Wind advocates like to say "The
wind's always blowing somewhere" to counter concerns about the
variability of wind power. This is true, and it means that wind can always
be relied on to produce some power, but that does not
mean that wind can always meet demand. In the United States' Great
Plains wind belt, wind
is typically anticorrelated with demand, meaning that, unless we can shift
demand to times when the wind is strong, either through time
of use rates or demand
planning, overall energy production from wind will not be able to exceed
25-35% of overall demand without completely overwhelming the system when demand
is low and the wind is strong.
However, even getting to 25% will be tricky without careful planning and a
more robust
transmission grid which will be capable of bringing wind power from where
wind happens to be blowing (which could be hundreds of miles away in any
direction) to where it is needed, or by investing in more
expensive grid-based storage.
This demonstration goes a long way towards alleviating concerns about any
unreliability concerns for wind or solar, but answering that one question leads
to another: Are we actually getting anything like an optimal wind/solar
portfolio?
Overly Concentrated Portfolio
The answer to that question is unfortunately, "no." Current
incentives for wind, such as the production tax credit (PTC) and state Renewable
Electricity Standards (RES) both reward energy produced, not the true economic
value of energy produced. The PTC is functionally a payment of 2.1 cents
for each kWh of wind energy produced, while RES's require that a certain
percentage of energy produced come from renewable sources. An added
complication is that many state RES include added incentives to produce
renewable energy in-state, which reduces geographical diversity further.
This emphasis on total energy produced leads wind developers to
"optimize capacity factor," according to Jim Himelic, and Associate
Analyst at Xcel
Energy (NYSE:XEL),
the US's largest utility seller of wind energy. Mr.
Himelic spoke about Xcel's Wind Integration project to tackle the problem I
recently called the "Dumb
Grid:" the fact that grid operators do not use much weather forecasting
information when trying to integrate wind onto the system. This is not
only from a lack of incentives and tools allowing utilities to integrate weather
data, but also simply from a lack of good data. Most wind farm operators
currently have no incentive to provide even turbine-by-turbine production
information to grid operators, data which would be valuable for forecasting of
short term wind fluctuations.
According to Himelic, because most Colorado wind capacity is clustered in the
Northeast of the state, and the above incentives along with constrained
transmission means that new additions to wind capacity will also likely be in
the Northeast, meaning that, at least in the short term, geographic diversity is
likely to decrease rather than increase over time. This both increases the
overall variability of the wind resource, and will also increase the frequency
and size of large wind ramp events, when power from wind turbines rises or falls
extremely quickly over a very short period. The worst such ramp events
from a grid operator's perspective often come when wind speeds rise so far as to
require the turbines to shut down to avoid damage. This can cause a large
number of turbines to go off-line at once, leading to a quick drop in overall
power production.
Concentrating a majority of wind farms in a small area means that such wind
over-speed events are likely to affect many farms at once, exacerbating the
problem for grid operators.
A Gust of Hope
It's ironic that government incentives for renewable energy are adding truth
to wind's only partially deserved reputation for unreliability.
Fortunately, recent changes in national policy may help to alleviate some of the
pressure to cluster wind farms in small areas.
First, wind developers now have the option to take a 30%
Investment Tax Credit (ITC), comparable to the one available for solar, rather
than PTC. This has the advantage that wind developers receive a
portion of their investment costs back, independent of total production, which
will reduce some of the disincentive to build wind farms at relatively low
capacity factor sites. Similarly, a national RES would be unlikely to
encourage local production of renewable energy, which might improve wind
diversity.
Tom Konrad, Ph.D.
DISCLOSURE: None.
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.
Plug-in Vehicle Hucksters are Doing P.T. Barnum Proud
David
Hannum was right! There's a
sucker born every minute and they're all waiting with bated
breath for the low-cost plug-in electric vehicles that are coming
soon to a dealership near you; if they're not quietly cancelled first.
It's the most insidiously appealing idea of our age: replace those
nasty gasoline burning engines with cheap batteries that recharge in
minutes
and save a fortune on fuel while you "See the USA in Your
[electric] Chevrolet." It's so appealing in fact that it ranks
right up
there with free lunch.
P.T. Barnum would have been proud.
Listen up America – It's a scam! The emperor has no clothes! There is no
such thing as a cost-effective electric vehicle that will carry a
family of four at highway speeds. But the
cautionary if not downright conservative analysis from sources as
diverse and credible as the Department
of Energy, the White
House and
Carnegie
Mellon University somehow manages to get lost in a media sideshow
that focuses on scientific breakthroughs that promise a 5-minute
recharge
time for batteries nobody can afford to buy.
I hate to be a buzz-kill and point out the brown object
floating in the punch bowl but this graph comes from
the DOE's brand new Annual
Energy Outlook 2009 and shows their best estimate of the
market penetration rates for various classes of hybrid electric vehicles over the next 20 years. In this
chart, the PHEV-10 and PHEV-40 categories are the only cars with plugs.
Everything else is either a full hybrid (HEV) or a mild hybrid
(MHEV).
So while your future car is very likely to have modest hybrid capabilities,
there is almost no chance it will have a plug or need a charging station.
For people like me who think numbers tell a more compelling story, the
following table presents some detailed forecast data that I've gleaned from the Supplemental
Tables to the Annual Energy Outlook 2009.
New Car Sales
(Thousands)
2010
2015
2020
2025
2030
Gasoline ICE Vehicles
5,554
7,567
7,999
7,878
7,678
TDI Diesel ICE
53
152
359
596
802
Electric-Diesel Hybrid
0
3
8
7
5
Electric-Gasoline Hybrid
195
546
985
1,471
2,034
Plug-in 10 Gasoline Hybrid
0
101
138
198
250
Plug-in 40 Gasoline Hybrid
0
49
57
81
113
Other alternative power systems
312
823
1,176
1,150
1,155
Total New Car Sales
6,114
9,241
10,722
11,381
12,035
Percentage of New Cars With Plugs
0.0%
1.6%
1.8%
2.5%
3.0%
New Light
Truck Sales
(Thousands)
2010
2015
2020
2025
2030
Gasoline ICE Vehicles
5,152
4,701
3,664
3,332
3,033
TDI Diesel ICE
195
381
637
921
1,174
Electric-Diesel Hybrid
0
1
1
1
1
Electric-Gasoline Hybrid
92
336
620
951
1,223
Plug-in 10 Gasoline Hybrid
0
32
22
43
65
Plug-in 40 Gasoline Hybrid
0
0
0
0
0
Other alternative power systems
950
1,884
1,613
1,394
1,269
Total New Light Truck Sales
6,389
7,334
6,557
6,641
6,765
Percentage of New Trucks With
Plugs
0.0%
0.4%
0.3%
0.6%
1.0%
With due respect for emotionally committed carbon activists who sincerely believe
plug-ins are the only way to save our beloved planet, the DOE estimates
that cars with plugs will be 0.0% of the new car fleet in 2010, 1.1% of
the new car fleet in 2015, 1.3% of the new car fleet in 2020, 1.8% of
the new car fleet in 2025 and 2.3% of the new car fleet in 2030. In
simpler terms, plug-in vehicles are not the Greatest Show on Earth and the
three ring circus we fondly refer to as the auto industry would close
the sideshow if it wasn't such a big draw for children of
all ages (including government) that bring fat wallets.
We've all been buried in press releases and reports about carmaker plans to introduce plug-in hybrids
over the next few years. These are PR stunts, not business decisions. They remind me of a controversy that
erupted in the mid-1800s when an entrepreneur named George Hull had
the Cardiff Giant
carved from a block of gypsum, aged and buried in a field. He then found the
treasure while digging a well and promptly sold a two-thirds interest
to a credulous investor syndicate managed by a banker named David
Hannum. After the sale, Hannum's syndicate moved the Cardiff Giant
to Syracuse and increased the entry fee to $1, which was serious money
in the 1860s. Things really got rolling when P.T. Barnum tried to lease
or buy the Cardiff Giant and was unable to do so. At that point Barnum had a plaster of paris copy made and promptly began denouncing the original as a fake. In newspaper stories about the dispute, Hannum was quoted as saying, "There's a sucker
born every minute" in reference to the people who were paying to see Barnum's fake
giant instead of the original giant that his syndicate had bought from Hull, which was also a fake. While it's not entirely clear whether Hannum was a sucker or a huckster, they all ended up in court where Hull
confessed that the Cardiff Giant was a hoax and the judge ruled
that truth was an absolute defense to the syndicate's lawsuit against
Barnum.
There is an immense difference between announcing plans to manufacture a
product and actually hitting the start button on an assembly line. I am
certain we will see a huge variety of one-off prototypes, concept cars and limited
production test vehicles over the next couple of years; but unless the
DOE's analysts are as clueless as some vocal critics believe them to be,
substantially all of the PHEV programs that are being announced today
with great fanfare will be quietly axed before too much money is wasted
on politically popular ideas that don't make a bit of economic sense.
The headline news out of China is that BYD is introducing a cheap
PHEV-62. The truly impressive story is that China built
and sold an estimated 23 million
electric two-wheeled vehicles (E2W) last year. Collectively, these
E2Ws used enough battery power for a million
American style PHEVs; all of which leads to a couple of interesting questions for
the PHEV crusaders. First, what do you think the chances
are that 23 Chinese will give up a little battery power so that
one American can squander a lot of battery power? Second, who do you think will have the greater buying power if it comes down to price competition in a resource constrained world, 23 thrifty Chinese or one profligate American?
Li-ion battery developers have access to the same reports I do and
they know the PHEV frenzy is a scam. But its a scam where they can let
somebody else wildly exaggerate the economic potential of PHEVs and then use baseless auto industry PR to justify building government subsidized factories that
do not make sense under any reasonably foreseeable future conditions.
With a simple Google search anybody can learn that Ener1 (HEV) is
seeking $480
million in Federal loans to build battery plants with capacity for
600,000 HEVs by 2011 and 1.2 million additional HEVs by 2015. A123 Systems is seeking $1.8 billion in Federal
loans to build battery plants with capacity for 5 million HEVs per
year. The National
Alliance for Advanced Transportation Battery Cell Manufacture is
seeking another $2 billion in Federal funding to build one or more
manufacturing and prototype development centers that will be shared by the
fourteen NAATB members. While I actually believe the NAATB proposal has
considerable merit because it includes giants like 3M (MMM), Enersys (ENS)
and FMC (FMC) along with
emerging companies like Altair Technologies (ALTI),
the nagging question that simply will not go away is "Who is going to buy
batteries for over 6.8 million HEVs a year when the DOE's demand
forecast is less than half of that number?"
