Hallowe’en 2013: Nightmare on Main Street

Posted in Uncategorized at 8:54 pm by Administrator

It must be admitted that the circumstances were unique.

The consequences, although predicted by a few (or so they claimed) were dismissed as impossible by political leaders and the general public.

And yet there had been warning signs.

For months the price of oil had been moving monotonically higher; not at an alarming rate but without any obvious underlying cause.

Those with technical knowledge of the subject would have pointed out that the increase in daily oil production capacity had not been keeping pace with the increasing daily demand for several years.  As a result the world markets were susceptible to any major problem in the supply chain.

But people had been hearing threats about “peak oil” for decades.  They were immunized against this conspiracy by the oil industry to increase “Big Oil’s” money grab.  Peter had cried “wolf” too many times.

So when oil passed $150/barrel public outrage called for an end to oil company creed.  Politicians the world over, most being disciples of Reagan and Thatcher, refrained from interfering with the sacrosanct “market forces” that they believed in so deeply.

And then on October 31 those laws of supply and demand, both respected and feared, passed judgment on the world.

A late season hurricane shut down production along the Gulf Coast of the United States.  The same week an earthquake in Southern Iran caused extensive damage to a number of pipelines serving the port of Ras Tanura in Saudi Arabia.  Over 5 million barrels of oil at the terminals were spilt into the Persian Gulf when storage tanks were ruptured by that same earthquake.

Within days the price of oil had hit $200/barrel and gasoline prices in the U.S. spiked to $5/gallon.  Service stations began to run out of gasoline and lineups reminiscent of the 1970’s became the norm.

Over the next several months oil production in the Gulf of Mexico returned to normal and significant progress was made on repairs to the Middle East infrastructure.  Despite the increasing supplies the world oil crisis continued.  World oil prices rose to $300/barrel and gasoline prices in the U.S. rose to $6/gallon.

It was clear that there was now a serious imbalance between supply and demand.  When pressed to increase production the most prolific oil producers in the world stated categorically that there were no large untapped pools available.  The old standbys, Saudi deep reservoirs and the Canadian Tar Sands had long ago been tapped and were producing at close to maximum output.  Production continued its inexorable decline in the North Sea and the Alaskan North Slope as well as all of the older conventional oil fields.

As the new reality became accepted the world reacted as it had several times before to oil price spikes.  Sales of pick-up trucks, the cash cows of the North American automobile industry, came a crashing halt.

Unable to deal with the endless line-ups at service stations many people started commuting via mass transit.  While this was considered by most to be a positive development it stressed urban transit systems almost to the breaking point.  Too often the destination signs on buses read “Sorry – Bus Full”.   Subway and train riders frequently watched as car doors opened and closed with no opportunity to board.

As consumers had to allocate more of their disposable income to fuel purchases of one sort or another retail spending slowed dramatically pushing the developed economies into recession.

There were, of course, winners from the energy chaos.  Oil and Gas exploration companies, flush with cash, began to expand their workforces.  However, not quite believing that they were truly into a new era this expansion was tempered.

Manufacturers of electric vehicles saw record sales but were hard pressed to ramp up production lines quickly.  But here again uncertainty about the future held back aggressive expansion plans.

And still the crisis deepened.

It was discovered that China, through its 5 year planning process, had secured the majority of its projected oil import requirements through fixed-price, long-term purchase agreements with major oil producers.  Although not completely sheltered from the economic chaos being experienced elsewhere the Chinese economy continued to grow albeit at a slower rate, driven more and more by internal demand.  The result was further pressure on the global oil supply.

As oil prices touched $400/barrel many consumers began to switch energy sources to use natural gas whenever possible.  And that is when the other “shoe” dropped.

A fracking project in SE Ohio was identified as the source of a significant landslide which buried a small town resulting in more than 100 deaths and the destruction of several hundred homes.  It was found that the local groundwater supply had been contaminated with fracking fluids making the water unfit for human consumption.  As a result a national moratorium on fracking was imposed until the situation could be thoroughly investigated.

With a cloud hovering over the entire fracking industry the price of natural gas spiked to $10/MMBtu.  The downstream impacts on employment and energy costs were felt almost immediately, pushing many economies further into recession.

In Europe declining tax revenues and rising unemployment caused the debt crisis to rear its ugly head once again.  But this time the German and French economies were not strong enough to be able to rescue the weaker members of the EEC.

