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Derek Bateman David Bradley
Submitted to the ESSCCA Conference, Buffalo, NY on April 1, 2001
Abstract The economy on which our civilization is based is both environmentally and economically unsustainable. Two obvious examples are the pending economic dislocation that will inevitably take place as a result of “Peak Oil” and Global Climate Change. For huge sectors of the economy many or most business models will no longer work when we are paying $5.00 to $20.00 a gallon for transportation fuel. What examples from social science research are available to prepare our society to avoid economic depression if not societal collapse? This paper will show how “Renewable Energy Feed-In Laws” (REFILs) can offer an approach to addressing Peak Oil and fossil fuel induced Global Climate Change, as well as Peak Oil induced economic damage. It also will focus on how wind turbines along with pumped hydroelectric energy storage and biomass for WNY/NY State can help address energy shortages that will result from Peak Oil while providing jobs and maximizing social cohesion. Summary • • • • • • • • • • • • • • • Global Warming and Peak Oil are related items Oil combustion and oil consumption related infrastructure (e.g. cars, suburbs, car-centric shopping centers/malls, etc) are major emitters and/or causes of CO2 pollution, the major cause of Global Warming Global Warming and Peak Oil have different time scales for noticeable effects and the timing of their impacts will often differ Global Warming is mostly a weather, climate, rainfall, and ocean level phenomena, plus the effects of those on humans and their societies Peak Oil is mostly an economic phenomena, and transportation (of goods and people) related Peak Oil is a liquid fuels problem – liquid fuels have unique properties Peak Oil is really a Peak World Oil Export problem for the U.S. World Oil Exports have been declining since 2006, despite significant price increases for exportable oil (world oil price(s)) The Export Land Model predicts a rapid decline in the oil to be exported to the U.S./importable by the U.S. in the next decade World crude oil production is more or less presently at maximum levels; world oil production rates can only decline from this peak from now on Increases in oil prices will NOT lead to significant (or any) increases in world oil production rates, contrary to conventional economic theory Increases in oil prices will NOT stop the decline in the available quantities of oil available for export, and can only slightly influence it Countries now importing oil face significant economic and societal challenges varying from quality of life to survival issues unless they cut back/eventually eliminate their imports of crude oil/refined crude oil In the next decade, countries with fewer to no oil imports will tend to do better than those with significant and continuing oil importation needs Life (and especially a civilized life) in the U.S. can go on without oil importation, but changes will be needed in how we transport people and
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goods for a civilized standard of living and a high population density (i.e. near present population levels) to continue. Changing our country’s energy sourcing/usage to stabilize our climate/minimize CO2 pollution is a major economic growth opportunity Changing our transportation system (of goods and people) to one compatible with initially no oil importation and eventually no crude oil usage is also a major economic growth opportunity Renewable energy costs/required real prices for that energy (electricity, fuels, heat) vary with type and location, and mostly will be higher than are present pricing levels for pollution based approaches (coal, oil, natural gas, nuclear), often because the external costs for polluting energy are largely not presently incorporated into present prices Renewable energy prices need to be based on the cost to produce this energy and (often) some reasonable profit (return on the investment of these renewable approaches) to be and become economically viable “Carbon Prices”, alias forms of CO2 pollution taxes/fees, are unlikely to be significantly effective at stimulating renewable energy development via rising the prices of pollution sourced energy to the required extent To be effective, CO2 pollution taxes must be raised significantly before some renewable energy sources become lower cost; the resulting much higher energy prices will induce adverse economic consequences and will collapse the political viability of “carbon prices”, even when price rebates are given to individual consumers (cap and dividend system) Basing renewable energy prices on the present (and usually highly subsidized) prices for polluting energy will lead to minimal installation rates of renewable energy and minimal replacement rates of polluting energy production/fossil fuel consuming facilities for the next decade Without major capital investments/job creation in the U.S., the present “jobless economy” will soon collapse as a result of more frequent and more intense oil price shocks and/or Global Warming induced weather/climate changes/disasters often in confluence with banking and other financial “panics” Job creation investments that result in greater oil/pollution based energy usage are outrageously wasteful forms of investment – in effect, they really represent consumption, not investment The present “jobless recovery”, with the 25 million unemployed and/or underemployed citizens in the U.S. is really a “meta-stable, sub-optimal economic equilibrium” of the kind predicted by John Maynard Keynes when “gambling bubbles” pop and an inadequate government stimulus is employed to counteract the collapse in the private sector economic activity (demand); such arrangements can exist for considerable lengths of time Significant investments in renewable energy and in ways to minimize and/or eliminate oil usage may be the ONLY way for the U.S. to climb out of the current “jobless recovery”; so far, these efforts have been fairly insignificant and impressively sub-optimal
Failure to institute sensible pricing policies such as Feed-In Laws will lead to insignificant Green Energy investments/Green Job creation, with dire future economic and societal prospects for the vast majority of people in this country Failure appears to be the present “default option” with respect to Green Energy/Green Jobs, and to avoid failure on epic (i.e. 1930’s Great Depression and worse) scales will require changes to renewable energy pricing systems/investment policies Our present governmental, economic, political, media and societal leaders tend to live comfortably and/or extravagantly under the present “future failure regime”, and they appear to be well insulated against poverty and deprivation; their personal motivation to change such an arrangement is minimal, as they are “doing fine” under the present arrangement Whether and how our societal leaders will allow change (to a Green Energy and Green Jobs based one) to occur that may diminish their status or the status of their “tribe” and their grasp on economic/political power is of key importance to our collective future well being; just because it is the logical thing to do for the vast majority of people does not mean that it will occur, as the prime decisions are apparently being done by a tiny minority of our population
Economic Introduction The Great Recession of 2007 to 2010 (and for most people in this country, still going) has been widely viewed as the worst economic contraction/disaster since the Great Depression of 1929 to 1933 (and which really extended to WWII). In March of 2008, while all eyes were on the spectacles of the financial fraud in the U.S. and the associated securitization and world-wide sale of defective mortgage backed securities (the Bear Stearns bank run), world oil prices had almost doubled in less than a one year period. In addition to or as a result of the oil price spike, huge price increases in natural gas, coal, ammonia and corn (for ethanol, and related to oil price) also were observed. These price increases contributed to increasing rates of home mortgage defaults, because the combination of rising widespread unemployment as well as prices for goods (commodities) and services (including health care insurance, college expenses, loans and loan rates) diverted money away from home mortgage payments. In turn, this led to more of the securitized mortgage bonds going into default, accelerating the process of the system-wide financial “Black Swan” event. As it turned out, the major money making opportunity of the year became betting on mortgage bond defaults (shorting the bonds) and betting on defaults of various banks/financial entities, as well as companies like GM (shorting their stocks and bonds), as was done in 1929. Rising oil prices acted like a tax increase on poor and middle income people (especially the bottom 90% of the U.S. income distribution), and this helped collapse the economic demand for goods and services in the rest of the economy. After oil prices peaked at $147/bbl, oil prices crashed when the excess oil inventory could not be sold at the rate needed to pay off loans used to buy oil futures contracts, and prices rapidly dropped back to near $35/bbl. The Great Recession was now “on” for all to see; in less than a year, over 7 million people became
unemployed just in the U.S., and many times that throughout the world. And for good measure, 18 months later, world oil prices were once again hovering near $100/bbl, having averaged $78/bbl for all of 2010. In the Great Depression, one of the worst things that President Hoover and Treasury Secretary Mellon did after the 1929 Stock Market Crash was to get taxes raised, while slashing government spending at the same time. The stock market crash in the fall of 1929 led to a drop in tax revenues, and a slight increase in the meager income support payments to the rapidly swelling ranks of newly impoverished people which increased government expenditures, and further increased government debt. To plug this revenue gap, taxes were raised, and this actually accelerated the drop in demand, which led to even greater deficits and greater economic ruin. As it turns out, the best response would have been to increase government debt, spend money to employ many of the recently unemployed, and thus stimulate economic demand (Keynesian stimulus). The disastrous Hoover-Mellon approach became amazingly unpopular, and in 1932, the Republicans were largely thrown out of office. In the ensuing Roosevelt administration, many of the Keynesian stimulus programs were tried/developed, which were successful in ending this financial collapse in the standards of living for most people, to varying degrees. Increasing oil prices can act in the same manner as an increase in taxes in the U.S., and in a very regressive manner, affecting those with the least disposable income the most. The effect is magnified because so much of our oil is imported, and money to buy this imported oil has to be exported. Money is also transferred from more job intensive sectors (such as manufacturing) to the oil industry, which is highly automated, and which often occurs outside of this country. In addition, huge shifts in the distribution of wealth within the U.S. will result when those with oil and related energy reserves (inventories, futures contracts, reserves of oil still in the ground but proven and deliverable) become the beneficiaries of sudden increases in the value of their holdings. And since nothing becomes as profitable as oil, most investment funds rush to find more oil. Unfortunately for the U.S., we are significantly tapped out of new oil supplies; our peak production year was 1973, and it has been a steady decline in output since then. The general trend of increasing oil prices worldwide also will produce a transfer of wealth from oil importing countries to oil exporting countries on a massive scale. The wealth transfer could well overwhelm the ability of oil exporting countries to buy goods and services from oil importing countries, and the result will be a net enrichment of a minority of the earth’s population (oil exporting countries) and a net impoverishment of oil importing countries. Adding to that imbalance is the “resource curse” that affects most “oil countries”, as often only a small percentage of their country benefits (for example, as in Equatorial Guinea) from this sudden inrush of income and wealth, while increased corruption and oppression of most of the population becomes the normal state of affairs. Those countries that can minimize or eliminate their oil imports will do better than those who do not minimize their oil imports, whether by becoming more efficient in their use of oil, by finding substitutes, or by rearranging their society to deal with a reduced or eliminated dependence on oil importation. Attempts at the conquest of oil rich Iraq have shown that this approach does not work, as oil infrastructure is too easily sabotaged (the
