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Famed Texas Energy Takeover Runs into Heavy Weather

In fall 2007, the world's most accomplished practitioner of the leveraged buyout and corporate reorganization, K.K.R., engineered the biggest private equity takeover in history, buying TXU, the top Texas electricity company. What made the deal especially newsworthy was that K.K.R.'s Henry Kravis formulated it in close collaboration with Fred Krupp, the highly paid and hugely influential CEO of Environmental Defense (now once again the Environmental Defense Fund), as well as leaders of the Natural Resources Defense Council. The executives of EDF and NRDC, arguably the two most technically expert and politcally sophisticated environmental advocacy organizations in the United States, obtained from K.K.R. and TXU a commitment to ditch plans for 8 of 11 coal-fired power plants.

Writing in this space not long after, Spectrum editor-in-chief Susan Hassler raised some pertinent questions: Was the deal as green as it looked? Might the coal plants have been scuttled anyway? Assuming the new coal plants were actually needed, where then would Texas find alternative generation? Would those sources be as green as promised? Hassler quoted one analyst as saying that while the deal showed that climate change had emerged as a big factor in electricity planning, it might also have "provided TXU an escape strategy from its ill-fated plan to build 11 new coal plants in Texas."

At the time nobody seemed to wonder whether the plan was financially sound, probably because it was concocted by one of Wall Street's favorite wizards, with the support of an environmental leader who makes a point of matching the lifestyles of the CEOs he negotiates with. But in a long analytic article that appeared in the business section of last Sunday's New York Times, reporters Jenny Anderson and Julie Creswell suggest that the deal had a near-fatal flaw: It was in effect "a gargantuan bet that natural gas prices would keep climbing," but instead they plummeted; as a result those who financed $40 billion of the $48 billion deal " have seen losses," with their bonds trading at 70 or 80 cents on the dollar.

The Times article, though long, raises as many questions as it answers, and is not always as clear as it might be. Why was the deal a big bet on higher natural gas prices? Because, the authors say, electricity prices in the competitive Texas market are mainly governed by gas prices; thus, if a company like Energy Future Holdings (the former TXU) can generate a lot of electricity using cheap coal, it stands to make big profits if can sell the electricity at prices determined by expensive gas.

But wait a minute: Wasn't TXU supposed to be weaning itself off coal? And didn't it promise, as Hassler reported, to buy a lot more electricity generated by wind? If the company is buying more electricity in the open market, shouldn't it also benefit from lower prices? Which is it?

No mention is made in the New York Times article of nuclear energy. But within months of the K.K.R. takeover and coal plant cancellations, Texas announced plants to invest heavily in nuclear generation. The big Japanese nuclear manufacturers--Hitachi, Toshiba, Mitsubishi--began angling for business. But in the last year Texan nuclear prospects have dimmed markedly, with a San Antonio project hanging in the balance. Could false nuclear expectations have played a part in the 2007 transaction? It would be an interesting question to put to EDF and NRDC leaders, some of whom have turned quietly pro-nuclear because of climate concerns but still hesitate to tell their constituents four-square where they stand.

Radioactive Clean-Up, Venus Flytrap-Style

A Venus flytrap doesn't snap shut for just anything. It knows when something edible lands on its leaves, just as a newly developed framework of metal sulfide knows when a radioactive cesium ion has dropped into its "jaws."

Researchers at the Argonne National Laboratory near Chicago created a rigid structure that carries a negative charge. The substance, made of layers of [(CH3)2NH2]+ and [Ga2Sb2S7]2−, has pores which attract positively charged ions when in solution. Sodium ions, which account for the harmless part of nuclear waste, move freely in and out of the framework when it is immersed in water. The other part, though, is not harmless: cesium atoms are highly radioactive, can leach into soil and water and stay in the environment for decades (like they have at Chernobyl). They also bonded to the sulfide framework, but they didn't escape like the sodium could.

