Spill Baby Spill or Blow Man Blow?
This week we are seeing two starkly different uses of offshore natural resources playing out on a national stage. In the context of emerging climate and energy legislation, its worth taking another look at the risks and costs of both as Congress and the Obama Administration deliberate on policy incentives for offshore wind and oil that are pursued through legislation or Executive Branch action.
In Louisiana, an estimated 5,000 barrels of oil a day are leaking from BP's Macondo well in the Gulf of Mexico after Transocean Ltd.'s Deepwater Horizon rig exploded a few days ago. Reports are that people in Louisiana can already smell the oil. BP is working to stop the flow of oil and experts suggest BP will need to drill a “relief well” to halt the leak. Such a mitigation process can take upwards of 3 months. BP is reportedly spending $6 million a day in this effort and preparation of two relief wells will cost an estimated $200 million. (Adding in US Government support costs, Evolution Securities suggests that the “net cost to BP of the cleanup operation so far plus the drilling of two relief wells would be around $845 million.” This figure does not necessarily address harm some experts anticipate to Louisiana coastal communities and their ecosystem services, and potential punitive damages that could emerge. The punitive damage figure for ExxonMobil as a result of the Valdez spill in Alaska was approximately $507.5 million after the Supreme Court struck down the original figure of $2.5 billion as excessive.)
Meanwhile, off the coast of Nantucket, the drawn out battle over the reported 420 MW offshore Cape Wind project took a positive step forward when Department of Interior Secretary Ken Salazar announced federal approval. Reports are that the project will cost approximately $900 million to build, a remarkably similar figure to the costs of direct mitigation for BP’s Louisiana debacle noted above. Cape Wind will also reduce annual US greenhouse gas emissions by approximately 734,000 tons and replace 113 million gallons of foreign oil; both figures on an annual basis. According to the Massachusetts Energy Facility Siting Board, Cape Wind will help stabilize and lower consumer electricity costs in the region. A recent report by Charles River Associates indicates that Cape Wind will reduce the wholesale price of power in New England by an annual average of $185 million, resulting in an aggregate savings of $4.6 billion over 25 years.
It is ironic that two key offshore energy projects are in the spotlight at the same time and just as the Senate debate on climate and energy legislation heats up with consensus to pass a bill based on the right balance of incentives for fossil fuels and renewable energy. A quick comparison of the two projects suggests it might be a better investment and policy direction to develop incentives to blow instead of drill off the coasts of the United States. But will there be enough votes in the Senate to pass a climate bill if offshore drilling is scaled back? Stay tuned.
Update on Pickens' Pullout
In my July 13 post, I commented on the implications of T. Boone Pickens' widely reported announcement that he intends to pull out of his massive Texas wind project. But since making those remarks, Pickens has clarified that he is delaying, not canceling, the $10 billion project.
Pickens says the so-called Pampa project will be postponed until 2013 when Texas is expected to complete a $4.9 billion transmission line. By that time, hopefully, credit markets will be healthy enough to finance the project: "Financing is tough right now so what is going to happen is it's going to be pushed back a year or two."
Pickens' Pullout Underscores the Need for Renewable Electricity Standard
After T. Boone Pickens' stunning decision to shelve his ambitious plan to build the world's largest wind farm in the Texas panhandle, does anyone still think converting from fossil fuels to renewable energy will be easy? One year ago, Pickens was the toast of the green movement. The Texas oil man, foe of Al Gore, identified a common cause that both climate changers or doubters could get behind: energy security.
The stated goal of the "Pickens Plan" was to reduce America's dependence on foreign oil by one-third over a ten-year period. To achieve this goal, Pickens would replace natural gas now used to generate electricity with wind power and then use the saved natural gas to power vehicles that presently run on gasoline. His $60 million ad campaign draped the American flag around his Plan: "at current oil prices, we will send $700 billion out of this country this year alone - that's four times the annual cost of the Iraq war." He described adoption of his Plan almost as an act of patriotism. Why send all that money to our enemies in the Middle East when right here in the US we have a massive untapped resource - a wind corridor stretching from North Dakota all the way through Texas?
So what went wrong in the space of a year? Pickens' company's spokesman cited "the collapse of the capital markets" and "the steep downturn of natural gas prices" as the primary reasons. Pickens himself cited a lack of transmission lines. A drop in oil prices and decreased demand for energy also likely played into Pickens' decision to abandon the wind farm.
This development is particularly troubling when one considers the federal resources being thrown at renewable energy. The Stimulus Package passed in February 2009 includes: $2.5 billion in grant money to be doled out by the Department of Energy; $3.1 billion for State energy programs; $6 billion in "rapid deployment" loan guarantees for both renewable energy power generation and electric transmission projects; and most importantly a 30 percent investment tax credit for renewable energy projects and renewal of the production tax credit.
What more could you ask for? The answer is a national renewable electricity standard. Government incentives are nice, but precipitous drops in oil and natural gas prices has sidelined the already scarce investors. A renewable electricity standard - such as the provision in the House-passed American Clean Energy and Security Act - would force utilities to buy renewable energy. Only a guaranteed market for renewable energy will coax investors off the fence.