product (oil and natural gas) doubles as the explosive needed to blow up the oil delivery system). The replacement of oil consuming (and by extension, fossil fuel consuming) systems in the U.S. would be a very capital intensive approach, assuming that current standards of living are to be more or less maintained. The investments in mass transit, biofuels, other fuels, renewable electricity generation and electrical energy storage as well as new housing and work arrangements could be a major economic stimulus. This could result in tens of millions of required new jobs, all paid off over a several decade long period by, in effect, the avoided cost of oil importation and over time and by avoidance of some part of the damaging effects of associated Global Warming. In fact, any economic recovery that does not focus on the replacement of oil importation is unlikely to be effective, because the “money bleed” from the U.S. to oil exporting countries (presently near $1 billion PER DAY) is accelerating, and is likely to keep accelerating. The borrowed money used to pay for this oil importation also results in greater debt and larger interest payments on this debt, further degrading U.S. living standards in an accelerating pattern. Continued oil importation without alternatives to present rates of oil consumption will lead to a collapsed economy once creditors no longer believe that the debt interest can be services/principal be repaid. A consequence of this “no confidence” scenario will be a massive regression in the standard of living for most people (i.e. those not rich), massive dystopias (plural), and a slide into a “Mad Max” type decomposition of American Society caused by the inability to transport most goods and people to and from the destinations. There would also be massive world-wide ramifications of such a decline in U.S. and world-wide living conditions standards of living (after all, who would by all that Made in China “stuff”), though these effects would no doubt vary by country and/or region. Numerous political and social action groups have touted the benefits of our economy changing to one more based on renewable energy as the energy driver/source for our society and economy. Given oil pricing trends, and also the depletion of the finite supplies of prime fossil fuels (notably oil and natural gas, followed by coal), continued dependence upon exponentially decreasing supplies and exposure to exponentially increasing prices does seem like economic and societal folly. In fact, the probability of a viable U.S. economy which is still significantly dependent on imported oil plus locally sourced natural gas and coal, seems increasingly a remote one, and less and less probable over time. Thus, it is unlikely that a viable U.S. economy and society would continue WITHOUT a huge push to renewable energy based society. Such a Green Energy based economy and society would employ a larger fraction of the population in producing energy, or producing systems and manufactured goods that convert renewable energy (mostly biomass, sun and wind, all of which are solar derived) into usable electricity, fuels (stored chemical energy) and heat. In addition, a significantly enhanced mass transit (mostly rail based) sector would replace a large amount of car and truck transportation (rail is easily electrified). Much of this energy related development would require a larger fraction of our economy be manufacturing based, as much of this infrastructure needs to be made (wind turbines, rail, electricity for rail, electricity storage systems, etc). In addition, many of the automobile-centered living and working
arrangements would need to evolve to a less auto-centered arrangement; in other words, sub-urban life would need to become less dominant, and densely populated urban regions that can be serviced by mass transit and/or pedestrian/biking more efficiently and economically than what now exists would need to be expanded. Of course, all of these are also job producing transitions. Finally, without the need to import oil, the need for a huge military also shrinks, and this will have the net effect of lowering taxes/a massive job stimulus, over time. But, without renewable energy producing systems to replace fossil fuel based systems, none of this will happen, leading to several dystopian future scenarios. Furthermore, while converting to a coal based society may be possible for a bit (the U.S. has significant coal reserves) until those deplete within a 50 year period, constraints such as the cost to do it, water to do it with and spiraling CO2 (and other) pollution consequences would also kick in. Like oil, coal exploitation also has limits, especially since many of the better coal reserves have been tapped out in the eastern half of the country, and any mismatch between supply rates and consumption rates can also result in significant price spikes. Those price spikes can also happen when foreign countries like India and China buy up only a small percentage of U.S. coal output, as coal is what is considered economically “inelastic” (small changes in the supply/demand balance lead to large price shifts) – see http://pesd.stanford.edu/publications/the_worlds_greatest_coal_arbitrage_chinas_coal_im port_behavior_and_implications_for_the_global_coal_market/. However, conversion of coal to oil is expensive, investment and resource intensive, and this would accelerate coal usage significantly. About 2 bbls of refined oil can be made per ton of coal; 12 million bbls/day of imported oil would require the use of 2 billion tons/yr of additional coal, and since present U.S. coal extraction rates are about 1 billion tons/yr, an additional 2 billion tons/yr of coal production is highly unlikely. This would also do nothing about current oil sourced CO2 pollution, and the 2 billion tons/yr of coal would result in a significant increase in the overall CO2 pollution rate, and/or a massive need to bury the CO2 waste product from coal to oil conversion systems. As it turns out, it would be cheaper to convert to a more efficient, less car based and more renewable energy sourced society than to go down the coal to oil route, even if it means lessening the importance of suburban living and increasing the importance of urban living arrangements. But, there is the big IF; if conversion to a renewable energy based system needs to be done, can it be accomplished with existing energy pricing systems, especially for electricity and liquid fuels? In the U.S., this is doubtful, and the continued pricing system could only be useful if fossil fuel prices drastically rise to the point where at least some renewable sources are less expensive (even when external costs are NOT included in pollution energy pricing). If prices rose rapidly to that level, our economy and society would be drastically affected, to well beyond Great Depression levels, in which case consumption rates of fossil fuel energy would drop, prices would lower and the motivation to change would be temporarily removed. Current fossil fuel pricing is such that most renewable energy varieties are more expensive than non-renewable sources, and the failure to include external costs such as CO2 pollution and coal particulate pollution accentuates that arrangement. Furthermore,
current pricing systems have an immense difficulty in incorporating long term future fossil fuel pricing into present pricing. Part of this difficulty lies in achieving any kind of broad-based consensus on what future fossil fuel prices will be over time; after all, Peak Oil was not officially acknowledged as happening in 2006 until 2010. Even in the year 2010, most of our country still has no real idea as to what Peak Oil will mean for them in the next decade. Since most people and companies have to be focused on the near term (6 months to 2 year range) – in other words, a high discount rate outlook - decade long time frames have little meaning for most people and most businesses. Of all the energy pricing systems that have been tried on a large scale to date, the Feed-In Law systems (also called Feed-In Tariffs, Advanced Renewable Tariffs, Renewable Energy Payments, Standard Offer Contracts, CLEAN systems) seem to be the best at delivering more energy at lower real cost, creating more job growth, stimulating technological improvements, and distributing the benefits and costs in the fairest manner. And in states like NY, it is unlikely that any significant renewable energy development will occur in the near future without some form of a Feed-In Law system, due to our “marginal based pricing” of key energy sectors, notably electricity. A failure to have a pricing system for renewable energy based on the cost to produce this energy and NOT based on fossil fuel prices will mean that essentially no significant renewable energy development (Green Jobs, Green Economy) will occur for some time, if at all. Eventually, when confronted with massive economic and social failure induced by massive unemployment from ever higher oil/energy prices, there will only be two routes out – continued socio-economic decline, or else sensible renewable energy pricing based on the cost to produce this renewable energy. In this paper, the more optimistic route is examined, which is not to say that it will be adopted; after all, “should be” and “will be” are two completely different things. Energy and Climate Many of the “pieces” of the puzzle that is our near term likely energy system in WNY are in existence, and in play, even if these are not widely recognized in WNY by our dominant media entities and political leaders. Most no longer question the reality that is defined by the connection between Global Warming and atmospheric CO2 concentrations, though doing something about that is another matter altogether. Most people realize that oil prices are high and trending higher. Since 1998, average world crude oil prices have increased from $15/bbl to over $80/bbl in 2010, an economically unsustainable rate of roughly 14%/yr (doubles every 5 years). At this rate, by 2020, the average crude oil price will be over $280/bbl versus the present $85/bbl, but this is before a more correct and less optimistic model of oil pricing (Export Land Model) is considered. At consumption rates approximating current ones, this would mean that 3.5 times as much of the present “oil part” of people’s disposal income would be spent on oil, and at constant real income (for most, a best scenario prospect for the next decade), much less money would be available for anything else – rent or mortgage, taxes, food, clothing, entertainment, medical expenses and education, to name a few. This squeeze on the incomes of most people is clearly not economically or socially viable. Furthermore, the price of oil is an important factor in the cost to make/provide for many items in the U.S., so oil price rises also increase the prices of many other items, especially those that need
transporting, involve food, clothing, etc. It is too bad that the March, 1998 warning published in Scientific American (The End of Cheap Oil - http://dieoff.org/page140.htm) was never heeded. To make matters more apocalyptic, Peak Oil officially happened in 2006 according to the International Energy Agency, and is going on 5 years old. Based upon worldwide production data, production rates of oil have been essentially constant despite drastic price increases. Furthermore, the oil discovery trend in the last 40 years – where more oil is consumed during a year than has been discovered – has continued, and shows no sign of abatement, as shown in Figure 1.
Figure 1 From http://www.theoildrum.com/files/campbelldiscoverycurve200903_0.gif As a country that has evolved over the last century on gasoline powered automobiles and diesel powered trucks, this is not good, as we will have to deal with a future of reduced rates of petroleum usage. The recent price history (see Figure 2) of crude oil is instructive, and an indication of the near future unless steps are taken to reduce oil demand, and put some balance back into the supply-demand arrangement. The short term alternative is continued massive export of money, until the money and/or credit runs out. For the most part, oil products are all about energy used in transport of people and things – gasoline for automobiles, diesel for cars, trucks and trains, kerosene for aircraft, fuel oil for shipping. While some easy substitutes are possible – for example, conversion of most freight rail to electric (locomotives are diesel electricity sourced electric motor driven) – these all require long term investments (electric lines to power rail lines, and associated electric distribution infrastructure), which will need to come out of current consumption
monies or be financed by long term repayment by the energy consumers. However, it is the automobile habit and related sub-urban and/or ex-urban lifestyle/habitation pattern that will be most difficult to alter/replace/evolve from, in various manners. Most Americans now live in the sub-urbs, even though 80% or more of the people in this country live in large urban areas (metros). In large part, they have completely bought into/been seduced by the “iron triangle” (see http://www.theoildrum.com/node/2767) of oil-natural gas as one leg, car-housing-finance as another and media-advertising as the last leg (selling the car-housing-suburb dream that is also based on oil consumption) all glued together with copious amounts of cheap, long term debt financing. By now, most middle class Americans know of no other kind of existence than “the ‘burbs”, and for them, back to the farm is not in the cards, and back to the city might mean dealing with societal inequities that have been ignored for a long time.
