Archive | Business & Economics

Renewable Electricity Dominates California Utility Plans

On Thursday 10-16-08 I attended the User Group meeting of Plexos Solutions LLC, a boutique firm providing software and consulting to the rapidly changing California electric market. One of the presentations covered issues surrounding integration of renewable energy resources into the California Independent System Operator (CAISO). This is important to sustainable energy investors because virtually all the growth in generating capacity is forecast to come from renewable resources. While the fundamentals of this market have been overwhelmed by broader market conditions this last month, over time the fundamentals provide the tailwind that will lift stocks. And the growth expectations for renewables are very high in the California market.

Over the period 2007 – 2012 the CAISO is planning for increases over existing capacity of:

  • 5,053 MW of wind, a 187% increase,
  • 1,064 MW of geothermal, a 68% increase,
  • 946 MW of concentrating solar, a 203% increase,
  • 508 MW of utility scale PV solar, a 2,032% increase, and
  • 221 MW of biomass, a 28% increase

These are huge numbers representing billions of dollars of projects and electric revenues. Striking are the growth expectations for the two main solar approaches.

The ISO Control Room in Folsom directs the flow
of electricity and ensures access to 25,000 circuit
miles of high-voltage, long distance power lines.
(Photo: California ISO)

In the concentrating solar sector, the state currently has 354 MW of large projects operating with the last one completed in 1990, 18 years ago.

Most of this capacity is owned by FPL Energy, part of a large regulated utility. So the new capacity has to come from a sector that hasn’t, in California at least, been able to construct a project for many years. Equally noticeable it the paucity of publicly traded companies in the concentrating solar sector. Solar Millennium (S2M.DE) is one the few with significant concentrating solar activity.

The state currently has 8 projects with 3,689 MW of large concentrating solar projects in the permitting pipeline. But these numbers are deceptive. Of the 8, two projects are actually “solar/thermal” hybrids like the existing operating projects. These two projects represent 1,180 MW of capacity with 112 MW attributable to solar. The remaining 6 projects are a gamut of technologies ranging from troughs, reflectors, towers, and Sterling engines. These projects are all owned by private companies or municipal utilities and currently don’t present an opportunity for public market investors.

The PV solar sector provides more avenues for public investors to participate via investment in the PV supply chain. If the numbers work out the utility market represents a multi-year, very large opportunity. Let’s take a look.

As of the end of 2007 California had an estimated 279 MW of installed PV in homes and businesses and 25 MW of utility scale projects. This makes sense since the home and business markets are net metering against retail rates whereas utility scale projects have to compete against wholesale markets. So the premise is that PV solar is now becoming sufficiently competitive at the wholesale level to install over 500 MW in the next 5 years.

One of the first test cases was recently announced. On July 10, 2008 the California Public Utilities Commission approved a 7.5 MW contract between First Solar’s (FSLR) FSE Blythe project and Southern California Edison. Unfortunately much of the economic information was not disclosed but some key data can be gleaned from the record. First, the company is projecting an excellent 27% capacity factor for the project, significantly higher than typical estimates for PV projects. But equally important is the company is pursing the development receiving a price at or below the “market reference price” which is based on a highly efficient modern thermal plant. After accounting for some messy seasonal and time-of-use factors I calculate the project will receive approximately USD 0.14/kWh on average plus a 30% tax credit now that the Emergency Economic Stabilization Act of 2008 passed. If First Solar can make money at this project then they are very near the holy grail of grid parity (at least until the credit expires December 31, 2016). And the utility systems can, according to the CAISO, absorb large amounts of solar power for years to come. Game on.

Mark Henwood is the founder of Camino Energy, an information provider specializing in globally traded sustainable energy stocks.

Posted in Business & Economics, Electricity, Energy, Geothermal, Solar, Wind1 Comment

Jatropha Curcas Tree: An Excellent Source for Biodiesel & Investment

Jatropha Curcas Tree: An oilseed tree, indigenous to Central America. Produces high yields of inedible vegetable oil which is easily refined into high quality biodiesel. Drought and disease resistant perennial, grows quickly in marginal to poor soil, and begins producing oil bearing seeds for 50 years, two years after planting. It is not generally browsed by animals and livestock. Against other Tree Bearing Oil (TBO) seeds, Jatropha curcas has been identified as the most suitable seed for extraction of oil, and subsequent processing of Biodiesel.

The market for Biodiesel growth in the USA is growing at an alarming rate. From 2004 to 2005, the market for biodiesel in the U.S. grew from 25 million gallons per year to 75 million gallons in 2005. Demand for biodiesel has grown so fast in the first half of 2006 that the existing major biodiesel plants can not keep up.

The U.S. Energy Policy Act (EPA Act) of 2005 stipulates that a specific amount of renewable fuel has to be used in the nationwide gasoline pool, which is likely to increase every year to reach 7.5 billion gallons in 2012,” says Frost & Sullivan Industry Analyst.

Bio Global Resources Inc., of Dallas, produces Jatropha Oil on company owned plantations in California, and Costa Rica. Through its production of Jatropha oil and Jatropha plants, Bio Global Resources is becoming a dominant player in the emerging biofuels industry.

Investment
Buy trees at $4.00 each. Minimum tree order 2500 trees. We cultivate, maintain, and harvest, and sell production for tree owner. Owner receives approximately 75% of income/revenues over the next 50 years, each year starting in 2 years. .