Will we ultimately see those same manufacturers back before Congress
demanding HEV and PHEV mandates like we saw with ethanol?
I've written a series of articles on how Li-ion technologies stack up
against the competition once you move away from the idea of a PHEV-40
that needs an immense amount of stored energy to move a family of four at highway speeds.
The entire archive is available on my Seeking
Alpha author's page.
Li-ion is a wonderful technology for portable electronics, E2Ws and
personal transportation applications where the vehicle weight to
passenger weight ratio is less than about five. It is nonsensical
when the goal is to move four passengers and a couple thousand pounds
of steel and composites at highway speeds. To date the only rational
PHEV proposal I've seen is a gas-guzzler
to dual-mode EV conversion initiative that's being developed by Axion Power International (AXPW.OB).
The raw end user economics are not as attractive as I would like them
to be, but the existing fleet of gas-guzzlers is a far larger problem than the new car fleet will ever be. Since my parents always taught me to focus on the big problems first and leave the petty stuff for later, I have a hard time arguing with a proposal to slash gasoline consumption by almost a billion gallons a year for every 1% of the existing gas-guzzler fleet that's converted into gas sipping EV-50s. Everything else is just a sideshow.
Mark Twain once said, "history
doesn't repeat itself but it does rhyme." Like the Cardiff Giant, PHEVs are an appealing bit of fiction that everybody wants to believe. Like the Cardiff Giant there are hucksters prowling the land claiming they have the real deal. In the final analysis, the losers will be the investment syndicate members and the suckers who pay their dollar to see the fake giant.
The DOE's Annual Energy Outlook 2009 makes it perfectly clear
that PHEVs are irrelevant for normal people who worry about things like
budgets, monthly payments and retirement plans. Fortunately, there are many
real energy storage solutions from real companies that actually deserve
our attention. I may revisit the PHEV loony bin from time to time to
poke a little fun at the true believers, but I'm basically done with
this topic.
Disclosure: Author is a former
director and executive officer of Axion
Power International (AXPW.OB)
and holds a large long position in its stock. He also holds small long
positions in Exide (XIDE)
and Enersys (ENS).
John L. Petersen, Esq. is a U.S. lawyer based in Switzerland who works
as a partner in the law firm of Fefer Petersen & Cie and represents
North American, European and Asian clients, principally in the energy
and alternative energy sectors. His international practice is limited
to corporate securities and small company finance, where he focuses on
guiding small growth-oriented companies through the corporate finance
process, beginning with seed stage private placements, continuing
through growth stage private financing and concluding with a reverse
merger or public offering. Mr. Petersen is a 1979 graduate of the Notre
Dame Law School and a 1976 graduate of Arizona State University. He was
admitted to the Texas Bar Association in 1980 and licensed to practice
as a CPA in 1981. From January 2004 through January 2008, he was
securities counsel for and a director of Axion Power International,
Inc. a small public company involved in advanced lead-carbon battery
research and development.
It's unlikely that my picks are due to stock picking skill. My personal
experience has shown that I'm much better at picking sectors than individual
stocks: my strength is in spotting trends, not picking individual companies
which will outperform.
Trend Spotting
If my picks are not doing better because of stockpicking, it's either because
of luck, or because I spotted a trend. The relative performance of the two
portfolios gives a clue as to what it might be. When Lehman Brothers
declared bankruptcy, I began
selling stocks that had weak cash flows or balance sheets, and I continue to
believe that companies which can internally finance all their capital
expenditures and expenses will outperform the rest for years to come. As
such, my Ten
Clean Energy Stocks all had strong balance sheets and cash flows, while most
of the Ten
Clean Energy Gambles will likely need to raise more money by the end of the
year.
If I'm right about this trend, then clean energy stocks have indeed been
outperforming the market, but this trend has been masked as the market as a
whole fell by the fact that most
clean energy stocks are young growth companies; they often have weaker
balance sheets and cash-flows than older, more established companies.
Testing the Trend.
To test my hypothesis, I turned to the Capital Asset Pricing Model, or CAPM.
CAPM accounts for the general riskiness of companies by means of a statistic
Beta, which is a measure of how much a company moves in response to moves of the
market as a whole. Because clean energy companies tend to be riskier than
the market as a whole, they tend to have Betas greater than one, and hence tend
to decline more than the market as a whole when it declines, but advance more
than the market as a whole when it advances. Some commentators think that
green funds will outperform
in a recovery solely because of the higher Beta, but I suspect there's more
to it. Any difference between
the performance of a stock and the expected performance given the
performance of the market as a whole is called Alpha, and if my hypothesis is
correct, clean energy stocks are likely to have had positive alpha over recent
months.
I chose to test my hypothesis over three and six month periods, since that is
how long I feel I have been seeing an out-performance of clean energy stocks (I
think it started slightly before President Obama's election, when it became
fairly clear that he was going to win.) The CAPM model says:
Alpha = Actual Return - (RFR + Beta*(RM-RFR))
Where RFR is the risk-free rate, usually taken to be a long term treasury
rate of interest, and RM is the market return. On October 24, 2008, the
ten year Treasury note was yielding 3.7%, and on January 27, it was 2.5%.
The total return of the S&P 500 has been -1.2% and 2.4% for six and three
months, as of April 24th. That means that for the 3 month period, RFR3 = 2.5%/4 =
0.6%, and RM3-RFR3= 2.4%-0.6% = 1.8%, while for the 6
month period since October 24, RFR6 = 3.7%/2 = 1.9%, and RM6-RFR6=
-1.2%-1.9% = -3.1%.
With this data in hand we can now check to see if clean energy stocks in
general have been outperforming.
Clearly, both these clean energy ETFs have been strongly outperforming the
market since Obama was elected and assumed office. Until the recent market
recovery, however, the general market downtrend, combined with the high Betas of
alternative energy stocks have been obscuring the strong outperformance.
There are also Solar
ETFs and Wind
ETFs, which would allow us to see how these subsectors are performing
relative to the whole market, but this would require comparison with a global
market index, and some time spent importing data
into a spreadsheet to calculate beta. As I mentioned at the end of a
recent article on clean energy mutual funds, I
expect that the subsectors most likely to outperform are those on which
President Obama has been emphasizing in his policy: Energy
Efficiency, Smart
Grid, High
Speed Rail and Transit
stocks and those power generation sectors which are most likely to
contribute significantly to his goal of tripling renewable energy, Geothermal
and Wind. Solar has also been outperforming, but only over a much shorter
time period.
The boost
to solar came from China, not Obama, and so it has only been felt for the
last month or so. Since I don't have appropriate sector ETFs, I used a
selection of individual stocks I hoped might be representative of their
sector. I mostly chose stocks which are not in one of the two sets of ten stocks for 2009
discussed above.
Batteries were not on my radar, and the large investment
in battery technology seems to have come as a surprise to most other investors
as well. Enersys slid in the three months after the election but before
the stimulus was unveiled, but then took off in the last three months. In
contrast, the gains in my wind stock, smart grid, rail, and energy efficiency
stocks were spread out over the whole 6 month period. The geothermal stock
saw most of its gains early on, perhaps because there was little
explicit boost for geothermal in the American Recovery and Reinvestment Act.
DISCLOSURE: The author has long positions in AMSC, FAN, ORA,
PRPX, and POWI.
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.
White House Report: GM Volt is Not Ready for Prime Time
In it's
March
30, 2009 summary determination that GM had failed to propose a
viable bankruptcy alternative, the President's auto industry task force
said:
"GM is at least
one generation behind Toyota on advanced, "green" powertrain
development. In an attempt to leapfrog Toyota, GM has devoted
significant resources to the Chevy Volt. While the Volt holds promise,
it is currently projected to be much more expensive than its
gasoline-fueled peers and will likely need substantial reductions in
manufacturing cost in order to become commercially viable."
This extraordinary conclusion has been public for weeks but I've not
seen it reported by any mainstream media. I would have missed it
entirely if Plug In America,
an EV industry trade group, hadn't made a point of issuing a press
release that was drawn to my attention by one of my readers. While the
White House did not specifically lay the Volt's problems at the feet of
the battery industry, Plug in America did. In their refutation
of the auto industry task force report, Plug in America said:
"California law requires that the Volt
and other plug-in hybrids come with a 10-year warranty. To ensure this
longer life, automakers are as much as doubling the size of the battery
pack, increasing cost to manufacturer and consumer. But not a single
production plug-in electric vehicle sold to date, from GM’s early EV1
to today’s Tesla, has had a warranty of more than five years, noted
Plug In America advisory board member Chelsea Sexton.
“To support early deployment, California should relax the warranty
requirement for cars like the Volt to five years, phasing to 10 years
over time,” said Sexton, a former GM employee. “This alone could cut
the number of batteries required by as much as half and reduce the cost
of each vehicle by thousands of dollars."
The warranty reduction would not impose added liability on GM or
consumers, Sexton noted, because President Obama has said the federal
government will guarantee the warranties of GM and Chrysler vehicles
should they go bankrupt. And dealers can sell extended warranties,
providing additional security for consumers who want it as well as
revenue when auto companies need it most."
In January 2009 the DOE released its 2008
Annual Progress Report for the Energy Storage Research and
Development Vehicle Technologies Program that concluded Li-ion
batteries were not ready for prime time in PHEV and EV
applications. In March 2009 the President's auto industry task
force issued a report that the GM Volt, the first Li-ion powered PHEV
proposed by a major manufacturer, was not ready for prime time.
Is anybody out there listening to the facts or are the PR jungle drums
from a few undercapitalized Li-ion battery developers simply drowning
out the voice of reason and prudence?
Cheap Li-manganese batteries from LG-Chem
and $7,500 in Federal
Tax Credits are not enough to make the Chevy Volt commercially
viable. Comparable batteries from Ener1
(HEV)
were not enough to keep Th!nk out of
fiscal reorganization in Norway. More expensive Li-phosphate batteries
from A123 Systems are
unlikely to keep Chrysler
out of bankruptcy. While Li-phosphate batteries from Valence Technology (VLNC)
and comparably priced Li-titanate batteries from Altair Nanotechnologies (ALTI)
are being tested in hybrid transit buses and other commercial vehicles
that may put enough stress on the batteries to justify their high cost,
none of the companies I criticized last July has demonstrated any
ability to meet the challenge and do the heavy work of powering
America's transportation future.