Greece and Spain quickly defaulted on bond payments and had to revert to National currencies leaving many Euro zone lenders with huge holes in their balance sheets.  Several other countries teetered on the edge of loan defaults.

There were calls within the United Nations General Assembly for global rationing of oil resources.  In an ironic twist Communist China declared that the commercial contracts that it had signed with oil exporters should trump any U.N. resolution.  Because of its permanent seat on the Security Council and associated veto these discussions went nowhere.

Finally, out of frustration and desperation, the United States declared an embargo on all oil and natural gas exports from North America.  All production from the Canadian Tar sands and Mexican oil fields not used domestically was diverted to U.S. refineries.  LNG exports to Japan and elsewhere were halted.

As global political tensions kept rising the oil crisis did not abate.  Even with lowered demand around the world and a significant increase in exploration activity discoveries could not replace declining production in the mature oil fields of the world.

China demanded that the U.S. lift the embargo on exports from the Canadian Tar Sands that China had contracted for.  The United States refused and requested that China join U.N. discussions about oil rationing.

For the first time in decades diplomats around the world began to discuss the possibility of a global armed conflict.




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Reflections on one year of blogging

Posted in Uncategorized at 5:58 pm by Administrator

It was in October of 2012 that I started "The Black Swan Blog". 

What was my motivation?  The trigger for me was reading a white paper written by Vinod Khosla entitled Black Swans thesis of energy transformation. This paper put forth the proposition that step-change technologies and approaches rather than incremental improvements will be required to address the energy needs of developing economies. The "Black Swan" event represents a sudden change in thinking or perspective which can lead to true innovation. This was the fundamental concept at the heart of the book "The Black Swan" by Nassim Nicholas Taleb.

When I investigated various alternative energy initiatives that were underway and the way taxpayer and ratepayer funding was being allocated I became alarmed.  It did not seem to me that the large subsidies supporting the development of photo-voltaic solar panels and wind farms were sustainable.  It actually seemed like this was in many ways lost money. Nor did there seem to be any serious effort towards overcoming the biggest problems associated with renewable energy sources; reliability and variability.

In order to bring my concerns to the attention of the public I started "The Black Swan Blog".  Over the past year I have published more than 45 articles on everything from concentrated solar power to geoexchange to hydro-kinetics.  At Energyblogs.com I have had more than 25,000 "reads" and counting other sites that I post at (and various cross-postings of my blog) the total number of times my blog entries have been read is greater than 70,000.

Is that impressive?  In a world where almost any celebrity blog posting attracts millions of readers I certainly don't think so.  On the other hand, from many positive comments that I have received there are thousands of people who have found at least some of the postings in "The Black Swan Blog" to be of interest.

I have learned a lot while researching and writing blog entries.  I am now more convinced than ever that we should be focusing almost all of our R&D and funding towards the development of inexpensive utility-scale energy storage solutions that can retain energy for many days.  If we had a solution to that problem then wind turbines could basically meet all of our energy needs.  Conversely, without affordable energy storage solutions wind farms cause more problems than they are worth.

I am now absolutely opposed to any financial support for residential roof-top solar panels.  They are expensive to install and maintain, inefficient because they are installed at a fixed angle, and require unnecessary upgrades to the local grid infrastructure which other utility customers end up paying for.  This type of installation is consuming enormous amounts of money through capital grants, tax credits and Feed-In-Tariffs – tens of billions of dollars that could be better spent on storage technology.

I am also now opposed to any solar power development north and south of about 35 degrees latitude.  My concern with such developments is the very large difference between winter and summer energy production. 

In the higher latitudes peak demand is often during the late afternoon and through long winter nights when solar is not available.  Relying upon solar in any significant way will require a lot of over-building in order to deal with low solar energy availability in winter and would result in a large surplus of electricity during the middle of the day in the summer.  The other alternative would be to maintain some other source of electricity as back-up in winter.  Neither situation really helps us move towards a sustainable energy future in a cost-effective manner. At some point in the future compressed hydrogen may provide the large scale, long duration energy storage that would allow solar energy to be balanced throughout the year at these latitudes.  But until then solar power developments north and south of 35 degrees do not make a lot of sense.

On the other hand I believe that solar power should be the primary focus at latitudes lower than 35 degrees.  Combining Photo-Voltaic (PV) solar panels to supply electricity during the day with Concentrated Solar Power (CSP) and Thermal Energy Storage at night would provide dispatchable and reliable base load electricity generation for a reasonable cost. 