Projections:

  • Total Investment: $20,000.00
  • Number of Trees: 5,000
  • Gallons Produced: 1 gallon of oil per year per tree
  • Price per Gallon: $2.88 per gallon escalating @ 1% per yr. by 2nd year.
  • Projected Net Revenue: 10th year 20th year 30th year 40th year
  • Cumulative Revenue: $73, 704 $190,154 $316,878 $454,535
  • Percentage Return: 361% 943% 1577% 2265%

For more information and order form, contact Jovan:
+1 (888) 449-2688 x103
jovan@bioglobalresources.com

Posted in Animals, Business & Economics, Drought, Energy, Other1 Comment

Abolish California's Public Employee Pensions

We have been warning readers about the pension crisis for a few years now. In a nutshell, the problem is the following: California public employee unions – which are virtually unregulated despite the fact they operate in the uncompetitive public sector – have pretty much taken over California’s state and local governments. In recent years they have negotiated pay and benefit increases so dramatic that the average government worker in California often earns 2-4x what globalized private sector workers earn to do jobs of comparable worth. This dramatic disparity is largely due to the value of their retirement pensions. The present value of what someone collects in retirement must be applied to the years they work, in order to correctly value their annual compensation. And by that measure, pretty much every employee working for the state of California is a millionaire.

Please note there is a huge difference between unions that operate in the competitive private sector, and unions that now arguably control our public sector. Also please note this commentary is in no way meant to disparage the good men and women who work in the public sector to perform vital services for us. Moreover, this commentary is not suggesting we eliminate government services – on the contrary, this commentary simply advocates making taxpayer funded government services and benefits apply to all workers equally. Currently the public sector serves itself first, leaving the scraps for the taxpayers. This must be challenged.

During the internet bubble, then the housing bubble, most financial analysts understood we were experiencing unsustainable economic growth. But this didn’t stop the public employee unions from using these temporary surpluses as an excuse to serve their members at the expense of the taxpaying private sector workers. Crowing about excessive “executive compensation” collected by an insignficant handful of corporate executives, they demanded endless hikes in pay and benefits. The fact that they should have been comparing their compensation to their ordinary counterparts who work in the private sector was a fact they conveniently ignored. If politicians opposed them, they could be crushed in the next election. The fact their pension funds invested in the same evil corporations they routinely demonized was also conveniently ignored.

Schwarzenegger’s disastrous attempt to
reform the public sector in 2005 was, ironically,
perhaps California’s last chance to financially
guarantee their state worker pensions.

Back in July 2004 I recall reading an ad in a local newspaper placed by someone who held regular classes to teach people how to get jobs with the State of California. The ad said “Land a State Job and Become an Instant Millionaire.” I read the ad closely, and kept a copy.

Space and copyright laws prevent publishing the entire text of this ad, but it was factual, and filled with comments like the following: “The California state government provides a “defined benefit” pension plan to each of its employees. Such “defined benefit” pension plans are far more generous than any 401K or defined contribution pension plan available from any other employer in the state! In fact, the plan is so generous that it makes the average state employee a millionaire after only 22 years of work!”

In this ad and others, written with an astonishingly complete lack of irony, the writer explained in detail how much an employee would have to save every year in order to acquire sufficient wealth to retire with an annuity this generous. In other ads, the writer explained how many days off California’s state workers receive – holidays, personal days, vacation, comp. time, and the “9/80″ program where they get yet another day off every two weeks by working nine hour days for nine working days in a row. Show me an example of a conscientious salaried worker in the private sector who doesn’t work nine hours a day! In all, most state workers get between 50 and 75 paid days off per year. There is a staggering cost for all this.

Now the chickens are coming home to roost. For years, California’s public employee retirement funds – and others in other states – have overestimated the rates of return they could earn, at the same time as they underestimated how long their beneficiaries would live. Despite being the biggest collection agencies the average local government has ever seen, and despite being able to heavily influence our elections, and despite salivating over the prospect of collecting carbon auction proceeds (the real reason “the war on global warming has only just begun”), the unavoidable truth is this: California’s public employee pension funds are no longer anywhere close to fully funded. Huge reforms are finally going to come – initiated not by political reform, but by fiscal reality.

The good news is by liquidating public employee retirement funds, and instead giving government workers social security like the rest of us, several benefits will accrue to society:

  • What’s left in these public employee retirement funds can be transferred to the social security administration, bolstering the solvency of that fund.
  • All workers will receive social security, instead of public sector workers receiving far more generous pensions. Having the same retirement formulas apply to all workers will create the critical mass of voters, at last, to demand genuine upgrades to the social security benefit.
  • Public employees will no longer be slaves to their pensions – they can try out work in the private sector. Of course in the private sector they will no longer get 50-75 days off every year, but at least they won’t be slaves to their pensions.
  • The biggest liabilities on state and local government balance sheets, their payables to the state employee retirement funds, will be wiped away. Nationally, eliminating these unpayable trillions in debt may very likely prevent the great depression of 2010 from happening.
  • Government operating deficits will disappear. State and local governments will be able to fund investment instead of issuing bonds (translation, raising taxes – debt service on a bond is an expenditure, too, requiring tax revenue to service). With payments to public employee pension funds abolished, more cash will be able to go into public works and better public sector services.

For more on the pension crisis and how public sector unions and environmentalists have both helped create this crisis and are attempting to stop reform, read: Unionizing Silicon Valley, Unlocking California Gridlock, California’s Global Warming Act, Public Sector Reform, Unions, Ideals vs. Reality, Unions Aren’t Green, CEQA Hijacked, and California’s Deficit.

Posted in Business & Economics, Other103 Comments

California's Proposition 7 to Cost Taxpayers Hundreds of Millions Per Year

The opponents of California’s ballot Proposition 7 (read full text of Prop 7) claim it will “cost consumers and taxpayers hundreds of millions per year in higher electric rates – a $300 increase per household per year.” It is hard to get access to the calculations behind these estimates, so we have attempted to come up with estimates of our own.

