« July 2007 | Main | September 2007 »



August 31, 2007

Alcoa: an Ironic Energy Efficiency Stock

Being concerned about global warming, but also an investor and advisor who wants to keep my own and my client's money relatively safe is fraught with compromises.  For instance, a lot of environmentalists probably think that Alcoa (NYSE: AA) is an inappropriate investment, although I like it now that it has fallen from its recent highs.

There are two major environmental objections to Alcoa.  First, aluminum is extremely energy intensive to refine, and so has a high embodied energy (although recycled aluminum is much better).  Second, like any large mining company, they are responsible for considerable pollution.

Yes, But.

While mining aluminum is damaging, and refining it energy intensive (recycling is much less so), when incorporated in a vehicle, even virgin aluminum causes a dramatic reduction in life-cycle energy use for vehicles due to the reduced weight.  

AIVs.bmp

In addition, the energy saved in vehicles is almost all from oil, while the energy in aluminum comes mostly from electricity.  While this is a clear benefit to energy security, the global warming impact is less clear.  For now, about half of the embodied energy in aluminum comes from coal, but in the future, as we transition to a more sustainable electric grid, the presence of aluminum smelters may actually allow for a higher penetration of wind energy onto the grid.  Because peak demand can account for as much as 50% of an aluminum smelter's electricity bill, already the biggest expense, smelters are accustomed to curtailing their use during peak times.  It's not that big a stretch to carry this practice a little farther, and use the high embodied energy of aluminum as an economic use for electricity at times of excess supply, which may allow a higher penetration of cheap wind into a local electrical grid.  Wyoming, it's time to change your state metal to aluminum.

In fact, some even hope that Aluminum will be fueling your car, as well as forming the structure.  I have my doubts.

The environmental damage at Alcoa's mines has to be weighed against the environmental damage that need not happen when lighter cars make less oil drilling necessary.  I don't know how these balance out, but at least there is something to balance both sides.  If the lifecycle energy of aluminum is any guide to the lifecycle environmental damage, we end up with a net positive for the environment..  

Green Irony

Neither investing nor environmentalism is as certain or as simple as we'd like it to be.  Every time Bill Paul at Energy Tech Stocks has called me a "Pure Green Stockpicker", I winced a little at the irony.  I'm far from pure, as are my picks.  My Blue Chip Alternative Energy Picks, which this final article in the series was about (and which include Alcoa), are perhaps the biggest compromises of the lot.  I guess it just says something about Wall Street that I'm the greenest analyst he's found, and I own Alcoa.

DISCLOSURE: Tom Konrad and/or his clients have positions in Alcoa.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

August 28, 2007

They'll Put the Cellulose in Cellulosic Ethanol

One of the keys to staying ahead of the game in money management is lateral thinking.  I start with the trend, and then try to think of industries or companies that might benefit, but are not on everyone else's radar.  With Peak Oil-driven demand for biofuels, regular readers know that I consider the people who produce the feedstock (farmers, and industries whose waste can fairly easily be converted into biofuel) to be the most certain winners. 

One direction this chain of logic has taken me is to forestry companies.  I'm far from a forestry analyst, so I decided to take small stakes in a few of the more sustainable forestry companies.  When it comes to wood products, the gold (or is it green?) standard for sustainable certification is the Forest Stewardship Council's.  Do not be fooled by watered down industry sponsored pretenders like the Sustainable Forestry Initiative.  Last year, to find sustainable companies, I went to the FSC's list of certified forests, and looked for large numbers that were owned by public companies.

The companies I came up with: Domtar (NYSE:UFS), Tembec (TMBAF.PK), Cascades, Inc. (CADNF.PK), and Potlach (NYSE: PCH).  I later added Catalyst Paper (CTLUF.PK) to my list when reading a news story that, as an aside, mentioned them as a sustainable leader in the Canadian wood and paper industry.  

Scientific?   Not at all.  I consider my investments in sustainable forestry as a diversification with an interesting alternative energy long term upside.  Needless to say, my investments in each company are small.  The ones that didn't make it into the Energy Tech Stocks Interview were ones that had slipped my mind.  I did not end up purchasing them due to the price movements at the time (i.e. my other limit orders executed first.)

I'd love to see comments from readers who know more about sustainable forestry than I do... I'm sure that there are some stand-out forest stewards that I missed when I put together this little diversification.  I personally expect the subprime mess to lead to a prolonged housing slump, at which time even further depressed forestry companies may be excellent bargains... if they are not bankrupt.

DISCLOSURE: Tom Konrad  and/or his clients have positions in the following companies mentioned here: UFS, PCH, CTLUF.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

 

ETS Interview: LEDs and Energy Efficiency

Today, Energy Tech Stocks has the fifth installment from our interview, outlining my LED stock picks.  He quotes me at the start saying that it's "going to be a gigantic market" about LEDs.  It is, but only when compared to the current size of the market... you can ramp up a lot from a very small base.  

LED bulbs are increasing in brightness and decreasing in price rapidly.  It's these quickly improving economics that make me bullish about LEDs.  

Unlike many energy efficiency technologies, LEDs are a product that a business can sell.   Much of energy efficiency involves a complete revamping  of our ways of doing things.  The truly gigantic market is the whole energy efficiency space, but it is much more difficult to invest in behavior change than it is to invest in product.  Nevertheless, there are ways, such as with performance contracting companies, more efficient transmission, or smart metering.   

Before we get carried away looking at the sheer size of the potential energy efficiency market (as measured by the cost of wasted energy that could be saved), we need to remind ourselves that just because a market inefficiency exists does not mean that anyone has yet invented a business model which can profitably exploit it.  The fact that energy efficiency is so much cheaper than new generation is, to me, a priori proof that the market is inefficient.

LEDs have a simple business model that is likely to capture a rapidly growing proportion of the lighting market... but lighting is only a small part of the energy we use (and waste), so I'm always looking for other practical business models that can help to make something we do more energy efficient, and capture enough of that value to make the business self sustaining and, we hope, a good investment.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

August 24, 2007

The Week in Cleantech (Aug. 19 to Aug. 25) - What Can The Volt Do For GM?

On Monday, Ian Talley at the WSJ's Energy Roundup informed us that there were no alternatives at NYMEX. While the reasons behind this delay may be unclear, the US Futures Exchange is moving ahead with what I believe are the first US wind power futures to be traded on a US exchange.

On Wednesday, Dan Lewis at AEI informed us that Vestas was closing a second manufacturing plant in Australia. Not supporting the emergence of a strong renewables industry is, to say the least, an interesting policy choice on the part of the Federal and the various State governments in Australia. Wind investors now know what market not to bother with!

On Thursday, David Ehrlich at Inside Greentech told us that offshore wind was getting pricey. We've discussed in the past how supply-chain gluts in the wind sector could create interesting investment opportunities in the turbine vendor space. However, a number of news items have recently hit the wire around this issue, and there are now some concerns around whether those gluts could hamper overall sector growth.