The Solana plant in Arizona which cost approximately $2 billion (about $7/watt)  represents one example (although it is a pure CSP facility).  The plant can produce 280 MW of electricity for up to 6 hours after the sun has set (in the same way that the Gemasolar plant in Spain generates 24×365).  A combined PV/CSP facility could have been built for significantly less and would have provided the same extended generation profile.

I am particularly bullish about PV+CSP for the Hawaiian Islands where residual fuel oil is burned to produce electricity.

Another possible application of this technology is in the Middle East where more than 2% of the world's oil consumption is used by desalination plants.  One large solar-powered plant is under construction in Saudi Arabia; PV+CSP has the potential to completely eliminate the burning of oil for desalination, a very poor use of a valuable and non-renewable resource.

While we develop energy storage solutions we also need to become more flexible in the way we use electricity.  Demand Response programs are being initiated by some utilities but even more needs to be done to promote public education and awareness of the importance of reducing energy use at peak demand times.  The truth of the matter is that we only have a problem with energy for a few hours per day for a few weeks per year.  A program such as the one implemented in post-Fukushima Japan would have a significant positive impact on our ability to manage peak demand.

Finally, I continue to be a strong advocate for geoexchange systems.  If building codes mandated the use of geoexchange rather than traditional HVAC systems the impact on energy use for both heating and cooling would be very significant.  Widespread deployment of geoexchange systems could effectively "clip" peak demand both in the summer and winter.

I can't say that "The Black Swan Blog" has had any impact on alternative energy policy or practice during year one. I do think it has given readers some different perspectives on the complex issues surrounding renewables and the practical realities that will need to be faced as we transition to a sustainable energy enviroment.

What's the bottom line?  I have had enough interest and positive feedback to keep "The Black Swan Blog" going for another year. 

Thanks for your support.

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It’s time to do the right things “not because they are easy but because they are hard”

Posted in Uncategorized at 11:35 pm by Administrator

It was in May of 1961 that President John F. Kennedy declared that the United States would do the things required to land a man on the moon before the decade was out “not because they are easy but because they are hard”.  Twenty months later a contract to design and build a Lunar Excursion Module was awarded to Grumman and all of the LEMs were delivered by the end of 1966, more than two years before the first lunar landing.

I am drawing attention to that particular aspect of the Apollo program because it reflects a confidence and an approach that I think is lacking in our efforts to transition to a sustainable energy environment.

At the time that the LEM contract was awarded the U.S had only managed to put 3 solo astronauts into orbit, with the longest flight being less than 10 hours.  There was no launch vehicle that could put three men into orbit let alone send them to the moon.  There was no guarantee that humans could survive multiple days in space and there were no life support systems developed that would make such a voyage possible.

In that context, was it not just a little bit crazy to commit $billions to develop a lunar landing craft so early when the entire Apollo program was in its infancy, faced with unknown risks and an uncertain end result?

Eighty years before the Apollo program began the Canadian Government made a commitment to build a transcontinental railway.  As with the Apollo program this project faced unknown and unknowable technical and financial risks.  And yet the very first section of track laid down was in the Fraser Canyon of British Columbia, thousands of miles from the population centers in the east and very near the western end of the line.

Both of these examples (and there are many others) demonstrate a recognition that it is often best to attack the most difficult engineering problems first because they may take a lot of time and effort to deal with.  And in both of these situations the actions of the sponsors confirmed their belief that the problems could and would be overcome.

Without being able to find a way through the treacherously narrow Fraser Canyon there could be no Canadian Transcontinental railway.  And without a firm commitment to completing the entire railway the Fraser Canyon section of track would have been utterly useless.

Without a LEM, the first rocket-powered machine in history capable of taking off and landing as well as docking with an orbiting service module, there could be no lunar mission.  And if any component of the entire Apollo program failed the LEMs would never have been used.

Now fast forward to the 1980’s and consider the approach to developing renewable energy sources.

The first serious effort was led by Arnold Goldman who formed the Luz Corporation to build the Solar Energy Generating Stations (SEGS) in California.  Although he was a great believer in solar energy Mr. Goldman explicitly recognized that electricity is required after the sun sets and that it did not make sense to build plants that could not match supply and demand.  As a result the SEGS plants are equipped with natural gas as a secondary fuel to be used on cloudy days and in the evening.

Unfortunately, after Luz went bankrupt in 1991 Mr. Goldman’s common sense approach seems to have been lost.

