy gain compared to cheap oil, are two huge reasons for society to quit flirting with more nuclear power, never mind the catastrophic record and certainty of more to come. Somehow the evidence and true track record of dozens of accidents and perhaps 300,000 to nearly 1,000,000 deaths from just Chernobyl, are brushed aside by corporate media and most governments. So, imaginative means of helping to end nuclear proliferation are crucial, the most careful and reasonable-sounding ones being included in summary form in Nuclear Roulette.

Instead of trying to explain the basis for those statements more fully, I’ll try to encourage people to consider the motives of people on various sides of the discussion. I also want to encourage nuclear energy supporters to look beyond the financial implications to the broader implications of a less reliable and dirtier electrical power system. When the focus is just on the finances, the opposition has an advantage – the potential gains from opposing nuclear energy often are concentrated in the hands of extremely interested parties while the costs are distributed widely enough to be less visible. That imbalance often leads to great passion in the opposition and too much apathy among the supporters. Over at Idaho Samizdat, Dan Yurman has written about the epic battle of political titans who are on opposing sides of the controversy regarding the relicensing and continued operation of the Indian Point Nuclear Power Station. Dan pointed out that there is a large sum of money at stake, but he put it in a way that does not sound too terrible to many people because it spreads out the pain.

In round numbers, if Indian Point is closed, wholesale electricity prices could rise by 12%.

A recent study quoted in a New York Times article put the initial additional cost of electricity without Indian Point at about $1.5 billion per year, which is a substantial sum of money if concentrated into the hands of a few thousand victors who tap the monthly bills of a few million people. Here is a comment that I added to Dan’s post:Dan – thank you for pointing out that the battle is not really a partisan one determined by political party affiliation. By my analysis, the real issue is the desire of natural gas suppliers to sell more gas at ever higher prices driven by a shift in the balance between supply and demand.

They never quite explain what is going to happen as we get closer and closer to the day when even fracking will not squeeze any more hydrocarbons out of the drying sponge that is the readily accessible part of the earth’s crust.The often touted “100 – year” supply of natural gas in the US has a lot of optimistic assumptions built in. First of all, it is only rounded up to 100 years – 2170 trillion cubic feet at the end of 2010 divided by 23 trillion cubic feet per year leaves just 94 years.

Secondly, the 2170 number provided by the Potential Gas Committee report includes all proven, probable, possible and speculative resources, without any analysis of the cost of extraction or moving them to a market. Many of the basins counted have no current pipelines and many of the basins are not large enough for economic recovery of the investment to build the infrastructure without far higher prices.Finally, all bets are off with regard to longevity if we increase the rate of burning up the precious raw materia

BTW – In case your readers are interested in the motives of a group like Riverkeepers, founded and led by Robert F. Kennedy, Jr., here is a link to a video clip of him explaining his support for natural gas.http://atomicinsights.com/2010/11/power-politics-rfk-jr-explains-how-pressure-from-activists-to-enforce-restrictions-on-coal-benefits-natural-gas.html

The organized opposition to the intelligent use of nuclear energy has often painted support for the technology as coming from faceless, money-hungry corporations. That caricature of the support purposely ignores the fact that there are large numbers of intelligent, well educated, responsible, and caring people who know a great deal about the technology and believe that it is the best available solution for many intransigent problems. There are efforts underway today, like the Nuclear Literacy Project and Go Nuclear, that are focused on showcasing the admirable people who like nuclear energy and want it to grow rapidly to serve society’s never ended thirst for reliable power at an affordable price with acceptable environmental impact.

The exaggerated, fanciful accident scenarios painted by the opposition are challenging to disprove.

I just read an excellent post on Yes Vermont Yankee about a coming decision that might help to illuminate the risk to society of continuing to let greedy antinuclear activists and their political friends dominate the discussion. According to Meredith’s post, Entergy must make a decision within just a week or so about whether or not to refuel Vermont Yankee in October. Since the sitting governor is dead set against the plant operating past its current license expiration in the summer of 2012, the $100 million dollar expense of refueling would only result in about 6 months of operation instead of the usual 18 months.Meredith has a novel solution to the dilemma – conserve the fuel currently in the plant by immediately cutting the power output to 25%.

The German government's decision to close all of its existing nuclear reactors by 2022 shows that this shift in sentiment is gaining traction. And it increases the likelihood that the nuclear-powerplant building boom that had seemed at hand will be set back. Without a doubt, this new reality will lead to global energy shortages and much-higher energy costs.But for us as investors, the real issue is this: Which sectors will step up to alleviate the shortfall resulting from the inevitable disappearance of nuclear power?

As the recent development in Germany so clearly illustrates, one key difficulty about major energy decisions is that far too many are political in nature.

Too often, rational scientific analysis and cost-benefit analyses are ignored as hard-line environmentalists push their own agendas. Many of the environmentalists' objections are valid - at least as far as they go. But more and more, those objections seem to include every source of energy that actually works.

Windmills are objectionable because they look ugly and kill birds. Geothermal energy is objectionable because it causes earthquakes. Even solar energy is objectionable because of the vast acreages of land required to house the solar panels

Replacing Nuclear Power Figuring out which energy sources will offset the decline in nuclear power output requires three calculations:

First, a calculation of the cost of an energy source - as it now exists - in its economically most practicable uses. However, much as we may like solar power, we are not about to get solar-powered automobiles; likewise, oil-fueled power stations are inefficient on many grounds.

Second, a calculation that demonstrates whether the cost of that energy source is likely to increase or decline. With oil and hydro-electric power, for instance, the cost is likely to increase: The richest oil wells have been tapped and the best rivers have been dammed. With solar, on the other hand, the cost could decline, given how quickly the technology is advancing.