On Thursday, Jim Fraser at The Energy Blog informed us that GM was planning on going full-steam ahead with the Volt. Of course, the Volt is not forecasted to hit the road until 2010, which gives competitors Toyota and Honda plenty of time to continue innovating in the clean car space. Much could happen with GM in the coming 2 1/2 years...

On Thursday, Environmental Finance told us about the newly-formed Western Climate Initiative (WCI). Another step in the direction of non-voluntary North American carbon markets.

On Friday, our very own Tom Konrad unearthed a special section on the Economist's website that lets you browse many of the articles they have published on the topic of alternative energy.


The Week in Cleantech is a weekly roundup of our favorite cleantech and alt energy blog posts and stories from across the web. If you know of a good piece that you think should be included here, don't hesitate to let us know!

August 23, 2007

Hither and Yon: Transmission and Biofuels

In the most recent two installments of Energy Tech Stocks' interview with me cover my views on transmission stocks, and biofuel stocks.  Readers of AltEnergyStocks know that I am a big fan of electricity transmission, a theme I keep coming back to.  You also know that I have a very ambivalent relationship with both ethanol and biodiesel.  So I liked Bill's transmission article, but I just wasn't able to convey to him the subtleties of how I feel about biofuels.  But he got one thing right: the owners of biofuel feedstock are likely going to be the biggest winners.

Relevant articles on Biofuels

Competition in Ethanol

An Insider's View of the Ethanol Industry

Let Them Eat Grass

Blue Sun Biodiesel

Biodiesel's Competition

My Biodiesel Jeep

The Answer is Trading in the Wind

While you're on the Energy Tech Stocks site, read a little about trading of wind power futures (here and here.nbsp; While I personally have no interest in speculating in wind futures, I predict this will be a great boon to wind farm owners and climate scientists everywhere.  I also predict hedge funds which will use strategies based on emerging inverse correlations between wind power futures and natural gas futures, probably sooner than anyone might guess. 

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

August 22, 2007

Energy Kills, Energy Cures Campaign Launches

The following is a special information supplement on behalf of our Featured Company Energy Cures.

The Energy Kills, Energy Cures Campaign has launched supporting the interconnected solution to fighing poverty environmental degradation.

The Energy Cures Campaign, a grassroots social and environmental call-to-action, launched across the world motivating people to stop the inherent cycle between poverty, dirty energy and its drastic affect on the environment. Providing a simple platform to support the renewable energy efforts of developing countries, Energy Cures creates an opportunity to get involved with a solution that benefits both people and the planet. By advancing the accessibility of modern energy solutions for the world's impoverished, Energy Cures breaks the cycle of poverty and diminishes dirty energy's contamination of both the environment and global economies.

Public support and awareness is vital in reducing dirty energy's devastating impact on the planet and resulting social implications. The Energy Cures Campaign serves as the clearinghouse to become educated on the issues, connected to the real stories and involved in the global action. By visiting EnergyCures.org, people make tax-deductible contributions directly financing entrepreneurial efforts of poverty-stricken nations and their quest to establish clean, renewable energy sources. By financing entrepreneurs around the globe working to make their communities safer and more sustainable places to live, the progression of invested projects has astounding benefits for the local health and economy, as well as the global environment.

Worldwide, 1.6 billion people are without any access to electricity, with an additional 2.4 billion people subjected to rely on dirty fuels for every day use. Typically, dirty energy sources are all that is accessible to impoverished nations. Releasing dangerous particles into the atmosphere, not only does the consumption of this energy have a negative environmental and health impact, there is a significant social-economic one as well.

“Statistics show that if a child stays home to collect firewood for cooking, instead of going to school, it is most likely their child will also be forced into a similar reality,” says Gina Rodolico of Energy Cures and Director of Communication for E+Co, the non-profit organization and catalyst behind the Campaign. “And if this child's mother spends four hours of every day hauling water for her family's daily use, the chances for escaping poverty practically vanish. But by investing in local, clean energy entrepreneurs and their businesses, we can develop a sustainable solution to multiple challenges.”

The Energy Cures Campaign is a special initiative spearheaded by E+Co, a non-profit financial services organization. Over the past 13 years, E+Co has proven that it is possible to invest in local businesses that develop and deliver modern, clean energy in villages and cities in Africa, Asia and Latin America that allows for economic development, protects the planet and helps people escape the cycle of poverty. Since its inception, E+Co has mobilized over $157 million, provided modern energy to over 3.6 million people, supported almost 3,000 jobs and offset 2.2 million tons of CO2. Through Energy Cures, a goal to generate an additional $50,000 has been established to strengthen the efforts of further developing the supply chain for modern energy sources.

As a grassroots movement to support clean energy advancement across the globe, the public's direct involvement is crucial to the overall impact of this initiative. By visiting EnergyCures.org, real life stories and projects of the entrepreneurs illustrate how individual support has a tremendous impact on community. For instance, a tax-deductible donation of $8.33/month (a total year contribution of $100) equals the cost of five clean, efficient cookstoves in Tanzania. An E+Co-supported enterprise, Toyola, distributes these $20 cookstoves to local families. Not only is the local entrepreneur establishing a revenue stream, with use of a cookstove each of the five families save $35 annually in fuel costs. A savings of $35 per family is a significant impact for a country with a per capita GDP of $610.

The Energy Cures Campaign seeks to end world poverty while protecting the planet. Believing that market-driven businesses are a solution to meeting the energy needs of over 2 billion people in an environmentally-conscious way, Energy Cures establishes sustainable communities, stimulates impoverished economies, and preserves environmental resources. For more information and to become involved, visit Energy Cures.

August 21, 2007

ETS Interview: The Will the Real Transportation Fuel of the Future Step Forward

For macro reasons, I think that the next generation liquid fuels may be cellulosic ethanol and biodiesel or renewable diesel from algae.  But those fuels will increasingly be sharing the roads with the long term transportation fuel of the future: electricity from renewable sources, especially wind.  Wind will be important for electric transportation and electric transportation will be important for wind because, when you're already going to be charging batteries, you may as well do it when the electricity is cheap, which will be when the wind is blowing..  

Plug-in hybrid vehicles (PHEVs) neatly solve the main barrier to getting increasing amounts of wind on the grid: the  fact that it often blows in the middle of the night, when electricity demand is lowest (and when PHEVs would be charging), and wind solves one problem for the long term future of PHEVs: where do we get an abundant source of inexpensive electric generation for powering our vehicles?

What's the missing link?  Batteries that are light, have a long recharge life, and can sustain a long series of quick, deep discharge cycles without significant degradation.  And don't catch fire.  Combined with a better control system, and perhaps ultracapacitors.

In one sense, current battery shortcomings don't matter: rising oil prices will make even today's batteries practical as an alternative to $10 gasoline... we just don't know when that $10 gas price will hit us.  When it does, more and more battery types will be practical in PHEVs.  A battery pack ready for a PHEV is a moving target... but this is one moving target that gets closer every time the oil price increases.