Is Coal the Fuel of the Future?
Every one is looking for the silver bullet that will get the United States off of fossil fuels. My hunch is that we’ll pursue all of the alternatives like wind and solar, but we’ll spend a lot of resources making our dirtiest fuel, coal, less dirty. And while clean coal has its skeptics, others recognize it has a place in the mix.
I place myself in the latter camp. I’ve just penned my thoughts on why that’s the case in a guest commentary for Law360. Click here (subscription required) for the full article.
The Picken's Plan - A Look at Energy Realities
T. Boone Pickens has an energy plan and he should be commended for it. More policy makers and influential individuals should do so. Visions and ideas should be explored and discussed.
The essence of the Pickens Plan is to replace one-third of our foreign imports of oil with natural gas fired vehicles. In turn, natural gas produced electricity is replaced with wind power. Pickens believes that this transition can be accomplished in 10 years.
Wind power currently produces some 1 percent of the nation’s electricity. So, to produce an additional 21 percent in the next 10 years would require a gargantuan effort. But, what would be the impact on natural gas?
Let’s look at the numbers involved for natural gas. According to the Pickens Plan, we use 21 million barrels of oil per day of which 70 percent is imported. (I note that the Energy Information Administration uses 60 percent net imports, 30 percent of which comes from Canada and Mexico.) Thus, according to Pickens, we use approximately 15 million barrels of imported oil per day. At the same time, we consume on average about 62 billion cubic feet of natural gas per day. A barrel of oil is equal to 5,487 cubic feet of natural gas. Thus, to displace one third of our imported oil would require approximately 27 billion cubic feet of natural gas per day or close to 44 percent of our current natural gas consumption. This doesn’t take into account that gas consumption to produce electricity is projected to increase by 10 to 25 percent in the next 10 years.
Under the Picken’s Plan, since wind would replace natural gas used for electricity, theoretically it would be a wash in terms of our natural gas supply and prices. But, I wonder whether this is feasible in light of certain energy realities.
Here are three points to consider:
-
A significant amount of natural gas fueled electricity is for summer peaking units. These units are held in reserve and turned on instantaneously during peak usage periods, generally in the summer. Without innovations in storage, it is doubtful that wind power would be able to perform this critical function for electric utilities; Wind power is intermittent and is non-dipatchable. This means that it can’t always be used when it is needed. To make matters worse, electricity traditionally peaks during July and August, which is the lowest month for sustained winds. Thus, natural gas would be required anyway as a back-up fuel. And, finally, wind is more difficult to transmit and would require substantial and expensive new transmission lines.
-
Wind is considerably more expensive than natural gas -- some put wind at five times the price of natural gas, especially when you factor in the price of new transmission and the cost of so-called shadow generation. Thus, already high electric bills will be strained.
-
Natural gas prices are already at record highs. In the summer, natural gas is used to meet both electricity demand and to fill storage for winter consumption. If 44 percent of natural gas is used for motor fuels, which itself peaks during the summer, the strain on natural gas prices may be well substantial. This would both adversely impact residential consumers as well as industrial and commercial end-users who must rely year round on natural gas.
Don’t get me wrong. Personally, I am all in favor of wind power and think it is a critical element to a balanced energy plan. It’s just that broad and ambitious plans require a fuller understanding of energy realities.
Renewable Portfolio Standards: An Avenue for Fostering Alternative Energy Projects
Government’s response to the focus on climate change must be holistic and visionary. One regulatory avenue for fostering alternative energy projects that assist in the battle against climate change is a Renewable Portfolio Standard (RPS). At its core, an RPS is a requirement that retail electricity suppliers purchase a certain percentage or quantity of renewably generated energy. Currently 25 states and Washington DC have mandatory targets for retail electricity purchases and 4 states have non-binding goals. In 2007 the House of Representatives passed an RPS, but the US Senate did not.
While most RPS programs share a common goal of encouraging the production of renewably generated energy, they vary in terms of purchase goals, timeframes for compliance and eligible technologies. Wind, solar, and geo-thermal are eligible under most of the RPS programs, but eligibility criteria varies widely with respect to other technologies and fuel sources such as bio-mass, landfill-gas, municipal solid waste, hydropower, and fuel cells. While the advantages in terms of climate change impacts associated with renewably generated energy may seem obvious (no emissions), less obvious may be the results stemming from the expansion of several states’ RPS programs into non-renewable areas.
The variety of RPS programs has allowed for many designs and policies to be demonstrated. Although not technically renewable, combined heat and power, energy efficiency and demand side energy efficiency have found their way into several of the RPS programs. By reducing demand for electricity, air emissions from current fossil fuel fired power plants is reduced to the extent that power is not needed. Arguably, the impact from reducing the demand of one megawatt of power, should have the same air emissions impact as the creation of one megawatt of renewably generated power and as such the nexus to demand management and energy efficiency in an RPS becomes self evident. Energy efficiency, demand management, and renewable energy should co-exist in an RPS and are a fundamental part of the future of our energy delivery system. As states continue to adopt and refine RPS programs, policy makers should bear in mind what this future of a sustainable energy delivery system may look like.