In our recent post “California Proposition 7″ we put forward some fundamental assumptions and come up with a total projected cost to install the generating facilities. We assume that by 2025 Californians will draw 1,000 gigawatt-hours per day, meaning at 50% renewables we’ll need 500 gigawatt-hours per day to come from renewable sources. We therefore project, based on $2.5 billion per gigawatt of wind generated output, and a 17.5% yield, installing this amount of wind capacity will cost $297 billion. In our post “Megawatt Storage Farms” we estimate California will need 100 gigawatt-hours of peak storage capacity to implement a 50% renewable portfolio standard, and at $350 million per gigawatt-hour of storage, this will cost California another $35 billion. Total costs, about $335 billion.

This amount, $335 billion, is an absolute lowest case. It assumes wind generators can be installed at a rate of $2.5 billion per gigawatt, which is a bargain basement price. It will not get cheaper than this. It assumes solar energy solutions will achieve cost parity with wind energy solutions – something that is possible but certainly not likely to be exceeded. It assumes these storage solutions are the only other investments necessary – when in reality there are substantial transmission upgrades also required, as well as huge “smart grid” upgrades. It assumes all of this will occur without unions taking over the workforce and raising the cost of labor in this government subsidized, government supervised endeavor – is that likely? It assumes environmentalists will get out of the way, and allow thousands of square miles of land to be developed for solar and wind farms as well as transmission corridors and storage infrastructure, without launching costly lawsuits – is that likely?

Nonetheless let’s go with the $335 billion price tag to implement Proposition 7. Let’s assume this capital investment is spread over 16 years, since that is how long we’ll have to get this done. Let’s assume California will have, on average, 40 million residents, and, on average, 10 million households. How much would this capital investment cost per household? Please bear in mind that while households do not consume anywhere near 100% of California’s electricity, the higher costs for electricity that businesses will pay will be passed on to consumers, so one way or another, households will pay for this investment.

The math is not encouraging: $335 billion over 16 years is $21 billion per year, which divided by 10 million households comes up to $2,094 per year per household. This is the capital investment required. It is likely this investment can be financed over a longer period than 16 years, of course, but we are assuming in this example zero interest and an extremely low installation cost. In reality $335 billion projection will never happen – tweak the assumptions just a bit and the costs will probably be about a trillion – easily offsetting the benefits of longer term financing.

The crucial question is this: Will this $2,000 per year cost of capital, which will be paid by each consumer household, be offset by $1,700 per year in the form of cheaper renewable electricity, or more? Renewable electricity is not demonstrably cheaper than conventional electricity to-date, to put it mildly, but we have made some generous assumptions, so let’s continue:

If you take $335 billion of capital investment to create 500 gigawatt-hours of renewable generating capacity and storage, etc., and spread this cost over 20 years (remember, the batteries don’t last more than 5-10 years each, and upgrades and periodic replacement of solar and wind assets are not being counted here, nor are interest payments), you will come up with a capital cost of .09 cents per kilowatt-hour. If you add a $.02 per kilowatt-hour for operations and maintenance you get $.11 per kilowatt-hour.

This is the absolute best case – it assumes no return to the utility, a rock-bottom installed cost for the generating and storage capacity, no costs for transmission lines or smart-grid upgrades, no environmentalist lawsuits, reasonable labor costs, and no financing cost for this money. Try to float a bond with zero return to see what that means. In reality a very optimistic price projection would probably still be around $.20 per kilowatt-hour, or an amount roughly equivalent to what we currently pay for conventional electricity. So it is likely that purchasing this renewable energy will yield no savings to offset the $2,000+ per household capital cost whatsoever. Declaring the utilities will not be allowed to pass these costs on to the consumer is absurd – either they pass through these costs or they go bankrupt. That provision is only one problem with this deeply flawed initiative; read the Sept. 18th memo prepared for the California PUC on Prop. 7 for more.


UNITED STATES ANNUAL AVERAGE WIND POWER
Wind power resources in the United States.
The USA now has the largest installed base of wind turbines in the world.
(Source: Wikipedia, click for larger image)

Does moving to a progressively higher percentage of renewables hedge Californians against possible future spikes in the cost of natural gas and other conventional fuels? Of course. But California is already moving aggressively towards a higher renewable portfolio standard, and moving too fast in this direction undermines the ability to wait for better and cheaper energy technologies to mature.

It is inspiring to hope California can eventually reach a 50% renewables standard, or more. But to properly realize the economic benefits that will accrue to 50%+ renewable electricity in California, more time, more flexibility, and far, far more thoughtful lawmaking than Proposition 7 will be necessary. Vote no.

Posted in Business & Economics, Electricity, Infrastructure, Natural Gas, Other, Solar, Wind3 Comments

Free Markets: The Solution to America's Credit Crisis

America’s credit crisis should come as no surprise to anyone whose been paying attention. We discussed this about a year ago in our post “Inflation vs. Deflation,” and if you read that post, you will see links to discussions we’ve had on this topic that go back as far as 1998. Because this has been brewing for a long, long time. And the question still remains – inflation or deflation – pick your poison. Our belief is inflation is a far more palatable option.

Back around 2003 I remember debating economic policy with a business reporter for the Wall Street Journal. I still recall the shock this person displayed when I downplayed the mitigating value of the “current account” when discussing America’s trade deficit. Apparently the conventional wisdom held that since foreign investment makes up the difference between how much America pays for imports vs. how much America collects from exports, the trade deficit of some $60 billion per month that America has racked up now for years on end is of no consequence. The problem with that sanguine assessment of our trade deficit is the fact that Americans borrowed all this money to make all these purchases, and eventually there is no financial instrument left to facilitate more borrowing. Quite simply, we can no longer borrow at a faster rate than we can afford to make repayments.