In the second installment of my Energy Tech Stocks interview with Bill Paul, he talks about my battery technology "picks" which aren't so much as a representative cross section of the sector.  I'm currently working on differentiate the good with the bad; I just set up a phone conference with a couple of battery industry insiders so I can get their perspectives on which battery companies have well run research operations, as well as which companies will be able to deliver the volume of batteries we're going to need as we shift our transportation system away from a reliance on liquid fuels and towards a greater reliance on electricity.

Watch this space for a more in-depth look into the advanced battery industry in a few weeks.

One other thing in Bill's article: I don't think GM "gets it" when it comes to peak oil.  That's because of their continued insistence that E85 is a valid way to get from here to energy independence.  Earth to GM: there isn't enough feedstock to make that much ethanol. Energy efficiency must come first.  Nice talk about the Volt, but I won't believe it until you stop blathering about ethanol.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

 

Q2 2007 Renewable Energy Country Attractiveness Indices

Ernst & Young recently released its Q2 2007 Renewable Energy Country Attractiveness Indices . As part of this initiative, E&Y typically publishes three forward-looking indices that rank countries based on their alternative energy investment friendliness. The indices are: the All-renewable Index, the Long-term Wind Index and the Near-term Wind Index (2-year time horizon).





This edition of the Renewable Energy Country Attractiveness Indices report also contains a short discussion on supply-chain gluts in the alternative energy space. We have already discussed some of the potential investment opportunities related to this in the wind sector. The authors note:

"Given current rates of industry growth of 20% to 30% and manufacturers’ focus on profitability, supply chain constraints are likely to continue in the medium term notwithstanding new future entrants from China, South Korea, India, and possibly Japan."

The report discusses some of the biggest deals to have taken place in the past few months (e.g. Suzlon’s acquisition of REpower in June 2007 valued at €1.35b) and opines that "mergers and acquisition (M&A) activity is likely to filter down the supply chain, placing a premium for key players such as gearbox and bearing manufacturers." Industry consolidation clearly is, at this stage in the game, the 500-lb pound gorilla in the alternative energy room. Watch for consolidation plays not only in gearbox manufacturers but also in the North American Independent Power Producers sector.

Happy reading!

August 20, 2007

Energy Tech Stocks Interview- Utility Scale Batteries

Two weeks ago I did a phone interview with Bill Paul of Energy Tech Stocks.  Bill's a long time WSJ reporter who got out in time before Rupert Murdoch swooped in, as well as a long time environmental journalist.  As such he interviews those of us whose job it is to have views about what's going on in Cleantech and presents those opinions in a readable and engaging way.  He also has this addictive trick of breaking up interviews into several parts and leaving you with a cliffhanger. 

Bill's first installment showed up in my feed reader last night.  He had some nice things to say about me and AltEnergyStocks, followed by a short recap of some ideas for investing in utility scale batteries which I go into in more detail here.

He got a few choice quotes out of me showing just how rabid I am about global warming and peak oil.  “We’re out of time for dealing with the effects of climate change," for instance. Traditional reporters still have a few tricks we bloggers with opinions could stand to learn, such as getting interviewees to open up.

August 19, 2007

Why Energy Efficiency is a Hard Sell

Two months ago, I was talking to an experienced entrepreneur who was exploring business models to provide geothermal heat pumps to households.  At first blush, it seems like a great idea.  Geothermal heat pumps often have payback periods of under five years, which translates into internal rates or return in excess of 20% over the 30 year life of the system.  With plenty of room for a business to recoup its cost of capital and leave some money on the table for the consumer, it's amazing that there isn't a company in every jurisdiction already active in the market.  

In fact, sellers of geothermal heat pumps are few and far between.  Google searches for "buy geothermal heat pump" and "buy geoexchange" (an alternate name) drew less than 300,000 hits combined, while searches for "buy furnace" and "buy air conditioner" drew over 2,500,000 hits each.  Why is that?

Barriers to Energy Efficiency

When I spoke to the same prospective geothermal heat pump entrepreneur again a month later, he told me he couldn't figure out how to make money on the deal.  Nor can I.  The economics work best with new construction, but builders have no incentive to save their customers money on their utility bills.  In a case study from Delta-Montrose Rural Electric Association (DMEA), a progressive Colorado electric cooperative, they identified purchase cost as the main barrier to adoption. DMEA was able to overcome that by financing the systems for their members (customers) with a payment on their monthly utility bill, something they are in a unique position to do, because they are also the electric utility.  

Most utilities will not support energy efficiency programs without regulatory intervention.  Since energy efficiency programs reduce the total electricity sold, and electric rates are set by regulators, without decoupling, energy efficiency measures reduce the utilities profits.  A utility helping its customers reduce their usage would be like General Motors encouraging people to carpool so they could buy fewer cars.

Utility rate decoupling can fix this disincentive for a utility to work with consumers to reduce their usage, but a mental shift is also necessary for utilities to take on the challenge of working with customers to help them reduce their rates.  After all, DMEA is one of a very few rural electric cooperatives with an aggressive energy efficiency program.  Despite the fact that the co-ops are owned by their members, and so, unlike investor owned utilities, they should be more interested in their customers' welfare, some investor owned utilities (usually spurred on by regulators-- Coops, because of their mutual structure, are mostly unregulated), as wells as municipally owned utilities which are much more likely to embrace energy efficiency programs.  

Eric Hirst of Oak Ridge National Laboratory identifies these barriers to energy efficiency improvements:

Barriers to improving U.S. energy efficiency
Structural barriers—conditions beyond the control of the end user
  • distortions in electricity pricing
  • supply infrastructure limitations
Behavioral barriers—conditions that characterize end users
  • efficiency attitudes and awareness
  • perceived riskiness of efficiency measures
  • obtaining and processing information
  • limited access to capital
  • misplaced incentives
  • inconvenience, loss of amenities

For investor owned utilities (IOUs), the problems are mostly those of misplaced incentives, and attitudes.  When the state regulator changes the incentives, a well run IOU will quickly change its attitude. IOUs are in business to make money, and so they respond to incentives.  For a rural cooperative, I believe the main barriers are attitudes, awareness, limited ability to obtain an process information, and possibly perceived riskiness.   Since co-ops are responsible only to their members, and their customers are typically even less educated about the potential for improved efficiency to increase their well being than the utility that serves them, there is no reason for the coop to change its way of doing business.  Co-op boards' main incentive is to keep their members happy.  Often the simplest way to do that is my keeping them ignorant.

Barriers for Business

The landscape for a traditional business to make money for energy efficiency is different.  The main barriers confronting a business such as an entrepreneur wanting to sell geothermal heat pumps, will be problems of misplaced incentives and the attitudes, awareness, perceptions, and general level of knowledge of their potential consumers.  

