US Energy Security – Update from NY Energy Week

On Tuesday I had the pleasure of attending Redefining US Energy Security for the 21st Century as part of New York Energy Week.  The panel was composed of self described “Energy Warriors” Vice Admiral Lee Gunn (US Navy, Ret.), Brigadier General Steven M. Anderson (US Army, Ret.), and Brigadier General Stephen A. Cheney (US Marine Corps, Ret.) and offered insight into the massive amount of energy required by the DOD as well as their goals to reduce energy demand without compromising operational efficiency.  Here are some interesting facts:

• The US military is the largest organizational user of petroleum in the world consuming around 120m barrels per year at a cost of about $17 billion.
• Petroleum accounts for 71% of the DOD’s energy consumption by source; electricity ranks second at 11%, natural gas third at 8%.
• Since 2005, DOD’s petroleum use has deceased 4% but spending on petroleum increased 381% in real terms.
• After taking into account the hidden costs of personnel and assets required to move, store and protect fuel from the supplier to the point of use, one gallon of fuel can cost up to $50.
• One project that used spray foam insulation on tents in Iraq reduced cooling costs by 75% and resulted in savings of $3.6 per day!  The original contract for $95 million saves up to $1 billion dollars annually and keeps 11,000 fuel trucks off the road.  Think about the reduced risk to our soldiers who would otherwise have to protect those convoys as the fuel makes its way from its origin to its final destination.

All this adds up to a massive energy bill and a lot of time and resources dedicated fueling the operation rather than the operation itself.  The diversion of resources, vulnerability of supply chains and reduced mobility of combat forces make our military’s reliance on fossil fuels a national security issue as much as a financial one.  Each and every branch of the military understands this fact and has taken steps to increase their energy efficiency and reduce their demand.  However, the opportunities are endless.

As I stated in an earlier article, the DOD should leverage its purchasing power to drive cost reductions in advanced clean energy products.  In addition to economies of scale, the DOD would also provide real world testing of new technologies so they can be measured and verified and eventually reach commercialization.

Furthermore, as energy efficiency contributes to organizational effectiveness, there should be a top down approach where commanders are held accountable for reaching their energy reduction goals.

It is well established that our addiction to fossil fuels poses a national security risk.  It was especially motivating hearing the alarm being sounded by former members of the DOD.

Mr. Greenbacks Goes to Costa Rica!

Costa Rica is at the forefront of promoting sustainable practices in their everyday life and one of the 5 “Blue Zones” of the world where people regularly live to be over 100 and generally enjoy better health and less incidence of disease than the rest of the world.

Just a few of the common practices that we saw in Costa Rica was composting of all organic materials, low flow faucets and showers as well as automatic shut off switches on the room lights after the key has been removed.  A heavy public awareness campaign also goes a long way toward making guest appreciate the natural beauty of the land.

On our hanging bridges canopy tour, our guide explained that Costa Rica was well on its way toward meeting its power needs using renewable sources such as hydro, wind, and geothermal.  Almost 95% of CR’s power is produced from renewable sources with hydro accounting for a full 75% of the total.  Geothermal ranks second due to the areas 5 active volcanos and wind installations have been steadily increasing in recent years.  Distributed solar would make a great addition to CR’s renewable energy portfolio and would help to power regions where grid transmission is simply too costly.

Tonight’s the Night: Will the President Speak on Renewable Energy and Climate Change

The State of the Union speech marking the beginning of a Presidents second term has historically been a chance for the President to lay out big, hairy, audacious goals for the upcoming administration.  Reagan had tax reform, Clinton had education, and GW had Social Security reform.  Some were achieved while others failed.  So too tonight, Obama will lay out his agenda for the next four years.  Given the economic condition of the US right now, it is rightly expected that jobs will be a major theme of the speech, but some others for consideration:

1. Jobs, Jobs, Jobs
2. Deficit Reduction
3. Economic Growth
4. Immigration
5. Gun Violence

Missing from this list is Climate Change.  Will the President even mention those words tonight?  With North Korea’s nuclear test last night, I expect the President to devote more time and attention to foreign policy issues rather than outlining climate initiatives.  Prove me wrong Mr. President.

Question for my readers:  Will Obama mention Climate Change or Renewable Energy in tonight’s State of the Union address?