Figure 2 From http://gailtheactuary.files.wordpress.com/2010/12/world-oil-production-and-average-price.png Oil consumption also happens to be the major source of our country’s CO2 pollution – in 2010, about 45% of it, with coal at 35% and natural gas at 20%. Almost no oil is now used to make electricity (a case of demand destruction brought on by high oil prices), while coal is almost exclusively used to make electricity, and about 20% of natural gas is used to produce electricity. Most natural gas is used for heating uses, especially residential and commercial (building) heat. Any methane used to make electricity comes out of future home heating supplies, since there are only finite supplies of extractable methane (just like with oil) in North America. The “lag time” for significant effects of Global Warming to become apparent is fairly long term, and in the next 20 years, Peak Oil problems are likely to be dominant. However, most CO2 injected into the atmosphere will linger for at least 50 years, and the 10
real impact may not play itself out for close to a century. There are also many complicated feedback mechanisms and “magnifiers” to the Global Warming situation, such as melting permafrost caused methane emanations and Greenland ice sheet decomposition (like landslides). Of course, in the long run, we are all dead (Keynes), so long term is more about our descendents or for those expecting to live a long life (such as those presently under 18 years old). The unfortunate irony is the fact that those who will be most affected by CO2 pollution are those with the least ability to do anything about it. As it turns out, renewable energy can be supplied in volume by existing technology as long as that is in the form of electricity. Renewable based fuels can be supplied, but not at rates comparable to current oil production, and generally not at prices thermally competitive with present oil prices (though that may soon change as oil prices keep on rapidly rising). Most renewable sources of liquid fuels (biofuels) cannot compete with oil on the basis of price, even at $100/bbl; prices close to double that may be required to make many biofuels cost competitive. In the short term, most renewable energy production will be in the form of either electricity or heat, and very little in the form of liquid fuels, with corn based EtOH likely to supply up to 10% to 20% of U.S. car fuel. Thus, Global Warming is a severe LONG TERM problem, now beginning to manifest itself. Peak Oil is a much short-term term issue, which has been manifesting itself since roughly 2006, and which played an important factor in setting up and setting off the Great Recession of 2007-201(?). Global Warming will impact on the climate, food production and the flooding of many coastal regions. Peak Oil’s effects will be as a series of increasingly severe economic disruptions along with transport issues which will affect the availability of food supplies, food affordability and food security. There are several possible “solutions” to either of these problems, but many (such as a massive human die-off) are quite bleak, and less than desirable. Part of the solutions to both Peak Oil and Global Warming involve using less oil and less natural gas, so in some ways, dealing with the Peak Oil issue (by using less oil) could also lessen CO2 pollution. However, there are some solutions to Peak Oil (such as coal to liquid fuels, (CTL) and nuclear energy derived hydrogen based fuel/fuels) which could provide liquid fuels for some time but which would be quite devastating, environmentally, economically and/or climatically. In this paper, some solutions to both Global Warming and Peak Oil will be proposed which seem to be appropriate for the WNY region. Obviously, local solutions to renewable energy production depend upon the local renewable energy resources, as well as what local regions are willing to pay for that energy. After all, the price paid for energy is a major determinant in the quantity of energy which can be provided, up to some limit, since electricity that costs too much could be a very regressive restraint on regional economic and societal viability. This economic dampening would occur through the Demand Destruction and declining disposable income mechanisms (money diverted to pay for electricity cannot be spent on other items). In effect, this means that in the mix of electricity used to supply WNY, not too much of it can be of the very expensive kind
since this will also cause Demand Destruction up to the point where little or no electricity can be afforded by those with limited incomes. Discussion In 2010, the International Energy Agency concluded that Peak Oil had already arrived, and published their startling conclusion. To many this was a “what took you so long” event. However, the fact that world oil production has been essentially constant (top of the peak) for the last five years (since early 2006 – see Figure 3) is far less important to most countries that import oil (which constitute the vast majority of the planet’s human population) than the amount of oil available for export (see Figure 4)
Figure 3 From http://www.theoildrum.com/files/FIG_01_IEA_WORLD_SUPPLY_OCT_2010.PNG After all, the gross amount of oil Saudi Arabia or Russia produces has very little effect on the world oil price, as those countries subsidize internal consumption (domestic prices). What affects the world oil price is the amount of oil that they export (which is production minus domestic consumption). World Export Oil has been DROPPING for that last 5 years, and because worldwide discoveries are still less than annual consumption, more countries switch from net exporters to net importers (for example, Great Britain in 2005, and Egypt in 2010). Given the increase in consumption of oil in China and India as well as the steady increase in oil consumption in most oil producing countries (as explained in the Export Oil Model), the difference has to be made up by other importing countries
consuming less oil. This has been very apparent in much of the “third” and “fourth” world (where things are really dire), as well as in the OECD countries such as the U.S. and Europe. The significant recent drop in oil imports to OECD countries (does not include India or China) shows this (see Figure 5).
Figure 4 From http://www.theoildrum.com/files/FIG_03_WORLD_NET_OIL_EXPORTS_2009.PNG The Export Oil Model – world wide version – for the next 5 years can be seen in this article: http://www.aspousa.org/index.php/2010/10/peak-oil-versus-peak-exports/. It predicts a drop of between 11 to 13 million barrels per day (mbd) in the volume of “exportable oil” between 2011 to 2016 (5 years). Since a $20/bbl price is approximately equivalent to a 1% change in the supply or demand of oil, a 27% to 33% drop in exportable oil indicates a huge increase in price – up to $600/bbl. This is probably well beyond the “linear extrapolation zone”, and would cause numerous severe economic contractions (recessions/depressions) as a result of Demand Destruction. But somehow, demand for oil outside of India and China has to collapse by a significant amount, as caused by “market rationing” in order to make production rates equal to consumption rates. However this works out, even constant rates of oil consumption in this country do not seem probable for the next 5 years, and certainly for the next decade. In effect, China’s and India’s high value added and/or highly subsidized manufacturers will outbid U.S. commuters for a significant quantity of the importable crude oil available on world oil markets.
Figure 5 From http://www.theoildrum.com/files/FIG_05_OECD_NET_IMPORTS_SEP_2010.PNG To add to this problem of oil supply, the coal situation in both India and China (who combined consume most of the world’s coal) also needs to be considered. China has recently become an importer of coal (165 million tons/yr in 2010, up 23% vs. 2009 – see http://www.steelorbis.com/steel-news/latest-news/chinas-coal-imports-rise-31-percent-to165-million-mt-in-2010-580056.htm), and about 5% of its massive consumption is now imported from numerous countries – see http://www.postcarbon.org/article/193411-peakcoal-is-moving-closer-too. Domestic coal production by China is regarded as a national priority, and this trend (increasing coal imports) is accelerating as domestic production peaks while the quality of and the accessibility of domestic Chinese coal decreases. In 2008, international coal prices spiked when Australian supplies temporarily were stopped by flooding in Australia’s coal producing/exporting regions, so both China, India (a big coal importer) and Japan had to shop around the world to maintain their coal consumption rates. In the U.S. coal prices tripled on the East Coast as a result of large scale spot buying; when electricity demand in Europe shrank due to the 2008 financial crash, prices fell back to normal. China recently stopped almost all of its coal to liquid fuel (CTL) projects, probably due to worries about long-term coal supplies – see http://www.energybulletin.net/stories/2011-02-13/excessive-optimism-our-enemy-coalliquids-case-study. This means that any CTL or related gas to liquids (GTL) projects are possible only in locations in the U.S. isolated from international coal prices (basically certain isolated regions in the upper Great Plains/Rocky Mountains, where water (another key ingredient in CTL processes) is also increasingly rare. CTL projects are unlikely to be able to supply much of the current U.S. oil market because coal prices (a major CTL production cost) are apt to increase drastically.
At some time during the next decade, some kind of CO2 pollution tax (though probably inadequately low) is likely, if for no other reason than a need for another revenue source to states and the Federal government. Such a CO2 tax, if sufficiently high enough, would increase the price of fossil fuel prices, further increasing demand destruction effects. If the tax was not great enough, then coal and natural gas based electricity and oil based fuels would still be less expensive that non-polluting renewables, and no replacement of significance would take place. Due to the differences in the cost to produce various kinds of renewable energy, only the lowest cost renewables would be installed unless enormous CO2 pollution tax rates were adopted. For example, the cost of coal based electricity would need to rise by a factor of 3 to make on-shore wind price competitive with coal derived electricity, and effectively no substitution could take place until that price parity occurred (http://wagengineering.blogspot.com/2010/08/ethics-and-morality-of-carbonpricing.html). However, coal prices (when CO2 pollution taxes are converted to a coal cost) would need to rise by a factor of 40 in Western NY before house based PV systems became competitive with coal based electricity. In addition, the lack of importable oil might be dealt with by converting natural gas to oil (GTL), but this will mean that less natural gas is available to make electricity, which could result in more coal usage to make electricity, thus increasing price pressures on coal. Due to the strong interconnection between the coal and natural gas markets via electricity in the U.S., decreasing the use of one fuel in one market (such as diverting methane to gasoline synthesis and from electricity production) will just raise the price of the other fossil fuel. Any “cure” to the problem wrought by Peak Oil and especially by Peak Export Oil easily can be explained as a result of incorrect pricing, as long as the long term social implications are not considered. And since additional increases in oil prices are unlikely to result in an increased oil supply, all that increasing prices will do is to cause fewer consumers to be able to use oil, and it will cause all consumers to use less oil on an average basis. But, increasing prices can result in societies changing so that less oil needs to be used to accomplish the same or similar tasks as is the current case – for example, moving people from ex-urbs and sub-urbs into more transportation energy efficient living arrangements (such as cities), or raising car fuel efficiency by lowering highway speed limits. In addition, competing products to oil (such as biofuels or electrified transport) can also become viable to some extent when oil prices rise to a sufficient level. And while there is unlikely to be enough biofuels made in the US and certainly NY State to substitute for present rates of imported oil (about 12 mbd for the U.S. at present, or about 65% of current consumption), significant quantities of biofuels can be made. Due to the horrible level of energy efficiency/significant inefficiency with respect to transportation (the U.S. has average vehicle miles per gallon levels that are half of Europe’s, and Europe now generally has a higher standard of living than does the U.S.), simply getting 44 mpg average fuel efficiency (Europe and Japan’s current average) instead of 22 mpg could cut U.S. crude oil imports by close to 8 mbd, or about 2/3 of present imports.