America’s debt binge really began about 30 years ago, in the mid 1970′s, which is the last time Americans exported more than they imported – also about the time credit cards started to really get popular. For a long time, America’s trade deficit was relatively insignificant, and foreign investment indeed more than made up for the shortfall. And if the monthly trade deficits hadn’t widened precipitously over the last ten years or so, they might have been sustained indefinitely. After all, America provides an enduring safe haven for investors, and exports security to the world. We keep the sea lanes open, we have a democracy that works, we are stable, we are innovators. And our perennial trade deficits mean our dollars finance the industrialization of emerging nations. Almost everybody was happy.

Alan Greenspan, Chairman
Federal Reserve Bank, 1987-2006

It isn’t possible to quickly summarize where things started to slip out of control, but in ticking through the factors, it is very, very important to recognize there was no single party, nor a single ideology, that ought to be held solely accountable.

The repeal of the Glass Steagall Act in 1999, which lifted crucial restrictions on the degree to which banks were permitted to make speculative investments, combined with the refusal of then Federal Reserve Bank Chairman Alan Greenspan to raise interest rates so as to contain “irrational exhuberance” (his words) in the stock market, probably started to accelerate the slide that has resulted in the current predicament.

When the internet bubble burst, which any financially literate curmudgeon would have seen coming for years, the damage to the economy was severe – but rather than endure a downturn, mortgage lending entered a dangerously aggressive phase to pick up the slack. Replacing the collateral of inflated internet stocks, without skipping a beat, came the collateral of inflated home equity. Some would call these loans predatory, and they would be right to say so, but these “no doc,” “introductory rate,” “negative amortization,” “fixed but resetting in 2-3 years,” loans were also permitted thanks to intense pressure from both sides of the aisle to make housing “affordable.” Since it was impossible to make home prices fall, the only solution was to make home mortgages cheap. And since there is no such thing as a cheap home mortgage, “introductory rates” were the only way left to “get people into a home.”

So who enjoyed this mess that it is so easy to blame on Wall Street? People who suddenly thought they needed a 3,500 square foot McMansion and didn’t care if they were borrowing 10x their annual income? People who thought they would borrow against their inflated home equity at a floating rate so they could drive around in a 6,000 lb. SUV? Economic planners in Washington who didn’t dare tell the American people that an economy can’t live forever on credit – that it doesn’t work that way in the real world? What about all the public employee unions who used the ersatz prosperity of the internet bubble followed by the housing bubble to negotiate pensions that have created another crippling liability for the American people – and who used their financial might to take control of our elections and politicians at the state and local level? Or who didn’t want to lobby for mortgage lending reform because that might lower home prices, which in turn would lower property tax revenues? There were a lot of pigs at the trough, and none of them apparently cared about what would happen when it was time to pay the piper. And plenty of them knew better.

For these reasons, blaming the “free market” is a futile, shallow, potentially dangerous exercise. Power corrupts equally, and if popular sentiment leads our politicians to thoughtlessly eviscerate the prerogatives of our free market while leaving big government and big labor more powerful than ever, it will be a mistake of historic proportions.

The solution is to regulate mortgage lending and derivative trading in measured, not draconian steps. And any “solution” to Wall Street “greed” is empty if done without also recognizing and attempting to regulate the greed that is endemic in all sectors. To nationalize the banking industry without merging every public employee pension fund with the social security fund – newsflash, at this point only social security is even slightly solvent – is almost as absurd as the proposed nationalization of our energy industry to supposedly fight an alleged climate crisis. In both cases the villian is the market, and the good guys – translation, beneficiaries – are the government and public sector labor. Such blind scapegoating ignores the nature of man. To embrace such simplicity would be tragic for the United States and the world.

We need free markets, and good regulations, and good deregulation. We need to recognize that inflation is our only way out of this, because only through inflation can we systematically and somewhat equitably erode the real value of these mountains of debt we’ve collectively incurred. Failure to avoid this calamity should not be another excuse to bash free markets because responsibility for this failure is shared by everyone in this imperfect world. To paraphrase Winston Churchill, free markets are the worst economic system known to man, except for all the other ones.

Posted in Business & Economics, Energy Industry, Other, People0 Comments

Solar Thermal Power to Offset Coal Plant Carbon Emissions

From the DOE online reference, CO2 Emissions Report, Table 1, you will see that in 1999 in the USA there were nearly 1.8 million metric tons of CO2 emissions from the burning of coal to create electricity, which yielded nearly 1.9 million kilowatt-hours of power. This means in that year in the USA, for each megawatt-hour of coal-fired electric power, there were .95 tons of CO2 ejected into the atmosphere. It is likely the global efficiency of coal-fired electricity plants in the USA in 2008 exceeds this standard, but for the sake of a numerically clear argument suppose for every megawatt-hour of coal-fired power, 1.0 ton of CO2 enters the atmosphere.

Currently the United States emits about 6.0 billion tons of CO2 into the atmosphere each year, and about 50% of that, about 3.0 billion tons, comes from coal-fired electricity plants. In the entire world, annual CO2 emissions approach 30 billion tons per year, and it is safe to say about half of these emissions come from coal, although worldwide, coal is used at scale for a variety of fueling applications and not just for electricity. So how much would it cost the USA or the world to replace every megawatt-hour of coal fired electricity with solar electricity, and how much does today’s global installed base of roughly 10 gigawatts of photovoltaic array cut into the annual worldwide CO2 emissions from coal?