"Imagine the framework like a Venus flytrap," said one of the researchers involved, Mercouri Kanatzidis, in a press release. "When the plant jaws are open, you can drop a pebble in and the plant won't close—it knows it isn't food. When a fly enters, however, the plant's jaws snap shut." The research was published in Nature Chemistry.

Cesium does not bond as freely with water as does sodium, which explains the difference when the cesium atoms enter the framework and can't get out again. The authors say this could eventually be used to aid in cleanup of nuclear waste or disaster zones.

"The dynamic response we describe here provides important insights for designing new materials for the selective removal of difficult-to-capture ions," the investigators wrote in the paper's abstract.

Photo via Argonne Nat. Lab on Flickr.

British Airways to Green Itself Up With Waste-to-Fuel Plant

Traditional biofuel processes have been slammed in recent years for their effects on land use and food prices, as well as apparently limited overall reductions in greenhouse gas emissions. Momentum has been growing, though, on some newer sources for biofuel production, like algae and solid waste.

Turning waste biomass into something useful could, if done on a large scale, potentially play a huge role in global warming mitigation. And now one of the biggest industry contributors - airlines - to the global emission of carbon dioxide is jumping on that bandwagon. British Airways will open a biofuel production plant in London that will convert 500,000 tonnes of waste that would otherwise head to a landfill each year into about 16 million gallons of jet fuel. The plan is in partnership with Solena Group, a Washington-based company that owns the process that will convert waste biomass into SynBioGas. From that, the Fischer-Tropsch process is used to produce bio jetfuel and bionaphtha (used as a blending component in gasoline and as a feedstock in petrochemical processes).

The airline promises that the plant itself will be carbon-neutral, and that the production and use of the biofuel in British Airway jets will save 550,000 tonnes of emitted carbon dioxide. For comparison, the airline itself calculated its carbon footprint in 2008 at 17,714,897 tonnes, so if these estimates are correct than the new plant represents about a 3 percent reduction. And at the same time, British Airways continues to stand behind plans for a third runway at Heathrow Airport, a plan that would increase the airport's capacity, probably resulting in many more carbon-spewing flights, and has drawn the ire of many who say it will be environmentally disastrous.

But the British Airways announcement highlights the current trend toward the development of biofuels for use in jets. Other than waste biomass, algae has shown the most promise for biofuel production, as it also does not supplant food crops like corn and can theoretically be carbon neutral. Whether or not other airlines follow suit immediately, chances seem good that jet fuel will be at least mildly more carbon-friendly in the near future.

Image: U.S. Navy via Wikimedia Commons.

EPA Carbon Regulation Is Challenged

Three years ago, in a dramatic ruling, the U.S. Supreme Court said that the U.S. Environmental Protection Agency could and possibly should regulate carbon as a pollutant. Subsequently, the head of the Bush Administration's Environmental Protection Agency declined to declare carbon a dangerous pollutant, evidently contradicting findings of his own staff. The Obama EPA lost little time reversing that finding and has set about preparing carbon rules, to be issued soon. Meanwhile, the administration's hopes to get a strong cap-and-trade carbon bill through Congress have dimmed, as the president's political position has steadily weakened, coal-state Democrats have rebelled, and presumed former allies like Sen. John McCain--cosponsor of an early cap-and-trade bill--have jumped ship. Under these straitened circumstances, EPA authority to regulate carbon unilaterally has seemed to be the administration's trump card: If Congress refuses to enact an adequate carbon bill, well then, the administration can just regulate carbon directly.

Now, however, EPA's regulation of carbon is being widely challenged, in part on the basis of disclosures about the East Anglia Climate Research Unit and IPCC procedures ("climategate"). Alabama, Virginia, and Texas are contesting or planning to contest EPA's regulations, and so is a group of non-governmental organizations comprising the Competitive Enterprise Institute, FreedomWorks, and the Science and Environmental Policy Project. The CEI petition specifically cites a BBC interview with Phil Jones, the temporarily suspended head of the East Anglia CRU, in which Jones says that there has been no statistically significant warming in the last 15 years and that the rate of warming has not increased in the last 25 years, by comparison with earlier warming periods.