Of course, many of these changes can take time, and to date, most U.S. corporations, governments and public institutions have really not focused on the need to get efficient. Increasing energy efficiency (the most cost effective and rapid way to reduce energy consumption and costs), let alone trying to secure long term significant biofuel supplies has not really been pursued to the required extent to date. However, demand destruction also works; following the 2007-2008 oil price spike, oil consumption dropped 10%, close to 2 mbd of oil imports, and electricity consumption dropped by at least 5%. In NY, electricity prices on the generated portion (not transmission and distribution costs/prices) dropped by 50% to 70% (location dependent) following a slight drop in demand by 6%. An unfortunate effect of this conservation/drop in electricity consumption was to essentially stop all new renewable energy installations for the next two years, since the depressed prices for generated electricity were below the level needed to break even/meet profit expectations, even when significant state and Federal subsidies were present. Most renewable energy installations are capital intensive. Any increase in overall employment from deployment of renewable energy is most likely to occur with the manufacture of these systems, followed by employment to install these systems. These systems become very expensive sources of energy if the investment in the purchase and installation have to be paid back rapidly (though after the capital has been repaid, they tend to be very low cost). However, to keep long term energy prices as low as possible, long term loans at low interest rates and equivalent “inexpensive, low discount rate equity” must be employed to finance renewable energy investments. Such low cost financing is only possible if the financial risk associated with this investment is low. In general, the financial risk of a renewable energy project tends to be centered on the price obtained for the product (energy), providing the investment is not fraudulent. In other words, if the annual energy yield of the project under consideration is well defined, it is the price obtained and the price certainty for the product of this investment (annual energy output) that is a big determinant of the risk of this investment. Another risk to be considered is whether the product can be sold, and whether the price could be undercut (generally by fossil fuels or other pollution based energy, as well as by a drop in demand for electricity). At present, renewable energy tends to be a minor component of NY’s energy mix, and especially for three major categories – electricity, transportation fuel and heat. If the price for energy in these categories were the result of a weighted sum of all energy products (for example, coal, natural gas, oil, biomass, trash, nukes, wind and hydroelectric sources for electricity), increasing the price on a minor fraction of the energy group only would have a minor effect on the overall price. However, this is not actually the what occurs, as prices for oil and electricity in NY State are generally set by the marginal price – the price needed to provide the last bit of all of the energy requirement. It is this marginal price that is paid to ALL energy producers during a particular period of time, regardless of the actual cost to produce this energy. With oil, prices are now set by how much people will pay for this oil, and not by the weighted average cost that it takes to produce this oil. Only energy efficiency can put a ceiling on oil prices, since producers would then be forced to sit on their product while at the same time continuing to pay off their
creditors and investors. At present, natural gas is mis-priced (priced too low) due to a temporary glut; current prices are about 50% of the price needed to justify new production (such as expensive tight shale gas). This system of marginal pricing favors speculation and short term investment, and discourages long term investment in capital intensive energy production and storage systems. This marginal pricing system also insures that electricity is always available at some price, though often at an excessive price; the primary focus is to make sure that the grid is always operational, and that there is sufficient supply to ALWAYS meet demand, even though demand can vary widely over time. Under such arrangements, investments in renewables can only occur when the consensus/estimates of long term prices rise to the point where these investments are financeable. And since there may be a 2 to 5 year lag from when these are started to when they begin to generate revenue from sales of energy, there is a circular logic that develops. Such investments are not made until the pain from excessive fossil fuel pricing becomes either significant or extreme. Another effect of this “logic” is that those receiving the economic rents from spiking polluting energy prices (in general, when one of the fuel components of the energy mix spikes, while others maintain fairly constant costs) are often the only ones who can afford the renewable energy system investments (due to their windfall profits). However, since their windfall profits are coming from the existing arrangement, there is little incentive to change the existing arrangement, since renewable energy investments would lead to less windfall profits to those low cost producers who own fully paid off facilities. This situation can also lead to an extremely rapid concentration of wealth by a small number of people, followed by significant economic crashes. These crashes come about when the majority of customers end up diverting too much of their money to pay for their energy, and do not have enough money to keep other parts of the economy from sinking… Thus, the marginal pricing system for electricity and oil ends up being detrimental to renewable energy development, especially when “old energy” (polluting and/or depleting energy) sets the price ceiling for renewable energy. A more logical system would be to base renewable energy prices on the actual cost to produce this energy, and to disconnect the price of renewables from non-renewables. Next, to insure that a constant revenue stream from sale of the renewable energy is available to pay back investors and lenders, there needs to be some way of insuring that all of the energy produced (or at least that contracted) can be sold at reasonable prices. The “reasonable price” basis requires that a reasonable cost and a reasonable profit rate can be defined, but fortunately, this can be done as demonstrated by the large number of countries who use such pricing systems. In general, the two ways such systems are employed is via Power Purchase Agreements (PPA’s) for either bids (quota) or by Feed-In Laws, where the amount of renewables added per year is not set but is somewhat determined by the “reasonable profit” part of the price calculation. In either case, investors who either win the bids (low bid) or who are able to meet the Feed-In Law price can then proceed to line up low risk financing based on a contract that assures the producer of a stable cash flow. Combinations of these (PPA’s/quotas/REFILs) can also be employed.
When the combination of a Feed-In Law/PPA fixed renewables price is added to a nonrenewable marginal price system, there is an odd benefit – prices for consumers usually drops unless a high quantity of a very high priced renewable (for example, photovoltaic electricity) is employed. This is called the “Merit Order Effect”, and the odd result is that adding more of the somewhat expensive renewable energy (for example, wind or biogas) to a system where average fossil fuel prices are lower than these renewable prices actually lowers average prices paid by consumers. Two other results of this Merit Order Effect are that polluting energy producers will on occasion experience negative prices (they have to pay others (usually storage facilities) to take their electricity), and that the extraordinary profits taken by fully paid off low cost producers (usually coal or old nuclear based) are reduced. By removing these “windfall profits”, incentives to maintain polluting facilities also are reduced. So far, more than 50% of all wind turbine capacity, 75% of PV systems and almost all biogas systems in developed countries have been installed via the Feed-In Law system. Many countries use a combination of FIT’s (feed-in tariffs) for small and medium scale projects and then PPA bids for very large scale or large investment projects, such as offshore wind farms. Most of the modern technology of wind turbines, biogas, biomass combustion and PV systems has been developed in countries that have FIT systems. Most of this development also has occurred with private or state run (pseudo-private) companies, and direct government led R&D has actually played only a minor role. In FIT/PPA systems, government subsidies of prices are not needed; costs are paid by the consumers of this energy. In contrast, in countries like the U.S., subsidies of renewable energy lower the price of renewables to the prices set by polluting (and often fully paid off) energy levels – further depressing prices by raising supplies, and so requiring even more subsidies due to low energy prices. This also encourages higher consumption rates of energy/suppresses energy efficiency efforts. The subsidies are usually paid for either directly or indirectly from governmental tax revenues, and more renewable energy installed corresponds to lower governmental tax revenues. In the U.S., the tax credit and tax deduction approaches only can be used effectively by the very rich This results in the rich being the only ones to significantly benefit financially from investments in renewables, while those not rich have to make up the difference by paying higher tax rates, often via highly regressive forms like sales taxes. This system also results in only the ultra-rich being able to own the significant renewable energy production systems (such as wind farms), and it excludes widespread ownership of renewable energy production arrays. At present, Feed-In Laws are only used with electricity, but similar systems might work with energy crops. In theory, renewable fuels could also benefit from a similar system of fixed prices, but in this case, the government(s) would need to take a more active role. In this arrangement, farmers who grow the feedstock would contract with the relevant government to supply crops/feedstock to conversion facilities (many ethanol (EtOH) plants are owned by farmers cooperatives, and these function as a way to enhance the value of the crop by conversion to fuel and protein concentrates). In turn, conversion facilities would sell the fuels to some entity (governmental or regulated private entity), which would then distribute this fuel to blenders, who would be required to use these
fuels in set (and increasing) amounts, and who would in turn pass along costs or savings to consumers. In this way, fuel prices would be largely disconnected from the price of crude oil, which can vary drastically and is no longer related to the average cost to produce this oil. This would also allow prices to be adjusted based on fertilizer costs, weather, crop yields, etc. It would also somewhat disconnect energy crop prices from food for humans prices, although there would always be some connection (for example, via protein concentrate by-products). This system would work for cellulose crops (wood, grasses), oils (canola oil, by-product protein concentrate), and mixed crops like corn (kernels, stover and cobs, DDGS). Pricing renewable energy to consumers on a cost plus a reasonable and definable profit basis could drastically increase the amount of renewable energy sold to consumers, since investors would not be likely to lose money on their renewable energy installations. In turn, this would cause a drastic increase in the demand for renewable energy systems to be made, which is where most of the new employment potential and new business potential exists for the renewable energy sector. The cost plus reasonable profit pricing system would also minimize the probability of bankruptcy caused by rapid swings in fossil fuel prices (especially collapse in those prices after price spikes) for renewable energy developers. In turn, a large number of existing or new businesses in the renewable energy supply chain would experience an increase in the demand for their products and services, all of which would result in more employment. The additional employment and increased business activity (the multiplier effect) would also increase state and Federal tax revenues and decrease expenditures for unemployment. Since tax revenues do not have to be given away to “bribe” investors into making renewable energy investments with FIT systems, governmental tax revenues actually increase as more renewable energy systems are installed. As more renewable energy replaces the export of money for the import of fossil fuels, more of a community’s money and wealth is recycled instead of “bled out”. This leads to a “virtuous cycle” on many levels, in contrast to what is practiced in the U.S. at the present time. Lastly, the increase in governmental revenues from this increase in economic demand (renewable energy development) would allow for more mass transit systems to be installed, which would allow more electricity to be used in transportation, and result in less liquid fuel usage in transportation. Of course, these transportation investments (especially short and medium distance rail, electric freight rail) also create jobs and stimulate demand. Odds are, such transportation systems would always lose some money/require some taxpayer funding for operation, but perhaps that is a cost for or of civilization in a post-Peak Oil World. Examination of Some of NY’s Renewable Potentials In the following section, NY’s renewable energy potential is examined with respect to what can be produced at “reasonable” costs and prices within a 10 to 20 year timeframe. The assumptions used are that existing technology is employed (no new breakthroughs are assumed - nice but not necessary, though some gradual improvements are likely). In addition, production costs are assumed to be as low as they are likely to get for wind,
biomass, biogas and pumped hydroelectric storage; some minor production cost drops still are likely for PV and tidal based systems. For NY State, the renewable electrical energy sources that are arranged from the lowest cost to the highest cost are as follows: 1) Existing hydroelectric facilities (and fully paid off) 2) Onshore wind (commercial scale) 3) Biomass co-generation 4) Biogas/land fill gas co-generation 5) Biomass and biogas with no co-generation 6) Hydrokinetic and Tidal generation 7) Offshore wind turbines 8) Small scale wind turbines 8) Solar (in general PV, but also solar thermal) In general, commercial scale wind turbines would be those greater than 750 kw capacity; most of the ones commonly used are now greater than 1500 kw. Production costs are similar for large scale arrays and single units of commercial scale systems, though slightly less costly when economies of scale are introduced. NY only has one significant tidal resource (Long Island Sound/NY City), but three offshore wind zones (Lake Erie, Lake Ontario and Long Island (Atlantic Ocean side). Many of these renewable electricity systems (such as small wind turbines, solar PV, biogas) can be small to moderate in terms of the capital outlay needed, but they also only produce small quantities of energy. PV based electricity requires net prices between 50 to 80 c/kw-hr, depending upon scale and whether they are roof or ground mounted to justify such projects on a subsidy-free basis, and is between 5 to 10 times the comparable price needed (same money cost) for commercial scale onshore wind turbines. Small wind turbines often require prices of 25 c/kw-hr or more to economically justify such installations. All of these are capital intensive investments. The cost of capital is one of the dominant factors in their electricity production cost, and for most, operating fuel and labor costs are very small percentages of the annual capital costs, even at 5% per year/20 year term conditions. In almost all cases, before any revenue from sales of energy are received, the entire cost of the system must be paid to owners/lenders. Electrical energy storage costs, arranged in order of increasing cost per unit of energy stored (capital intensity), are: 1) Pumped hydroelectric 2) Compressed air 3) Batteries 4) Flywheel Of these, pumped hydroelectric and compressed air generally require significant capital investments, and these tend to be large scale investments ($100 million or more).