Four Climate Change Policy Ideas for the Next President

Congratulations! We are finally out of this election cycle and all the negative ads. And no matter who the winner is, I hope that we can all come together to build a stronger economy and a healthier society. While we wait for the mudslinging over the fiscal cliff to begin, here are the top four recommendations on climate change policy for the incoming (or returning) president as stated in Businessweek.

1) Put a price on carbon. I alluded to this in a previous post called Carbon Emission where we discuss the differences between a carbon tax and a cap-and-trade policy. Businessweek says that “A $20-per-ton carbon price—collected as a tax or by auctioning carbon allowances—would raise on the order of $100 billion per year while creating powerful economic incentives to curb pollution in the most cost-effective manner (and develop new technologies to do so). A carbon price is also an ideal way to help address the coming “fiscal cliff”: Using some of the revenue to pay for lower taxes on labor or capital would provide a double dividend by reducing distortions in our tax system. For that reason, a carbon price enjoys broad support from economists across the political spectrum, from N. Gregory Mankiw, Douglas Holtz-Eakin, and Arthur Laffer on the Right, to Paul Krugman, Joseph Stiglitz, and Jeffrey Sachs on the Left.”

2) Cut Non-CO2 Greenhouse Gases. CO2 is obviously the biggest contributor to global warming, accounting for over 80% of GHG’s, but it is not the most potent. Other GHG’s such as Methane, Nitrous Oxide, and other flourinated gases such as hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride are numerous time more potent warmers than CO2.  I wrote a paper on this earlier this year and will post it later this month.  Needless to say, focusing attention on these High Global Warming Potential gases may do more in the short-term to curb warming and create some international “good will” for tackling the CO2 problem. 

3) Promote Clean Energy and Energy Efficiency.  The administration should further the transition to renewable energy sources by removing subsidies for fossil fuels and encouraging smarter subsidies for clean energy.  I wrote extensively on this subject here.  In short, current subsidies to fossil fuels should be removed and invested into R&D.  The current subsidies in place for renewable energy promote widespread deployment of these technologies, but do nothing to increase their output and reduce their cost.  A better subsidy policy would promote increases in efficiency or reductions in cost in order to make these technologies competitive with cheap and abundant natural gas.  After all, the taxpayer wants to see results from their money.

4) Use the Clean Air Act.  Finally, the new administration should take full advantage of the Clean Air Act that sets new vehicle mileage standards, sets limits on pollution from industrial sources, and sets more protective standards for air quality.  “The next administration should build on these steps by setting carbon-pollution emission standards for stationary sources, including new and existing power plants. In doing so, the EPA can draw on a proud tradition, dating back to the Reagan administration, of making clean-air rules as economically efficient and flexible as possible—for example, by allowing averaging and trading so companies can meet standards on a fleet-wide basis rather than at each facility individually. The EPA should also design the carbon standards in a way that rewards states that implement their own rigorous programs—such as the innovative cap-and-trade approaches already in use in the Northeast and getting under way in California.”

There you have it.  In only a few hours from now we will know the next leader of the United States of America.  Now if the time for action on climate change.  The four steps outlined above are only the beginning, but they will help to reduce our dependence on fossil fuels, improve the health of our citizens (and the other 6.7 billion citizen of this planet), and even provide opportunities for the growth of new industries.  This is a tall order, but we have never backed down from a challenge before, why start now?

Hurricane Sandy

I just want to reach out to all the people affected by Hurricane Sandy this past week.  Some people lost loved ones, some people lost property, and some people lost it all.  Please be good to each other.  Together we will make it through.

If anyone needs help or would like to make a donation to the Red Cross, please click here.

World Wide Electricty Use

Have you ever seen a picture of the world at night? Take a look at the picture below and then try to comprehend the numbers – USA has a population of 300 million, North America and South America combined have about 800 million inhabitants.  Now look across the Atlantic and take a look at Africa – you don’t see many lights for the more than 1 billion people living on the continent.  Then take a look at Asia, which sports a population of 4 billion.  Now if all these areas had the same electricity usage of the USA, think about much energy we would need.  Think about the air quality in the cities, the reduced cropland from the pollution, the destruction caused by mining and drilling, the traffic on the highways, etc.  That is why we need cleaner sources of energy.  Energy production runs hand in hand with economic development and will bring billions of people out of poverty.  Further innovations in renewable technologies combined with a scale-up in production can drop the cost of clean energy and light up this map without the negative externalities associated with fossil fuel.  Now that is something to think about! 

