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Electricity Demand Drops Notably with Complex Ramifications

The Wall Street Journal’s excellent Rebecca Smith reports today that electricity demand dropped 4.4 percent in the largest U.S. power market, consisting of 13 states east of the Mississippi. Average spot prices for electricity fell all out of proportion in the same operating region, by 40 percent. According to Smith, the pattern prevails throughout the  country. In the area around Houston, for example, spot prices were $61.72 per megawatt-hour in June, compared with $129.48/MWh  during the like month a year earlier. Generally, the declines in demand and prices are the most precipitous and most sustained seen in the United States since the 1950s.

Smith raises the question of whether the low prices could be discouraging potential investors in electricity generation and infrastructure, so that "if demand comes roaring back" there won't be enough new plant and equipment to support higher demand.

But that's not the only concern by any means. Those thinking of putting their money into renewables like wind and solar often find, even with very generous investment incentives, state portfolio mandates and energy credits, that a project is just at the margin of profitability. (A new PV plant in Pennsylvania that we profiled earlier this year is a case in point.) In open electricity markets, such projects have to compete successfully against tried and true sources of electricity like coal and natural gas. If it looks to investors as if electricity prices might actually stay low for years to come, or might fluctuate unpredictably with wobbly economic recoveries, then renewables will suffer even with the best of incentives.

(Note in this connection, however, the unequivocal superiority of the "feed-in" tariffs that countries like Germany and Spain have adopted to encourage investment in wind and solar. In those countries, investors are guaranteed prices for electricity generated by renewables over time, regardless of what happens to general electricity rates.)

Another complication: if as expected Congress enacts and Obama signs legislation that creates a carbon trading system, that system may work differently in a lower-price electricity regime than its inventors anticipated. On the one hand, if prices stay low, then purchase of carbon emission credits may have a smaller than expected impact on perceived prices. (Say you're used to paying 8 cents per kilowatt-hour for electricity, but the price has just gone down to 5 cents; soon, with your utility having to buy emission credits, your price may go back (say) to 7.5 cents, but it will seem lower than usual, not higher. In retrospect, then, legislators could have adopted a more demanding carbon reduction system without running into resentment.

At the same time, though, the relative cost to utilities of purchasing credits will seem larger in a lower electricity price regime, because the cost of credit relative to revenue per kWh will be greater. From this point of view, a given trading system may have greater effect at low price levels than at high.

GE Expands U.S. Green-Energy Production

According to a report in the New York Times, General Electric will build a 350-employee factory in Schenectady, N.Y., to make high-density batteries for diesel-electric locomotives, and a 420-employee factory in Lexington, Ky., that will make hybrid-electric water heaters—a product now acquired from China. As a quid pro quo, the International Union of Electrical Workers-Communications Workers of America agreed to accept a two-year wage freeze at the two plants and a lower wage tier for new employees; GE promised to not move any of the factories' operations overseas for two years.

In June, GE announced plans to build a 1,100-employee, $100-million research center near Detroit. CEO Immelt said that GE hoped to (re?)-insource some of the R&D it now does outside the United States. Elaborating in a recent speech in Detroit, Immelt said the United States should learn from China, which is trying to build an advanced economy without sacrificing old-fashioned manufacturing prowess.

That makes more sense, to this blogger anyway, than the confusing and confused rendition of GE's U.S. versus its global responsibilities that Immelt published in London's Financial Times several weeks ago.

More Than 2 Billion Dollars in Electric Car Manufacturing Grants

The Obama administration announced last week the first recipients of stimulus grants, in the $2.4 billion Electric Drive Battery and Component Manufacturing Initiative. The big winners were first of all the Big Three car makers, followed closely by the most substantial developers of lithium ion battery manufacturing technology, both U.S.- and foreign-owned. General Motors gets $240 million, Ford $100 million, and Chrysler $73 million. Automotive technology and battery specialist Johnson Controls receives $299 million, and France’s Saft America—Johnson's partner in a venture to establish a lithium ion battery factory in Holland, Michigan—comes away with $95.5 million. A123Systems, the Massachusetts lithium ion battery maker. is awarded $249 million, and Compact Power (a subsidiary of South Koerea’s LG Chem) 151 million.

It was Compact Power that won the prestigious contract to provision Chevrolet's Volt with batteries, and the Volt was a significant player in the stimulus awards, despite skepticism about its prospects. GM got $106 million for production of battery packs and $30 million to build 625 Volts as test vehicles for fleets. But Volt is not the only player.  A123Systems, which lost out in the competition for the coveted Volt contract, will be making lithium ion batteries  for a handful of Chrysler hydbrids.