However, these also can store tremendous amounts of energy, and deliver large amounts of power when needed. Flywheels and batteries can be much smaller, but are significantly more expensive on a delivered energy basis. Flywheels can be up to 97% efficient but this performance comes at a very steep cost/required investment. Fuels that can be made renewably consist of 1) Ethanol (EtOH) via plant sugar/starch fermentation 2) Synthesis gas/pyrolysis gas derived liquids (synthesis gas from biomass); includes EtOH 3) Cellulose based EtOH 4) Ammonia from renewable energy/biomass 5) Biodiesel 6) hydrocarbons/alcohols from renewable electricity/biomass and CO2 (biomass sourced) 7) Methane from renewable electricity and CO2 (biomass based) 8) Electrolytic hydrogen In many cases renewable electricity can be converted into stored chemical energy (fuels), but this has a considerable cost premium to it versus using that electricity directly for transportation. However, in many cases, such as long term energy storage, remote site usage (construction and farming, for example) and for cold weather conditions, converting the electricity to stored chemical energy is the more viable option. Storage of hydrogen as H2 gas/liquid is something to be avoided, if possible, due to the high energy cost of such approaches, high cost of storage vessels (ultra high pressure/cryogenic, and required alloys to avoid catastrophic hydrogen embrittlement) and the low energy density on a volumetric basis, as well as the low overall system efficiency. The cost to produce renewable energy is subject to a number of variables, such as the site renewable energy resource and more importantly, the cost of capital. The utility of this energy also varies; liquid fuels have a premium attached to them because they can be easily used in transportation and easily stored due to their high volumetric energy density. In general, Peak Oil is really a liquid fuels supply problem, and a minor heat supply problem. Electricity can be easily stored on a short term basis (hour, day and week duration) via the listed approaches, but long term energy storage is best accomplished by converting the electricity to liquid fuels which can be burned on demand at a later time. Electricity can also be stored as heat and/or “cold”. Many also claim that the costs of renewable energy are dropping, but with a couple of exceptions, this is no longer true. Since tidal energy is in its early stage of implementation, this technology will become slightly less expensive over time. Photovoltaic systems are still dropping in cost, but this seems to be more of a pseudoslave labor/subsidized capital (in China) phenomena. Wind turbines onshore have gotten as inexpensive on a annual energy output basis as they will likely ever get, and cost increases in steel, concrete, epoxy, fiberglass, copper and aluminum will no longer allow for cheaper commercial scale wind turbines. There may also be a slight decrease in offshore wind costs, but nothing of significance. For biofuels, the biomass feedstock can
readily determine the production cost, and this (long term future prices) is largely unknowable now. Most of these energy production and storage system also require lots of raw materials (steel, concrete, aluminum, glass, copper) as well as electricity and thermal fuels, all of which will be increasing in price as increased consumption rates produce higher supply prices. For NY State, of the lower cost renewable electricity approaches, wind turbines may be the most significant new supply source. Coupled with existing hydroelectric, some modest run-of-river, and a reasonable exploitation of the Long Island Sound tidal resource, all of NY’s present electricity could readily be supplied by wind turbines, at least 4 times over. However, wind energy at any given location varies with time and is also seasonally dependent (most intense in the winter, least intense in the late spring/summer). Storage becomes a critical issue, even for a geographically distributed arrangement across an area as big as NY State. In addition, the complexity and long distance arrangements that are needed as the wind content of a grid system move beyond 25% also become increasingly difficult and expensive. Furthermore, all electricity systems need back-up, even so-called dependable fossil fuel ones, in order to be continually operable (Texas in February of 2011 is a good example). Grids generally are operated under the variable demand arrangement (required power varies with time), and adding varying supply to a variable demand system increases the complexity of this system. While wind turbines themselves are capable of acting as “spinning reserve” (which is a very short term problem measured in minutes), significant shifts in the wind speed across the state could have a major effect on electricity supply for the state. While these events may be somewhat rare, they will occur, and having back-up supplies is needed to avoid a complete grid collapse, which has significant extra financial and societal costs. Pumped hydro storage systems provide the most dependable form of back-up at large scales and low delivered electricity cost. However, like all things thermodynamic, there is a net energy cost to them; pumped hydro systems are net consumers of electricity. However, this is the price required to avoid a grid brown-out or black-out. Most pumped hydro systems have an 80% to 85% net efficiency (the pumping part is the most inefficient). These systems not only serve to provide energy within a few minutes of need, they can also serve as excess supply “sponges”. When excessive electricity is made during very windy periods of low electricity demand, pumped hydro units can act as sources of load in a very significant manner, and can follow wind turbine outputs easily. Pumped hydro systems and the related deferred hydro systems (dams) have three requirements - water, height and sufficient grid access. NY State and especially Western NY have numerous locations where all these three factors are co-located, or else where additional grid connections could be made. The “battery capacity” (energy storage) is provided by the volume of water stored in the pond/reservoir. The power output is provided by the product of the water flow rate and the height difference between the reservoir and the pond/lake to which the water is returned. Very small pond areas can store tremendous quantities of energy if the height is present. The total energy stored is
the product of the volume pumped up and the height to which it is pumped less the efficiency factor. In these systems, high power outputs come at the cost of a limited time period when such outputs can be sustained. Both small to large height differences can be used, and NY State has two great examples of this. The Lewiston facility associated with the Niagara Falls Power Project has a 100 ft height difference but a 4 square mile pond (4800 MW-hr, 240 MW rated), while the Benheim-Gilboa project has a 100 acre pond on top of a 2000 foot tall mountain (8000 MW-hr, 1440 MW rated). Even within Erie County, numerous potential sites on top of hills exist for such systems (these often require an upper and lower pond), with adjacent high voltage transmission lines (115,000 volts or more). Other potential sites include the Southern Tier near the Allegheny, Delaware, Mohawk, Hudson, Susquehana and other rivers, the Finger Lakes, the Taconic Mountains, near Lake Champlain and Lake George as well as other sites near the Catskill Mountains. While any renewable energy source can feed into grid usage or grid storage, onshore wind turbines are the lowest cost electricity production system which can supply NY State with what would eventually be near 30 GW of average electricity demand (when natural gas heating is replaced by electricity, gasoline by mostly electricity). Most of this part of North America also has this potential to varying extents, except for the Atlantic coastal regions, where both tidal and offshore wind have even more potential. Our regional weather provides us with adequate water, but this generally means that skies are overcast, raining or snowing for about half of all daylight hours. This lack of insolation (unobstructed sunlight) means that solar power in this region will be at least twice as expensive as in desert regions. Its best application in places like New York is as an offset to summer peak electricity demands (air conditioning (AC) related), though AC usage is actually likely to decline as electricity prices rise and median incomes continue to fall. There is also a considerable biomass potential that could be used like conventional gas and coal fired units, but in doing so, the liquid and gaseous fuel potential is partly consumed. While some biomass based electricity will be produced (especially in cogeneration applications), its best potential is best left to heat and fuel applications. As future oil supplies and then natural gas supplies become constrained, some increase in electricity demand will be expected with regards to residential and commercial heating, as well as gradual increases in the amount of electricity used for transportation. Even in very energy-efficient homes using highly efficient groundwater sourced heat pump systems, electricity demand can be considerable. Using very expensive solar PV electricity for such uses will be a very expensive route; solar space heating and solar hot water systems are much more economical. Given the large capital demands that will be placed on society by a massive wind energy/pumped hydro storage build-out, it is quite doubtful that significant PV build-out will occur in regions like the U.S. Northeast, especially in terms of delivered energy (the installed capacity and amount of money invested in PV could be considerable, however). Another important new market for electricity will be cars (all-electric or Plug-In Hybrids). If an average usage of between 0.32 kw-hr/mile is assumed (2.9 miles/kw-hr in this article -http://www.ecoworld.com/energy-fuels/electric-car-cost-per-mile.html) and
average miles traveled per day is assumed to be less than 30 miles, total new electricity usage would be near 9.6 kw-hr per day, or close to 2.4 MW-hr/yr per car. If 5 million electric cars eventually are used at such rates, NY electricity usage would need to increase slightly (increase by 1.4 GW, or 9% more than present rates). Given the high cost to install and operate this system (as in, buying the electric or plus-in hybrid cars), the efficiency of mass transit becomes significantly more apparent, as does more sensible living arrangements than suburbs/ex-urbs for metropolitan regions, where both mass transit and walking/biking are often viable alternatives. A summary of a possible all renewable NY Electricity system is summarized in Table 1. While this may not be the route that eventually evolves/is selected, it provides a basis for discussion and an idea of the overall capital requirement and more importantly, the job creation potential of a renewable energy option for NY State. Table 1 A Plausible NY Renewable Electricity System Description Source Delivered Capacity Capital Job-yrs GW GW $ Billions (thousands) Existing = 17 GW* Hydro 3 4 nc 0 Biomass 1 2 2 15 Tidal 2 3 20 300 Onshore Wind 8 24 60 900 Offshore Wind 3 7.5 30 450 Pumped Hydro na 10 11 165 Subtotal 17 123 1830 New = 17 GW* Biomass Pumped Hydro Onshore Wind Offshore Wind Subtotal Demand = 34 GW Pumped Hydro Existing Trains/cars/trucks Fuels Ngas replacement Total 1 na 10 6 17 2 16 2 4 10 34 2 10 30 15 2 11 75 60 148 15 1125 900 2040
* Includes 1 GW average consumed by pumped hydroelectric energy storage systems The total capital over a number of years (20?) would be $271 billion, creating approximately 3.87 million direct job-yrs in the manufacture and installation of these 24