I would just like to say a quick thank you to Professor John Zindar for teaching a great class on carbon constrained economies and to Chip, Dipa, Iana, Pedro, Terence, and Thiago for making each class fun and interesting.  I learned a lot from each of you and wish you the best in all that you do. 

Wind Projects in the US (2012)

Longtime Mr. Greenbacks friend, reader, and rocket scientist Ryan made some interesting observations regarding US Energy By Source.  Here is some follow-up information on the Wind Industry.  Does anyone out there know what life is like near a large wind farm?  What is the long-term picture for jobs – not just installation, but maintenance as well?  How is the industry looking after the expiration of the 1603 TGP – is it still profitable? 

U.S. Wind Industry Fast Facts

Total U.S. Utility-Scale Wind Power Capacity, Through 1st Quarter of 2012:	48,611 MW
U.S. Wind Power Capacity, Installed in 2011:	6,816 MW
U.S. Wind Power Capacity, Installed in 1st Quarter of 2012:	1,695 MW
U.S. Wind Power Capacity Under Construction as of 1st Quarter of 2012:	8,916 MW
U.S. Wind Power Capacity, Installed in Previous Years (including small-wind):
2010: 2009: 2008: 2007:	5,216 MW 10,010 MW 8,366 MW 5,258 MW
Number of States with Utility-Scale Wind Installations, 2011:	38
Number of States with over 1,000 MW of Wind Installations, 2011:	14
U.S. Wind Resource Potential, Onshore (Source: NREL):	10,400,000 MW
U.S. Wind Resource Potential, Offshore  (Source: NREL):	4,150,000 MW
Top 5 States with Wind Power Capacity Installed, through Q1 2012:
1. Texas 2. Iowa 3. California 4. Illinois 5. Minnesota	10,648 MW 4,419 MW 4,287 MW 2,852 MW 2,718 MW   http://www.awea.org/learnabout/industry_stats/index.cfm

Pain at the Pump

Like Method Man, I came to bring the pain hard-core from the brain, but I’m talking about gas for your car, bus, and plane. Unless you walk to work and don’t have a TV or radio, you are probably aware of the rising price of gas the past few weeks. In fact, since January 2012 the average monthly price of gas has increased almost 14% from $3.380 in January to $3.852 per gallon in March. The price per gallon normally goes up during the spring as people drive more, but according to the U.S. Energy Information Administration, this is the highest price level we have seen this early into the driving season. Many commentators have already predicted $5 per gallon by the summer. That would be just the beginning of our troubles as higher gas prices force consumers to cut back on spending thereby jeopardizing our budding recovery.
Point the Finger
So who is to blame? Blame Obama? Blame Bush? Blame Iran? Blame the Democrats? Blame the Republicans?  Blame the oil companies?  Actually, we can only blame ourselves because we continue to choose to pay $4 a gallon. . . and we haven’t learned anything from our mistakes over the last 10 years.  As long as there is demand, companies will charge whatever price the market dictates.  So while we are quick to say “drill baby drill” every time the price per gallon nears $4, we have simply not changed our behavior.  What we should be doing is purchasing higher mpg cars, utilizing public transportation systems, and simply driving less.  We should be investing in and researching natural gas engines.  These steps would diversify our transportation sector away from its reliance on oil as well as free up demand.  It is simple economics – reduce demand and the price will fall. 
Demand from Emerging Markets
The reality is that we live in a truly global marketplace where one country is no longer a market in itself.  This means that even if the US did start drilling everywhere for oil, it would actually only have a small impact on the world markets.  China, India, and Brazil are all energy hungry and have enough clout to move prices ever higher.  A major contributor to the recent spike in oil prices is the tension between Iran, the US, and Israel.  However, Saudi Arabia said it would offset any decrease in Iranian supplies that result from sanctions.  This still creates uncertainty, and therefore a risk premium. 
The Real Reason for Higher Prices
Actually, there are a combination of reasons for higher gas prices.  1) Increased demand from emerging markets; 2) Tensions in Middle East; 3) Lower production levels worldwide and 4) Price spread between Brent and WTI.  The first three reasons listed here are pretty self-explanatory: it is becoming harder and harder to find the black gold at the same time that global demand is rising.  The oil rich region of the Mid East underwent an upheaval with the Arab Spring and production has yet to come back to prior levels.  Basically, the lowest hanging fruit has been picked from the tree and now we must take on ever riskier (i.e. expensive) projects to access our bounty such as deep water drilling, tar sands, etc.  As long as the price per barrel stays high, these projects make financial sense and encourage exploration and production.  
Refinery Problems
Several major refineries in the northeast have shut their doors in the last few months exacerbating the pain at the pump.  The reasoning behind the closings has to do with the price difference between the benchmark for the different grades of crude.  As of 3/30/12, the spot price for Brent is $123 per barrel and the spot price for WTI is $103 per barrel.  Historically, these two benchmarks have traded within a few dollars of each other.  With the spread over $20 per barrel, the refineries outside Philadelphia that process the Brent are simply not profitable.  These refineries were set up years ago when Brent was the standard benchmark.  Now there has been a shift to WTI as the standard, but the refineries in the northeast can not process that type of crude which is typically refined in the midwest or gulf coast.  This means that a lot of refining capability has come off-line and does not look like it is coming back. 
Conclusion
Until we come up with abundant, renewable energy and scale it to meet our needs, we will fall victim to price shocks for our natural resources.  The US has been doing a great job of decreasing its energy usage through efficiency measures, but there is still plenty of room to improve.  Behavior affects markets, and the law of supply and demand always produces equilibrium.  If we want to avoid being in the same predicament next year, 5 years from now, or 20 years from now, we must realize that we need to end our dependence on the same resources that put us here in the first place.  After all, $5 per gallon won’t hurt so bad when you car runs 100 miles per gallon.