Phoenix-based eTec, which had developed charging infrastructure to support GM’s deceased EV-1, gets $100 million to build and install 12,750 electric charging systems in five states, working with Nissan.

Overall, as Earth2Tech blogger Josie Garthwaite observed, the federal battery program’s priority objective of getting technology into large-scale production within a few years "tends to tilt the scales away from younger ventures." A losing venture-capital-supported company complained to the Wall Street Journal that if it were 1980 and the government were trying to kick-start the development of computer operating systems, Microsoft probably would not be among the grantees.

Considering the magnitude of the government’s battery program and its highly targeted ambitions, it has been surprisingly uncontroversial. Not very long ago such overt "industrial policy" would have been roundly denounced in the United States as socialistic, and in fact it is socialistic, as the term is generally understood. But industrial policy is an as aspect of socialist policy making that's been as enthusiastically and effectively practiced by conservative governments in Japan as by coalitions containing communists in France. That's because when an economy is in crisis and the chips are down, a determined government does what a determined government has to do.

A Billion Dollars and Counting in Smart Meter Applications

The deadline for grant applications to the government smart grid investment program was last week, on Aug. 6. About two fifths of program funding is earmarked for small grants, from $300,000 to $20 million, and three fifths for grants of $20-200 million. Three energy companies applied for $200 million grants to deploy smart meters: CenterPoint Energy, Houston; Dominion Virgina Power, Richmond; and Florida Power & Light, Miami. Oncor, Dallas, filed for $317 million for smart meter deployment and network improvement, and Commonwealth Edison, Chicago, for $175 million for smart meters.

Announcement of the filings raises in this blogger's mind an issue analogous to what's called "additionality" in the context of carbon trading: are some of the energy companies obtaining government money to do things they already were intending to do anyway, relying wholly on their own resources? According to a Spectrum compilation published earlier this year, even before the adoption of the U.S. stimulus bill energy companies around the country had announced plans to spend billions of dollars installing smart meters. Companies in California and Texas alone had plans to spend $6 billion.

So will this part of the stimulus bill actually make anything truly new happen? So far, like the car battery grants program, it has been surprisingly uncontroversial.

Times Too Wonders about Chu and Hydrogen

In an editorial today, Aug. 9, the New York Times agrees that President Bush over-emphasized hydrogen and that Secretary Chu is right to downplay it, but it joins this blogger in suggesting he might nonetheless want to restore $100 million in research funding to hedge against the possibility of breakthroughs. The $100 million "is not a lot of amount to invest to keep this promise alive," opines the newspaper.

Schwarze Pumpe Hits a Bump

Vattenfall's oxyfuel pilot plantLocal concerns about the safety of carbon sequestration are blocking European power giant Vattenfall's plan to close the loop on greenhouse gas emissions from its coal-fired carbon capture and storage (CCS) pilot plant in Schwarze Pumpe, Germany. The 'oxyfuel' plant has been burning coal in pure oxygen since starting up last fall, making its CO2 exhaust easy to capture. But burial of the CO2, set to begin this spring, is now on hold according to the U.K.'s Guardian newspaper. Staffan Gortz, Vattenfall's CCS spokesperson, told the paper that, "people are very, very skeptical."

This is a point I've been stressing of late. My feature story Germany's Green Energy Gap in the July issue of Spectrum ends with the anxieties of Brunsbüttel resident  Stephan Klose, who raises the specter of sequestered CO2 from coal plants escaping to the surface and causing mass asphyxiation. "If there’s a leak and you have a 1- to 2-meter-high level of CO2 , every animal, every human being within this zone will die,” says Klose.

And my Data page Where Europe Buries Carbon in this month's issue of Spectrum highlights both the extent of the European Union's carbon capture plans and the public acceptance challenge they face. "The EU must ... convince a wary public that buried CO2 will stay buried for good, protecting the densely populated communities above it," is how we put it.

But a mea culpa is in order: I underestimated the vehemency and immediacy of those concerns. The Data page shows Vattenfall's chosen sequestration site in central Germany as green or "operating". Alas even this relatively small-scale CO2 injection -- over an order of magnitude smaller than the CO2 volume that a full-scale coal power plant generates -- appears to be on hold until at least next spring.

Is Energy Secretary Chu Too Smart?

Long long ago in a time far far away, when the SATs were still called the Coillege Boards, I remember taking one such exam in which the reading comprehension section featured a short essay arguing that people of average intelligence often make better managers than super-smart people. The general idea was that average people are better at listening, weighing off competing views, and deciding judiciously.