systems (basis ~ 15,000 job-yrs per billion invested in wind turbines –European Wind Energy Association estimate). Hopefully, most of these jobs (majority would be manufacturing) would be within NY State. Net production would be 32 GW average delivered power. Using the wind turbine assumption that non-capital cost is 2 c/kw-hr, the average electricity cost at a 5%/20 yr capital cost would be around 9.7 c/kw-hr – or close to 10 c/kw-hr. The more expensive sources (offshore wind) would be installed mostly at the end of the pollution fuel replacement effort. Such bulk electricity prices are similar to those experienced in NY City/Long Island in the 2006-2008 period (and not the same as consumers pay, as these do not include transmission and delivery fees, which now average 60% or more of a typical NY consumer. A total of 54 GW of onshore wind turbines (Low Wind Speed Turbines) would be the equivalent of 30,000 x 1.8 MW Vestas V100 turbines (other types would be used, of course), which would average a 33% net output across NY State. At a maximum placement density of 5 MW per km2, about 4220 square miles of NY State land (9.2% area) would be generating electricity. The 22.5 GW of offshore units (modeled on the Vestas V112 x 3 MW unit, but again, other models would be used) would comprise 7500 turbines. At the 5 MW/km2 placement rate, 1758 square miles of water surface (20% of windy water surface in Lake Erie, Lake Ontario and south of Long Island) would be utilized (about 4.2 per square mile). The electricity requirements for NY state would be the sum of existing uses, transportation uses and fuels syntheses as well as for the replacement of natural gas used for some industrial (much of this could be from biofuel co-gen systems), most commercial and almost all residential heating requirements. At present, of the 16 GW of NY State consumption, only about 3 GW is provided by renewables (and mostly by hydroelectricity from Niagara Falls and Massena). The remaining 13 GW of existing uses is pollution based (nuclear, natural gas, coal, some oil), and needs to be replaced with renewables totaling 14 GW (includes 1 GW of storage losses). A probable mix (expressed as delivered power) would be 2 GW of tidal (Long island), 1 GW of biomass and 11 GW of wind (8 GW onshore, 3 GW offshore). If the wind turbine needs were expressed in terms of capacity, this would be approximately 24 GW of Low Wind Speed Turbines (LWST, well suited to NY’s inshore wind regimes) and 7.5 GW of offshore capacity. Using presently available wind turbines, this would be about 13,000 x 1.8 MW LWST units for onshore, and about 2500 x 3 MW (average) rated offshore units. The combined investment of about $123 billion represents a job requirement of about 1.8 million job-years, SOMEWHERE. Obviously, the more that the 1.8 million job-years are located in NY, the better it is for NY State. A failure to “capture” this job opportunity would be an epic economic and political disaster for NY State, and especially for what remains of NY’s middle class. In addition, approximately 4 GW (delivered basis) would be needed for electric cars and renewable fuels production. The replacement of natural gas for heat in most houses and commercial applications would require up to 10 GW during the winters (NY’s windy season), assuming some heat (10%) is supplied by passive solar, about half of the
remainder is supplied by ground sourced heat pumps and with the rest using resistance heating. This brings the total new electricity demand to approximately 28 GW (assumes the 3 GW of hydroelectric and 1 GW of electric storage are augmented with new wind/biomass and tidal sourced electricity). The storage capacity needed would be approximately 10 GW (1/3 of total wind capacity). The 14 GW of new wind sourced electricity (4 GW offshore, 10 GW onshore) plus the 10 GW pumped hydro would require a long term investment of another $148 billion, with a similar job demand of 2 million job-years. There would also be additional capital expenditures to the NY grid, mostly involving rewiring existing transmission lines with thicker wires at higher voltages. In addition, the pumped hydroelectric facilities also would need new transmission lines capable of delivering up a GW on demand (2 x 230 kv transmission sets). Many of these upgrades are needed anyway; this “re-powering” would also justify “rewiring”. This capital expenditure is also a job creation mechanism. In addition to NY’s sourcing, interconnections with Quebec hydroelectric and wind, the Bay of Fundy (tidal) offshore Maine (wind) and the Canadian Maritimes provinces would also provide buffering of supply/demand mismatches. At times, NY’s excess supplies would also provide power to these other areas, or else to states to the south of NY. The 10 GW of pumped hydro could also provide an income source to windy but flat states like Ohio, Indiana and Illinois. Under such a scenario, NY would “look” quite different, as there would be one commercial scale wind turbine on average for every two square miles, though obviously more abundant in windy and agricultural areas. Using a wind turbine density of 12.8 MW per square mile (5 MW per square kilometer), on average, wind farms arrays would exist across 4220 square miles of NY, or about 9% of the land area of the state. They would also provide about $500 million per year of income to rural areas (rental, taxes or PILOT payments). In addition, about 3000 offshore wind turbines would be placed on Lake Erie, Lake Ontario and to the south of Long Island (most of these would exist in the 6000 square miles of ocean to the south of Long Island). On average, at least 7 GW would be injected into the Long Island/NYC region via tidal and offshore wind turbine arrays, providing close to half of that region’s electricity supplies. These would actually lower the metro NYC electric bills for most consumers for a considerable amount of the year, especially once natural gas prices re-equilibrate to oil prices later this decade. Finally, about 20 pumped hydro storage facilities would be located throughout NY. All of this demand of renewable energy systems would also radically alter NY’s economic and political “arrangement” which is now dominated by the FIRE (Finance, Insurance and Real Estate) businesses. The shift from “value-less added” to wealth creating economic activity would have a massive stimulative effect on NY’s lower and middle classes, and it would most likely be fiercely fought by the “bankster/predator” class which now exercises almost complete control over NY’s economy and thus its politics. Oh well, most will not miss that situation, especially when the alternative to replacing the financialization of NY’s economy is a viable one, and not replacing a
finance driven economy will lead to a series of “Greater Recessions’ and “Greater Depressions”, with attendant societal disintegration. ---------------Costs of Renewable Electricity Production Wind turbine electricity production ($/MW-hr) costs can be approximated with this formula: Cost = $20 + (Turbine Cost * Fixed Charge Factor)/Annual Energy Output Cost = $20 + (TC * FCF)/AEP Wind turbine costs (fully installed) range from about $2 million/MW capacity form “regular” units to $2.5 million/MW capacity for LWST units; production costs for either tend to be competitive. Offshore wind turbines have installed costs ranging from $4 million to $5 million/MW-hr, but there tend to be higher wind speeds present than for onshore units. The FCF corresponds to a “mortgage payment” – interest plus principal. In this approximation, debt and equity are assumed to have the same money cost, and this would only apply to low risk investments. A 7.6% interest rate for 20 years has a FCF value near 0.1 (10%) and a 5%/20 year loan has a FCF value near 0.08 (8%). Onshore wind turbine electricity production costs (and before any subsidies/grants) would range from 11.1 c/kw-hr (25% net output) to 7 c/kw-hr (45%) for LWST at a 5%/20 year money cost, or 13.4 c/kw-hr (25%) to 8.3 c/kw-hr (45%) at a 7.6%/20 year money cost. Obviously, prices would need to be higher to incorporate profits, and subsidies (such as interest payment deductions) may lower prices for the electricity at the expense of raising someone else’s taxes. For offshore wind turbines, the cost of electricity production would range from 15 to 11 c/kw-hr, depending on net output (40% to 45%) and the FCF. The high end of renewable energy costs is typified by the new 1.1 MW solar PV array in Buffalo (SUNYAB). Given the $7.5 million dollar cost and net output of 13% 1270 MWhr/yr, an annual O&M cost of 1.5% of the installed cost, required breakeven prices (i.e. no profit) would range from 68 c/kw-hr (FCF = 10%) to 54 c/kw-hr (FCF = 8%). At the low end of electricity production costs, the NYPA facility stands out. In 2009, net production at the Niagara Falls complex (NPP) averaged 1580 MW. Since there are no present significant capital expenses, only labor costs are significant. At the NPP, employment is approximately 260 people, with an estimated average total compensation of about $26 million/yr. This works out as $1.87/MW-hr, or about 0.2 c/kw-hr for the electricity production cost (transmission costs are not included; these tend to be billed separately). Most NYPA electricity has no effect on electricity pricing in Western NY (NYISO prices), since this electricity is generally sold at cost under long term contracts to industries and municipal electric utilities. Most electricity prices are set by coal and natural gas prices in WNY (depends on the hour examined), but generally by coal based electricity prices. In 2010, NYISO prices
averages 3.9 c/kw-hr, a slight increase from 2009 prices of 3.2 c/kw-hr. NYISO prices were almost exclusively set by coal based generators, which have all been paid off and thus have essentially no significant capital expenses. If natural gas based prices were dominant in WNY, electricity costs can be estimated as: Cost = 1.5 + (0.3412)(Cost of Natural Gas)/efficiency In this formula, delivered natural gas prices would be in units of $/MBtu, and a high efficiency combined cycle facility would have a 50% thermal efficiency. Production costs would vary from 4.5 c/kw-hr (Henry Hub gas price at $4.7/MBtu) to 11.7 c/kw-hr at a Henry Hub price of $13.7/MBtu (prices last seen in 2008). Natural gas prices are highly unpredictable (apparently spiking in prices approximately every 3 years followed by sharp price collapses). At present, prices are less than 50% of the estimated marginal price needed to obtain a very sub-par 10% return on investment (ROI). Pumped Hydroelectricity storage costs about 1.2 c/kw-hr on an operational basis, in addition to the pumping efficiency loss of approximately 15% to 25%. The capital expense of these systems is the main cost (they tend to have a 50 to 100 year operational life). Construction costs are about $1.1 million/MW of capacity, and these are the majority of operating expenses – see http://www.parcon.uci.edu/paper/EmergingElectricalTechnologies/eeenergy.htm) ----------Fuels At present, NY State uses about 130 million (m) barrels (bbls)/year of gasoline, 40 m bbls/yr of diesel and 30 m bbls/yr of kerosene (jet fuel). This tends to be done in a very inefficient manner, for example, using cars that presently average 22 mpg or less. If the vehicle miles traveled per year (vmty) was to remain constant, and average fuel efficiency doubled, fuel consumption would drop by 50%. Next, if half of the miles traveled per year used fuel-consuming engines (for example, via the use of electric vehicles, mass transit, pedestrian/biking, less vehicular usage of any type or less distance per trip was needed for the other half), then fuel usage could drop to 25% of present levels. The most important fuel usage minimized would be gasoline; usage could drop to roughly 32 million bbls/year of gasoline equivalent. This would be equal to roughly 49 million bbls/yr of EtOH, assuming high compression engines (more efficient, made possible with high EtOH content fuels) are not used. At yields of 10 bbls of EtOH/acre using 150 bshls/acre of corn (or some other crop), this could be made by about 1/6 of NY State land (7700 square miles). The 49 million bbls/yr of EtOH would be equal to about 2.1 billion gallons of EtOH, or about 20 large scale EtOH biorefineries (NY capacity is now near 165 million gallons/yr, or 8% of needed capacity). As can be seen by that quick analysis, “conventional” low efficiency transportation (the present day situation) cannot readily be supported by the growth of energy crops and their conversion to EtOH fuel, due to the huge land needs (2/3 of NY’s land area), for starts.