In the Virginia petition, the state's attorney general complains that the EPA carbon finding would be a "staggering burden" on the state's agriculture, manufacturing, and energy industry and "in truth the cost of living for every single Virginian." Dismissing threats associated with climate change such as sea level rise, droughts, and floods, the Texas attorney general said, with reference to climategate disclosures, that "a cadre of activist scientists [have been] colluding and scheming to advance what they want science to be."

As it happens, the Texas state climatologist has taken direct issue with the attorney general's claims: though natural concentrations of greenhouse gases are essential to life on earth, "it is also apparent that if atmospheric concentrations of the six greenhouse gases continue to rise due to human influence, the Earth would eventually reach a point where there would be massive disruptions of ecosystems, changes in sea level, decreases in air quality, and so forth," said John Nielsen-Gammon, in a formal statement. As for the Jones BBC interview, it's important to note that the East Anglia scientist also expressed total confidence that the earth is warming and near-total confidence that most warming since 1950 is man-made.

The mainstream climate science community and advocates of strong action on global warming have dismissed allegations arising from climategate as highly exaggerated, but there's no denying that disclosures have given opponents of action a lot of ammunition. Could EPA be disqualified from regulating carbon directly, and could Obama lose his political trump card?

In the closely contested Supreme Court decision of April 2, 2007, Massachusetts vs. EPA, the deciding vote was cast by Sandra Day O'Connor, the moderate conservative appointed by Ronald Reagan. In the meantime, the Bush administration filled that slot and one other with more uniformly pro-business conservatives, while Obama has replaced one rather liberal justice with another. So, in terms of environmental regulation, the balance has shifted from 5-4 pro-environment to 5-4 pro-business. Thus, if the issue of EPA carbon regulation were to be reheard today, the decision would almost certainly go the other way.

To be sure, the Supreme Court is traditionally reluctant to reverse its own opinions, especially those that are exceptionally important and very recent. To do so obviously undermines the authority of the court. But in this particular case, should it wind it way up to the highest court, the justices would not necessarily have to throw out its previous ruling to undo EPA's efforts at carbon regulation. This is because it's not EPA authority to consider regulating carbon that's being challenged, but only the specific way in which it's exercised that authority.

Maybe this is one reason why EPA administrator Lisa P. Jackson is letting it be known that the agency will regulate carbon with a light hand. "I share your goals of ensuring economic recovery at this critical time and of addressing greenhouse gas emissions in sensible ways," she recently wrote to eight coal-state Democrats.

This much is sure: How cap-and-trade legislation and EPA carbon regulation play out in the next six months will be overwhelmingly the most important single factor affecting development of all new green energy technology in the United States in the next ten years, from advanced cars and mass transit to electricity generation and the smart grid.



Fuel Cell Hype and Hopes

Fuel cells deserved to hit the headlines this week, but not the way that it played out. The big splash came thanks to CBS News' 60 MINUTES and heavy hyping of a stationary fuel cell developer emerging from stealth-mode development. More surprising, and of real significance, was a projection yesterday by Pike Research that fuel cell-equipped vehicles will go commercial in just 4 years.

The problem with Bloom Energy's Bloom Box stationary fuel cell is that, despite 60 MINUTES' assertion that it might be the holy grail to free Americans shackled to a coal-fired grid, the company has yet to deliver a product. Moreover, the technology is hardly new.

The Bloom Box will use stacks of solid oxide fuel cells to electrochemically turn natural gas into power, eliminating the pollution that comes with fuel combustion. Some fuel cell experts have been blistering in their criticism of Bloom and its hypers. "I'm actually pretty pissed off about it, to be quite honest," is how Nigel Sammes, an SOFC expert at the Colorado School of Mines, expressed his emotions on the Bloom Box to National Geographic. "It really is nothing new. Go to any [SOFC] Web site and you'll see the same stuff."