I love the Li-ion batteries in my laptop and cell phone and believe it
Li-ion an excellent choice for applications like electric two-wheelers
(E2W) and other vehicles where there is a rational relationship between
vehicle weight and passenger weight. But it is high comedy to suggest
that Li-ion batteries will ever be able to power 300 pounds of
passengers and 3,000 pounds of steel for 40 or 50 miles at highway
speed. It's like using 5,000 golden hamsters to pull a stagecoach when
what you really need is a horse.
I've been rational, analytical, courteous and engaging for the last ten
months, but it's high time for somebody to stand up and call bullshit
on the shameless Li-ion hucksters who have nothing to offer but
happy-talk forecasts and hype! It's also high time for taxpayers to
stand up and say "Not with my money you don't!"
America's leading Li-ion battery developers including Altair
Nanotechnologies, Ener1 and Valence had combined losses of $93 million
on $42 million of 2008 sales, yet they sport a combined market
capitalization of $1 billion. In comparison America's leading lead-acid
battery manufacturers including Axion
Power (AXPW.OB),
C&D Technologies (CHP), Enersys (ENS)
and Exide (XIDE)
carry a comparable combined market capitalization even though they had
combined profits of $140 million on $6.2 billion of 2008 sales.
Something is dreadfully wrong with this picture. Summary data for each
company follows.
For months my message to storage sector investors has been simple: the
energy storage sector will ride the crest of an investment
tsunami as we enter the cleantech
revolution, but cleantech is all
about price vs. performance and there is no
room for irrational expectations. The DOE has said the same thing
and now the President's auto industry task force has joined the chorus.
Lithium
dreams have become an investor's worst nightmare. It's time to wake
up and smell the coffee, go to work and solve our problems to the best
of our ability with cost-effective technical solutions like compressed
natural gas and advanced lead-acid and lead carbon batteries.
The airbrushed Li-ion
centerfolds may have serious investment merit in the future,
particularly if somebody in the EV world develops a product that is
proud to be an EV instead of pretending to offer the functionality of a
family car. But that day is not today and investors need to stop
deluding themselves. Cool technology that cannot provide a cost
effective solution to real world problems has all the nutritional value
of rainbow
stew. So let's stop wasting time and money on feel-good solutions
that cannot work and get to work solving the problems with readily
available and cost effective technologies.
Disclosure: Author is a former
director and executive officer of Axion Power International (AXPW.OB)
and holds a large long position in its stock. He also holds small long
positions in Exide (XIDE)
and Enersys (ENS).
John L. Petersen, Esq. is a U.S. lawyer based in Switzerland who works
as a partner in the law firm of Fefer Petersen & Cie and represents
North American, European and Asian clients, principally in the energy
and alternative energy sectors. His international practice is limited
to corporate securities and small company finance, where he focuses on
guiding small growth-oriented companies through the corporate finance
process, beginning with seed stage private placements, continuing
through growth stage private financing and concluding with a reverse
merger or public offering. Mr. Petersen is a 1979 graduate of the Notre
Dame Law School and a 1976 graduate of Arizona State University. He was
admitted to the Texas Bar Association in 1980 and licensed to practice
as a CPA in 1981. From January 2004 through January 2008, he was
securities counsel for and a director of Axion Power International,
Inc. a small public company involved in advanced lead-carbon battery
research and development.
The Obama High-Speed Rail Strategy: What Will Happen When The Steel Meets The Track?
Over the past few weeks, John Petersen
has written a number of very insightful articles on the energy storage space,
with a particular focus on automotive applications. To be sure, this sector has
gotten a lot more exciting since Obama's election, with
real dollar commitments coming from the government and even tangible signs that
certain technologies are moving into the mainstream. It is fair to say that,
on the back of explicit state support, batteries and smart grid have dethroned
solar as the new "hot" thing in alt energy/cleantech.
Equally exciting in my view is the focus
high-speed rail (HSR)
is ostensibly receiving from the Obama administration. To me, mass transit (excluding air
travel) is to transportation what efficiency is to electricity. Renewable power
offers a way to make electricity production "cleaner", but a kWh saved is the
best kWh there is both in terms of economic efficiency (at least initially as
efficiency eventually runs into
diminishing marginal
returns) and environmental benefits. Similarly, while new battery
technologies will reduce the air emissions footprint of cars, rail can be, given
the right conditions (i.e. high population densities, a congested road system,
high fuel costs [whether gasoline, natural gas or electricity], the right
distance) a superior economic and environmental alternative per pound of human
body transported.
My interest in rail transport (especially of the fast kind) also partly stems
from the year I spent living in London and during which I travelled to Paris on a
number of occasions (the two cities are 414 km apart, or around 260 miles). The
Eurostar was a pleasure to
ride; it was comfortable, you left from downtown London and arrived downtown
Paris, and it was just an overall much simpler alternative to the plane.
In early March, shortly after details of the
American Recovery and Reinvestment Act (ARRA)
were made public, I wrote an article looking into
two HSR stocks: Bombardier (BDRAF.PK)
and Alstom (AOMFF.PK).
These were, in my view, the two train makers most likely to experience share
price appreciation as a result of potential ARRA HSR money because of their
heavy focus in this realm. This is still my
view.
Since then, the Obama administration has released a much more detailed plan
for its HSR strategy, along with more numbers. Over the weekend, I read through
that plan and, after crunching a few numbers, was left wondering: is this enough
money to achieve anything close to Obama's HSR vision?
Vision For High-Speed Rail In America
On April 16, the Obama Administration released its plan for HSR, entitled "Vision
For High-Speed Rail In America" (see President Obama's announcement in the
video below).
There is more to the ARRA's transportation component than only HSR, and you can
find a good summary on
Transportation For America's website. The plan released on April 16 focuses solely on HSR and outlines a rather bold vision backed by not as bold an amount of money. There are three pillars to the plan:
Projects: grants for shovel-ready projects where engineering work
has already been completed
Corridor programs: use ARRA money to develop phases or geographic
sections of HSR corridors (see map below) that have completed plans and
environmental documentation
Planning: use non-ARRA appropriations in budgets between FY 2010
and FY 2015 to work toward fully
developing and an HSR network
The HSR corridors identified in the plan as holding development potential are
shown on the map below (click
on the map for a larger PDF). Further details on these corridors can also be found on the
Department of Transportation's
website.
The plan uses the following definitions for the various categories of HSR (underlines added):
"The Department of Transportation (DOT) estimates that several intercity
highways linking major urban markets will experience significant congestion by
2035. According to a recent report, capacity limitations will constrain air
traffic at 14 airports in 8 metropolitan areas, even if planned capacity
improvements are carried out through 2025. In addition, the dependence of
growing highway and air travel on fossil fuels raises significant environmental
concerns regarding greenhouse gas emissions."
On the demand side:
"The National Railroad Passenger Rail Corporation (Amtrak), the nation’s
intercity passenger rail provider, has seen nearly a 20 percent increase in
riders in the last 2 years, in part because service enhancements in some
intercity corridors have improved overall travel time and reliability, making
the train more competitive with highway and air travel. Still, Amtrak does not
offer service in many heavily traveled intercity corridors. Moreover, Amtrak’s
service continues to have slow average speeds relative to other transport modes,
and experiences significant delays, often resulting from sharing track with
commuter and freight rail." (emphasis added)
"In the United States or elsewhere, high speed rail tends to attract
riders in corridors with high population and density, especially where
congestion on existing transportation modes prevails." (emphasis added)
On optimal ranges:
"According to foreign and domestic officials with whom we spoke,
generally lines significantly shorter than 100 miles do not compete well with
the travel time and convenience of automobile travel, and lines longer than 500
miles are unable to overcome the speed advantage of air travel. Between 100 and 500
miles, high speed rail can often overcome air travel’s speed advantage because
of reductions in access and waiting times. Air travel requires time to get to
the airport, which can often be located a significant distance from a city
center, as well as time related to checking baggage, getting through security,
waiting at the terminal, queuing for takeoff, and waiting for baggage upon
arrival at a destination. By contrast, high speed rail service is usually
designed to go from city center to city center, which generally allows for
reduced access times for most travelers."
HSR Funding - Where The Steel Meets The Track
As stated above, the sums going into HSR are overall unimpressive. They are broken down as
follows:
$8 billion of ARRA money mostly for pillars #1 and #2 above with
the added advantage that, unlike other ARRA-funded initiatives, funding for
intercity passenger rail development will remain available for obligation
until Sept. 30, 2012
$1 billion per year for five years in budget appropriations starting with
the FY 2010 budget to fund pillar #3 above
This equates to $13 billion over a roughly five-year period.
The plan does not, however, claim that this $13
billion is the only money that will be made available for HSR projects. Historically,
rail has lagged other modes of ground transport with respect to the federal
government matching state capital funding (see graph below). States will
therefore be expected to be significant financial partners in the projects
as will the private sector. Still, even with significant participation from
other stakeholders, the question remains: in today's HSR world, is $13 billion
enough?
The best way to gauge the potential size of the federal contribution is to
examine it in light of what other recent HSR projects have cost or are projected to
cost. The following two tables are taken from the GAO report discussed above.
The first one lists out six international projects in Europe and Japan and the
second four US projects.
Based on these tables, the international average cost per route mile (excluding
trainsets) is in the neighborhood of $66 million with a standard deviation of
$41.23 million. The US average is $66.75 million with a standard deviation of
$46.96 million. The averages are thus relatively similar. The international
median cost is $47.5 million per route mile while the US is $56.5 million.
Assuming
the US median cost applies to all projects, I created the table below.
Besides using the US median cost, I also assumed that trainsets would be
priced at the low end of the range discussed below the table of international
projects ($32 million per set). I have no real basis for assuming how many
trainsets will be required, and that doesn't matter - their cost per unit range as reported by the GAO is below the
median US cost of building one mile of track. For instance,
Siemens just won a
Chinese HSR contract to provide 100 trains at a cost of $10 million a piece,
with each train capable of transporting 1,000 passenger. Trainsets do not
make or brake a project.