Furthermore, conversion of much of NY’s agricultural land to corn or a crop with an equivalent annual EtOH yield would require a significant investment, a long term commitment, and the wisdom of a mono-culture based fuel source is highly questionable. Thus, not all personal transportation (via cars) will be sourced by fuels produced in NY State, nor should it. Most people in NY live in the metropolitan NY region (12 million out of 19.5 million), and most people live in metropolitan regions (holds for upstate, too). The average car trip tends to be less than 20 miles each way, and as such, a large quantity of these could be done via electric cars or Plug-in Hybrids operated in all electric mode. Thus, NY’s fuel requirements could actually be dropped to an equivalent of near 25 m bbls/yr, or roughly 1 billion gallons/yr if half of NY’s vmty are converted to electric. Such a biofuel production rate would be a major stimulant to NY’s agricultural sector. The 25 m bbls/yr EtOH is the equivalent of 374 million bshls/yr, now worth $2.2 billion ($5.88/bshl, or 10.5 c/lb). With an economic multiplier of nearly 7 for farming, this would actually make NY’s agricultural sector a much more significant contributor to NY State’s economy. However, unless some kind of pricing security is made, this will never happen, nor would the additional $2 billion investment in EtOH production facilities, and possibly related needs, such as ammonia fertilizer plants. And therein lies a major problem as gasoline prices continue to double every 5 years… Most plug-in hybrids will have an electric range of near 40 miles, after which time a fuel is needed. During cold weather times, battery performance will not be able to achieve those values. In many rural or semi-rural areas, long distances are often traveled. Farming tends to be quite energy intensive; tractors and trucks to transport crops to rail depots/nearby cities are also energy intensive, and these are likely to require fuels as the energy source. And since the post Peak Oil society will need to evolve from petroleum usage, the source of such fuels becomes an important question. If natural gas to liquids (GTL) and coal to liquids (CTL) possibilities are ruled out (a big if), then renewable sources must be used. The two possibilities include biomass sourced and electrolytic sourced. The lowest cost fuels are likely to be based on sugar (itself often based on hydrolysis of starch) fermentation; at present, EtOH can be manufactured for approximately $2.10/gallon with corn at $5.88/bushel (corn is the main cost) – see Table 2. In this process, most high value food parts of corn (fiber, vitamins, mineral fast and especially proteins) are preserved via DDG’s (dried distillers grains). Present US consumption of 4 billion bshls/yr of corn is really the conversion of 69 million tons/yr of sugar (from 69 million tons/yr of starch) into EtOH and 34 million tons/yr of DDG’s, most of which is used for animal feed (about 200 lbs per person per year in the U.S.). At present, the energy to do this is largely supplied using natural gas as the primary thermal energy input, but this natural gas could be replaced with corn stover. It would require about 24% of the stover which is grown with the corn to be used as the heat source to replace the natural gas used in biorefineries that convert corn to EtOH, CO2 and DDG’s (corn stover has approximately the same composition as wood, and a similar calorific value on a weight basis). However, such a change would require additional capital inputs (possibly new boilers, ash/particulate handling, gasifiers, stover transport and collection, cost of
stover) and raise operating expenses SLIGHTLY. Again, since the price of EtOH is presently set by crude oil, and the EtOH/DDGS production costs are largely set by corn and natural gas prices, such investments are generally not possible at the present time due to the low margins in the EtOH business. The additional cost to remove the unreliably priced natural gas from the production process raise production costs by about 10%, or else lower production costs, depending upon what natural gas prices happen to be at any given time. Such an arrangement would also contribute to farmer profitability significantly (this could double to quadruple per acre farmer profits), and this would remove the main fossil fuel input in the process that converts crops to fuels. Calculation Basis: 2.8 gal EtOH per bshl (= 56 lbs corn) 1 lb corn = 1 lb dried stover (56 lbs dried stover/bshl corn) 19 MJ/kg HHV (Higher Heating Value) = 8194 Btu/lb HHV Corn stover composition is approximately C6H9O4, “mw” = 145 http://www.iata.org/SiteCollectionDocuments/Documents/IATAConversionTechnologies Finalv2.pdf 8194 Btu/lb HHV = 7662 Btu/lb LHV (Lower Heating Value) -> 7500 Btu/lb Table 2 Corn to Ethanol Conversion Cost Estimate Cost Conversion/Yield Cost/gal EtOH, $/gal $5.88/bshl 2.8 gal/bshl $200/ton 18 lbs/bshl FCF = 8%, $170 m plant, 110 m gal/yr $8.8 m/yr per plant $4.4 m/yr 11 MW, $100/MW-hr $6/MBtu, 36,000 Btu/gal EtOH $11 million/yr 2.10 -0.643 0.123 0.08 0.04 0.09 0.216 0.10 0.094 2.20 0.108 0.108 = $11.88 m/yr
Item Corn DDGS Capital Labor, Mgt Misc Electricity Ngas Taxes, PILOT, etc Profit Total
Corn Stover $45/ton, 4.8 lbs/gal EtOH – Ngas substitute Corn Stover fuel “profit”
Cellulose based liquid fuels are presently more costly than corn based EtOH on a thermal basis ($/Btu), largely because these facilities are or will be significantly more capital intensive than are corn based facilities, while delivered cellulose feedstock prices are of secondary importance. Such fuels will require higher prices than $3 to $4/gal for gasoline, and their development is significantly hindered by relatively low crude oil prices (at less than $100/bbl). Both cellulose hydrolysis/fermentation to ethanol and cellulose to synthesis gas to liquid or cellulose pyrolysis fuels could utilize some part of 30
the feedstock as the “manufacturing plant’s” energy source (usually the lignin part for fermentation routes). As a result, natural gas usage will not necessarily be required to power these facilities. The raw material supply is very large, and could be made larger if cellulose based energy crops could be economically viable. But again, this is a crude oil based price competition situation, and at present, crude oil prices are sufficiently low enough to render cellulose to fuels plants uneconomic. Thus, pricing is really the key item to commercializing such fuels, and this mostly involves the cost of capital. Since future crude oil prices are not sufficiently defined and definable, cellulose based liquid fuels have an undefined price (this is set by oil prices). This predicament generates a large amount of economic risk is associated with investments in these biofuels, which makes the cost of borrowed money and capital for such projects very high (due to high risk associated with an unknown future price for the product). “Conventional” biodiesels (methyl and ethyl esters of fatty acids) are derived from animal and plant oils/fats. These start off as either carboxylic acids or glycerol esters of these acids, and the conversion to a diesel fuel is a well established process. In general, the cost of the fatty acid or glycerol ester is the dominant factor; high prices for vegetable oils can render most biodiesel operations as non-viable. This is apt to be a niche application, due to raw material availability. Biomass based diesels (hydrodeoxygenated oils, HDO’s) can also be made from synthesis gas, as well as by thermal processing of fats and greases; these tend to be similar to crude oil based hydrocarbons. Another category of renewable fuels can be classified as hydrogen based, where the hydrogen comes from biomass sourced synthesis gas or by the use of renewable electricity to produce hydrogen from water. The combination of water electrolysis and biomass syn-gas also can be more efficient that either approach. The hydrogen produced from water electrolysis and/or biomass syngas is then reacted with either nitrogen (making ammonia (NH3)) or with carbon dioxide. Ammonia is both a fertilizer and also a fuel (when anhydrous), and can be used in very high compression ratio diesels (more than 30:1 compression ratios), which allows engines to be operated with greater thermal efficiency. Hydrogenation of CO2 (obtained from fermentation operations and/or biomass combustion) can produce methanol, ethanol, dimethyl ether, butanols, acetate esters as well as a variety of hydrocarbon fuels via Fisher-Tropsch synthesis (often the basis of CTL, GTL operations). The production costs of biomass based hydrogen are mostly set by the raw material and capital, and for electrolytic based systems, the cost of electricity dominates the production cost, followed by intensive capital costs. Water electrolysis systems can also serve as grid load regulation systems by absorbing excess wind generation during times of low electricity demand and high wind providing that the capital intensive hydrogen storage problem is accommodated. Again, as with cellulose based fuels, renewable ammonia and CO2 hydrogenation facilities are presently too expensive at present discount rates (10%) and electricity prices relative to natural gas and oil based costs. However, when oil prices double and stay at least that cost, “electro-fuels” could be economically viable at electricity prices near 10 c/kw-hr. Dual facilities (biomass plus water electrolysis) would be less expensive,
because the electricity “raw material” cost factor is diluted with lower cost biomass (such as wood, corn stover and grasses). Electrical requirements are fairly significant for fuels and/or fertilizer. To supply NY with enough ammonia to produce 25 m bbls/EtOH/yr via fermentation, about 200,000 tons/yr NH3 would be needed (requiring 200 MW of electricity), where 1 MW yields about 1000 tons/yr of NH3. For conversion of fermentation derived CO2 into more EtOH (0.42 gal EtOH via hydrogenation per gallon of fermentation derived EtOH), about 246 MW would be needed to make 45 million gallons of EtOH/yr (about 2.35 GW needed to make 10 million bbls/yr EtOH). Hydrogen based EtOH can also be derived from corn stover, which is made in roughly equal mass to corn kernels used to make EtOH via fermentation. Stover constitutes a massive cellulose resource, whose only value to soils lies in the minerals (potassium, phosphorous, trace elements) contained, and which can be recycled from stover combustion or syn-gas operations (the ash component). If 25% of the stover grown is used as the heat energy for fermentation operations, and only 75% of stover (and corn cobs) is collected from fields, this allows over 50% of the stover grown to be used for biomass to energy, which could produce up to 12 m bbls/yr of EtOH from this resource. The CO2 by-product could also be hydrogenated to yield another 5 m bbls/yr EtOH, requiring another 1.15 GW. This combination of fermentation, syngas and electricity could produce 52 m bbls/yr of EtOH from 374 m bshls/yr corn (2.2 million acres), 200,000 tons/yr NH3 (200 MW) and 3.5 GW of electricity for CO2 hydrogenation. At 30 mpg (pure EtOH basis), this translates to approximately 66 billion vmty, or about 3360 miles traveled per capita (present NY average is 7000 vmty from 130 m bbls/yr of gasoline at an average of 25 mpg). The EtOH yield using this combined approach is about 992 gallons/acre (23.6 bbls/acre), or about 2.4 times as much as the present 10 bbls/acre average. Thus, using 374 million bshls/yr of corn and 60% of the stover (10% to power fermentation facilities, 50% as a bio-synfuel source) grown on 2.2 million acres (3850 square miles, or roughly 4 rural NY State counties = 8.4% of NY’s land area) and 2.7 GW of electricity, about 52 million bbls/yr of EtOH and 3.4 million tons/yr of DDGS (30 wt% protein, or 345 lbs/person annually) could be made. In other words, this is possible , and in doing so, significant investments (rural, biorefineries, hydrogenation facilities, electrolysis facilities) would need to be made, with a corresponding drastic increase in industrial output and employment within the state, as long as most of these systems can be made within the state. And in the process, a huge outflow of money from the state’s people would be staunched ($14 billion/yr just from gasoline purchases with crude oil at $85/bbl). On a simple basis, the investment for the stover to EtOH ($3 billion), CO2 to EtOH units ($6 billion), fermentation units ($3 billion) and required onshore wind turbines to supply 3.7 GW ($25 billion) would be paid back in 3 years. The $37 billion invested would create about 550,000 job-yrs SOMEWHERE; hopefully the majority would be in the U.S. The ~ 2 GW extra needed for electrified automobile transportation would require an additional investment of roughly $14 billion, or 210,000 job-yrs SOMEWHERE. Adding in these additional wind turbines (7 GW capacity) would bring