Continuing with the heat pump example, if an entrepreneur tries to sell the ground source heat pumps to homebuilders, who would be able to install it most cheaply and thus achieve the highest rates of return, he is confronted by misplaced incentives.  The builder will not be pay the future utility costs of the house he is building, and so does not have any incentive to pay extra for a system from which he will not receive the benefit.  If the entrepreneur attempts to sell the heat pump to the homeowner, he is confronted with the difficulties of drilling holes for the geoexchange loops next to an existing home, which will greatly increase the price of the system and lower the effective rate of return.  If, despite this, the system still has an attractive rate of return, he will still be confronted by the homeowner's limited access to capital or, if he finances the purchase for the customer, there will be the inconvenience and added cost of billing the customer on a regular basis (an inconvenience that DMEA was able to avoid by including the costs in their electric bill.)

There are Opportunities
This is not to say that business will never be successful selling energy efficiency measures to consumers, only that it takes more sophisticated business models and an understanding of the barriers to adoption for the business to succeed.  One type of business that has been successfully overcoming these barriers for a long time are performance contracting companies, which I wrote about a few weeks ago.  By providing its members with comfortable homes rather than simply electricity, DMEA is in some sense following the performance contracting model.

For investors, it is important to understand that a product has to be more than just financially compelling to be successful in the marketplace.  I think the compact fluorescent light bulb (CFL) is an excellent example of how compelling economics are not enough to ensure the adoption of a product.  For CFLs, the economics are clear; the energy savings for a 14 watt bulb used just two hours a day amount to around $3 a year, which is more than the current price of a bulb which will last a decade or more.  Even in the late 1990s, when such a bulb cost three times as much, the internal rate of return for the investment exceeded 30% per annum, which is comparable to the returns that were captivating investors in tech stocks at the time.

Despite these economics, and countless endorsements from Al Gore, Oprah Winfrey, and the US Department of Energy, CFLs currently only have around 5% of the US market.  You'd think that endorsements as powerful as those would have people rushing out to buy them.

While CFLs  are not suitable for some applications (outdoors in cold climates, and places where they will experience a lot of vibration such as ceiling fans, which leads to premature breakage), these weaknesses do not account for our slowness to adopt them.  Instead, I believe the barriers to adopt them are Hirst's behavioral barriers.  For a $2-3 bulb, access to capital is clearly not the problem, but perceived riskiness is definitely part of it: CFL's mercury content has earned them much bad press (they actually contain less mercury than they save by reducing usage of coal plants), despite the fact that the mercury content is much lower than traditional fluorescent bulbs about which I have never heard a complaint about mercury... except from people who don't want to got to the trouble of disposing them properly.

There are often also complaints about light quality, which was indeed a problem with early bulbs. Recent ones, however, uniformly out scored an incandescent bulb in a blind test by Popular Mechanics in several measures of light quality.  In my mind, I feel the real motivation for consumer resistance is fear of change.  While the returns are gigantic when phrased in terms of a return on investment, in absolute terms the gains from using compact fluorescents are fairly small, just a few dollars a year per bulb.  For that amount of money, most people are not willing to go to the mental effort required to change an ingrained way of doing things, and so they latch on to any "reason" not to change they find, and use it to justify it to themselves.

It's cynical, but I believe that your average person would rather waste hundreds of dollars rather than change his habit and learn something new.

Energy Efficiency Success Stories

If I am right that the slow progress of CFLs is really resistance to change, we can use that information to figure out which energy efficient technologies will be most successful: not the ones that have the best economics, but the ones that require nothing of the people who purchase them to do nothing more than provide the cash.  Performance contractors and DMEA's heat pump program have been relative successes because they ask so little of customers.  It's interesting to note that DMEA includes a "Geoexchange Comfort Club" or social aspect to their program.  I wonder how many people joined the program just to get a free dinner.

This, I believe is the secret behind the runaway success of the Prius.  Although Toyota is lambasted for it today, the early ads for the Prius emphasized that, unlike the doomed EV1, it never had to be plugged in.  But on the financial side, there is much debate about how much money they save you, if any.  When stacked against hybrids, comparable diesels get similar mileage for lower upfront cost, and for serious global warming fanatics like myself, they have the advantage of being able to burn biodiesel without any modification.  Yet people look at me strangely when I tell them I have a Jeep Liberty diesel, but they're impressed that I bought a Prius in 2001.

Another example of convenience trumping cents is solar power.  Solar domestic hot water (SHW) has been around since the 70s, and the financial rate of return varies from 5% to 20%, depending on a wide variety of factors.  Solar Photovoltaics (PV), on the other hand has a financial return of between 1 and 5%, depending mainly on rebates (these are all my calculations; your results may vary, but there is a strong consensus that SHW is a better financial bet than PV.)  Yet again, PV is popular, and SHW is a "hidden gem" pushed by earnest environmentalists.  Yet people are used to complex electronics in their lives, but the plumbing is something they only see when there is a leak and they have to call a plumber.  So while PV is much higher tech than SHW, electronics are something people are used to, while plumbing (SHW) is something they only associate with inconvenience.

The Bottom Line: It's Not the Bottom Line.

When it comes to selling energy efficiency to consumers, businesses need to remember that the financial and environmental outcomes are only a tiny part of most consumers decisions.  Recent evolutionary psychology research implies that people do good deeds as  a strategy to attract mates, and so they want to be seen doing those good deeds.  Businesses that realize that the good energy efficiency does for the environment is a better selling point will succeed where businesses peddling economics will fail.   Why was the Accord Hybrid discontinued and Hybrid SUVs are struggling while Prius sales hit records?  I believe it's because they are not conspicuously green.  People want to be seen to be green a lot more than they want to save a few dollars on gas.  The Japanese who buy fake solar panels don't ask about the payback period. Many PV installers have already realized this, and they have learned to counter arguments about the economics of PV by asking, "What is the payback period of granite countertops?"

This lesson can also be turned on its head.  By making energy efficiency an item for display, just like a Terrapass window decal, energy efficiency can become something people aspire to.  When our utility bills are on the internet for everyone to see, that's when we'll see geothermal heat pumps and Built Green and Energy Star homes take off.  Even infrared images of homes posted on Google Street View might do the trick.  Efficiency needs to be conspicuous to sell well.

August 18, 2007

The Week in Cleantech (Aug. 12 to Aug. 18) - Bubble or Biggest Investment Opportunity of the Century?

On Sunday, Dan Lewis at AEI wondered what we could re-weight the dollar exposure of alternative energy into. An interesting take on global monetary policy and alternative energy investing.

On Monday, Kevin Bullis at Technology Review informed us that novel batteries were getting a boost. This is a big vote of confidence for A123. The growing interest from consumers and policy-makers in hybrids and HEVs will make batteries an essential area to keep an eye on for the cleantech investor.