This table demonstrates that, in order to get serious HSR mileage out of the
current pool of money, construction costs will either have to drop
significantly - which is unlikely given that Americans have not been building HSR
along with the rest of the industrialized world over the past 20 years and thus have little expertise
in the area (the Obama plan discusses this capacity gap on a number of occasions)
- or the government's commitment will have to be materially boosted.
The GAO notes
that costs can drop to the $4.1 million to $11.4 million per route mile range if
projects are incremental rather than new, but that also limits possible speeds to between 80 mph
and 110 mph, which in most of the world doesn't qualify as fast. Presumably, a
fair chunk of this money will go toward such projects so the the
bang-for-the-buck analysis will look a bit better. But what this analysis
demonstrates is that current funding levels are no where near high enough to
build true HSR (HSR - Express and HSR - Regional in
the definitions box above) across even half of the corridors identified on the
map.
Conclusion
Unlike battery technologies or the smart grid, a few billion dollars in
funding does not provide significant boosts in large, mature industries like rail, so unless the
government is willing to up the antes, I wouldn't bet on the US
becoming the next major HSR market. China, for instance, is
spending
$24 billion on one HSR line alone (the article linked to here is worth
reading if HSR interests you) connecting Beijing to Guangzhou (1,157 miles or roughly $21 million per route mile - it's always nice to have
a labor cost advantage).
The Obama plan acknowledges that it will be challenging for certain states to
provide significant matching funds as many of them are in budgetary binds. The
GAO study also finds an overall low degree of interest on the private sector's
part for HSR given the risks involved; some of the HSR projects the GAO studied
in international locales aren't even forecasted to meet operating costs from
ticket sales, let alone earn a return on capital invested.
The good news, however, is that there are plenty of places where governments
accept this fact of HSR because of the other benefits it provides (i.e. lower
emissions, less clogged highways) and where growth will continue to be
significant in the next few years. I continue to view Bombardier (BDRAF.PK)
and Alstom (AOMFF.PK)
as the two firms for which a boom in HSR will have the most notable impact on
the bottom line. I also still think that Bombardier's stock has the greatest
capital appreciation potential although it's been mainly flat since I wrote the
initial article on concerns over its aviation unit. While some contracts may
flow to both companies from the current Obama plan - and we should find this out by later this
year or early next - people with an interest in HSR should have their sight set
on China, as that is where the action really is right now.
DISCLOSURE: Charles Morand does not have a position in any of the stocks discussed in this article.
We appreciate AltEnergyStocks.com’s coverage of the CSP industry with
its recent article, The
Future Shape of CSP. Unfortunately, the article fails to recognize
that compact linear Fresnel reflector (CLFR) companies like Ausra are making
tremendous progress in advancing the technology and creating new and diverse
market segments for CSP.
CLFR is already on a path to being commercially demonstrated in the U.S., as
well as in Australia and Southern Europe. In fact, Ausra recently
commissioned the first major solar thermal power plant to be built in California
in nearly two decades and developed and brought online the world’s first
solar/coal-fired power augmentation facility in Australia�both CLFR
installations are running now and performing as modeled.
One of the key benefits of CLFR technology is the diversity of its applications.
Contrary to what the article’s anonymous “industry observer” asserts,
Ausra serves more than just the process steam market. Our solar thermal
energy systems are also ideally suited for power augmentation and standalone
power generation, as demonstrated at our two CLFR installations.
CLFR will continue to play a major role in helping advance the CSP market.
The following are just a few of the benefit’s of Ausra’s next-generation
CLFR solar thermal energy systems:
·Simple, robust design for low-cost and durability
·Most land-efficient solar technology (highest energy density)
·Standard, common materials: carbon steel pipe and structural
components, flat glass
·Direct steam generation (150°C/300°F to 400°C/750°F) without
heat transfer fluids, such as synthetic oils, thereby reducing expense and
environmental risks
·Rapid deployment and modular installation: high-volume, automated
production (6-to-18 month field installation); regional and on-site
manufacturing
·Durable structure: 2-inch carbon steel pipe; horizontal mount
solid piping; no moving joints; steel-backed reflectors rotate downward to
protect the mirrored surface
·Flexible steam generator flow: once-through or recirculating
·Highly-automated computer controlled tracking
In addition to the technical benefits of our CLFR systems, we continue to enjoy
strong financial support from our investors, particularly through our most
recent $25.5 million equity financing facility. We look forward to continuing
our dialogue with AltEnergyStocks.com about our CLFR technology as we
expand and accelerate our solar thermal energy equipment supply business.
In mid-February President Obama signed the American Recovery and
Reinvestment Act of 2009 (ARRA), a massive spending bill that spawned
gigabytes of analysis and comment from bloggers like me. Unlike many,
I've tried to stay politically agnostic and focus solely on the
economic impact of ARRA on companies that manufacture batteries and
other energy storage devices. From that limited perspective, everything
is wonderful!
The principal energy storage appropriations included in the ARRA were:
$4,500,000,000 for grants for “Electricity Delivery and Energy
Reliability” including activities to modernize the electric grid,
include demand response equipment, enhance security and reliability of
the energy infrastructure, energy storage research, development,
demonstration and deployment, and facilitate recovery from disruptions
to the energy supply;
$2,000,000,000 for grants to manufacturers of advanced battery
systems
and vehicle batteries that are produced in the United States, including
advanced lithium ion batteries, hybrid electrical systems, component
manufacturers, and software designers;
$500,000,000 for research, labor exchange and job training
projects that prepare workers for careers in energy efficiency and
renewable energy; and
$300,000,000 to purchase high fuel economy motor vehicles
including: hybrid vehicles; neighborhood electric vehicles; electric
vehicles; and commercially available, plug-in hybrid vehicles.
In a February 22nd article about why
I believed energy
storage stocks could easily double as a direct result of ARRA
spending, I cautiously
speculated that a large number of $100 to $200 million grants seemed
more likely than a handful of mega-project grants. In response, many
readers expressed concerns that the ARRA funding would be hijacked by
the utility industry or wasted. While we've all been eagerly awaiting
clarification, I'm very impressed with the direction the
Administration's policies seem to be heading.
In his early remarks on ARRA policy objectives, President Obama seemed
inclined toward an egalitarian approach that would use ARRA funding for
a wide variety of projects in a concerted effort to create new jobs,
explore reasonable alternatives and rely on market mechanisms rather
than policy-wonks. I was particularly impressed by remarks President Obama
made at the Southern California Edison Electric Vehicle Technical
Center last month when he said:
"Show us that your
idea or your company is best-suited to meet America's challenges, and
we will give you a chance to prove it. And just because I'm here today
doesn't exempt all of you from that challenge - every company that
wants a shot at these tax dollars has to prove their worth."
While we all know the
opera ain't over 'til the fat lady sings, an April 16th press
release from the DOE has spurred my optimism to new heights and
given me reason to believe the DOE's plans for smart grid grants will
take a very reasonable and pragmatic approach. In discussing their
plans for financing smart grid projects, the DOE press release said:
"$3.375
billion for Smart Grid Investment Grant Program"
DOE’s Smart Grid Investment Grant
Program will provide grants ranging from $500,000 to $20 million for
smart grid technology deployments. It will also provide grants of
$100,000 to $5 million for the deployment of grid monitoring devices.
This program provides matching grants of up to 50 percent for
investments planned by electric utilities and other entities to deploy
smart grid technologies. The program will use a competitive,
merit-based process to select qualified projects to receive funding.
Eligible applicants include, but are not limited to, electric
utilities, companies that distribute or sell electricity, organizations
that coordinate or control grid operations, appliance and equipment
manufacturers, and firms that wish to install smart grid technology.
There will be a 20-day public comment period on the Notice of Intent;
the Department will use feedback to finalize the grant program
structure and subsequent solicitation.
$615 million for Smart Grid
Demonstration Projects
The draft Funding Opportunity Announcement is for smart grid
demonstrations in three areas:
Smart Grid
Regional Demonstrations will quantify smart grid costs and
benefits, verify technology viability, and examine new business models.
Utility-Scale
Energy Storage Demonstrations can
include technologies such as advanced battery systems,
ultra-capacitors, flywheels, and compressed air energy systems, and
applications such as wind and photovoltaic integration and grid
congestion relief.
Grid
Monitoring Demonstrations will support the installation and
networking of multiple high-resolution, time-synchronized grid
monitoring devices, called phasor measurement units, that allow
transmission system operators to see, and therefore influence, electric
flows in real-time.
Each demonstration project must be
carried out in collaboration with the electric utility that owns the
grid facilities. An integrated team approach that includes, for
example, products and services suppliers, end users, and state and
municipal governments, is encouraged. The projects require a cost share
of at least 50 percent of non-federal funds."
Frankly, the DOE's goals are more
ambitious, reasonable and broad-based than I had hoped they would be.
Instead of a relatively small number of $100 to $200 million grants
that would provide immense boosts to a small number of companies, the
DOE is talking about hundreds of more modest grants that will benefit a
much larger number of companies and probably be spent more wisely.
If the policy objectives defined by President Obama and clarified by
the DOE flow through the entire ARRA grant allocation process, we may
be entering a golden age for investors in companies that are developing
batteries, energy storage devices and other smart grid technologies; a
tidal wave of public and private funding that will lift all boats in
the sector rather than a select few.
The overriding policy objectives I've been able to glean from the
statements to date are:
The DOE will spread the wealth across a broad range of
technologies and companies; and
The DOE will not finance technologies or companies that cannot
attract the bulk of the required funding from non-government sources.
The result is a true public-private partnership where generous
government support is available for companies that the market is
willing to support as stand-alone business ventures, but the market
holds the ultimate trump card. It's a structure that's simple in its
genius and recognizes that the job of government is to enable the
market process rather than supplant it.
I've written more than a few unkind
words about publicly announced applications under the DOE's Advanced Vehicle Technology
Manufacturing Loan Program because many applicants including A123 Systems, Ener1 (HEV), Tesla Motors and Th!nk are underfunded and the amount
of the requested loans is disproportionate to the established value of
the advanced vehicle technologies they want to manufacture. My basic
question has always been "What if they build their proposed factories
and nobody wants their products?" That question, in turn, led to the
inescapable conclusion that the ATVM loans are a 'heads I win tails you
lose' proposition that can be nothing but good for successful
applicants and nothing but bad for the government.