Ameren’s Sioux Unit 1, with the first in-furnace control technology, achieving
NOx emissions below 0.15 pounds per million Btu on a coal-fired cyclone boiler.
(Photo: DOE)

Assuming photovoltaic (or solar thermal, where the global installed base is beginning to matter as they approach their first gigawatt) has a yield of 25 percent – which corresponds to about six hours of full-sun-equivalent daily light on the collectors – 10 gigawatts installed equates to 2.5 gigawatt-years of electricity annually. In turn this means solar power produces about 21.9 million megawatt-hours of electricity per year, and at 1.0 ton of CO2 per megawatt-hour of power, this means solar power offsets not quite 22 million tons of CO2 emissions from coal power per year.

What this all means is inspiring insofar as it presents solar as an opportunity that is truly in its infancy, despite some arguably overvalued stocks among photovoltaic companies. The issue isn’t these companies running out of customers. The issue is they will have to continue to double their output year upon year in an environment of continuously improving technologies and relentlessly lower prices – a challenge that can slow any company’s growth. The solar power sector is in its infancy because even if the fully amortized price for solar energy already approaches parity with coal, the entire installed base of solar electricity production worldwide would only fulfill about 0.7% of CO2 emissions for coal-fired electricity just in the USA.

For the entire world, the solar power sector would have to grow by 684 times before it would offset the CO2 emissions attributable to coal, more specifically, to offset 15.0 billion tons of CO2 emissions annually based on 1.0 ton of CO2 per 1.0 megawatt-hour of coal-fired electricity. Given the miniscule accomplishments of solar energy so far in the global power equation, and given that global energy output has to double as soon as possible, if the price keeps coming down solar energy as a sector has the potential to experience 50%+ annual growth for a very long time. How much would it cost today to install enough solar energy to offset 15 billion tons of CO2 emissions?

An all-in installed price of $5.00 per watt is still low by today’s standards, but probably represents the high end of eventual costs as technology and productivity improves in the solar sector. Increasing the 10 gigawatts of installed solar power worldwide by 684 times means installing a 6.8 terawatt distributed array producing 15 million gigawatt-hours of power per year, which at $5.00 per watt would cost 34 trillion dollars. For the perhaps 1.0 billion lucky residents of the fully developed, industrialized world to pay for this via offset fees and taxes and the like over 20 years, zero interest, would amount to $1,700 per person per year. Adding the grid and storage infrastructure should easily raise that price to $2,000 each – something like $7,500 per average household per year. And this sort of accomplishment is a vital pillar of Gore’s pledge. No more coal – twenty years. Shave a few more points on future cost and call it twenty years, twenty trillion, a trillion per year. Using these same assumptions, it would cost America $6.8 trillion to replace 100% of coal fired electricity with solar power, or about $23,000 for every person in the country.

Shaving costs any further on the future price of solar is a dangerous assumption, however. Even at a cost of $34 trillion to replace coal worldwide with solar, our calculations are based on a collection of very optimistic givens; $5.00 per watt installed including storage and distribution upgrades, a 25% yield, and 20 year zero-interest financing; resulting in $114,000 per gigawatt-hour or 11.4 cents per kilowatt-hour for future solar. We are nowhere near this, yet to precipitously phase out coal or to participate in a doubling of global energy production, or both, this is probably what the solar sector is going to have to do.

Posted in Business & Economics, Coal, Electricity, Energy, Science, Space, & Technology, Solar4 Comments

Green Abundance, the Future of Sustainable Living

As the cleantech revolution gathers momentum and environmentalist values command unprecedented influence on policy, it is more important than ever to have a vigorous global dialogue as to what constitutes clean technology, and what constitutes a legitimate continuum of environmentalist values.

How these questions are answered will have profound impact on the nature and speed of economic growth, as well as the quality of our lives and the quantity of our individual rights and freedoms.

There are two fundamental assumptions that govern environmental values today:

  1. The use of fossil fuels should be phased out as soon as possible
  2. Resource scarcity is an inevitable reality will not be escaped for generations.

To this end, massive reallocations of wealth are being enacted to subsidize alternatives to fossil fuel, and rationing of resource use is becoming policy in the areas of energy, water and land. But what if both of these assumptions are completely wrong?

Tomorrow’s leaders today, children
at the slopes to Kilimanjaro.

There is a case to be made that resource abundance, not scarcity, is the immediate destiny of the human race, and that scientific innovation combined with free markets are the keys to realizing this optimistic scenario. In every fundamental area, energy, water and land, there are promising trends – unfolding with breathtaking speed – that provide humanity with the opportunity to realize global wealth and prosperity within a generation.

Probably the most difficult notion to intuitively fathom is that land will become abundant again, but for several important reasons, that is precisely what is going to happen. The primary reason for this is that human population growth is finally leveling off. From today’s total of 6.7 billion people, projections now indicate human population will peak at somewhat less than 9.0 billion around 2050, an increase of only another 30 percent. While this seems like a lot, it is important to remember that in 1970, the world population was only 3.7 billion, meaning the last 40 years has registered a human population increase of 80%. We have already seen the dramatic growth in population, and are now in the leveling off phase.

The reason this slowdown and leveling of human population will result in more abundant land is because as human population increase slows, human migration to cities continues to accelerate. In 1970 only 1.3 billion people lived in cities, 35% of the world’s population. Today over half the world’s population live in cities, 3.4 billion people. Over the past 40 years overall population has increased 80%, but urban population has increased by 160%. Urbanization is accelerating, and is depopulating rural areas far more quickly than projected remaining overall population growth will fill them. Forty years from now, there will be more open land in the world than there is today. And these twin phenomenon, urbanization and population stabilization, are completely voluntary, inexorable, and are occurring at rates that are, if anything, underestimated.