Solar and wind energy both suffer from the fact that they are not dispatchable and consequently they may generate electricity when it is not needed and they may not generate electricity when it is needed most.  This is not mysterious.  This is not a surprise.

Bearing this fact in mind it is clear that the most important engineering task to be undertaken is to be able to store the energy from solar and wind so that it can be used when it is needed.  And yes, this is also the most technically challenging aspect of transitioning completely away from the burning of hydro-carbons to generate electricity.

Without reliable and affordable energy storage systems it is simply not possible to actually decommission the thermal generating plants that we have relied upon for more than 100 years.  Simply reducing how much we use those plants is not good enough and in any case is not economically viable in the long run.

It follows that significant R&D funding and other financial support mechanisms should have been directed towards energy storage solutions from the beginning.  Has that happened?  The short answer is “No!”

I have written blog postings about many different storage technologies including the use of post-consumer electric vehicle batteries, flywheel technology, and compressed hydrogen.  These are all technologies that are either in production use or very close.  But they are also technologies that are immature and expensive requiring substantial additional funding to bring down costs.

And yet, in these cases the funding is invariably very difficult to get and inadequate when it is grudgingly provided.

The University of Western Michigan has not been able to get a few $million to conduct engineering studies on battery re-use.  Beacon Power, developers of flywheel storage systems, went bankrupt and the company was only able to rise from the ashes because of a change in the regulations regarding quick-response backup power.  The amount of money going into hydrogen storage research is also insignificant compared to the 10’s of $billions going into subsidies for rooftop solar panels and wind farms.

When I have spoken to the researchers in this field they have invariably cited a lack of funding as the major stumbling block preventing significant progress.

Apart from a lack of serious R&D funding support, commercialized energy storage, even in pilot projects, is very hard to configure in a way that will generate anything close to a profit.

Energy storage systems are treated as “end users” by Independent System Operators (ISOs) and consequently are charged a grid access fee.  There is no Feed-In-Tariff for electricity produced from storage and there are no capital grants or other incentives provided to assist in the construction of energy storage facilities (although organizations like NREL do often participate in “one off” pilot projects).

Facing high costs, technical risks, access fees, and uncertain revenue streams utilities and private investors have done exactly what you might expect when it comes to commercializing energy storage solutions: almost nothing.

Going back to the Canadian Railway analogy what we have been doing is laying track across the prairies at a furious pace while leaving the “hard parts” of the plan as a homework assignment to be completed later. That is an excellent way to earn a failing grade in my opinion.

We need to get serious about energy storage. There is no other option.

I would like to see President Obama initiate an International project aimed at developing one or more affordable energy storage technologies before the decade was out with the goal of being able to supply 100 GWe of electricity for at least 10 hours (total storage of 1 TW-Hour).

Now that would be inspiring.

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The Wind Production Tax Credit should not be renewed

Posted in Uncategorized at 2:36 pm by Administrator

With the U.S. government “closed for business” and a looming debt ceiling crisis the debate over whether or not to extend the wind energy Production Tax Credit (PTC) is not getting much attention these days. President Obama’s official position is that the PTC should be extended indefinitely. Many in Congress disagree and there are is ample private sector and research lab commentary on both sides of the question.

In my opinion the PTC debate has to be framed within the context of what is the most effective use of scarce public funding to advance our transition from an economy based upon hydro-carbons to one based upon renewable energy sources. On that basis and with all due respect to President Obama I don’t think the PTC should be a priority.

Initially there was general acceptance of the need to spur innovation and reduce the installation costs of wind generation. With the transition to larger and larger turbines and very tall mounting towers the efficiency of wind generation has been improved and costs per MW of generation have fallen. But those cost reductions were driven in large part by competition from Chinese manufacturers rather than any breakthroughs in technology and the cost reductions have largely leveled off.

As wind generation in many jurisdictions in the world has developed it has moved from being a “green energy” bragging point in annual reports to being an operational concern for most Independent System Operators. The fundamental problem with wind generation is its unreliability and variability.

Wind generation is a bit like nutmeg. In small doses nutmeg is a pleasant treat to sprinkle on coffee or eggnog; taken in bulk it can be fatal. We are rapidly moving out of “pleasant treat” territory when it comes to wind generation.

In areas where wind capacity is relatively large compared to demand (Denmark, Germany, The U.S. Mid-West and Texas) the problems with wind are starting to get serious.