The US Department of Energy (DOE) has promoted (in part) a vision of the future that includes a hydrogen based energy delivery system that begins with small-scale distributed generation (DG) systems fueled by hydrogen. These DG systems provide stationary power and may also dispense hydrogen for hydrogen-fueled vehicles. DOE has funded several projects that evaluate the potential for the generation of wind-to-hydrogen, solar-to-hydrogen, geothermal-to-hydrogen and hydro-to-hydrogen, hydrogen generation systems. The common denominator is that renewably generated electricity is used to power an electrolyzer to generate hydrogen. Renewably generated hydrogen is the future. To bridge the gap to the future, however, Renewable Portfolio Standards should be developed that include hydrogen generated from fossil fuels.
One notable Wind-to-Hydrogen (also Solar-to-Hydrogen) demonstration funded by DOE is in Hawaii at the Kahua Ranch test site. There, the wind turbine has been configured to produce 48VDC, the solar array has been redesigned to produce 48VDC and each of these generation sources is connected to 24 battery cells allowing 48VDC short term electricity storage. The electricity is used to power an electrolyzer that generates hydrogen which is then stored in a low pressure hydrogen storage tank. When electricity is needed the hydrogen is used to run a 48VDC Plug Power Gencore Fuel Cell system.
Fuel cells utilize hydrogen and hydrogen-rich fuels to generate electricity and useful heat in a remarkably efficient way. A fuel cell is an electrochemical device that combines hydrogen and oxygen to create electricity heat and water. Because the conversion of hydrogen occurs without combustion, fuel cells do not produce the emissions normally associated with combustion such as carbon dioxide, oxides of nitrogen, carbon monoxide and particulates. Fuel cells are secure, reliable and high-quality power at the point of demand, with some systems able to provide high quality thermal energy as well as electric energy. Because many renewables like wind and solar produce intermittent power, a natural symbiotic relationship exists since fuel cells have the ability to generate electricity regardless of weather conditions. Fuel cells can act as a power storage technology converting off-peak generated wind and solar energy to peak power. Clean power that emits virtually no pollution during the power generation is a natural complement to intermittent renewable technologies such as wind and solar.
Introducing fuel-neutrality for fuel cells into every RPS in the short term will provide a bridge to renewably generated hydrogen. Currently, supplies of renewably generated hydrogen are scarce and the delivery systems not readily available. Simply put, today’s fuel cells that use existing fossil fuels (much more efficiently and cleaner than any combustion engines) can also use hydrogen from renewable sources as they become cost-competitive and the production and delivery of renewably generated hydrogen catches up with the demand. In this manner, the use of hydrogen from the conversion of hydrocarbons is seen as a temporary expedient to the long-term development of fuel cells. Moreover, even when they run off of fossil fuel derived hydrogen, the inherent efficiencies of the fuel cell systems, and the lack of combustion is an incremental advancement in the fight against climate change.
The vision of the future displayed in the Kahua Ranch project will only be advanced in the short term if fuel cells that utilize hydrogen reformed from fossil fuels are made a part of any federal RPS. At its core, a RPS should promote technologies that have a legitimate chance of substantially lowering pollution, reducing stress on the utility grid, spurring economic development, increasing our energy independence and fostering demand for hydrogen production and delivery systems that will eventually be renewably generated.
Initially, it may sound counter intuitive, but by allowing hydrogen generated from fossil fuels in any RPS, a critical component to generating the demand for renewably generated hydrogen will be in place and our path toward a more sustainable and energy independent future will be advanced. This model is not without precedent. New York, Pennsylvania, Connecticut, Minnesota, Colorado, Maine all include fuel cells as renewable resources regardless of the fuel supplied.
International Wind Power
Wind energy experienced a record year of international growth in 2007. According to the Global Wind Energy Council (GWEC), installations of new wind energy facilities increased by thirty percent in 2007, with twenty gigawatts (GW) of new installations brought into service worldwide. According to a US Department of Energy May 2007 report, this follows seven years of growth in wind capacity at the rate of twenty-four percent per year in the US and twenty-seven percent per year worldwide. This growth has been driven in part by multinational utilities such as Iberdrola and Acciona, which joined FPL Energy and Babcock and Brown in 2007 as leaders in wind power plant ownership with new facilities installations in North America and worldwide.
The annual 2007 survey by GWEC and Emerging Energy Research (EER) reflect that wind power ownership and installations continue to increase in North America, Europe, Latin America and Asia. EER reports that while the United States in 2007 remained the largest market with 5.2 GW of new installations, it was closely followed by Spain and China, which added 3.5 GW and 3.4 GW, respectively, to their total capacity of wind power. The other leading international markets include Germany, Canada, India, Denmark, Italy, the UK, Portugal, and France.
The development of wind power is now a global opportunity. For many companies, establishing operations in new international markets may be a sound and profitable part of their strategic growth, particularly markets in which sponsors can achieve greater cost efficiencies and profitability.
CONTINUE READING - Full Article
