designing better futures

The green re-cession...via demand shock.

A lot of people try to guess at true Chinese GDP using Electricity consumption as a proxy.  Here is a little review of estimated US energy usage through since 1930.  I can't vouch for the source Wattzon or data integrity, but it really makes one think about firms in the peak energy management business like Enernoc or grid pressure relief systems.  I wish the graph below were semi-log to more clearly highlight the 1930's decline.

I found the chart in Paul Kedrosky's mention of an energy conference presentation.

Carbon credits, utilities etc. and anyone used to steady state energy consumption growth is probably in for a bit of a shock.  Smart metering, behavioral changes and other end point and grid efficiency gains will only exacerbate this shock for energy producers and their respective supply chains, railroads etc.

Electric stimulus crunch? Generating utilities could see 10% revenue declines

A lot of renewable energy make sense when one looks at the 20 year levelized cost of energy. All one has to do is make assumptions about Coal and Natural gas inflation over the next few years and wind and some forms of solar start looking good  from a risk management perspective in a power generating portfolio.  Here is a spreadsheet tool for comparing renewable energy costs with fossil based equivalents. 

Please note oil generate only 1.6% of electricity in the US. So please ignore any pundit comparing electricity generation via wind and solar with oil prices at $X price, it is a red herring and something for the CNBC crowd.

Crunch Time!

The new stimulus package is going to include $54billion for efficiency.  If one assumes the efficiency investments have a 6 year payback period or IRR of 16.6%, then we might see $8.6 billion less spent on fuel for heating and electricity due to efficiency savings.  If we assume a 50-50% split for electric and fuel based energy, there could be a $4.3billion contraction going forward in the US electricity market due to the stimulus.

This isn't large for a +$320b industry, but look out if a green smart grid gets put in for transmission &distribution, then it could be a 10% upstream demand side hit going forward.  I am for the green smart grid as it makes things more efficient, safe and reliable over time, but it is important to realize change has ripples.

The real crunch: The larger impact comes from national HVDC transmission installation and efficiencies in distribution. You can read about the US grid here.

ABB thinks upstream demand could be reduced over 10% with an HVDC grid and smart distribution.  See report here: read with care, this is a vendor speaking. 

That could mean a +10% decline in demand for power generation in a few years if implemented, a big decline in upstream generating requirements.  From a value investors perspective, some power generators moats are going to get smaller as the effective grids get larger and more efficient.  Depending on the wholesale power to retail mark-up, it could be $10billion in lost upstream generating revenues. 

Utility experts feel free to submit your estimates in the comments.

On top of the decline in revenue for power generators, a national HVDC grid and/or making the current multiple US grids more efficient would mean the retirement of many Peaker plants and other fixed assets held by generating utilities.  

Current grid congestion means peaker plants and other capex intensive resources are required to be available 24/7.  Depending on the regulatory regime, firms receive compensation for a fair ROI on these assets.  In light of efficient grids a lot of these assets will become redundant shrinking the rate base.  Regulatory regimes vary from state to state and region to region.  EnerNoc and other smart load management systems could see their addressable market shrink dramatically.

A smart green grid makes sense.  Some wind farms recently had negative electric rates due to poor grid infrastructure.  The generating utilities and FERC have been far to cozy for too long. 

Upstream electricity could shrink as will coal related rail traffic and gas deliveries via pipeline. That might not be a bad thing on the macro time scale.  Some utilities with generating assets instead of just T&D (transmission & distribution) may face a bit of a challenge as the assumption of 1%/year growth reverses quickly and they are fixed with usage assumptions and fixed debt loads.  Earnings could suffer. 

Ever wonder why those smart meters never made into your home or why you never had variable rate electricity pricing?  The technology has been around for 15 years.  The problem is no utility wants to pay for the privilege of shrinking the consumption rate of their product.  Variable rate pricing and in-house meters cause behavior shifts in domestic users leading to 3-10% declines in consumption.  Makes a person think a little about what will happen if these become standard. 

I am not advocating an energy or policy position, just saying, it pays to look around and see who the winners and losers are from inevitble change that is happening, in the long run efficient, sustainable use of resources benefits everyone.  Decisions made in energy typically run for 20-30 years, so before you jump to a decision think about your children's world.