Energy Secretary Chu reportedly is trying to kill federal funding for hydrogen-fueled cars, a feature you may recall of President Bush's vaunted "hydrogen economy" (which momentarily helped kill the electric car). Chu also is expressing skepticism about a House bill that would have the energy deartment spend $30 million annually to promote conversion of cars to natural gas, in line with the Pickens Plan that would substitute wind for natural gas in generation and have the freed up methane power vehicles.

Personally, I share Chu’s skepticism about hydrogen cars, and I'm inclined to think that natural gas would be better used as a substitute for coal in electricity generation. But then I may be wrong. Since I recognize that, perhaps I'm better qualified to be energy secretary than the famous Nobelist? It seems to follow logically: People of average intellect make better managers; I'm of average intellect; therefore I should be energy secretary.

Chu also has been getting a lot of play in the blogosphere for eloquent statements he's made of late in support of white roofs and roads, in speeches and most recently on Comedy Central’s Daily Show. I was very taken with the idea myself when I watched the Jon Stewart interview. But then I thought: white roofs in New York City, where the air isn't exactly clean? And white roads, with gasoline-powered cars spewing out dirty and noxious exhaust? I don't think we'll have white roads, actually, until we have hydrogen-powered cars emitting water vapor as their exhaust.

 

Environmental Costliness of Advanced Natural Gas Extraction

A recent post took note of a column by Robert F. Kennedy Jr, in which the environmental activist and Kennedy family scion proposed to change U.S. electricity dispatch rules to encourage rapid replacement of coal generation by natural gas. The basis for his argument is the discovery in recent years of "vast supplies of deep shale gas in the United States, along with advanced extraction methods," as he put it. But not every environmentalist will sign onto that kind of plan—not without serious reservations, anyway.

In a column in today's New York Times, editorial writer Verlyn Klinkenborg expresses alarm about the impact advanced gas extraction could have in the Marcellus Shale, a geologic formation running from New York State’s Catskill Mountains to southwestern Pennsylvania and eastern Ohio.  Imagining what the future could look like, Klinkenborg pauses at a clearing on a gravel road in rural upstate New York: "If the state gives the go-ahead, that subtle opening will be replaced by an industrial-sized clearing to make space for a drilling rig and all the machinery needed to fracture the shale and extract and pump the gas. All that equipment will travel on the gravel road we had just walked, which runs along a stream bank."

Juxtaposing Kennedy and Klinkenborg points up the fact that when it comes to the hard trade-offs and choices regarding future electricity generation, there is no single environmental position. Personally, I have disagreed with Robert Kennedy's campaign to close the Indian Point nuclear plant north of New York City and with the Kennedy family's opposition to construction of an offshore wind farm near Martha's Vineyard; Klinkenborg looks to be parting ways on natural gas. There will be many such partings.

Robert F. Kennedy Favors Green Gas

That's natural gas the environmental leader is talking about, not petrol. In a striking column that Robert F. Kennedy Jr. had in the Financial Times this week, he advocates a simple regulatory change that would quickly result in the United States relying much more heavily on gas for electricity, and less on coal—an undesirable fuel not only because of its very high carbon emissions but also because of ozone, particulate and neurotoxic mercury emissions, and acid rain. By comparison with coal, Kennedy argues trenchantly, gas is green.

"Since 2007," Kennedy observes, "the discovery of vast supplies of deep shale gas in the United States, along with advanced extraction methods, have created stable supply and predictably low prices for most of the next century." Surprisingly, he continues, America has more gas generation capacity--450 gigawatts--than coal capacity.

Why, then does the United States produce half of its electricity from coal, which accounts for about a third of its greenhouse gas emissions? Because, says Kennedy, "public regulators generally require utilities to dispatch coal-generated power in preference to gas. For that reason, high-efficiency gas plants are in operation only 36 percent of the time." If that rule were changed, "in an instant" three quarters of the country’s coal-generated electricity could be replaced with gas, cutting the country’s greenhouse gas emissions an estimated 20 percent.

Kennedy does not discuss the reasons for the current seemingly bizarre dispatch rules. Presumably, large coal plants are generally classified like nuclear reactors as baseload generation, to run as much of the time as possible. Smaller gas fired plants, which can be much more readily ramped up or down, often are reserved for peaking. Taking economies associated with that distinction into account, it may be that suddenly giving gas preference would be more costly than Kennedy implies. Even so, however, he seems to be putting his finger on a policy lever that could induce rapid fuel switching more economically (and more rapidly) than we could hope from cap-and-trade or carbon taxation, which likely would drive up electricity rates considerably more.