If land abundance on planet earth is going to be achieved by a stabilized population living mostly in megacities, how will we build these cities? How will we transform our cities, already swarming with far more people than they were originally designed to hold, into 21st century magnets for humanity, offering economic and cultural opportunities instead of merely a last destination for the destitute? Here is where Malthusian assumptions, combined with an overweening environmentalist ideology that condemns development, have conspired to stifle the building of next generation infrastructure. The good news is these delays have also allowed us the time to develop better-than-ever technology.


High-rise agriculture has the potential to greatly
reduce the amount of land required for agriculture.
(Photo: Vertical Farms LLC)

From high-rise agriculture to high-speed rail, from advanced water recycling to ultra-efficient energy conduits and appliances, from cars that are clean, smart and safe, to wide new roads that convert pavement heat into utility-scale electricity and convey luxurious mass transit busses that offer wi-fi and drive themselves, cities of the future can be built today – but not if the wealth we need to pour concrete and smelt steel is spent instead on environmentalist lawsuits, and not if the market incentives that animate billions of construction entrepreneurs are squelched because instead we gave the work to government bureaucrats. Creating abundance is human nature – but only individual liberty, property rights, and free markets will enable this nature to be realized. Governments enforce the rules, but only a free people can play the game.

Abundant water is just around the corner because of several interrelated technological opportunities. The most promising of all is the potential of smart irrigation. Primarily this means using drip irrigation instead of flood irrigation, but this also refers to no-till farming, new crops that consume less water, inter-cropping, and advanced irrigation management, where irrigation timing and volume are precisely coordinated with weather conditions. Smart irrigation techniques could reduce the volume of water required for global agriculture by 40-50%.

Other means to create water abundance span the gamut from traditional methods – contour berms to catch and percolate runoff, urban cisterns to harvest rainwater, or where necessary, massive new infrastructure projects to move large volumes of water from water rich areas to water poor areas. To save ecosystems and restore fisheries, why not build a gravity-fed canal connecting the Volga River to the Aral Basin, if the Caspian Sea is rising anyway? Diverting only 10% of the Volga’s 250 cubic kilometer annual flow would make a decisive contribution to restoring the Aral Sea. Why not divert a small percentage of the Ubangi River north to refill Lake Chad?

Finally, water reuse and desalination will guarantee water abundance in urban areas. High-rise agriculture, for example, can use gray water to irrigate hydroponic gardens at a commercial scale, and the transpiration these plants emit within these enclosed spaces can be harvested to yield pristine drinking water. Desalination is no longer a technology reserved for energy rich nations – it now only takes 2.0 kilowatt-hours to desalinate a cubic meter of seawater. Desalination already provides over 1% of the fresh water used world wide, over 30 km3 per year, and this total is rising fast. But water reuse is the most promising source of urban water of all – technologies now exist to create essentially a closed loop in urban areas. Water is used for drinking, then treated and piped back to use for irrigation and to refill reservoirs, then after percolating and filtering back into aquifers, is pumped up, treated, and used again for drinking.

Water abundance will enable us to grow all the food we want, using new strains of crops and new agricultural techniques that are enabling another revolution in yields, guaranteeing abundant food. Water abundance will allow us to finally begin refilling our depleted aquifers, restore our vanished lakes, and never have to wonder whether or not the next war might be fought to quench a nation’s thirst.

To create water abundance, however, and to build megacities, to create 21st century civil infrastructure, and to deploy advanced technologies, we will need wealth and prosperity, and more than anything else, the enabler of wealth and prosperity is energy production. Today global civilization produces about 500 quadrillion BTUs of energy per year, which equals an average per person of 75 million BTUs per year. But this energy consumption is not evenly distributed. In the European Union, per capita energy consumption is about 250 million BTUs per year; in the USA, the average is closer to 350 million BTUs per year. But energy consumption equals wealth. Even with extraordinary improvements in energy efficiency, say, twice what we enjoy today, for 9.0 billion people to average only half the per capita energy consumption of residents of the EU, i.e., 125 million BTUs per year, global energy production would have to more than double, to 1,125 quadrillion BTUs per year. And this is what needs to happen by 2050.

The challenge to achieve resource abundance is not impossible; it is within our grasp. Despite heartbreaking examples of lingering poverty all over the planet, the fact is the overall condition of humanity is remarkably better now than it was 40 years ago, 400 years ago, 4,000 years ago. Disease and starvation remain endemic, but by all objective measures, they are on the retreat; and this is the trend the future holds, if we seize the opportunity. But to achieve this bright future, we must ask these questions: What is clean technology, and what are legitimate environmentalist values?

To create prosperity, for example, given 80% of the world’s energy currently comes from fossil fuel, and given there is a staggering abundance of remaining fossil fuel reserves in the form of heavy oil, coal, and natural gas, do we really want to stop using fossil fuel? What if clean technology stopped at the point where harmful pollutants were reduced to parts per billion through advanced filtration and efficient burning, instead of having to make that gigantic leap beyond simply making emissions healthy, and requiring zero emissions of CO2? Given the certain and devastating price humanity will pay in the form of ongoing poverty and escalating tensions over resources – especially if we precipitously abandon developing new sources of fossil fuel – do we really want to stop emitting CO2? What if solar cycles indeed are all there is causing climate change? What if climate change isn’t anything but normal fluctuations? What if rainforest destruction and aquifer depletion, dried up lakes and misused lands are the reasons for regional climate change? What if we can’t do anything at all about climate change anyway? If you believe the worst scenarios, it is too late anyway – but what if the models are simply wrong? If they’re right, it’s too late, and if they’re wrong, it doesn’t matter. So why on earth would we consign humanity to much higher probabilities of poverty and war, instead of developing clean fossil fuel, at the same time as we systematically develop advanced, alternative sources of energy?