On Thursday, Todd Woody at Green Wombat informed us that big banks were backing big solar. The growing involvement of major financial institutions in large-scale alternative energy projects, most notably wind and solar, is indeed a good indication that the industry is reaching a certain degree of maturity in North America. As the scale of these projects increases and their cost of capital decreases, alternative energy will become increasingly competitive with conventional power generation sources.

On Thursday, Jim Fraser at The Energy Blog told us about a new report on the thin-film solar market. Thin-film is indeed an exciting development and has been very much on the radar of investors lately, as evidenced by the stellar rise of First Solar (NASDAQ:FSLR) over the past few months. Although valuations in the solar space may have appeared a bit high over the past while, the current correction will provide good opportunities to gain exposure to fast-growing thin-film.

On Thursday, Jack Uldrich at The Motley Fool made us aware of the biggest economic opportunity of the century. An interesting exposé of where investment opportunities could materialize in four main areas: climate change regulation, renewable energy generation, biofuels and removing greenhouse gases from the atmosphere.

On Thursday, Neal Dikeman at The Cleantech Blog wondered where the shakeout was. As always, Neal does a good job of shedding a different light on a hot industry - in this case solar.

August 16, 2007

Poll Question: Alternative Energy: Safe Haven or Time Bomb?

This poll opened Aug 16, 2007 and closed Aug 18, 2007

Since it peaked at 569.12 on July 13, the Nasdaq Clean Edge US Total Return index (^CLNX) has fallen 17.5% to 470, compared with a 12.0% drop for the S&P 500.  Part of this decline is that alternative energy companies tend to be smaller and more speculative than members of the S&P, but despite the greater riskiness (at least when defined as market sensitivity, or Beta), at least one of our readers thinks "our chance to avoid the bear market and worse" lies in the alt energy space.  What do you think?

 
How is Alternative Energy likely to fare if the downturn continues?
Alt Energy will rise as the market stumbles.  24% (9 votes)
Alternative Energy will fare much worse than the market as a whole.  24% (9 votes)
It depends on the Alternative Energy sector.  18% (7 votes)
Alternative Energy will be hurt, but not as much as the general market.  16% (6 votes)
People who try to predict market or sector moves are fooling themselves.  13% (5 votes)
Alternative Energy will move in line with the general market.  5% (2 votes)
Total voters for this poll: 38

August 13, 2007

A Blue-chip Clean Car Stock

One of the criticisms I often hear about cleantech is that, as an asset class, it is too risky and volatile for the average investor. That is a misconception Tom attempted to dispel a few months ago with his Blue-Chip Alternative Energy Portfolio. In fact, some of the most interesting work in cleantech and alternative energy is currently being conducted by large companies.

A Clean Car Pick

Last year, we told you about a report on investing in clean automotive. We have some interesting follow-up information on one of the companies discussed in that report.

During Magna International's (NYSE:MGA) latest Q2 earnings call, the Co-CEO reiterated his company's interest in hybrid and other emerging technologies. The exchange went as follows (I changed a few things that, as originally transcribed, made the response difficult to follow. Despite my changes, parts of the response were clearly mistyped and I couldn't make sense of them):

"Fadi Chamoun - UBS Warburg

One question perhaps, Don… you have growing cash balance and then a lot of balance sheet to keep up with these, I am wondering if there is more willingness to step in perhaps in new technologies like diesel hybrids to improve the gro[wth] prospects.

Donald J. Walker - Co-Chief Executive Officer

Well, we have been looking at a hybrid strategy in hybrid diesel [which] means a lot of different things to a lot of different people. I think the… we expect hybrids [...] to grow. I think there is going to be a lot of new technology. Its whether it be in the [power train] side or the battery side, like triple electricity generation driving the wheels of… so we are doing a fairly in depth analysis of what we have internally with the new emerging technologies. We think we will be winners. Two potential players are among their jointed partner with potentially looked at buying somebody. So, I would say given our product portfolio right now [this] is an ongoing process. [W]e have been focusing on what product we think we are going to [produce] the most upside going forward. "




The automotive sector is already a significant area of focus for policy-makers with regards to environmental impacts, and exposure to clean and efficient cars has proved to be, in the context of rising oil prices, a positive differentiator for industry leaders. This is definitely an interesting area to follow and I think the next few years will see some significant transformations with regards to automotive technology.

Here's one more piece of the puzzle for people wanting exposure to cleantech without the risk associated with smaller and more volatile pure-plays.


DISCLOSURE: The author does not have a position in the company.

August 12, 2007

Biodiesel's Nightmare: Renewable Diesel

Until algae farms move from the research and demonstration stage, biodiesel usage is going to be tightly constrained by available feedstock.  The feedstocks for biodiesel are oils and fats, which naturally occur in quantity only in animals or the seeds of plants.  As such, the quantity of oil available is much smaller than the sugars, starches, and cellulose which occur not only in the seeds and fruits of plants, but also in the stems and leaves, and can be used to make ethanol.  Because sugarcane contains the best ethanol feedstock, sugar in the stem (not just the fruit) of the plant, Brazilian ethanol can compete effectively with gasoline without subsidies.

From Trash to Cash

Biodiesel can also compete with diesel on the basis of price, in large part because it is much simpler to convert oils and fats into biodiesel than it is to convert sugar into ethanol, and the oils commonly used for biodiesel today were essentially treated as low-value byproducts (e.g. soybean oil) or zero-value waste products (e.g used cooking oil) of food production.  When petro-diesel cost $1 a gallon, biodiesel was limited homebrew in the garages of a few hippie types, but now that it is around $3 a gallon, turning low value oils and fats into high value fuel can be big business.

US Biodiesel Consumption.  

w24p20_07.gif
Source: National Biodiesel Board.

How big could the biodiesel business get?  With US production of soybeans at about 3 billion bushels, if the entire soybean crop were converted into biodiesel at 1.4 gallons per bushel, we would have about 4.2 billion gallons of biodiesel, or around 6.5% diesel fuel consumption in the US.   There are many other potential feedstocks for biodiesel, but soy oil accounts for most of US oil production, so we can safely say that domestic biodiesel production will not exceed 10% of domestic consumption without some new source of feedstock.  In fact, potential biodiesel supply is falling, since farmers are changing their crop rotation to include less soy and more corn for ethanol.  All told, the potential demand for biodiesel far exceeds the potential supply, which will be limited by the supply of potential feedstocks, instead.

Currently biodiesel supply is limited by production capacity, but in the long term, as more production facilities are built, supply will be limited by available feedstock.  At this point, commodity arbitrage will set the price of biodiesel close to its main substitute, petro-diesel, and the price of commodity oils will follow along for the ride, but low enough to allow biodiesel producers to earn a return on investment.