Ultracapacitors: is the energy revolution about to arrive?

EDITOR/Author's Note post publishing.  I didn't verify my source on energy density of Gasoline, my original online soruce indicated 19,500 BTUs/gallon.  The actual figure is closer to 115,000 a significant difference, here is a more reliable source  http://bioenergy.ornl.gov/papers/misc/energy_conv.html  My article is therefor not very useful.  I am leaving it up as an honest blogger. to remind me to check things a lot closer.  Apologies to my readers.  NG

Many technologies evolve along exponential curves. At some point an inflection point is reached and profound things happen.

Last week another patent from EEstor became public. This patent and earlier comments by the company could mean dramatic changes for energy if EEstor can finally deliver. Nothing has been proven at scale yet. Energy density is important but ignored.

People don’t necessarily want oil, they want reliable cheap energy in whatever form is convenient, reliable and cheap.We use gas and oil not because they are efficient or clean, but because they are wonderfully cheap, abundant and dense energy storage mechanisms. After 100 years of engineering the average internal combustion engine is only 18-20% efficient at converting the stored heat potential in gasoline to mechanical work. 

Many people thought hydrogen was the fuel of the future, but physics works against it, due to hydrogen’s low energy density.

Gasoline is a great store of energy at 19,500BTU’s per gallon.

1 kilowatt hour = 3,412 Btu

EEStor and Ultracapacitors: First across the finish line?

EEStor has stated that it intends to manufacture an ultra capacitor with amazing energy storage, cost and weight attributes. If EEstor or another firm can deliver on these claims it will be revolutionary.

An ultracapacitor is like a battery that charges and discharges rapidly, and has a near infinite life time.

Claimed EEstor details

EEstor's technology claims to have a total capacitance of 30.693 F and can hold 52.220 kWh of energy. The device is said to weigh 281.56 pounds. 

Details here at ultracapacitors.org

A gallon of gasoline provides the work equivelance in your car of  19,500BTU*.20% efficient= 1.14 Kwhrs of electricity. http://www.ecogeek.org/content/view/2405/80/

Assuming a 90% efficient electrical engine, the “battery” ultracapacitor mentioned above would hold the equivalent work potential of 52.2KWhr/1.14kwhr*.90=41.2 gallons of gasoline.

In earlier reports the information about the EEstor technology indicated the following attributes:

                                    Current    Future

Energy density, Wh/L      606        1513

Specific energy, Wh/kg    273       682
Price, $/kWh                 $ 61      $ 40

Cost: 

 At the price mention above the 281 pound battery could eventually cost (281/2.2*$40)=$5,109.

Your car might use $15,000 of fuel over it lifetime. Assuming your car is good for 150k miles @20mpg=7,500 gallons of gas will be used over the system life a car. At $2/gallon that equates to $15,000 in stored fuel energy cost.

The Kwhr electricity equivalent assuming 90% efficiency is 7,500*1.14=10,500Kwhrs.  At $.20/Kwhr retail that is $2,100 energy cost.  Combined with a $5,109 ultra-capacitor, total fuel and storage cost is $7,309 roughly half the cost of gas @$2/gallon.  The caveats are the ultra cap costs associated safety engineering and electric motors vs. ICE engines.

Some interesting things happen with energy density at the EEstor claimed levels. New markets open up. The specific energy in the table above at 682Wh/kg is greater than gasoline 1.14kwhr/lb of gas/2.2 =518Wh/kg.Most small two cycle engines such as lawnmowers, leaf blowers, motorcycles, recreational vehicles etc would be replaced rapidly.

At high enough energy densities and electric price differentials it could makes sense to physically ship electricity the same way we ship oil (energy) today.  Say, Iceland or some other cheap geothermal resource produces at $.04/kwhr  

Shipping costs of $40/metric tonne 1,000kilos would add only $40/1000=$.04/kg at .628Kwhrs/kilo add up to $.064/kwhr for transport. 

You could have green energy delivered to a dock for say $.114/kwhr.  Add on capital costs and margin etc. you are still looking $.15/kwhr which is interesting for many world markets. 