It's also a market that has been tried before. In fact, more than 200 stationary fuel cell generators were already operating a decade ago when United Technologies first raised the technology's profile, installing a pair in NYC's Four Times Square office tower--an early development in what's since become a green building craze (see Energy to Count On from the August 17, 1999 issue of the New York Times). The 200-kW generators, using an older phosphoric acid electroyte design, generate enough power the tower's nighttime electric demand, and turning waste heat into space and water heating.

If stationary fuel cell's haven't taken off it's because they produce power at higher cost than the grid, and there's no evidence that the Bloom Box will fix that. Cost estimates given by Bloom of 8-9 cts/kwh include healthy subsidies that cut the price in half.

Pike's largely overlooked report, in contrast, challenges the tendency of late to write-off the role of fuel cells in vehicles. The idea of hydrogen-power fuel cell vehicles (FCVs) has taken a beating ever since Joseph Romm, now editor of the Climate Progress blog, released his critical and influential 2004 book: The Hype About Hydrogen: fact and fiction in the race to save the climate. The fuel cells, said the critics, were too expensive and froze in cold weather, while hydrogen would be hard to produce and store (and required a wholly new fueling network).

But automakers haven't given up on FCVs. They've been chipping away at the technology, and the lithium battery-powered electric vehicles that are now the rage at auto shows remain an uncertain bet given their limited range and high cost relative to gasoline cars. As Pike notes, eight automakers (Daimler, Ford, GM, Honda, Hyundai, Kia, Renault/Nissan and Toyota) vowed last fall to bring FCVs to the market by 2015. Their prediction is that automakers will roll out commercial FCVs in small number in 2014, then produce over 100,000 in 2015, with over 2.8 million FCVs on the road by 2020.

The wildcard according to Pike: whether governments and hydrogen producers establish the fueling stations needed to grow FCVs beyond a niche market.

Vermont Opts to Close Only Nuclear Plant

By chance, on a family ski-and-snowboarding trip to northeastern Vermont last week, we happened Thursday evening on a very old, very beat-up green Pontiac with the Greenpeace logo affixed. Why, I naturally wondered, would the well-known environmental organization be using a gas-guzzling, pollutant-spewing clunker to conduct its local business? It turned out on closer inspection that the car was a nice little piece of agit-prop. Its purpose was to ask, as pictures and text on parts of the car made plain, why you would want to operate a 1972 nuclear power plant when you never would dream of driving a 1972 car. As it happens, yesterday the Vermont state senate voted to end operation of Vermont Yankee, one of the nation's oldest nuclear power plants, after 2012.

The decision represents an ironic counterpoint to Obama's highly publicized granting of Federal loan guarantees for what will be the first new nuclear power plant project initiated in the United States in decades. Though local factors played a big role in Vermont's decision--mismanagement and misstatements by the nuclear operator, not to mention the state's emphatic environmentalist and left-liberal political complexion--it may nonetheless point to a disconcerting trend. With most nuclear power plants in the advanced industrial countries approaching the end of their intended 40-year lifetimes, even if most of them receive 20-year extensions, some will surely be shut down. And it may well be that the number shut down will exceed in the next decade the number of new plants brought into operation.

In the fall issue of Daedalus devoted to the global nuclear future, Princeton University's Harold A. Feiveson, pointedly reminded readers that world nuclear electricity generation actually decreased 2 percent in 2007--rather the opposite of a renaissance. Chatting with him in his office yesterday, I speculated that we may see a real nuclear revival only in the 2020s; Feiveson said he thought it may be more like 2050.

The case for continuing to run the 1972 Vermont Yankee plant was radically undermined by recent tritium leaks at the plant, the collapse of a plant cooling tower three years ago, and a pattern of misstatements by company officials, some of whom have been penalized. "If the board of directors and management of [operator] Entergy were thoroughly infiltrated by anti-nuclear activists, I do not think they could have done a better job of destroying their own case," said a state senator supporting the plant, according to The New York Times.