New Kid on the Block

The above analysis assumes that biodiesel production is the best way to take vegetable oils and fats, and make them into transport fuel.  This may not, in fact, be the case.  Last spring, ConocoPhillips (NYSE:COP) announced a deal with Tyson Foods (NYSE:TSN) to use fat from Tyson's rendering plants to make "renewable diesel" fuel in COP's refineries.  The key point here is that COP is making what they call "renewable diesel" not conventional biodiesel.  They developed their renewable diesel process using soy oil in Ireland, using their existing oil refinery there.  

I first heard of this process last October at an NREL presentation (they called it "Green diesel" and could not identify COP as the oil company they were dealing with,) but details remain sketchy.  The fact that they refer to the process as a "proprietary thermal depolymerization production technology" and the fact that they are using existing refinery infrastructure should cause alarm to biodiesel firms and investors.   

Why should this cause alarm?  Because COP claims its "renewable diesel" is chemically equivalent to conventional diesel.  If this is true, it's quite possible that it has a lower cloud point than biodiesel, and so could be used at a broader range of temperatures.  In addition, since COP is using conventional refining equipment, they may also be achieving higher energy yields.

According to NREL's Overview of Petroleum and Biodiesel Lifecycles, Biodiesel conversion requires 80 kJ of energy for every 1000 kJ of energy in the biodiesel, while petro-diesel requires only 64 kJ to produce an equivalent amount of fuel.  While the difference in energy costs is fairly minor, transportation fuel is a commodity business, and COP's ability to use the existing pipeline infrastructure into which their refinery is already integrated, as well as its ability to avoid the large capital expenditures required to build a biodiesel refinery from scratch are likely to give them a large cost advantage over biodiesel producers in this thin margin business.

With the exception of small biodiesel producers using local and distributed biodiesel feedstocks such as waste vegetable oil from restaurants, I expect that petroleum refineries will end up having an economic advantage making renewable diesel in comparison to conventional biodiesel producers.  This means that commodity oils and fats available in large enough quantities to interest refineries will be bid up in price to a point where less efficient biodiesel producers will be unable to operate profitably.

All of this may happen remarkably quickly as well.  ConocoPhillips and Tyson say that their deal could ramp up to 175 million gallons by 2009, or about 10% of United States 2006 biodiesel production.  How soon will refineries be competing directly with biodiesel producers for soy and other vegetable oils?

While we can only speculate about the relative economics of renewable diesel and biodiesel, having a new competitor cannot be good for the biodiesel industry.  Biodiesel producers might be sustained by federal biodiesel tax credits, but depending on government subsidies is not a sustainable business model, especially when you are competing with an industry with a long track record of successful lobbying.

The likely winners I see are the suppliers of feedstock.  When the deal was announced, a Tyson spokesman said he expected the deal to increase annual earnings by between $.04 and $.16 per share.

DISCLOSURE: Tom Konrad  and/or his clients do not have positions in any of the companies mentioned here.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

 

August 11, 2007

The Week in Cleantech (Aug. 5 to Aug. 11) - Nasty Correction or Good Buying Opportunity?

On Tuesday, Carl T. Delfeld at Seeking Alpha told us about the new kid on the cleantech ETF block, the PowerShares Global Clean Energy ETF (AMEX:PBD). For more details, check out Powershares section on PBD. This fund tracks the WilderHill New Energy Global Innovation Index - an index put together by New Energy Finance (NEF) of London. NEF is, in my opinion, one of the most interesting organizations in the clantech finance space at the moment.

On Tuesday, Jack Uldrich at The Motley Fool reminded us that a bill is just a bill. At AltEnergyStocks.com, we view cleantech in a similar light; although there may be some bumps along the way, it is highly unlikely that anything will permanently stall the juggernaut at this stage.

On Wednesday, Mark Gongloff at the WSJ's Energy Roundup gave us the views of various pundits on where cleantech stocks stand in the context of the current market correction. Is the glass half full or half empty? If you have been cautious and have been amassing cash for the past little while, than none of this is so bad.

On Wednesday, WattHead added a touch of humor to to the Cape Wind debate. Cape Wind aside, offshore wind is an interesting emerging area. Over the past month, some sizable money has gone toward offshore wind in Europe.

On Wednesday, David Roberts at Gritsmill outlined, for us, what makes a good cap-and-trade system. As we've discussed in the past, for emissions trading to achieve most of its goals, politicians must resist certain temptations that politicians are generally unable to resist.

On Thursday, Biopact informed us that cellulosic biofuels may already be cost-competitive. Many observers agree that the future of biofuels lays with cellulosic, and the biggest hurdle to date has been cost.

August 07, 2007

Renewable Energy: a Better Bribe

Bribing and Pressuring Fissile Regimes

On July 25th, France offered to build a nuclear reactor for Libya to power a water desalinization plantRussia is delaying the delivery of  nuclear fuel for Iran's nearly completed Bushehr to help pressure them to comply with UN Security council demands for less secrecy.  South Korea, Japan, China, Russia, and the United States promised to provide 950 thousand tons of oil or equivalent aid to North Korea in return for permanently disabling all its nuclear facilities.

I'm not going to argue about whether using energy aid is the best way to influence this country or that; the fact is that no matter what you or I think about it, the carrot will always be part of international diplomacy, as well the stick.  I want to talk about what form that carrot takes.

 world_map_04.gif

This map shows the amount of solar energy in hours, received each day on an optimally tilted surface during the worst month of the year.
Image Source: Sunwize.  

Both Iran and Libya are well suited for concentrating solar power (CSP), and the declared purpose of the reactor for Libya is desalinization, an excellent application for CSPIran has a wind resource as good as the American Midwest (although CSP may be a better choice due to sandstorms.)  While North Korea has only moderate insolation, US non-governmental organizations were already working to help North Koreans with wind power in 1999.  North Korea has a high quality wind resource all along its Western coastline in Korea Bay, which is shallow and well suited to offshore wind, and also nearest the capital, Pyongyang.

Intermittent Electricity would be an Improvement

The strongest objection to wind power (and to a much lesser extent solar) is that these are intermittent resources.  Yet all these countries already have problems with persistent power outages.  Iran already has problems meeting demand during peak summer hours, and CSP is better suited for meeting peak summer loads than nuclear power, which is a baseload resource, which operates at its worst on hot summer days due to its cooling requirements.  

SEGS availability.bmp

Power utility time of use for California CSP Plants.  Source: San Diego Renewable Energy Study Group, 2005 [.pdf, page 15.]koreaREU121006_228x295.jpg

In Libya and North Korea, the electricity situation is even worse.  Libya's utility vows to reduce power rationing, and provide more hours of electricity, while in North Korea the entire nation, with the exception of Pyongyang, is switched off at night.  Providing North Korea with intermittent wind power rather than fuel oil for dispatchable power plants might lessen Kim Il Sung's incentive to give his capital such favorable treatment compared to the countryside, and do more to help the populace, rather than giving the regime another lever for control.