In many countries the cost of power is much higher than $0.20kwhr, assuming it is even available.  Quality of energy is also a factor.  In many emerging countries one limiting factor to economic growth is stable cheap power.Cheap physical energy storage and delivery could change some markets and countries overnight.

The expensive generators that run in many cities in the developing world could be shut down as the monopolistic grid gets end run via physical delivery of electricity. Entrepreneurs north of Lagos could harvest solar energy at $0.10/KWhr and truck it wherever demand was in Nigeria for example. 

For those off the grid a solar panel with a built in ultracapacitor, makes energy available without the grid. It may be $1/kwhr but that is a good deal considering the alternative of no energy.

Power when you need it is worth a premium. We think of nothing paying $4 for a D cell flashlight battery which stores .020Kwhrs.  That equates to $4/.02Kwhr=$200/Kwhr.

Having spent a few weeks in the bush in Niger among Hausa living off the grid and understanding their energy and health needs. Cheap energy will be nothing short of revolutionary for economic and human development.

In the developed world being “off grid” is a lifestyle choice.In the emerging world, being off grid correlates to lost years of life expectancy, literacy and lost human capabilities and potentials in the Amarytya Sen sense.

Cheap energy storage will be more life changing for the 2.5billion living on less than $2/day than it will be for you picking up your new electric car in 2015.

Ships & trains

Some initial markets for high density electricity that will open up as the technology evolves will be fixed transport routes such as railroads and shipping where cost is everything and infrastructure upgrades are easy to price.If you have a fixed route transport infrastructure with a 20-30 year duty cycle ultra-capacitors may make sense when the energy density cost crosses the bunker and diesel fuel cost equivalence levels.

Grid disintermediation

The HVDC and other grid technology upgrades in some areas could shrink as most of the defined capacity for grids is designed for peak loads.  At $1-3m/mile for HVDC transmission assets, it may make sense to forward and store electricity to the edges of the grid off peak. We do the equivalent with pumped storage where convenient geographically today.

The electricity transmission companies will lose and gain from all of this. On one hand every gallon of gas, fuel oil etc. replaced by electricity is a new market, on the other hand, storage at the edges, mean a shrinkage of the required asset base as the “peak” demand infrastructure requirement shrinks.

Many don’t realize it but the US transmission companies have limited interest in efficiencies at lower cost due to their reward structure. Electric generating and distributing utilities have limited incentive in consumers purchasing less of their product.Shaving peaking capacity is nice, but utilities get scared when they think about every consumer being 10% more efficient.They have 20 year debt, plants and business plans based on steady demand escalation. It isn’t a co-incidence that we don’t have smart meters in our homes. Even something as simple as a visible electric use meter in the home have been shown to cause a behavior shift in people reducing consumption up to 10%.

Renewables

Renewable energy sources such as wind and solar have cost issues associated with transmission and the 20%-30% resource availability. Cheap energy storage, compressed air, batteries or ultra-caps at the right price can shift the price dynamics more in favor of these resources as the transmission needs required become less relative to delivering baseload equivalent energy.

If energy storage can approach EEstor’s claims, the world will be a different place for many. The biggest impact may be among the rural and urban poor who come onto micro or local grids without waiting for nationalized power generation to reach them. Some have been waiting for decades. There are now 4 billion cell phone users, let’s hope we have 4 billion renewable electricity users in the near future.

Someone to learn from...

Wow if you are a designer or want to learn about how to impact the world, here is a very interesting woman who teaches and makes things happen. Way to go MIT, we need more educational programs and more people like this.

renewable energy presentation for Columbia University

This was very high level renewable energy presentation I delivered to about 160 people in the physics hall at Columbia University for the CURES group  Friday night.  It was fun to make and share. Here is the presentation and the files for download including some raw data. 

Renewable Futures

View SlideShare presentation or Upload your own. (tags: renewable energy)

Download renewables.xls

Download renewable_futures.ppt

How to build a culture: Stewart Brand

Why don't we think like this?

Oh and if you liked that watch the series on architecture how buildings learn here. I am a huge architecture fan as buildings reflect thought (design)  and culture in physical form.