Last week in Burlington, it was too dark and snowy to adequately photograph. But click here and scroll down for a glimpse of Greenpeace's beat-up 1972 Pontiac.


Dutch Unearth Big Geothermal Potential

With the recent failure of geothermal projects in California and Switzerland, where one approach to tapping the earth's heat was found to induce earthquakes, the whole idea of geothermal energy is having some hard knocks. But that doesn't change the essential long-term outlook. Two years ago an MIT study identified huge energy potential in the earth crust's stored heat: By means of enhanced geothermal systems in particular--drilling several wells to reach hot rock and connecting them to a fractured rock region that has been stimulated to let water flow--hot water or steam can be brought to the surface via heat exchangers to drive electricity turbines. Now, in addition, Dutch studies have identified enormous tappable heat reserves found in aquifers at the greater depths where oil and gas companies normally operate.

Holland's Stichting Platform Geothermie finds that after "a spectacular rise in shallow geothermal applications" in the last two decades, now Netherlands "seems set on a similar steep path towards deep geothermal energy use. Exploration license applications have increased from a modest trickle to a torrent of [more than] 50 in the last year, and a major impact is expected from the [government's] new guarantee scheme."

That optimistic prediction is based on part on a report by Holland's TNO estimating the country's deep geothermal potential at 90,000 PetaJoules, and partly on the success of two experimental drillings in the last three years, to depths of 1,700-1,900 meters. Estimates of how much of that geothermal energy could be tapped yearly by 2020 range from TNO's 25 PetaJoules to the Platform's 3 PetaJoules, with the consultancy Ecofys taking an intermediate position. What actually happens, says the Platform report, will depend on whether the Dutch government creates a level playing field by giving geothermal the same feed-in-tariff subsidies that wind and solar get.


New Wireless Sensor Uses Light to Run Nearly Perpetually

The race to create tiny wireless sensors that could monitor anything from pressure in the eyes and brain to the stability of bridges appears to be heating up. Earlier this month, IEEE Spectrum reported on two approaches to creating an almost-indefinitely-running sensor using piezoelectric systems to convert tiny vibrations into power. Now, another team from the University of Michigan has created an alternative approach that uses solar power to keep the sensor running autonomously for many years.

The new sensor checks in at less than 9 mm3, and utilizes an ARM Cortex-M3 core processor. The system allows the sensor to consume only about 100 picowatts when in sleep mode, and only 2.1 µw upon waking up to take sensor measurements. The average power consumption comes out to less than 1 nanowatt. To provide that power, the sensor has a thin-film lithium-ion battery and two 1 mm2 solar cells. It need only be exposed to even mild lighting conditions periodically; in fact, one of the researchers, professor of electrical and computer engineering David Blaauw, said in a press release that it can even be indoor lighting to power the sensor.

The U of M researchers, who presented their work at the International Solid State Circuits Conference in San Francisco last week, said they are working with doctors to come up with potential medical applications for their device. Such internal versions of their sensor could be modified to harvest power from heat or movement, much like the microelectromechanical systems described above. They could be used to monitor pressure in the eyes or brain, or even inside tumors in cancer patients. Blaauw said in a phone call that the intraocular pressure monitoring application could actually still use solar power even when implanted within the eye.

"There is one piece that's missing from our system, and that's the communication," Blaauw said. "That still needs to be added, but we have some prototypes." He said the communications system will not substantially change the sensor's size. Other systems that incorporate a real microprocessor clock in at around 1 cm3, Blaauw said. "Ours is almost 100x smaller."