Technologies for Peaceful Applications

Iran and Libya claim that they want nuclear power only for peaceful applications.  Concentrating solar power is better suited to enhance their energy security than nuclear because it does not rely on imported uranium.  If that is what they want, CSP seems just as well suited for their purposes, and would give them greater energy security since it does not rely on imported fuel.  With North Korea, supplying wind turbines would be even simpler politically, because the existing agreement already allows for equivalent energy aid.  If we in the West are worried about the additional security renewable energy might give to these unpredictable regimes, shouldn't we be even more worried about providing them with nuclear material?

This same line of thought applies to President Bush's possibly Nuclear Non-Proliferation Treaty-busting deal with India.  Regions of Southern and Western India also have excellent solar resources (see map).  India may already have the bomb, but that is no excuse for eviscerating one of the few (and already weak) safeguards the world has against nuclear proliferation.  It might be argued that India does not need our help to take advantage of their renewable energy resources, but, if so, why do they need our help with their civilian nuclear industry?

August 05, 2007

Investment Opportunities in Large Scale Electricity Storage

The Economist had two great articles last week on two of may favorite themes in renewable energy, which I missed getting to Charles in time for  The Week in Cleantech.  Both deal with modernizing the grid to deal with the vagaries of wind.  The first is an in depth look at electricity transmission via High Voltage DC, a subject I recently wrote about in an article on ABBThe second dealt with compressed air energy storage (CAES) which is the second cheapest way to store electricity, after pumped hydro.  Unfortunately, I have not found good ways for the stock market investor to take advantage of the potential of pumped hydro, or CAES.  

Large Scale Electricity Storage

It is possible to make investments in energy storage, however.  While not as inexpensive as pumped hydropower or CAES, some utility scale batteries have the advantage that they are small and environmentally benign enough to install at substations in densely packed cities.  There has been a recent spate of articles (USA Today, IEEE Spectrum, The News Journal (DE), State Journal (WV)) about utilities installing the already technologically mature Sodium-Sulfur (NaS) batteries [.pdf] at substations to meet peak loads and delay costly substation upgrades.  

Sodium-Sulfur Batteries

Despite the fact that NaS batteries cost as much as coal plants that can supply the same amount of power, they have the gigantic advantage that it's impossible to add new coal plants inside a city, precisely where the power is needed.  This power delivered at the right place and the right time extremely valuable.  Hence utility scale batteries, west- or southwest-facing PV (depending on the local load shape), and demand side management are also extremely valuable resources to urban utilities.  The traditional method of dealing with increased electric demand has historically been to build more power plants and transmission, but increasingly dense urban areas, environmental restrictions, and NIMBYism make this cost prohibitive or outright impossible in some cases.

chart21.gifUtility scale NaS batteries are made by Japanese manufacturer NGK Insulators (TSE:53330, NGKIF), which unfortunately does not have a North American listing or ADR.  However, if you have enough capital for a nearly $30,000 purchase not to unbalance your portfolio, you can buy a round lot on the Tokyo Stock Exchange. I've had a limit order in for a couple of weeks in one of my managed accounts, but the stock has been going bonkers, and I don't like to chase high-flying stocks.

Vanadium Redox Batteries

A more affordable (and riskier) investment option for the North American investor are Vanadium Redox Batteries, which are being commercialized by VRB Power Systems (TSE:VRB.V or VRBPF.PK), which both Charles and I have mentioned before (here, here, and especially here.)  VRB Power's stock price has been depressed recently due to recent stock dilution.  Unlike NGK, they have a single line of business in VRB applications, and are not yet profitable.vrb.png

Vanadium redox batteries (VRB) are flow batteries, with electrolyte separate from the electrode, as opposed to NaS and most batteries we are familiar with in our daily lives, where the electrolyte is bound up with the anode an cathode (NGK assumes their batteries will be good for 2,500 cycles, while VRB expects theirs to last 10,000 cycles before refurbishment.).  This allows VRB batteries to scale up to much larger storage capacities than conventional batteries.  In addition, liquid electrolytes do not have memory, which gives them the potential for a much longer lifetime and per cycle cost than conventional batteries with refurbishment of the electrodes.  VRB batteries are also smaller and lighter (per kWh; in practice they are likely to be larger due to much higher capacity), and have comparable cost per unit power (kW.)   

Comparisons and Applications

NaS batteries have the advantage of extremely quick response time, making them more suitable for power quality applications (smoothing short term spikes in demand).   I believe this, along with their better round trip efficiency, is why NaS batteries currently seem to have the edge with utilities seeking to delay transmission and distribution upgrades.   AEP recently installed a $2.5 million, 7.2 MWh battery ($350 per kWh capacity);  VRB says their systems are usually priced from $350-$600 per kWh, with the lower prices per kWh available for the larger installations.

On the other hand, NaS batteries must be maintained at 300 °C, while VRB systems work at room temperature, and require extremely low maintenance, facts which should give them an edge at remote locations such as wind farms.  This fits with the fact that many of their early sales have been to remote locations such as remote islands, off-grid telecom, and solar powered demonstrations.

The last is an intriguing new application which might allow some of the Net-Zero Energy communities being planned to cut the utility umbilical cord and become truly energy independent.  I mentioned this concept to a developer of a net-zero energy community in Arvada, CO, whom I met at the Western Governor's Association Energy Efficient Homes Conference.  The economics may not work for him, but I doubt it will be long before we hear about the first true Carbon Free Community.

UPDATE: 8/9/07:  The following is from an email I received from VRB Power Systems (I have not been contacted by NGK): The VRB system actually does have a fast response time of <1 ms which we believe is comparable to NaS batteries.  Also, the round trip efficiency (AC-AC) of our system is superior to NaS batteries with an efficiency of between 65-75%. 

DISCLOSURE: Tom Konrad  and/or his clients have positions in these companies mentioned here: VRB.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

 

August 04, 2007

The Week in Cleantech (Jul. 29 to Aug. 4) - Hybrid Hummer, Anyone?

On Monday, Cassandra Vinograd at the WSJ's Energy Roundup told us about Merrill Lynch's new Energy Efficiency Index. You can read more about the index here. As our regular readers know, we are big believers in energy efficiency as an investment thesis, and think significant opportunities will materialize in this space in the coming years.

On Tuesday, Todd Woody at Business 2.0 wondered whether a small Norwegian company was about to reverse 100 years of automotive history. Could we be looking at the next wonder-boy of the clean automotive movement?

On Wednesday, Dan Lewis at AEI shared a few post-mortem thoughts on Biofuels Corp with us. As the cleantech industry matures and a group of winners emerges from the pack, expect to see the body count go up.

On Thursday, Biopact told us about an interesting jatropha biodiesel deal in Mozambique. Jatropha is currently generating a lot of buzz as a potential source of feedstock for large-scale biodiesel production. Many emerging markets, for their part, are looking hard at biofuels as a potentially-lucrative trade to get involved in. Time to start paying attention to jatropha players in the South?