The singularity gets nearer and we get anxious

 Intel is going to be shipping chips with thousands of cores in the near future.  You can now purchase a graphics card that performs a teraflop (1 trillion calculations per second) for your PC.  Today's breakthrough is tomorrow banal trinket or play thing.

The singularity which is kind of a rapture for geeks is approaching.  The ebb and flow of politics and economics are going to become more driven by technology than we have ever imagined. 

I used to work in an institute designed to discover applied science for 100 years in the future.  I toiled away as Chief analyst for 70 PHd's working to create the technologies in nanoscience, bioscience, artificial intelligence, energy and materials science that would shape the future.  We had 2 noble laureates and Nicholas Negroponte of the MIT media lab on our board.  It was a powerful learning experience about science and applied research with fascinating and brilliant people.

What does all this technology mean?

In my mind, the book that highlights what the technical progress will become most effectively is the singularity by Ray Kurzweil.  Trained as an anthropologist, I can guarantee that how these technologies are applied and used is impossible to predict, but the sheer power and magnitude of change will be overwhelming and culturally transforming.  The singularity is Utopian, I constantly remind people we are only apes with opposable thumbs and the gift of language.  To fully appreciate this read The Third Chimpanzee by Jared Diamond author of Guns, Germs and Steel.

The great science fiction writer William Gibson once said the future is already here, it just arrives in different places at different times.  If you have ever experienced telepresence in a halo room or felt in awe watching the graphics in the latest video game or some new technical breakthrough, expect to have the sensation more often as the future starts showing up in more places in your life.

Change is one thing that seems universally loathed by all cultures and people in general.  We are creatures of habit and social caste, the rate of change which is now taking place will drive many further into thier core ethnocentric beliefs.  I anticipate the pursuit of greater ethnocentric ideals within many cultures as the pace of change accelerates.  This is not necessarily a good thing.  This could mean greater chances for misunderstanding and conflict among self identified groups.  Let's hope the anxiety induced by rapid change is overcome by a sense a shared humanity.  The record among groups of third chimpanzee's for this is not great.

Alternative investment: Farmland up 16% in 2007

Being from Iowa and having worked in the fields and trading futures as a teenager, I always keep an eye on the agricultural economy.  Farmland had a good return last year according to the Federal Reserve.

Good farmland was up 8-16% according to this report from the Chicago Fed.

Farmland is usually purchased as a function of cash yield.  I know what you are thinking, what a novel but dated concept in real estate: yield based pricing.  I have a feeling it may come back into vogue :)  Even if Moody's will rate it AAA, please don't buy a Farmland CDO it will only encourage more silly securitization and things have been bubblicious enough thank you.

There are of course federal crop subsidies which skew the economic output of the land which drives the cash rent and thus the effective yield, so caveat emptor.  If you want to talk with someone about Farmland, the good people at Hertz Farm Management know a thing or two about it.  They even manage a few acres down in Brazil.  Ask for Dick Pringnitz.  Full disclosure: my family owns a few acres back in Iowa and have for over a century, probably won't be selling anytime soon.

Farmland is an investment, not a trade.  A lot of people don't know it, but one of the most crazy speculative bubbles in the late 20's was Farmland.   This post isn't a buy or sell recommendation, just a highlight. Here is an excerpt from a lawyers letter posted by Dr. Housing Bubble.

“The boom period of the last years of the World War and the extremely inflationary period of 1919 and 1920 were like the Bubble and the Tulip Craze in in their effect upon the general public. Farm prices shot sky high almost over night. The town barber and the small-town merchant bought and sold options until every town square was a real estate exchange. Bankers and lawyers, doctors and ministers left their offices and clients and drove pell mell over the country to procure options and contracts upon this farm and that, paying a few hundred dollars down and expecting to sell the rights before the following March brought settlement day. Not to be in the game marked one as an old fogy, while paper profits were pyramided and Cadillac cars and pleasure trips to the cities took the place of Fords and Sunday afternoon picnics. Everyone then maintained that there was only a little land as fertile as the fields of Mississippi, Illinois, Iowa and Minnesota and everyone sought to get his part before it was all gone. Like gold, it was limited in extent and of great potential value. Prices skyrocketed from $100 to $250 and $400 per acre without regard to the producing power of the land."