We may indeed end up with a wasteful outcome from the ATVM loan program
because it takes a lot of money to build manufacturing capacity from
the dirt up and the process has been politicized. My sense, however, is
that the ARRA grants will be another story altogether. Carefully
administered ARRA grants can double the available funding for
grid-connected energy storage partnerships like the ones that A123 Systems, Altair
Nanotechnologies (ALTI),
Axion
Power International (AXPW.OB),
SAFT Batteries (SGPEF.PK)
and ZBB
Energy (ZBB)
have negotiated with counterparties including AES Corporation (AES),
ABB Limited (ABB), Eaton Corporation (ETN) and NYSERDA. If similar policies flow
control the ARRA grant policies for advanced battery manufacturing, the
impact on the entire energy storage sector can be huge.
I frequently criticize the bloated market capitalizations of Li-ion
battery developers, but it's important that readers understand that my
criticisms relate to stock market factors rather than an assessment of
the underlying technology. We need Li-ion, lead-acid, lead-carbon and
flow batteries, and a host of other technologies that haven't even been
invented yet if we want to break our addiction to imported oil and pave
the way for cleantech,
the sixth industrial revolution.
While I've always believed that good things happen in America in spite
of government, the evolving policies of the Obama Administration may
well change my views. At least for now, I believe the Administration's
plans for distributing the ARRA smart grid grants are very smart indeed
because they rely on the capital markets and sound business judgment as
a counter weight to idealism that frequently drives government action.
Disclosure: Author is a former
director and executive officer of Axion
Power International (AXPW.OB)
and holds a large long position in its stock. He also holds a small
long position in ZBB
Energy (ZBB).
John L. Petersen, Esq. is a U.S. lawyer based in Switzerland who works
as a partner in the law firm of Fefer Petersen & Cie and represents
North American, European and Asian clients, principally in the energy
and alternative energy sectors. His international practice is limited
to corporate securities and small company finance, where he focuses on
guiding small growth-oriented companies through the corporate finance
process, beginning with seed stage private placements, continuing
through growth stage private financing and concluding with a reverse
merger or public offering. Mr. Petersen is a 1979 graduate of the Notre
Dame Law School and a 1976 graduate of Arizona State University. He was
admitted to the Texas Bar Association in 1980 and licensed to practice
as a CPA in 1981. From January 2004 through January 2008, he was
securities counsel for and a director of Axion Power International,
Inc. a small public company involved in advanced lead-carbon battery
research and development.
Rainier Aringhoff, the president of one of those serious and qualified
developers, Solar
Millennium (SMLNF.PK), agreed. "Building CSP plants with storage
is only with in the reach of a few companies," he said, "and these
companies require regulatory certainty." If the PUC is approving
renewable projects that are unlikely to be built, how likely are they to enforce
California's RPS if utilities fail to meet them because of developers' failing
to deliver?
Sun, Sun Everywhere, But Not a Gigawatt Built
There are more than technical and financial barriers to development of large
CSP projects. According to Aringhoff, the transmission regulatory bodies FERC and CAISO need to sort through all the
interconnection applications and determine which are for otherwise viable
projects. They should also create land use corridors along main transmission
trunks throughout the western electrical system which can be more easily permitted
for renewable energy. A full 5,000 MW of renewable energy projects are
waiting on transmission upgrades.
Land use rules are also important. One of the best areas for solar
development would be the Mojave Desert, given its high insolation
and proximity to California's population centers. Unfortunately, the West
Mojave Plan actively hinders renewable development, with only one percent of the
land area set aside for renewable development. Five percent is dedicated
to off road vehicle recreation.
As John White said, "It’s amazing that we can take a disturbed piece
of ground where there is development across the street and the Mojave Desert
commission will say 'No, we have to protect the Mojave ground squirrel.'"
Given these barriers, it's less surprising that PG&E is looking to space,
where there are no endangered ground squirrels.
I'm not a space exploration expert, but solar from space seems fraught with
technical risk, and Solaren seems to be planning to start with a commercial
scale project (200 MW, to be scaled up to 1700 MW.) If the technical
problems were solved, it would still be at risk of destruction by space debris
and any country with a functioning space program. Assuming such a
satellite could collect about ten times as much energy per acre as a
ground-based plant, it would still need to cover 100 acres of increasingly
cluttered space in order to produce 200 MW, or 850 acres for 1700 MW, making
it likely to suffer regular impacts.
Of the companies that have signed PPAs with California utilities, Stirling
Energy Systems' 1750 MW of projects have been most often cited to me as
unlikely to be built. They have signed PPAs with San Diego Gas &
Electric and Southern California Edison, but if these projects do not get built,
they will probably not be alone in that.
Strategic Shifts
In contrast, Ausra, with their innovative
Compact Linear Fresnel Reflector (CLFR) geometry, has not been signing PPAs they won't
be able to fill. Seeing the harsh financial climate, they took the logical
step and decided not to develop their own plants, but rather to sell equipment
into the process heat market. I recently wrote skeptically about this
while pondering the future
of Concentrating Solar Power, but not because the move is foolish. The
question in my mind is if the move will be enough. Can a CSP equipment
manufacturer be able to ride out the storm by selling equipment to power
generators or industrial customers with other, less capital intensive options
that work around the clock?
Other solar developers think so. They are following this path and
choosing to reduce their financial risk and need for capital by becoming
equipment suppliers. Skyfuel has
always been a technology and equipment provider, rather than a developer.
The recent announcement
from GreenVolts shows a similar shift in emphasis to selling equipment
(although GreenVolts is not quite comparable to Ausra and Skyfuel, being a CPV
startup that sells electricity (not heat) producing equipment.)
In addition to the financial crisis, these shifts may have been encouraged by
a recent
change in the Investment Tax Credit rules which allows utilities to own
projects and still gain the tax benefits. But unless someone is willing to
take on technical and regulatory risk, we're going to see a lot fewer of these
projects built than we would like.
Hope's not a good coping strategy for climate change, either.
DISCLOSURE: The author has a
long position in UTX.
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.
The Time is Right for Gas-guzzler to Dual-mode EV Conversions
Since early 2008, Axion Power International (AXPW.OB)
has been quietly developing an experience base and building grass roots
support for a gas-guzzler to dual-mode EV conversion initiative that
has the short-term potential to transform up to 120 million
gas-guzzling pickup trucks, sport utility vehicles and vans into gas
sipping EV-50s. If recent articles from sources as diverse as The
Daily Green, Edmunds
Green Car Advisor and the Environmental Defense
Fund are reliable indicators, the initiative is rapidly gaining
ground.
The concept is simple – add electric power trains and battery packs to
America's least fuel-efficient vehicles and give them 50 miles of
plug-in EV range coupled with unlimited internal combustion range. The
potential benefits to the economy are enormous because the U.S. could
slash gasoline consumption by a billion gallons per year for every 1%
of the gas-guzzler fleet that's converted to dual-mode. It's also a
solution that could be immediately implemented using domestic products
and create untold thousands of new cleantech jobs.
The first public discussion of Axion's gas-guzzler conversion
initiative was in Dr.
Edward Buiel's testimony before the Senate Committee on Energy and
Natural Resources last July. A few months later, Andrew Grove, the
former chairman of Intel, published an article in McKinsey Quarterly titled "An
Electric Plan for Energy Resilience" that approached the topic from
a slightly different perspective. While Dr. Buiel's testimony focused
on using lead-acid batteries and Mr. Grove's article focused on using
Li-ion batteries, both men reached the same conclusion: that
gas-guzzler to dual-mode EV conversions are the most cost
effective baby-steps America can take in its drive for energy
independence.
The following table summarizes the estimated cost to convert a Chevy
S-10 pickup into a dual-mode EV-50 using off-the-shelf drive train kits
and lead-acid and Li-ion batteries from domestic suppliers. For both
system types, the table assumes a 10-year useful life and a 15 kWh
battery pack for a 50-mile electric range. For the lead-acid system,
the table assumes a battery life of 40 months, the equivalent of 800
charge-discharge cycles, and two battery replacements. For the Li-ion
system, the table assumes battery replacements will not be needed.
Since space and weight are not critical constraints in a pickup, SUV or
van, I have not made any adjustments for the 300 to 400 pound weight
advantage of a Li-ion system. I've also avoided maintenance estimates
because they're beyond my capabilities.
Essential
Conversion Components
Gas-guzzler to Dual-Mode EV 50
Lead-acid
System
Li-ion
System
15 kWh battery pack
$3,000
$15,000
LAB replacement after 40 months
$3,000
LAB replacement after 80 months
$3,000
Off-the-shelf electric drive
conversion kit
4,500
4,500
Miscellaneous conversion
materials
900
900
Conversion labor
3,000
3,000
Total
up-front cost before subsidies
$11,400
$23,400
Total 10-year
cost before subsidies
$17,400
$23,400
The following table drills down another level and calculates how the
capital costs would likely work in the case of a typical pickup, SUV or
van owner. I've depreciated the electric drive system over a 10-year
period and depreciated the batteries over their respective useful
lives. I've then added an imputed interest factor of 6% per year on the
total up-front cost before subsidies. Finally, I've factored in
charging costs at an average price of $0.10 per kWh and calculated a
fully loaded breakeven gas price before subsidies assuming a baseline
fuel efficiency of 17.5 mpg for the unmodified vehicle.
Estimated
Monthly
Cost of Ownership
Lead-acid
System
Li-ion System
Depreciation of electric drive
costs
$70
$ 70
Depreciation of battery costs
75
125
Imputed interest on up-front
cost (6% per annum)
57
117
Electricity for daily recharge
(20 days @ 15 kWh @ $.10)
30
30
Total monthly cost
$232
$342
Monthly gas savings (20 days @
50 miles @ 17.5 mpg)
52.7
52.7
Fully loaded
breakeven gas price
$4.40
$6.50
It is very important to understand that I have not included any tax
incentives or
other subsidies in either of these cost tables because of the variety
and
complexity of
existing and proposed Federal and State programs. If new
subsidy regimes are implemented to encourage gas-guzzler to dual-mode
conversions,
the breakeven costs to users are likely to plummet.
While my fully loaded breakeven gas price numbers don't look all that
good in comparison to current prices of $2.25 per gallon, I am
convinced that
current prices are not sustainable. The following graph from the Energy
Information Administration tracks the spot price of West Texas
Crude from January 1986 through April 2009.