The challenge to achieve resource abundance in the world hinges on the role environmentalists play in influencing policy. There are vital environmentalist values that everyone should embrace, such as practicing sustainability, eliminating genuine pollution, and taking reasonable steps to protect species and ecosystems. But without the energy, without the mines, without the steel mills, without the paved roads and poured concrete and power plants and pumping stations and water treatment plants and countless other ecologically disruptive activities, humanity will struggle to realize their destiny of prosperity; humanity will struggle to find peace.

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Posted in Business & Economics, Cars, Coal, Consumption, Drinking Water, Electricity, Energy, Energy Efficiency, Infrastructure, Natural Gas, Other, Population Growth, Recycling, Regional, Science, Space, & Technology, Solar, Urbanization6 Comments

Renewable Stock Indices: BioFuel Energy (BIOF) & the Dangers of Hedging Strategy

We are pleased to announce a new feature on EcoWorld’s Business & Services page, the proprietary stock indices compiled by Mark Henwood, Editor of the financial blog Camino Energy. Since January 2006, Henwood has compiled data on pure play publically traded renewable energy companies, and now manages five perpetually updated indices – Renewable Electricity, Solar, Biofuel, LED Lighting, and Fuel Cells. Featured below is the latest of Henwood’s weekly commentaries – we expect to bring you much more from this unique and very useful resource:

Solar and LED-Lighting rise sharply, BF Energy highlights risk and drags Biofuels down (week ending 8/15). Emerging markets, EAFA, and commodities (DJP) fell while the US market S&P 500) was flat.

While Biofuels is the fourth largest strategy behind Renewable Electricity, Solar, and LED-Lighting it highlighted a all too familiar risk for energy producers. Many energy producers seek to reduce their risk associated with volatility in commodity prices by entering into hedging strategies. The key point of these actives is to reduce risk, not profit from speculative positions. After all, the largest, professionally managed financial institutions are proof even the pros get burned by speculation and I certainly don’t want any sustainable energy companies I invest in engaging in speculative positions.

Apparently, even engaging in hedging involves a certain amount of skill. If management doesn’t get it right the hedging strategy can wipe out the value of a company faster than the worst operational decisions. BioFuel Energy (BIOF) is a case in point. On Tuesday the company opened at USD 2.60/share. After reporting at 12:46 pm that it had insufficient current liquidity to cover USD 46 million in hedging losses on corn contracts, roughly equal to its market value, the stock started plunging, 64% to close at USD 0.94/share. While the stock rebounded some late in the week, shareholders lost 38.5% of their value for the week. Coming after Aventine’s (AVR) February problems with the not so safe auction rate securities, I hope management of biofuel companies devote enough attention to their financial dealings to avoid crises.

Mark Henwood is the founder of Camino Energy, an information provider specializing in globally traded sustainable energy stocks.

Posted in Business & Economics, Electricity, Energy, Fuel Cells, Solar1 Comment

California Proposition 7: Renewable Energy to Account for Half of California's Utilities by 2025

There is nothing wrong with encouraging clean, renewable, domestically produced energy. But California’s proposition 7 “would, if approved, require California utilities to procure half of their power from renewable resources by 2025″ (ref. Ballotpedia). Currently California’s public utilities are mandated to generate 25% of their electricity by 2025, and this is an ambitious goal. Just getting to 25% renewable electricity by 2025 would require more than doubling renewable power generation in California. Getting to 50% by that time would require renewable power generation in California to nearly quintuple.

To understand why accomplishing such an ambitious goal is not necessarily practical, you don’t have to be an economist or a renewable power expert. You simply need to take a look at the current cost for renewable power technology. While you’re at it, write off hydropower, which constitutes most of the renewable energy in California. The chances any significant new hydropower generation ever gets built in California are slim and none – despite whatever sentiments you may hold for or against hydro. This leaves geothermal, solar and wind.

While geothermal holds exceptional long term potential, ala enhanced geothermal drilling, today there isn’t a single operating example of a power station employing enhanced geothermal technology. And most of California’s conventional geothermal power resources have already been developed. So now you are down to wind and solar energy. And since Californians by 2025 are going to be consuming about 1,000 gigawatt-hours per day, if proposition 7 is enacted, 500 gWh per day will have to come from wind and solar power.

Solar power, installed – not including transmission or storage infrastructure – costs about $7.0 million per megawatt of output; this equates to $7.0 billion per gigawatt. If this sounds expensive, it is, but to get a truly accurate price you have to also take into account yield. Even in sunny California, solar energy (in terms of full-sun-equivalent hours), can only be harvested on average for 4.5 hours per day, which means to get 500 gWh of solar generated electricity each day in California, you would need to install 111 gigawatts of solar arrays (500/4.5), which would cost $777 billion dollars.

Wind power, installed – is a better deal currently than solar – insofar as you can probably get costs down to around $2.5 million per megawatt of output, or $2.5 billion per gigawatt. But the yield figures are also not promising. In California there is widespread disagreement on the yield for wind power – credible estimates range from 10% (2.4 hours per day) to 25% (6.0 hours per day). Given the magnitude of what is being proposed, it would be prudent to project wind yields in California somewhere in the middle of this range, say 17.5%, or 4.2 hours per day. This means to get 500 gWh of wind generated electricity in California you would need to install 119 gigawatts of solar arrays (55/4.2), which would cost $297 billion dollars.