From a physical grid standpoint the most difficult problem is the very rapid ramp-up and ramp-down that wind farms can experience, even over very large areas. A quick look at the German generation for 2012 demonstrates the problem.

Despite having over 30 GW of Nameplate capacity there are many times when there is virtually no wind energy production across the whole of Germany. The periods of regional calm have lasted from a few minutes to many consecutive hours. In Germany’s case interconnections with Norway, Sweden, France, and the Czech Republic allow these rapid variations to be balanced by fast response hydro and nuclear generation outside the country. The same is true of Denmark.

In Texas these variations are balanced by thermal generation assets (mostly coal and natural gas fired plants) many of which have to be kept on-line as “spinning reserves” able to respond quickly to wind generation fluctuations. But because of the deregulated market in Texas and the existence of the PTC wind electricity producers can bid very low prices into the ERCOT market to the point where quite often they are bidding negative prices (this practice of bidding negative prices is even more prevalent with the Midcontinent Independent System operator – MISO).  No responsible operator of a thermal generating plant can bid negative prices which means that they get blocked out of the electricity market when the wind is blowing strongly.  In many places wind energy also gets preferential access to the grid by regulation.

As a result there is a growing crisis in traditional (and reliable) electricity generation. This has manifested itself in various ways. In the Euro zone almost all utilities are on credit watch. In both Europe and Texas it is becoming increasingly difficult to get financing for new thermal generation. ERCOT in Texas is raising the ceiling price in the spot market to $9,000/MW-Hour (the annual average in Texas is $45/MW-Hour) in an effort to get new generation built. That strategy is not working particularly well.

Even more worrisome is the fact that it is becoming increasingly obvious that the more wind generation that exists the more reliable reserve capacity is required. What that means is that it is necessary to maintain almost a complete duplication of reliable generation assets to backup the wind farms. That is physically wasteful and economically untenable.

It also must be recognized that the actual amount of effective wind generation at peak demand times is a small fraction of the “Nameplate” generation. While average capacity factors for wind in the U.S. are about 25%, more than half of that generation takes place at night when demand is low. Looking more specifically at generation at peak demand times the availability of wind is even less. This is because peak demand often occurs during cloudless high pressure weather events in both summer and winter when temperatures will be extreme and winds will be calm.  I published a somewhat humorous take on that possibility in my Christmas, 2012 blog “The Fright Before Christmas”.

MISO’s Independent Market Monitor (Potomac Economics) noted in a June, 2013 report on page 39 that

“wind resource output is negatively correlated with load and often contributes to congestion at higher output levels, so hourly-integrated prices often overstate the economic value of wind generation”

As a result they state that the MISO practice of counting 13.3% of wind as reliable is much too high.  They recommend instead that a value of 2.7% would be more appropriate (page 16 of the report).

ERCOT takes a similarly optimistic approach by counting 8% of Nameplate wind capacity as available.  The reserve estimates do not explicitly address the possibility of a very calm, high demand event for an extended period of time. In the Report on the Capacity, Demand, and Reserves issued in May, 2013 ERCOT forecasts Reserve Margins declining from 13.8% in 2013 to less than 5% in 2023.

Two things seem strange about this forecast as far as I am concerned. The first is that wind capacity is not forecast to increase for the next ten years. That will certainly not be the case if the PTC is renewed. Second, the amount of coal-fired thermal generation capacity is forecast to decrease only very marginally over the next 10 years. That seems unlikely given that the new MACT regulations will almost certainly cause some large coal-fired plants to be decommissioned. The more likely scenario is that ERCOT Reserve Margins will decrease more quickly than indicated in this forecast.

Viewed objectively the investment of something close to $100 billion in wind generation (a significant portion of which was provided by taxpayers and ratepayers) has not produced very impressive results.  No thermal generation plants have been decommissioned soley because of the existence of these wind farms.  Capacity factors at peak demand times are in the single digits.  The financial health of existing utilities which still provide the firm capacity needed to keep the lights on has been put in serious jeopardy.

There are much better ways to allocate the funds that would extend the PTC for wind developers.  I have outlined a comprehensive program in my “Sustainable Energy Manifesto” with some of the major items being significantly increased support for energy storage R&D, a PTC or FIT for energy storage, hydro-kinetics, and Concentrated Solar Power developers, and regulatory changes that would cost very little.

Given how strong the wind energy lobby is, how politically correct renewables are, and how much money is at stake, extending the PTC would be the easy choice. I just don’t think it is the right choice.

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