What I find most intriguing is that the long-term trend was basically
flat from ’86 until it reached an inflection point in the late '90s, at
a time that
roughly coincides with recovery from the ‘97 Asian financial crisis.
Since then, oil prices have followed a consistent upward trend. I don’t
want to join the peak oil debate, but I think the long-term price chart
presents compelling evidence that the world passed a “peak cheap oil”
inflection point about 10 years ago. If my analysis is correct, oil
prices will revert to their new trend line over the next 12 to 18
months and then resume their relentless upward march until the next
inflection point is reached. By the time the global economy emerges
from the current recession, I believe $80 to $100 oil is a virtual
certainty, as are $3.50 to $4.00 gas prices.
Some of most common comments on my EV articles relate to vehicle
range limitations. While most Americans drive less than 50 miles per
day, the ability to get in the car and drive without constraint seems
to be deeply ingrained in our collective psyche. Therefore, I believe
most pickup, SUV and van owners will truly appreciate the flexibility
of a dual-mode system that will let them switch
back and forth between the internal combustion and electric drive
systems depending
on the needs of a particular trip.
I'm convinced that a rapid
implementation of Axion's gas-guzzler to dual-mode EV conversion
initiative could be just what the industry needs. While I believe most
consumers will choose the least expensive solution, there will still be
large numbers of users who are willing to pay a premium price for the
perceived advantages of Li-ion. Since gas-guzzler to dual-mode EV
conversions use off-the-shelf technology and nobody can claim a solid
intellectual property advantage, every manufacturer would have
a level playing field in a multi-billion dollar market where
technologies would succeed or fail on their own merits. More
importantly, small battery producers would not be forced into the
unenviable
position of a midget negotiating with a giant.
America's strength has always been the ingenuity and flexibility of its
entrepreneurs. In a world where we need to get up in the
morning, go to work and solve our problems to the best of our ability,
I believe the Axion initiative is a tremendous first step that holds
immense short-term promise for the energy storage sector, energy
independence, jobs and the domestic economy.
John L. Petersen, Esq. is a U.S. lawyer based in Switzerland who works as a
partner in the law firm of Fefer Petersen & Cie and represents North
American, European and Asian clients, principally in the energy and
alternative energy sectors. His international practice is limited to corporate
securities and small company finance, where he focuses on guiding small
growth-oriented companies through the corporate finance process, beginning
with seed stage private placements, continuing through growth stage private
financing and concluding with a reverse merger or public offering. Mr.
Petersen is a 1979 graduate of the Notre Dame Law School and a 1976 graduate
of Arizona State University. He was admitted to the Texas Bar Association in
1980 and licensed to practice as a CPA in 1981. From January 2004 through
January 2008, he was securities counsel for and a director of Axion Power
International, Inc. a small public company involved in advanced lead-carbon
battery research and development.
Parabolic Troughs have dominated Concentrating Solar Power (CSP) until
recently, but several companies are vying to replace them. Will the upstarts
succeed, or will incumbency and improvements to trough technology ward off the
competition?
The technology which can deliver power when it is needed at a reasonable
price should triumph. Photovoltaic (PV) technologies are rapidly producing price
reductions, and can be used almost anywhere, but only produce power when the sun
is shining. In contrast, CSP is still cheaper than PV enables inexpensive
thermal storage, with the promise of dispatchable
power to compensate for the variability of other renewable power sources and
demand. Dispatchability assures CSP with storage a place in the eventual
energy mix.
Heat Transfer Fluids
The ability and efficiency of a technology to accommodate thermal storage
(and provide dispatchability) is a function of the heat transfer fluid and
working temperature.
Three heat transfer fluids have been demonstrated to date: Steam (in
power towers and troughs)
mineral oil (in most parabolic
trough plants,) and molten nitrate salts (in power
towers.) The working temperature for steam is limited by the potential for
corrosion. Molten salts and oil break down at high temperatures, with molten
salt and steam capable of achieving the highest temperatures (about 565°
C for nitrate salts.)
Companies such as BrightSource
and eSolar are currently working to
commercialize supercritical steam in power towers.
Lower temperature steam is also the working fluid for Ausra,
a company working to commercialize the Compact
Linear Fresnel Reflector (CLFR) geometry. CLFR breaks up a trough into a
series of narrow, nearly flat, reflectors saving on the high cost of carefully
focused troughs. Ausra
recently announced that they were refocusing on becoming a technology and
materials provider, rather than building solar farms on their own. An
industry observer who prefers to remain anonymous thinks that this will mean the
end of the company for practical purposes, since the process heat market is very
difficult to sell into, and few companies are willing to back expensive, untried
technology, especially from a third party vendor. Ausra is hardly alone in grappling with scarce financing in a capital-intensive industry, and the
same could be said about several
competitors.
Oil is commonly used as the heat transfer fluid in parabolic trough systems
because it does not freeze at night (nitrate salts freeze at 220° C) and
operates at lower pressure than steam. According to Bill
Gould, Chief Technical Officer of Solar
Reserve, such systems have peak operating temperatures of 375°C.
Solar Reserve is working to commercialize the nitrate
salt/power tower combination which was demonstrated at DOE's
Solar Two in the late 1990s, for which Bill Gould was the project manager.
Nitrate Salt
Composition
60% NaNO3 and 40% KNO3 by
weight.
Melting Point
221 °C
Boiling Point
Has very low vapor pressure, but begins to decompose
around 600 °C
According to Gould and Glatzmaier, the thermal storage systems systems at the
Andesol plants suffer 7%-10% round-trip energy losses in heat exchange. If
molten salt is also used as the heat transfer fluid, then there is no need for
heat exchangers, and no such heat loss. The lower working temperature of these
plants also requires much more salt and larger tanks to effectively store the
same amount of electricity as for a power tower, once the lower temperatures
and efficiency losses are taken into account..
Gould calculates that a trough plant will require three times as much molten
salt (along with larger tanks to store it) as a power tower to store an
equivalent amount of energy. With additional information from Glatzmaier, I
calculate that, to store the equivalent of 1 kWh of electricity at a trough
plant requires approximately $90-160 of capital cost, compared to about $30-$55
at a tower, with the variability arising from the commodity price of salt, which
is mainly used as fertilizer.
The Shape of Things to Come
In terms of configuration, many experts see long term advantages in power
towers. Nate Blair,
a Senior Analyst at NREL says the underlying efficiency advantage of towers
arising from higher working temperatures will lead to more power from a similar
investment in hardware. A Rankin cycle turbine will operate at about 37%
efficiency for troughs, or 41% for a tower, meaning a tower can produce
approximately 8% more electricity from the same amount of heat.
The combination of energy storage using molten salt, no heat transfer losses,
and the thermal efficiency of power towers, point to power towers with molten
salts as the working fluid as the long-term favorite.
There are challenges. Only parabolic troughs are a proven, bankable
technology. Dr. Leitner estimates that it will cost between $500-$700 million to
commercialize a new technology. Solar Reserve plans to overcome this barrier
with a performance guarantee from United
Technologies (NYSE:UTX) up to the value of the contract, or $200 million,
but in the current financial climate financing remains difficult.
SkyFuel has plans to use the innovative reflective film ReflecTech
in a hybrid of parabolic trough and CLFR configuration called a Linear Power
Tower (LPT). By increasing the diameter of the receiver they hope to reduce heat
loss and allow the salt to stay molten for longer periods. ReflecTech enables
relatively inexpensive, large parabolic mirrors to be used in the CLFR
configuration, with 10 mirrors, each about 3 meters wide focused on each
receiver. This should achieve 85x magnification, sufficient to reach
temperatures comparable to those in a power tower.
SkyFuel hopes to commercialize the LPT incrementally, by first testing it as
part of existing parabolic trough plants using oil as the heat transfer fluid.
Might the parabolic trough triumph by incorporating the advantages of power
towers?
Tom Konrad, Ph.D.
DISCLOSURE: The author has a
long position in UTX.
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.
Yesterday Axion Power International (AXWP.OB)
announced the signing of a memorandum of understanding with Exide Technologies (XIDE)
following fourteen months of negotiation and technical investigation.
This alliance could prove to be a sea-change event for the domestic
battery
industry. Copies of the press release and an archived version of the
subsequent investor conference call are available on Axion's website.
As a former chairman of Axion's board of directors and a very
substantial
Axion stockholder, I've been waiting for an agreement like this for a
very long time. I'm delighted to see confirmation from Exide that my
faith in Axion's PbC technology, its management and its technical team
were justified.
". . . cleantech markets dwarf IT to
the tune of two orders of magnitude. Unlike tech names, cleantech
companies often don’t need huge unit growth to succeed – modest
improvements mean more. New IT vendors often face a hurdle of a 5-10x
improvement over incumbent technology to succeed while in cleantech
doing the same amount of work with reduced CO2 emissions might be
enough.”
Axion has always been unusual because there was never a question about
whether its PbC technology worked. Early technical studies
conclusively showed that replacing the lead-based negative electrode in
a conventional lead-acid battery with a carbon electrode like you find
in most supercapacitors had a tremendous impact on both cycle life and
power. Two years ago, when Axion received the prestigious 2006
Technology Innovation Award for North America in the field of lead acid
batteries, Frost & Sullivan noted that Axion's PbC technology
had:
". . . the potential to revitalize the
lead-acid battery industry by breathing new life into an established
technology that was not well-suited to the requirements of important
new applications like hybrid electric vehicles and renewable power."
The real challenge has always been transitioning the science from a
laboratory bench to a factory floor. The commercialization
alliance with Exide is clear independent confirmation that Axion has
succeeded where the vast majority of R&D companies fail.
Over the last couple of months the battery industry has been headline
news as the Federal government adopted massive loan,
grant and subsidy regimes for advanced battery technologies. While
the mainstream press has focused most of its attention on the potential
of plug-in vehicles, the enabling legislation also recognizes the
crucial role that cost-effective energy storage will play in the development
and implementation of the smart grid and the more widespread use
of wind and solar power. The fundamental goals
of all the recent legislation are to build a new domestic
battery manufacturing infrastructure that will help liberate
America from the economic
tyranny of imported oil while enabling the more widespread use of
alternative
energy technologies and cutting carbon-dioxide
emissions.