It is tempting, and not entirely implausible, to expect prices for solar power to drop significantly over the next several years. But given the cost of balance of plant and installation labor, it is unlikely solar electricity is going to get measurably cheaper than wind power no matter how inexpensive the actual collector materials become. Moreover, the costs for new transmission lines and grid upgrades, the costs for massive energy storage units (since the sun and wind are only producing power during small portions of the day), and the costs for land aquisition, permitting and fighting environmentalist lawsuits will be substantial. For these reasons, estimating the total cost for California to deliver 50% renewable electricity at $300 billion is probably the very best case, if not fantastically optimistic. This is $20 billion per year for the next 15 years. Readers are encouraged to critique these projections.

California has already mandated utilities to accomplish a 25% RPS (renewable portfolio standard) by 2025. It would make sense to see how this already ambitious process unfolds, giving solar and wind technology – along with future technologies such as enhanced geothermal – time to mature, before leaping to a 50% RPS mandate.

Posted in Business & Economics, Electricity, Energy, Geothermal, Science, Space, & Technology, Solar, Wind28 Comments

The Photovoltaic Bubble that Could Mean Faultering Stocks

Back in April 2006 we posted “The Photovoltaic Boom ,” where we enthusiastically reported the bright future of photovoltaic power. We thought then, and we believe now, that photovotalic production will increase faster than projections, at the same time as costs will fall faster than expected. But if photovoltaic power is becoming a commodity, doesn’t that mean the stocks of photovoltaic companies are also going to acquire the characteristics of commodities stocks?

Here in the summer of 2008 we may very well have a photovoltaic bubble. It may be that photovoltaic stocks have nowhere to go but down. Rather than attempt to compare and contrast the entire sector, simply consider the fortunes of First Solar, a company we enthusiastically reported on back 6-27-2001 in a report entitled “First Solar, the Model T of Photovoltaics.”

One might characterize First solar as a “proof of concept” company, among other things. This means First Solar is the first company to produce market-worthy production volume low cost thin film photovoltaic cells, strata with lower efficiency than with proven crystaline technology, but better low-sunlight performance and greatly lower cost. The problem is First Solar is decidedly not “last solar” when it comes to thin film technology, or photovoltaic technology in general.

With the willingness of governments to subsidize solar power waning in the face of production volumes of photovoltaic modules exploding, where should First Solar’s stock rest? Clue: It is manufacturing what is becoming a commodity, one that still employs significant incremental cost advantages for each year the installed capital is more recent. Unless First Solar can continue to innovate their way into a clear technological edge that translates again and again into reductions in manufacturing costs, their stock multiples will not withstand the tsunami of photovoltaic production investment that inundates the world. With companies like Applied Materials shipping literally dozens of factories to produce thin film and monocrystaline photovoltaic modules each year, and countless other conglomerates from Asia to Europe to America doing likewise, as the years pass, First Solar competes uphill, not downhill.

Vespula flavopilosa

Nowhere is this disparity, this dissonance, reflected so much as in First Solar’s stock price. As of the close of trading on 7-25-2008 First Solar’s stock was trading at $265.46. Is this overvalued? First of all, this price for a single share, multiplied by the number of shares outstanding in First Solar, means the “market price,” the cost one would have to pay to own 100% of the stock in First Solar and own 100% of the company, as of the close of trading on 7-25-2008, was not quite $21 billion. Is $21 billion a fair value to own the entire company?

One important way to determine if a company is overvalued is not to look at the price/earnings ratio of their stock (or for the entire company, the ratio of their market value to their annual net income), but instead to examine their stock’s price/sales ratio (or for the entire company, the ratio of their market value to their annual gross revenue). Relatively thin profits, as a percent of revenues, means most major corporations display volatile earnings, rendering their price/earnings ratios less reliable indicators of their financial prospects. It is far more difficult for a corporation to manipulate their gross revenue than their net profit. Bottom line, if a company like First Solar’s stock has a trailing twelve-month P/E of 104.4 as of 7-25-2008, one needn’t necessarily be alarmed, even though producers of commodities generally have much lower sustained P/E’s, to put it mildly.

With the price/sales ratio, however, it becomes clear that if First Solar’s stock price is representative of the photovoltaic sector, we could have a bubble on our hands. First Solar’s trailing annual revenues are $634 million, which with 100% of their stock costing 20.93 billion, means their price/sales ratio is thirty-three. For First Solar’s sales to grow into a typical manufacturer’s price/sales ratio (with no increase in the price of their stock) is no easy feat. For their price/sales ratio to come down to the still ridiculously high commodities manufacturer’s multiple of 5.0, their annual sales would have to grow to $4.2 billion. For their price/sales ratio to come down to the conservative multiple of 1.0, First Solar’s sales per year would have to jump to $21 billion. It’s certainly possible, but worthy of at least the scrutiny cellulose commands.

There is no reason to think First Solar can’t beat the odds, and stay in the horse race all they way to becoming a $21.0 billion company (annual sales). But given their current inflated multiples, it is very unlikely their stock is going to grow the way it has to-date.

There is also no reason to doubt worldwide photovoltaic production will continue to experience growth beyond projections. When all it takes is sand and electricity to produce photovoltaics, with an energy payback of 20+, this sector will grow with or without subsidies, mandates, grants or preferences. Only the ineluctable success of the market is necessary to deliver photovoltaic abundance, and bubbles are only bumps in the road. Investors watch out, however, you may skin your knee.

Posted in Business & Economics, Electricity, Energy, Other, Science, Space, & Technology, Solar1 Comment

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