The next major issue in the financial markets will most likely be flawed CDS netting leading to a bit of a banking issue.  None of this is new under the sun.  My recommendation is to get educated / jaded by studying human behaviour and also reading Kindelberger's Manias, Panics and Crashes.

Wind energy demand, State mandates and global potential

In 2007 the US added 5.3GW of wind power.  See latest (MAY 2008 DOE report):

http://www1.eere.energy.gov/windandhydro/pdfs/43025.pdf

Expect a lot more in the future.

Many states have programs in place called RPS (renewable portfolio standards), these are mandates for each state seeking a certain amount energy from renewable energy sources.  Roughly 35% of new energy added to the grid last year came from wind.  It is important to understand how RPS mandates could drive the demand side for the US wind industry. 

Solar plays a smaller part in this growth and will for the next 5-7 years out based on current growth.

Most wind installations yield roughly 30% of their nameplate capacity due to the variance in wind availability.  Thus a 1 gigawatt (1,000 megawatt) wind farm will over its operating life yield roughly 300 megawatts per hour baseload equivalent.

Below is a chart of the RPS mandates from the various states compiled by the union of concerned scientists. 

http://www.ucsusa.org/clean_energy/clean_energy_policies/res/overviewgrowth.html

For the next 5 years there will be demand for approximately 20GW of extra renewable power.  If one cedes 5GW to solar, biomass and geothermal over that period, we are left with 15GW of wind power.  At a rated wind tower capacity of 30% that equates to a need for 50GW of nameplate capacity over the next 5 years, or 10GW of installations per year. 

At roughly $2.1m per installed Megawatt of wind capacity one could assume a yearly market for wind of $2.1x10=$22 billion/year. 

The DOE (department of energy has some great reading on the matter) http://www1.eere.energy.gov/windandhydro/

One point of interest for wind bulls should be the fact that 225 GW of nameplate capacity is in the interconnection que waiting for approval to build and connect over the next few years.  Not all of that will be installed or come online.   That 225 GW of development would equate to roughly 67.5 GW of baseload equivalent power or 6.7% of current grid power.

The US grid currently has approximately 1,000 GW of capacity. http://www.eia.doe.gov/cneaf/electricity/epa/figes2.html

As more capacity comes online and RPS standards are met, Wind will continue to become an important part of the generating asset mix.  Wind will push gas out of the mix for the near future.  Beating coal as a power source from a non-carbon perspective will take CSP.  Expect massive HVDC transmission projects in the next few years as well.

From a global market perspective about 20% of wind cost is transportation, so wind will remain mostly a regional and less international phenomenon for manufacturers and developers.  Makers of Gearboxes and hobbing tools will be the exception to this.

Globally wind has a long way to go.  There is 4,300 GW of installed capacity globally growing just below the rate of gross world product. At 4% that equates to 172GW baseload or 573 GW of wind equivalent installation potentially addressable market annually.  Wind won’t capture all of this, but a 35% share equates to a $421 billion annual global opportunity.

Silicon supply = 7.5-36.7 Gigawatts capacity by 2010

The participants in the silicon market are a useful starting source of estimates about the market.  As any good anthropologist knows, a source has its biases, but is nevertheless an interesting data point.

One interesting information source is from REC (Renewable Energy Corporation), a large Norwegian player in the Solar PV industry. They presented during the Piper Jaffrey conference on Feb 20, 2008 and had some interesting data point in their Power Point Here is a link to the PDF.

In the presentation there is an indication of estimates for Metric Tonnes of Polysilicon Capacity out to 2012. It includes, various players and even lists some as “wild cards”.

From a downstream perspective the expectations of polysilicon are quite important as the expiring feed in tariffs from Spain caused a spike in demand during 2007. This demand spike caused a  shortage in Polysilicon sending prices to $450/kg.  These prices are believed to be declining rapidly as the market solves the price problem with supply.

In the power business silicon doesn’t count, gigawatts on the grid count. So let’s take some data points from REC and convert them to gigawatts. It is important to note these supply estimates don’t include amorphous silicon modules or thin film power coming online.