The biggest advantages Axion's PbC technology offers are low cost and
rapid deployment. As of today, there are no large-scale Li-ion battery
manufacturing facilities in the U.S. and while a number of companies
have disclosed
plans to build new factories if Federal subsidies are made
available to them, there are significant
unanswered questions about whether the battery technology solutions
these
companies are proposing are cheap enough, robust enough and safe enough
to warrant a multi-billion
dollar implementation effort. Even if the hoped-for subsidies
materialize and the proposed factories are built, the process of
building the factories, perfecting manufacturing techniques,
establishing reliable supply chains for imported raw materials,
introducing new products and
training an entire country to use those products will be a major
undertaking.
In comparison, there are dozens of companies that already operate
lead-acid battery factories in the U.S. and Axion's PbC technology has
now reached a point in the development process where it can be
implemented in the existing factories starting immediately without
substantial changes to existing equipment, components or manufacturing
processes. So for the first time America has a real a choice between
"sometime a few years from now" and today.
I love it when a plan comes together.
I cannot begin to predict the impact the new alliance will have on
Axion or Exide. After giving pro-forma effect to the conversion of its
outstanding preferred stock, Axion has 34.7 million shares outstanding
and a market capitalization of roughly $31.2 million at yesterday's
closing price of $0.89. Exide, in comparison, has a market
capitalization of roughly $364 million and annual sales of
approximately $3.7 billion. The combination of Axion's technical
expertise in lead-carbon chemistry with Exide's manufacturing,
distribution and customer service prowess should be exciting. I
certainly expect that the news will have a positive short-term impact
on both companies and an even greater long-term impact as the pervasive
scope of the alliance becomes clearer.
John L. Petersen, Esq. is a U.S.
lawyer based in Switzerland who works as a partner in the law firm of Fefer Petersen & Cie and
represents North American, European and Asian clients, principally in
the energy and alternative energy sectors. His international practice
is limited to corporate securities and small company finance, where he
focuses on guiding small growth-oriented companies through the
corporate finance process, beginning with seed stage private
placements, continuing through growth stage private financing and
concluding with a reverse merger or public offering. Mr. Petersen is a
1979 graduate of the Notre Dame Law School and a 1976 graduate of
Arizona State University. He was admitted to the Texas Bar Association
in 1980 and licensed to practice as a CPA in 1981. From January 2004
through January 2008, he was securities counsel for and a director of
Axion Power International, Inc. a small public company involved in
advanced lead-carbon battery research and development.
3 Month Performance Update: Ten Green Energy Gambles for 2009
This year, I published a list of 10
clean energy stocks I thought people should buy, and, because of readers'
requests, also published a list of ten
speculative clean energy companies. For the most part, these
speculative companies were chosen because they have compelling technology or
manufacturing capability, but were not profitable or were only marginally
profitable, and they had been beaten up because they would likely all need to
raise money this year.
That means that if the financial crisis eases quickly, these companies should
be able to raise money on favorable terms. If the crisis continues or
worsens (which has so far turned out to be the case) the stocks will continue to
fall. This is why they are gambles; as a whole, the portfolio is really a
gamble on a quick resolution to the credit crunch.
Performance So Far
Until the recent market rally, spurred by Treasury
Secretary Geithner's relatively clear plan for the financial sector, and the
FASB's
relaxation of mark-to-market accounting, all these stocks were down for the
year. I'm a bit surprised that the FASB rule change has had such a salutary
effect on the market. After all, one of the major problems is that we
don't know how to value the murky mortgage-backed securities. Giving banks
more leeway to muddy the waters even further seems like a lousy idea to me (at
least in the long term.) I feel it's more win-the-battle-lose-the-war
thinking, and will hurt markets in the long term by undermining investors'
confidence with increased uncertainly.
The recent rally has been very good for alternative energy companies as a
whole, and this portfolio in particular. As of a month ago, all these
stocks were down for the year, but now half of them are showing positive
returns.
Benchmarks
In January, I made two predictions about this portfolio:
The portfolio as a whole will fall, unless financial market conditions
improve rapidly.
All of these stocks have a chance of spectacular returns.
Prediction #1 has so far been spot-on: financial market conditions have not
improved rapidly, and the portfolio as a whole is down. Prediction #2 is
still difficult to judge. None of these stocks have produced
"spectacular returns" (although stay tuned for my quick
clean energy mutual fund tracking portfolio update coming at the end of
May.) Nevertheless, "spectacular returns" tend to come from
quick up-moves of stocks, and most of these stocks will require an improvement
in financial markets to take off.
I've provided two Clean
Energy ETFs as benchmarks: The oldest such ETF, the PowerShares
Clean Energy ETF (PBW)
and my preferred
global clean energy ETF, the iShares
S&P Global Clean Energy Index, (ICLN).
So far, the portfolio as a whole is slightly below the average of the two (see
table). This performance is neither impressive nor horrible, but since I
never intended these stocks to be purchased as a portfolio (see prediction #1),
what really matters to readers will be if they bought one of the five that is up
or one of the four that is down much more than the market as a whole.
I personally still have small positions in Raser
(RZ), Axion
(AXPW.OB), Emcore
(EMKR), and Zoltek
(ZOLT), which is mostly a function of the fact that I've sold calls on my
positions, and they have not yet been assigned. I'm a bit down on these
positions (even counting the gains from the call premiums) over the
quarter.
Tom Konrad, Ph.D.
DISCLOSURE: Tom Konrad has positions in AXPW, EMKR, RZ, and
ZOLT.
DISCLAIMER: The information and trades provided here and in the comments 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.
Lead-acid Batteries and How Cheap Beat Cool at Google
On April 1st CNET News published a story about a previously
secret technology that Google (GOOG) has patented and
implemented system-wide. The technology, which Ben Jai of
Google reportedly described as their "Manhattan Project," builds a
12-volt battery into each server to provide backup power. The point
that fascinates me is Google's choice of small
format valve regulated lead-acid batteries to keep its servers running.
When an ultra-sophisticated
company like Google picks cheap over cool for a mission critical
function, I think it speaks volumes about the future direction of the
energy storage industry.
Stephen Shankland of CNET took the following rear-view photo of a
Google
server. The lead-acid battery is the small
box on the lower right with the red and black leads. Similar batteries
are readily
available on the Internet for about $20.
Google's motivations for building
backup batteries into its servers are obvious; reliability,
cost-effectiveness and energy
efficiency. Those same motivations drove the choice of valve
regulated lead-acid batteries over a more exotic and expensive battery
chemistry. I think Google's choice of lead acid batteries to support
their
mission
critical server network provides a great backdrop for a
reality check.
First, batteries are boring and as a user I
just want them to work. Unfortunately, the only
battery I've ever owned that delivered exactly what it promised was a
Sears
Die Hard I bought in the early '70s. I'm the first to admit that
my cell phone and laptop batteries have improved a lot over the last 20
years, but my satisfaction to frustration index is still pretty close
to
even.
Second, batteries are stupid and the only thing they can do is store
electricity
in chemical form for future use. If the future use of the stored
electricity is valuable to me, so is the battery. If the future use has
limited value to me, so does the battery. In the final
analysis, any discussion of battery value that is divorced from the
specific needs of a particular user is meaningless. It's the
usefulness of the electricity that creates the value, not the battery
technology.
Third, batteries are fungible commodities that rarely inspire brand
awareness, much less loyalty. I have no idea who made
the batteries in my car, cell phone and laptop. I'll give long odds
that you don't either. Since
usefulness for a specific purpose is the only thing that matters to
most users, the lowest cost producer of a competitive product will
always establish the price.
Fourth, different ways of making the same type of battery are not
critical intellectual properties. If several manufacturers make a
comparable
lead-acid, NiCd, NiMH, Li-cobalt, Li-manganese, Li-phosphate or
Li-titanate battery, then nobody enjoys a meaningful technological
advantage and the process
patents are merely window dressing.
Fifth, small companies that try to run before they learn how to crawl
invariably stumble, fall and get crushed by their customers. This is
particularly true when a small company's target customers are giants.
Bluster, trash talk, hype and drama may be appropriate as prelude to a WWE Championship,
but they are deadly in business.
Sixth, energy storage needs do not fit neatly into a few cubby-holes
and there are no universal solutions. So instead of a future where a
few dominant competitors survive and the rest fall by the wayside, we
are more likely to see dozens of strong competitors thrive by selling
different technological solutions to discrete billion-dollar market
segments.
"For
better or worse, the world changed while most of us were busy making
other plans. When waste was cheaper than conservation, waste ruled. Now
that waste is getting painfully expensive and global energy demand is
growing far more rapidly than supplies, we have a serious problem with
no easy solution."
That dynamic is still the driving force behind energy storage
decisions. Since reliable service is critical to its mission, Google
needed to ensure that its servers would not go down
in the event of a power failure. One could easily argue that
reliability is so important to
Google that backup power is priceless. But Google is well known
for spending wisely and while any number of energy storage technologies
could
have served its purposes, Google picked the most
affordable and environmentally friendly battery technology over several
cooler technologies.
The energy storage sector can be very confusing for investors because
of the political appeal of and media hype over plans to use Li-ion
batteries in a
new generation
of plug-in electric
vehicles. In an effort to milk the current irrational exuberance for
all it's
worth, many Li-ion battery
developers swan around like minor princes gossiping about the king's
impending
illness and
waxing prophetic on how
marvelous things will be once they get
government guaranteed loans to build U.S. factories, magically
slash their production costs, find customers that aren't bankrupt
or teetering on
the brink of the abyss and triumphantly ascend to the throne. Since
the
politicians and press don't know any better, and the
environmentalists
are eager to embrace any feeble reed that might reduce carbon
emissions, the
meaningless forecasts of future victories are accepted
as fait accompli despite the
fact
that
the king is in fine shape and the minor princes have not shown any
ability to lead,
much less
rule.
Batteries are a not a cause or a crusade, they're a business.
Unfortunately for many
investors, that message has been lost in the hype and created some
incredible market distortions. If you compare market capitalizations,
Ener1 (HEV)
is almost as valuable as Enersys (ENS).
If you compare financial statements, however, you'll find that Ener1
wouldn't qualify as a rounding error if it was part of Enersys. The
distortions are
every bit as striking if you make the same comparisons between Valence
Technology (VLNC)
and Exide Technologies (XIDE).