On Thursday, Environmental Finance reported on E. ON's (NYSE:EON) latest alternative energy move. Besides the fact that $4.1 billion over 2.5 years is a significant amount of money, the interesting thing here is that this project is one of the first major off-shore wind farms in the world. Off-shore wind offers many promises, and is an area worth keeping an eye on.

On Saturday, Sebastian Blanco at AutoBlog Green told us about Paris Hilton's latest attempt at appearing environmentally-conscious. This admittedly doesn't have much to do with cleantech investing, but I got a good laugh out of it.


The Week in Cleantech is a weekly roundup of our favorite cleantech and alt energy blog posts and stories from across the web. If you know of a good piece that you think should be included here, don't hesitate to let us know!

August 02, 2007

Carbon Capture and Storage: By the Numbers

"We have over 200 years of coal reserves, and we have to/will use them."

I have heard some variation of this line far too many times, and I have little patience for it.  Here's why:

  1. We don't have over 200 years of reserves.  The real number for economically accessible coal is less than half that.
  2. A square, 100 miles on a side in the Southwestern deserts of the US could meet the electricity needs of the entire nation, if solar energy were converted to electricity at 10% efficiency.  There's a lot of desert in the Southwest, and we're never going to run out of sunshine.  A similar argument can be made about the wind in the Dakotas plus Texas, Kansas, and Montana, although wind could only meet our electricity needs 2 or 3 times over, rather than thousands of times over, as is the case for solar.  Clearly this does not mean that we have to or will meet all our energy needs with either solar or wind.  
  3. Just because you have something does not mean it's a good idea to use it.  Saying we need to use our coal reserves is like a diabetic saying he has a cupboard full of candy bars, and he needs to eat them.
  4. Even if all the emissions from coal are somehow managed, using coal will continue to have serious environmental impact from mining, which will only increase as we mine more and more challenging deposits.

Last week, I heard Howard Herzog of Massachusetts Institute of Technology speak on the economics of Carbon Capture and Sequestration (CCS).  Dr. Herzog  is one of the authors of The Future of Coal, a report that advocates greater research into CCS "because it allows significant reduction in CO2 emissions while allowing coal to meet future energy needs."  Nevertheless, he provides some excellent numbers on the costs of CO2 Capture and Storage, and the remainder of this article will look at those numbers, that most "clean coal" advocates don't usually like to talk about.

Research

Dr. Herzog was clear that CCS is still in the research stage, and needs considerably more research to become commercially viable (even if there were a regulatory framework to induce power plant owners to install CCS equipment on their new coal plants.)  How much will it cost?  $1 billion a year for in excess of a decade, he said in response to an audience question.  He also noted that he has since inflated all the costs from the MIT study by around 50% because of the extraordinary rise in the costs of materials and labor in the two years since the study was published.

The $1 billion dollar a year research price tag is slightly higher than that called for by another interdisciplinary MIT Study, The Future of Geothermal Energy over a similar period.  This study found that with a combined public/private investment of about $800 million to $1 billion over a 15-year period, EGS technology could be deployed commercially on a timescale that would produce more than 100,000 MWe or 100 GWe of new capacity by 2050. This amount is less than the cost of a single, new-generation, clean-coal power plant without CCS (300-500 MWe.)  

Cost of Capture and Storage

Dr. Herzog presented estimates of the expected efficiency losses for coal plants that would be needed to sequester 90% of the carbon emitted.  Depending on the technology choices, the parasitic energy requirements of CO2 capture and compression would be between 19% (IGCC with CCS) and 24% (Pulverized coal plant with Amine capture) of the power produced.  In addition to raising the cost of electricity from coal, CCS would therefore also effectively reduce the amount of coal available to meet our electricity needs by at least one fifth, transforming the 100 years of coal reserves we have at current rates of use into only 80 years or less of reserves.  This would also magnify the effect of coal prices rises on the cost of electricity by a similar factor.  Unless we reduce our demand for coal, price rises will be inevitable as producers move to harder-to-extract reserves.  According to the Energy Information Administration, the price of coal for electricity increased from a relatively stable price of slightly less than $30 per metric ton before 2004 to over $38 per metric ton in 2006.  Most other countries saw similar increases.

By adding CCS to a coal plant, Dr. Herzog expects the levelized cost of energy (LCoE) from coal would increase between 36% and 61%.  If the technology becomes mature, he expects it to add 2-3 cents (2005$) per kWh to the price of electricity from coal.  For comparison, according to the geothermal study referenced earlier, even low grade geothermal sites such as might be built in New Hampshire (a state with geothermal resources previously considered negligible) would have a  LCoE of between 7 and 10 cents per kWh.  High grade sites such as Kelseyville in California would have an LCoE of around 3-4 cents per kWh, comparable with the cost of CCS alone.

Some costs of CCS which Dr. Herzog did not analyze were the costs of getting the CO2 to a location suitable for sequestration, the costs of long term stewardship of the CO2 reservoir, and pipeline transport of CO2 to the reservoir.  Given the uncertainty about how a carbon sequestration industry might look, it is currently very difficult to say what they might be.  Over the long term, who will take responsibility for ensuring that sequestered carbon stays where we put it?  How likely is the emergence of a dedicated NUMBY (Not Under My Back Yard) movement?  CO2 is not as dangerous as the radioactive waste that the United States still lacks a suitable place to store, but it still can have toxic effects on marine life.

Conclusion

We will have to produce our electricity without coal at some point, either because we choose to in order to avoid further global warming, or because we simply run out of coal.  Given the uncertainties about carbon sequestration, and the certainties about the cost of performing sequestration, it makes sense to spend our limited research dollars on technologies which are likely to be more benign on the environment.  Enhanced geothermal has the potential to provide significant baseload power, while Concentrating Solar Power with thermal storage has the potential to power our entire nation many times over with both peaking and baseload power.   Concentrating Solar Power with storage has been successfully demonstrated, and requires no mining for a limited fuel supply, while wind is already cheaper than IGCC even before adding the costs of capture and sequestration.. 

 transelect.PNG

Source: Trans-Elect, LLC, testimony before the Colorado Public Utilities Commission (July 24, 2007). PTC=Production Tax Credit.

Perhaps coal with CCS will be part of the route we take on the road to a clean energy supply.  However, it is far from the only route to take, and given the uncertainties and ongoing harmful effects of mining for coal regardless of what happens to the emissions, there are many other candidates more deserving of limited research dollars.  The same holds true for our investment dollars.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Poll Question: Which alternative energy sector is currently the most undervalued?

Results of 62 Votes Aug 2&3, 2007


« July 2007 | Main | September 2007 »

Site Sponsors





Oil and Gas



Search This Site


Share Us






Subscribe to this Blog

Enter your email address:

Delivered by FeedBurner


Subscribe by RSS Feed



Certifications and Site Mentions


New York Times

Wall Street Journal





USA Today

Forbes

The Scientist

USA Today

Seeking Alpha Certified

Twitter Updates