Various participants are slicing and utilizing ever thinner pieces of silicon to achieve ever greater wattage output per gram. A current crude estimate from some of the best indicates 6-10 grams of silicon per watt of nameplate power. Some are claiming use of only 2.5 grams/watt. All producers are working to minimize utilization.

 

REC estimates provide ranges and include the “wildcards” The estimates of gigawatts coming online is below. Remember the solar industry is pretty buzzed from an 07 year which saw estimated 3 gigawatts come online. 

Next week I will write about the supply side of the equation, which has some very interesting properties in terms of subsidies and insolation globally which receives little coverage in the popular press. If you invest in solar, I would urge you to study a global insolation map as the business is global.

Hint: a supply glut  could be a non-issue with a modest decline in module prices that would easily clear the marketplace. Thin film will ship a few gigawatts/yr itself in the next 1-3 years. The US grid has nameplate capacity of roughly 1 Terrawatt and the global energy nameplate capacity is estimated at 4.3 Terrawatts. Solar PV doesn’t even swing the needle at last years .003 Terrawatts shipped.  Last years global PV production was equivelent to 4-6 normal coal plants.

Energy Subsidies per US citizen

For what it is worth here are the estimated energy subsidies per US person.  I leave for people to reach their own conclusions in regards to policy.  If you would like a change in policy, contact your local congressional representative.

                                                                                   

Distribution of Federal Fiscal Subsidies to Energy,   2006   Preliminary Estimates
	$Billions   Per Year (Avg. of High/Low Ests)	%   Share	Per U.S. Citizen/year
Oil and   Gas	$39	52.4%	$128.71
Coal	$8	10.5%	$26.40
Fossil,   mixed	$2	3.3%	$6.60
Nuclear	$9	12.4%	$29.70
Ethanol	$6	7.6%	$19.80
Other   Renewables	$6	7.5%	$19.80
Conservation	$2	2.1%	$6.60
Mixed   Resources/Other	$3	4.2%	$9.90
Total, all resources	$74	100.0%	$244.22
Source:   www.earthtrack.net

The last column was created by me to help people understand the numbers at a personal level.  Please comments and dialog constructive.  Here is the source document.

Renewable Spreadsheet: comparing Fuel to Free

Renewable energy is big and going to get bigger, but the important questions are why, how fast and in what shape.  Energy is a $1 trillion business, so there is some serious opportunity there.

The fuel vs. free debate in terms of cost means that inflation and the upfront cost of renewables vs fossil fuel is one of the largest variables in their deployment.  Play around with the scroll bars in this model to understand the sensitivities.  Solar is dropping in price fast and CSP is already at a coal competitive level in many areas.  The inflection point for unsubsidized solar on commercial roof tops is only a few years out.

 

Many people think coal is here forever or that it is the ultimate evil etc.  People attack wind by mentioning the fact that it doesn't always blow.  8 out of 10 journalists get the whole wind and solar thing wrong, by not adjusting prices for the effective yield of these variable resources.  Hint a 1.5mw rated turbine will yield roughly 30% of its nameplate capacity in any given year.

This free spreadsheet model lets people compare the cost of generating a 1MW of power for 20 years continuously from these sources.  Apples to Apples.  After utilities by energy for long durations not technology per se, so lets compare the cost 1mw/20yrs then discount it back into Kw/hr.

Please kick the tires on this and get back to me on how to improve it.

Here is a high level model that lets you model these things in a like for like way.  It isn't perfect.   All models are wrong in their own special ways, details, assumptions or structure.

This tool has handy scroll bars to adjust the variables.  I haven't included a carbon value in the model yet.  In theory it would just be simply added to the coal cost at a $/ton rate with an inflation adjuster.  Let me know how we can make this better.  I need to add hydro and natural gas.

Another serious variable to include in this model in addition to Carbon or REC's is a cost of transmission.  The US like many grids is seriously out of date or geographically challenged relative to renewables.  Many renewable resources need expensive HDVC lines to ship power to metropolitan areas.  A more detailed comparison tool would address the distributed nature of renewable assets.

Here is the spreadsheet.Download 20MWyearsV1.1.xls