And third, an estimate that includes our best guess as to whether hard-line environmentalists will win or lose in their attempt to prevent its use.

On nuclear energy, the environmentalists appear to have won - at least for the time being. Their victory probably extends to fusion power, if that ever becomes economical. Conversely, their battles against wind and solar power are futile, as there are no scary disaster scenarios involved.

I regard the German decision to abandon nuclear power as foolish, and it should make us very cautious when investing in large-scale German manufacturers, which may be made uncompetitive by excessive power costs. But as an investor, I think it opens up a number of profit opportunities.

Actions To Take: Environmental concerns have chased investment away from nuclear energy - at least for the time being. For that reason the nuclear build-out that was just starting to gain momentum now is likely to stumble. As investors, we must look for energy sources that will most likely replace lost nuclear power output. They include:

Shale Gas: Potential damage to the environment caused by "fracking," which is the process by which shale gas is extracted, has not impeded this industry's growth. Natural gas has grown increasingly popular, as it is relatively cheap and clean, and readily abundant in the United States. A recent study by the Massachusetts Institute of Technology (MIT) suggests that natural gas will provide 40% of U.S. energy needs in the future, up from 20% today. You might look at Chesapeake Energy Corp. (NYSE:CHK), the largest leaseholder in Pennsylvania's Marcellus Shale, which is trading at a reasonable 9.5 times projected 2012 earnings.

Shale gas. Tar sands. And solar energy. Let's look at each of the three - and identify the best ways to play them

Tar Sands: The Athabasca tar sands in Canada contain more oil than the Middle East. And at an oil price of $100 per barrel, it is highly profitable to extract. Of course, extraction makes a huge mess of the local environment, but environmentalists seem to have lost that battle - reasonably enough, in view of the "energy security" implications of dependence on the Middle East. A play I like here is Cenovus Energy Inc. (NYSE: CVE). It's a purer Athabasca play than Suncor Energy Inc. (NYSE: SU), but it's currently pricey at 16.5 times projected 2012 earnings. Suncor's cheaper at only 11 times projected 2012 earnings - so take your pick

Solar Energy: Of the many new energy sources that have received so much taxpayer money in the last five years, solar is the one with real potential. Unlike with wind farms, where there is almost no opportunity for massive technological improvement or cost reduction, there is great potential upside with solar power: The technology and economics of solar panels and their manufacture is improving steadily. Indeed, solar power seems likely to be competitive as a source of electricity without subsidy sometime around 2016-2020, if energy prices stay high.

There are a number of ways to play this. You can select a solar-panel manufacturer like the Chinese JA Solar Holdings Co. Ltd. (Nasdaq ADR: JASO), or a rectifier producer like Power-One Inc. (Nasdaq: PWER). JA Solar is trading at a startling forward Price/Earnings (P/E) ratio of less than 5.0, mostly likely because of the Chinese accounting scandals, whereas Power-One is also cheap at less than seven times forward earnings and is U.S.-domiciled. Again, take your pick, depending on which risks you are comfortable with.

Texas has been experiencing a terrible heat wave this summer - along with much of the rest of the country. According to the Dallas Morning News, this heat wave has caused more than 20 power plants to shut down, including coal and natural gas plants. On the other hand, Texan wind farms have been providing a steady, significant supply of electricity during the heat wave, in part because wind farms require no water to generate electricity. The American Wind Energy Association (AWEA) noted on their blog: “Wind plants are keeping the lights on and the air conditioners running for hundreds of thousands of homes in Texas.”

This near-threat of a blackout is not a one-time or seasonal ordeal for Texans. Earlier this year, when winter storms were hammering the Lone Star State, rolling blackouts occurred due to faltering fossil fuel plants. In February, 50 power plants failed and wind energy helped pick up the slack.

Although far from the steady winds of the Great Plains, Cape Wind Associates noted that if their offshore wind farm was already operational, the turbines would have been able to harness the power of the heat wave oppressing the Northeast, mostly at full capacity. Cape Wind, vying to be the nation’s first offshore wind farm, has a meteorological tower stationed off Nantucket Sound in Massachusetts. If Cape Wind had been built, it could have been using these oppressive heat waves to operate New England’s cooling air conditioners. These three examples would suggest that the reliability of fossil fuels and nuclear reactors has been overstated, as has the variability of wind.

So just how much electricity can wind energy realistically supply as a portion of the nation’s energy? A very thorough report completed by the U.S. Department of Energy in 2008 (completed during President George W. Bush’s tenure) presents one scenario where wind energy could provide 20% of the U.S.’s electrical power by 2030. To achieve this level, the U.S. Department of Energy estimates energy costs would increase only 50 cents per month per household. A more recent study, the Eastern Wind Integration and Transmission Study (EWITS), shows that wind could supply 30% of the Eastern Interconnect’s service area (all of the Eastern U.S. from Nebraska eastward) with the proper transmission upgrades. As wind farms become more spread out across the country, and are better connected to each other via transmission lines, the variability of wind energy further decreases. If the wind isn’t blowing in Nebraska, it may be blowing in North Carolina, or off the coast of Georgia and the electricity generated in any state can then be transported across the continent. A plan has been hatched in the European Union to acquire 50% of those member states’ electricity from wind energy by 2050 - mostly from offshore wind farms, spread around the continent and heavily connected with transmission lines.

With a significant amount of wind energy providing electricity in the U.S., what would happen if the wind ever stops blowing? Nothing really - the lights will stay on, refrigerators will keep running and air conditions will keep working. As it so happens, wind energy has made the U.S. electrical supply more diversified and protects us against periodic shut downs from those pesky, sometimes-unreliable fossil fuel power plants and nuclear reactors.