Reinventing Fire: Bold Business Solutions for the New Energy Era

Mr. Greenbacks read a great article in Foreign Affairs this week by Amory Lovins of the Rocky Mountain Institute.  Mr. Lovins is the author of Reinventing Fire: Bold Business Solutions for the New Energy Era and I promise to give you a book review as soon as finish reading it.  Until then, check out the promo.

Battle for the Crown: Solar PV vs. Solar Thermal

I can picture it now, Michael Buffer steps out into the ring and grabs the microphone that just descended from the rafters, “In the near corner, gaining popularity among manufacturers worldwide, dropping in cost 41% over the past few years, meet Solar Photovoltaic aka PV.  In the far corner, holding steady at $0.27 per kilowatt hour, the old favorite but current underdog, Solar Thermal.  Let’s get ready to rumble!!!”  The crowd goes nuts, Larry Merchant goes to the tale of the tape.  Who will be crowned the king of the solar world???

Ok, I may be nuts, but sometimes a blog needs some excitement.  This boxing metaphor is actually an illustration of what is happening in the solar energy world where solar PV has taken an early lead in terms of implementation.  Solar PV is what you think of when you think solar panels on a roof.  The past few years have seen a push in terms of government funding for the technology (don’t even get me started on Solyndra), now the market is pulling the cost way down.  I promise to write a post later about the push-pull dynamics and what that means for the technology and the price, but that is a tomorrow problem.  In any case, China has been cranking out the solar panels at such a quick rate, that the cost has been plummeting.  Worldwide output of PV in 2010 doubled the 2009 output.  See right.  Now, PV is down to $0.17 per kilowatt hour versus the $0.27 for solar thermal.  Bloomberg New Energy Finance predicts that PV will reach grid parity with other forms of energy by 2015.  Unfortunately, this means that many solar thermal projects are now switching to solar PV instead, you can read the Bloomberg Businessweek article here.  So what should we do?  At this point, it seems that the pull dynamics of the market have embraced the idea of PV cells and will continue to make them cheaper and better than the previous generation.  Now would be a great time to continue to push the solar thermal technology until it is embraced by the market in much the same way.  Most types of renewable energy cost between $0.03 and $0.30 per kilowatt hour depending on the source, you can see a breakdown of the exact prices here.  In order to gain widespread traction and compete with conventional sources of energy, renewable costs will have to come down to the $0.03-$0.07 per kilowatt hour range.  As the cost comes down, there will be less resistance to switching to renewable energy and I think our bodies and our wallets will thank us for it.