Image credit: Daeyeon Kim, University of Michigan

Shortcomings in South African Energy Policy

Chris Yelland, a well-informed electrical engineer in South Africa and a director of the country's EE Publishers, delivers a scorching critique of Pretoria's energy policy in a recent EE post. He decries the government's failure to formulate a 20-year integrated plan and its issuance instead of an improvised three-year interim plan, "a shoddy and inadequate piece of work" done without consultation with relevant parties such as independent power producers. Further, says Yelland, despite a government 1998 white paper calling for the electricity system to be restructured along the usual lines, "in the subsequent twelve years, nothing concrete materialised from this grand vision." Meanwhile, he continues, Eskom, the country's main energy company, "no longer has the wherewithal to continue as the sole builder, owner, operator, and maintainer of generation in South Africa on an exclusive basis."  Plans for construction of coal and nuclear plants have been scuppered, without any credible planning for substitute generation.

In fairness, South Africa is by no means the only country or region to have back-tracked on plans to "unbundle" transmission, generation, and distribution, and to establish a single grid operator or regulator. Many others have had second thoughts about the wisdom of trying to introduce competition into electricity, which traditionally has been considered a natural monopoly, and not only because of vested interests getting in the way. Deregulation has not consistently produced lower consumer prices, concerns about reliability and market rigging have surfaced, and there are valid worries about whether companies eying mainly their short-term balance sheets will invest adequately for a long term that can be as long as 60-75 years in the power sector. In the United States, only about half the states have opted to restructure, and it's no accident that those retaining old-fashioned integrated electricity companies are looking most seriously at nuclear, which has high up-front costs but very attractive long-range operating costs.

None of that detracts, however, from the force of Yelland's concerns about South Africa's energy planning, which indeed appears to be woefully unsatisfactory.

POSTSCRIPT (Feb. 26, 2010): A radically different perspective on South Africa's energy dilemmas has been drawn to my attention. A coalition of organizations has launched a global campaign to block the World Bank's plan to lend the country US$ 3.75 billion for construction of a South African coal-fired power plant, with a possible follow-on loan of $1.25 billion. The coalition comprises (among others) Climate Justice Now, groundWork and the Federation for a Sustainable Environment, and has backing from the National Union of Metalworkers of SA, the SA Council of Churches, and other organizations in the United States, India and Bangladesh.

South African opponents of the coal plant project and the World Bank's financing proposal argue that it will drive up consumer electricity rates, impose a long-term debt burden the country cannot afford, further bloat the country's vulnerable "minerals energy complex," and add to the country's "climate debt" as well. (South Africa, with 6 percent of Africa's population, accounts for 40 percent of its carbon emissions.)

The campaign against the Medupi coal plant project comes in the context of growing tension between the U.S. Treasury and the World Bank over its program to fund coal electricity generation in developing countries. The U.S. government has issued a "guidance note" to multilateral development banks saying they should tighten conditions for Third World coal projects. The World Bank's decision on Medupi, expected at the end of March, will be a test of that guidance.


First U.S. Loan Guarantees for New Nuclear Plant

President Obama announced this week that the government will provide $8.33 billion in loan guarantees to support construction of two 1100 MW reactors at a site near Waynesboro, Georgia, where the two Vogtle units already are operating. The reactors will be the Westinghouse AP 1000 model, which is one of the designs developed in the last two decades to serve as a safer, pre-approved template for a new generation of power plants.

The 2005 Energy Policy Act authorized loan guarantees for technology that reduces pollutants or greenhouse gases. Previous grants have supported wind, solar, energy storage, and carbon projects. Obama said the new nuclear units would help "meet our growing energy needs and prevent the worst consequences of climate change." He also stressed immediate employment benefits, making his announcement at a job training center run by the International Brotherhood of Electrical Workers in Maryland.

The Georgia plants are likely to be the first new nuclear construction project initiated in the United States in a generation. But does the announcement amount to a "groundbreaking," as initial radio reports suggested? No. The New York Times points out that because some regulatory hurdles remain, construction will not likely begin before the end of next year. The total cost of the project is estimated at $14 billion, but the direct projected costs shouldered by Southern Company and its partners will be lower, according to a Wall Street Journal analysis.


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