Comparable distortions are obvious for late stage technology
development companies like Altair Nanotechnologies (ALTI)
and Axion Power International (AXPW.OB).
The realities of the battery industry are such that every survivor will
prosper and have more business than it can say grace over, but it will
take years if not decades for Li-ion developers to grow their
businesses to the point where their fundamentals justify their
market values. So while the currently unloved lead-acid battery
companies are growing their businesses and increasing shareholder
value, the minor princes are more likely to stagnate, stumble and fall.
When it came to a mission critical buying decision, cheap beat cool at
Google. Does anybody really believe American consumers will act
differently when it comes to their own money?
Disclosure: Author is a former
director and executive officer of Axion Power International (AXPW.OB)
and holds a substantial long position in its stock. He also holds small
long positions in Exide Technologies (XIDE)
and Enersys (ENS).
John L. Petersen, Esq. is a U.S. lawyer based in Switzerland who works
as a partner in the law firm of Fefer
Petersen & Cie and represents North American, European and
Asian clients, principally in the energy and alternative energy
sectors. His international practice is limited to corporate securities
and small company finance, where he focuses on guiding small
growth-oriented companies through the corporate finance process,
beginning with seed stage private placements, continuing through growth
stage private financing and concluding with a reverse merger or public
offering. Mr. Petersen is a 1979 graduate of the Notre Dame Law School
and a 1976 graduate of Arizona State University. He was admitted to the
Texas Bar Association in 1980 and licensed to practice as a CPA in
1981. From January 2004 through January 2008, he was securities counsel
for and a director of Axion Power International, Inc. (AXPW.OB)
a small public company involved in advanced lead-carbon battery
research and development.
Joe Romm, at the influential Climate
Progress blog, has hit on a formula for countering the coal
industry's claims that we need baseload power sources. Since
Concentrating Solar Power (CSP) in conjunction with thermal storage can be used
to generate 24/7 or baseload power Joe has renamed it "Solar
Baseload." This is win-the-battle-lose-the-war thinking.
While it does neatly counter the argument we need coal or nuclear, since there
are renewable power sources which can produce baseload, such as CSP,
Geothermal,
and Biomass.
I fell into this coal-industry trap myself in a 2007
article about Geothermal, as did AltEnergyStocks Editor Charles Morand in an
article
on CSP.
Dispatchable Solar, not Solar Baseload.
Continuous power from solar energy was first demonstrated at the Department
of Energy's (DOE) Solar
Two project in the late 1990s. I recently interviewed Bill Gould, CTO of CSP
company Solar Reserve. Solar
Reserve is now working to commercialize the molten
salt thermal storage and solar receiver technology demonstrated at Solar
Two, where Bill Gould served as project manager.
According to Gould, DOE's intent at the Solar Two project was to demonstrate
dispatchable power, not baseload power. Dispatchable power is power
that can be called on when needed, in contrast to baseload power, which is
essentially always on. As a demonstration, Gould's team throttled back the
output from Solar Two to 10% of capacity, and this allowed the plant to produce
power continuously for a couple weeks until it was interrupted by several consecutive
days of cloudiness. But, in essence, it was a stunt: baseload power is far
less valuable than dispatchable power.
The coal
industry says that we need baseload power because our refrigerators still come
on in the middle of the night. This is like saying we should have the
water running constantly in the kitchen sink because we may get thirsty at any
time and want a drink. Put in these terms, the assertion that we need
baseload power is clearly nuts: what we need is controllable power that's there
when we need it, but is not wasted when the lights are off and the fridge is not
running.
The Problem With Baseload
Last spring, I discussed one of the problems
with baseload power. The more baseload power you have, the harder it
is to use variable generation such as photovolatic (PV) solar and wind
power. Or, from the baseload generator's perspective, the more variable
generation on the grid, the less baseload power can be added. This fact has not been lost on the UK's nuclear
industry, which is fighting to get wind targets lowered.
To illustrate the incompatibility of baseload and variable energy sources, I
downloaded 4 days of real demand data (January 1-4, 2008) from ERCOT's
website. I then simulated production curves for two variable sources,
one designed to mimic solar PV (only on during the day, with some variability
due to clouds) and a more random type of generation to simulate wind.
I then fixed the amount of baseload power at 25,000 MW (68% of demand) and 5,000
MW (14% of demand) in each of two scenarios, and saw how much wind and PV the
remaining demand could accommodate with the constraint that total generation
could not exceed demand.
As you can see, when I dropped baseload power from 68% to 14% of demand, I
was able to increase the power of variable sources from 10% to 36% of
demand. Almost half of the drop in baseload power was filled by variable
power sources, with the balance requiring an increase in dispatchable
generation. If you'd like to try your own scenarios, you can download my
Excel spreadsheet here.
Better than Baseload
It should be clear that dispatchable generation is a truly premium power
source. Dispatchable generation, like energy
storage, long distance transmission, and demand
response, all allow the grid to accommodate more variation in both power
supplies and in demand. In a carbon-constrained world, where we want to
use as much variable generation such as wind and PV as possible, zero carbon,
dispatchable power from CSP can do far more to help us decarbonize the grid than
CSP baseload.
Baseload power is part of the problem; it's not the solution. We should
not denigrate CSP by pretending it is only a substitute for coal or nuclear.
Concentrating Solar Power is much better than baseload.
I've been following A123 since it first filed its SEC
registration statement. While the IPO was delayed by last fall's
market implosion, its team stayed the course and announced plans to
build a $2.3 billion battery manufacturing facility in early January.
To help pay for the planned facility, A123 applied for a $1.8 billion
loan under the DOE's Advanced Vehicle Technology Program. In an earlier
article
that focused on the ATVM loan requests from A123, Ener1 (HEV),
Tesla Motors and Integrity Automotive, I questioned how those requests
could be approved without proof that the applicants would have willing
buyers for their products. Yesterday's announcement provides a clearer
picture of the negotiations that have been going on behind the scenes
for months.
Thirty years ago, Michael Milken popularized the use of letters that
said Drexel Burnham Lambert was "highly confident" financing could be
arranged on specified terms if the underlying business transaction
could be negotiated. These letters then formed the basis for
negotiations between sellers, bankers and other necessary parties. My
guess is that A123 and Chrysler have used the same mechanism quite
effectively. If I'm right, the Chrysler release is just the first
piece falling into place and the others will quickly follow.
From a securities regulatory perspective, A123 is almost done with its
IPO filings. The registration statement went through three rounds of
staff review and comment last year and was basically ready to go by
late November. Updating the registration statement to include year-end
financial information and disclose the terms of the agreement with
Chrysler and the terms that have presumably been negotiated with the
DOE should be fairly simple. So the only critical timing issues seem to
be a final DOE decision, a registration statement amendment and a road
show.
This is great news for the energy storage sector because like I
said last August,
there is nothing like a high-profile IPO road show to draw market
attention to
energy storage in a new way and mark the beginning of a major
upward trend in a basic industry that's been undervalued for years. It
should be a fun spring after a dismally hard winter.
In addition to the visibility boost I think the Chrysler – A123
alliance will bring to the storage sector, there may well be a second
tier of good news for other manufacturers of energy storage devices.
The ATVM program allocated $22.5 billion to major manufacturers and set
aside another $2.5 billion for loans to "small automobile and component
manufacturers" that have fewer than 500 employees. While I originally
questioned whether A123's loan request was part of the large
manufacturer allocation or the small manufacturer set aside, it's now
clear that A123 has been joined at the hip with Chrysler for
months. Therefore, I think it's safe to assume that the $2.5 billion
set-aside for small manufacturers will remain intact. While I remain
skeptical about how the small company applicants will be able to meet
the stringent
business viability requirements I discussed in my
earlier article on the ATVM loan program, it is entirely possible
that similar behind the scenes negotiations are already in process on
other ATVM loan requests.
While the Chrysler – A123 alliance will almost certainly spark a
tidal wave of interest in the energy storage sector, I think it's
important for investors to remember that the best opportunities are
often found in the least glamorous stocks. The energy storage sector is
a target rich environment that does not have a single ‘silver bullet’
technological solution. The root causes of the challenge include:
Storage needs that range from watt hours to megawatt hours or
even gigawatt hours;
Discharge needs that range from seconds to hours or even days;
Cycling rates that range from infrequent (e.g. back-up power) to
intense (e.g. recuperative braking);
Cycle depths that range from very shallow (e.g. engine starting)
to very deep (e.g. fork lifts);
Technological improvements that are usually incremental gains
instead of disruptive advances;
Products that require huge inputs of high value or exotic raw
materials;
The need to carefully analyze costs and benefits for each
potential storage application; and
The sheer immensity of the current and potential market for
energy storage products.
The informed consensus is that annual revenues of companies in the
energy storage sector will increase from $30 billion to $100 billion or
more over the next several years. While I track a handful of pure-play
public companies that are focused on billion-dollar market segments and
likely to be strong competitors in those segments, none of their
technologies has broad utility across the entire energy storage
spectrum. So instead of a future where a couple of dominant competitors
survive and the others fall by the wayside, it’s easy to envision a
future where dozens of strong competitors will thrive by serving
different billion-dollar market segments.
Over the last nine months I've written a total of 47 articles on the
energy storage sector and the principal pure play companies that are
active in the sector. The entire archive can be accessed from my Seeking
Alpha author's page. While I have a strong personal preference for
lead-acid technology, I also have a contingent of faithful readers who
help round out the discussion so that a clear and informative picture
emerges. You may find some of my analysis useful if you're looking at
storage for the first
time.
John L. Petersen, Esq. is a U.S.
lawyer based in Switzerland who works as a partner in the law firm of Fefer Petersen & Cie and represents
North American, European and Asian clients, principally in the energy
and alternative energy sectors. His international practice is limited
to corporate securities and small company finance, where he focuses on
guiding small growth-oriented companies through the corporate finance
process, beginning with seed stage private placements, continuing
through growth stage private financing and concluding with a reverse
merger or public offering. Mr. Petersen is a 1979 graduate of the Notre
Dame Law School and a 1976 graduate of Arizona State University. He was
admitted to the Texas Bar Association in 1980 and licensed to practice
as a CPA in 1981. From January 2004 through January 2008, he was
securities counsel for and a director of Axion
Power International, Inc. a small
public company involved in advanced lead-carbon battery research and
development.