Kennedy, besides being the son of the late senator and presidential contender, has been well known in New York State for many years as an effective and ardent environmental activist. Time magazine designated him a "hero of the planet" for his efforts to restore the Hudson River. This year Rolling Stone magazine named him one of its "100 agents of change." Several years ago Kennedy had national prominence with an article in Rolling Stone that argued, rather persuasively, that the Republicans stole the 2004 presidential election with vote rigging in the crucial state of Ohio.

Bioengineering Algae for Fuels

Last week, the New York Times reported that Exxon Mobil had teamed up with Craig Venter's Synthetic Genomics to work on the production of algae-based biofuels. As president and founder of Celera Genomics, Venter became a powerhouse of the biotech world in the 1990s, having spearheaded that company's effort to sequence the human genome in direct competition with the public Human Genome Project.

Venter and Synthetic Genomics, along with Exxon Mobil, could add a much-needed boost to the prospect of using algae instead of more conventional feedstocks for the production of biofuels. Indeed, the possibility that algae can be harnessed in this way is about the only reason to hold out much hope that biofuels will ever provide the world with large amounts of renewable transportation fuel that is environmentally benign to produce.

Let me try to defend that brash statement. For argument's sake, consider the production of biodiesel, a gallon of which can run a car virtually the same distance as a gallon of petroleum diesel. To keep things concrete, let's also say that the target is to have all of the diesel used as transportation fuel in the United States be biodiesel--according the Energy Information Administration, that's about 45 billion gallons a year. (Keep in the back of your mind, too, that this is but a small fraction of the gasoline Americans use: some 141 billion gallons a year.) 

If you made all that biodiesel from, say, rapeseed oil, how much land would it take? For that you need to know that an acre of rapeseed can generate about 100 gallons of biodiesel a year. So the math is simple: It would take 450 million acres--about a fifth of the all the land area in the United States. This is roughly equal to all the cropland in this country (406 million acres, according to the U.S. Department of Agriculture).

And that just satisfies the need for diesel fuel; it does nothing to put a dent in the petroleum used to make gasoline.

How environmentally friendly would it be, after all, to double the area under cultivation? Replacing vast areas of fallow farmland and forests with monoculture would be a high price to pay for making the use of diesel in our cars and trucks be carbon neutral.

And it probably wouldn't even do that, if you account for the carbon released from the soil in process. This argument is well quantified by Joseph Fargione of the Nature Conservancy and four colleagues in a report last year in the journal Science.

So what's an environmentally conscious biofuel advocate to do? One answer is to look for a feedstock that provides many more gallons per acre.

Which brings us back to the possibility of using algae. These single-celled organisms grow much, much faster than more familiar plants, allowing perhaps several thousand gallons of biodiesel to be produced from each acre. That's almost two orders of magnitude better than rapeseed. So, in theory, it would be possible to satisfy U.S. needs for diesel fuel using a reasonable amount of real estate. Indeed, you can even imaging displacing the petroleum used for gas this way without sacrificing too great a fraction of U.S. land. 

The problem is that nobody has yet figured out how to turn algae into fuel economically. 

Closed bioreactors, in which you can control the growing conditions, would be terribly costly at the scale required. Shallow open ponds are a lot cheaper, but they are susceptible to being taken over by algal species other than the one was intended to be grown. Researchers ran into this problem in the 1980s when they set up demonstration facilities for growing algae as part of the U.S. Department of Energy's Algal Species Program.

Here's where I suspect that modern biotechnology can give this enterprise a real boost. Maybe molecular biologists will be able to engineer an oil-rich algal species that grows happily under conditions that would kill off the competition--say, a Monsanto-approved "Roundup Ready" species of algae that can thrive in water laced with this herbicide. Okay, maybe Roundup is too nasty to want to spread over an area the size of a small state. But perhaps some other tactic can be used, say, the absence of a key nutrient that only the genetically engineered species can compensate for. 

I don't claim to know what plant genetic engineers might pull out of their sleeves in the quest to make algae into a practical feedstock for biofuels, but I suspect that their contribution will prove larger than what the mechanical engineers working on closed bioreactors can come up with. That's why I'm excited to hear that Venter has this problem in his sights. Maybe, just maybe, he or others like him will finally figure out how to produce vast amounts of biofuel without doing great harm to the environment. Until then, though, it'll be strictly petroleum-based fuels for me.


Photo of algal bioreactor by Umberto Salvagnin, used under Creative Commons Attribution 2.0 license.

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