the total investment to $51 billion, which is 3.5 years of gasoline purchases at current prices, and which should be considered as LOW prices. While the ethanol produced would not necessarily be used in cars, it could also substitute for diesel fuel in construction equipment, farm equipment, busses and trucks (high compression ethanol engines are now commercially available). In this analysis, EtOH also would serve as an approximation of biodiesel and fuel oil. The difficulty is not in the design and construction of bio-synfuel facilities, EtOH fermentation plants or CO2 hydrogenation units, or even in financing them, as long as viable long term pricing is available for the biofuels, and especially in getting the labor to make and install such systems. The problem is far greater than those, most of which have enormous economic benefits in terms of job creation and energy security. In Table 3, a summary of an EtOH fuel system for NY State is given; this is just an example for what COULD be done, not necessarily what will be done. EtOH has certain advantages over hydrocarbon based fuels (water soluble, low toxicity, rapidly biodegradable), though it only has 70% of the volumetric fuel density of gasoline. With an octane rating of 113, it can be used in engines with compression ratios of over 25:1 (Scania engines for buses), raising thermal efficiency to close to 42%, in contrast to the present gasoline engine thermal efficiency of 26%. Table 3 Ethanol Based NY Liquid Fuels Production System Quantity Comments Million bbls/yr 25 375 million bshls/yr, 2.03 million acres 3906 square miles, 8.5% of NY, uses 25% of stover (2.625 m tons/yr) as fuel Uses CO2 by-product from fermentation Uses 2.4 GW electricity for H2 source Uses 50% of stover produced to make EtOH 5.25 m tons/yr stover consumed Uses CO2 byproduct of stover to EtOH Uses ~ 1 GW electricity for H2 source uses 219 MW for electricity to make H2, purify N2
Corn (or equivalent)
CO2 Hydrogenation 1 Stover CO2 Hydrogenation 2 NH3 (for corn/equivalent) EtOH Fermentation Plants
10.5 12 4.5
219,000 tons/yr 10 plants
110 MW electricity used
Those problems mostly involve the “who wins, who loses” balance, as well as providing low cost, long term financing for these energy systems related to transportation. It is unlikely that private industry and private banking/financial investment entities would do this without some kind of societal “incentive” Odds are, NY State would actually need to provide low interest long term financing, and in some cases may actually need to own or at least be part owners in the production or either the electrical generation system or the liquid fuels production systems. These liquid fuels could also serve as a back-up fuel for back-up electricity generation systems for areas remote from pumped hydroelectric storage systems (NY City/Long Island in particular). The state financial investment would be justified by a consideration of the alternative – no affordable crude oil based fuels would mean no transportation of most goods and people to and from their desired destination (such as to and from work, to markets from farms/greenhouses, etc), as well as the inability to build things (all construction equipment tends to need this) and to grow things (peasant farming is unlikely to provide sufficient food for 19.5 million people in the state, even averaged across the country). Modern NY society will need to evolve towards less and less liquid fuel usage, but it is unlikely that no liquid fuels will be required (for example, for chain saws, boats, farm equipment, road construction equipment) at our current “level” of civilization for several decades. The production of biofuels and hybrid arrangements of “electro-fuels/biofuels” would have a massive stimulative effect to rural NY, and it would prevent the near certain continued decline of the rural economy that is presently dairy and specialty fruits based. In addition to the several billion dollars of new markets (biomass crops, biofuel crops), the addition of $0.5 billion/yr from wind turbine leasing/PILOT fees also would also be most welcome. For the first time in several decades, rural NY would no longer be an economic “basket case” situation, largely dependent on the “kindness”/continued sufferance of the metro NY region for their financial well-being. In addition, the large surge in manufacturing would benefit the hundreds of small towns, many of which used to be economically based on a mix of agriculture and manufacturing, but lately have seen their manufacturing sectors significantly annihilated by “so-called Free Trade” (alias psuedo-slave labor based offshore manufacturing). In addition, NY State would benefit enormously by no longer exporting $14 billion/yr in gasoline money, $4 billion in diesel, and $4 billion in fuel oil/kerosene. That $22 billion present expenditure rate could well be several times that by 2020, and attempts to pay that via financial scamming of the world in NY’s “Big Casinos” (NYSE, NASDAQ, NYMEX, bonds, paper trade, hedge funds, investment banking, etc) would once again lead to a rolling series of financial catastrophes. Another wild card is the approximately 1 trillion cubic feet/year of natural gas currently consumed (about $4.5 billion at $4.5/MBtu, $22 billion at $20/MBtu). These major drains on the NY economy could be mostly staunched and in effect, recycled back into our economy via these massive renewable energy investments (up to $220 billion, plus various grid enhancements). -----
Renewable Fuels Costs The cost of biofuels is highly dependent on feedstock costs as well as capital costs. At present, EtOH made from corn is the dominant biofuel used in the U.S. Using a cost of corn at 10.5 c/lb ($5.88/bshl) and natural gas at a delivered price of $6/MBtu, as well as a DDGS by-product price of $150/ton (7.5 c/lb), the production cost is remarkably low – near $2.20/gal, assuming a plant that costs $170 million, an electricity price of 10 c/kw-hr (11 MW average usage) and a FCF of 8% is employed for a facility with an output of 110 million gallons/yr (see Table 2). If the gas cost (EtOH is $0.216/gal with natural gas at $6/MBtu) was replaced with corn stover at $45/ton (dry basis), the thermal costs would drop by 50%, and 60% of the nonrenewable energy used to convert corn to EtOH would not be used. A “profit” of close to $12 million/yr would also result (less the capital of corn stover gasification/combustion systems, which are relatively inexpensive). This could also supply farmers with extra sales of nearly $160/acre, which is generally more than they receive as a profit from the sale of the corn (though some of this would also be swallowed up in the costs to collect and transport it to an biorefinery as well as to return the ash to the fields). Ammonia can be manufactured by converting water and electricity to hydrogen and oxygen, and then reacting the hydrogen with nitrogen from the air to produce ammonia. Capital costs for a facility to produce about 50,000 tons/yr NH3 would be approximately $100 million, while electricity consumption would average 50 MW. Production costs would be near $880/ton using very expensive electricity at 7.5c/kw-hr (present farmgate prices are near $790/ton (March 2011)). On the other hand, H2 raw material can also be made from corn cobs/stover at a rate of 5.88 lbs H2/lb dry stover for approximately the same price when stover is $45/ton (raw material is ~ $2646/ton H2, capital is about $1360/ton H2). Ammonia at $790/ton contributes $0.41/bshl to the price of corn, or less than 7% of the present price; it is one of the main energy inputs into corn using high yield agriculture (as in 170 bshls/acre). Ammonia has approximately 35% of the heating value of diesel fuel, and the present diesel equivalent price is around $500/ton. At $1000/ton, a diesel price of $7.85/gal would be equivalent to ammonia. But, the primary use of ammonia is as a source of fixed nitrogen for plant fertilizer/protein manufacture by plants. CO2 reduction costs are also highly dependent on H2 prices, which in turn are either biomass based or electrolytic based (Niagara Falls electricity, for example). It would require approximately 2.2 lbs of H2 to make a gallon of EtOH from CO2 feedstock. To produce EtOH via CO2 reduction, electricity at 7.5 c/kw-hr would need a EtOH price of near $4/gal. On the other hand, corn stover derived EtOH could produce EtOH at competitive prices. Stover can also be used to make methanol (MeOH), which can be readily converted into gasoline and diesel cuts via the Mobil MTG process (methanol to gasoline). At present, the cost to make EtOH via CO2 reduction would be near $5.50/gal at 10 c/kw-hr electricity (electricity portion is $4.73/gal). This “back end” of the EtOH system would be justified when gasoline prices exceed $8/gal (estimated price within 5
years of now), although converting lower cost (Niagara Falls) power to EtOH would lower EtOH from CO2 production costs significantly (very electricity price dependent). An approximate estimation of the capital costs for these facilities would be: EtOH fermentation facilities (9) @ $170 m each Corn Stover EtOH facilities (10) @ $250 m each CO2 hydrogenation (10) @ $400 m each Total capital required for 52 m bbls/yr (143,000 bbls/day) $1.5 billion $2.5 billion $4.0 billion $8.0 billion
While this may seem like a large investment, a Gas to Liquids Facility in Qatar with a similar output of oil products had an installed cost of over $18 billion. A similar facility in the U.S. would cost close to $25 billion. It’s the going rate for liquid fuels manufacture….. Biosynfuels, such as using corn stover to make gasoline and diesel like materials, would be a very capital intensive operation. Costs are claimed to be similar to those now present in world oil markets (gasoline/.diesel near $3/gal in bulk), but very few have been made to date. The primary costs are involved in paying back the investors/lenders. Biodiesel’s main cost is the glycerol ester raw material (canola, soybean oil), which is nearly 75% of the prduction cost of biodiesel. Production costs get lowered by using “spent” cooking oils, lard from slaughterhouses, and other sources such as trap grease. At present, with vegetable oils costing nearly $4/gal, only used oils are economically viable feedstocks. ---Conclusion However, NY could also choose a path of financial, and hence societal, ruin, based on continued fossil fuel addition/consumption, until the exceedingly high cost becomes too onerous for most NY residents. We could go “full tilt stupid” and attempt to provide 28 GW delivered electricity with 30 GW of new nuclear plants (capacity basis) at a cost way north of $450 billion (eventual cost would be $15 billion per delivered GW), only to run out of usable and affordable uranium, and to find that only terrorist states will accept the spent fuel rod trash (only to return it in less than desired manners..). In any case, with the majority of NY’s 19 million residents destitute and cold every winter, near starvation most of the time, something like bubonic plague ravaging the meager relics of a public health system on a regular basis, there just seems to be so little in favor of the “Business as Usual” (BAU) way of arranging our life. The Green Jobs/Green Energy scenario seems so much more preferable… It does not seem conceivable that any degree of fairness or equity can come from the BAU as Peak Oil slams us in the next decade, and then Global Climate Change comes in for the knockout punch via the decomposition of the Greenland Icesheets and the drowning of much of Long Island/NY City when ocean levels rise rapidly by 30 feet.
So how can social science prepare us for what needs to be done – sensible pricing for renewable energy? Without setting prices for renewable electricity and fuels on the basis of the cost to produce this electricity and liquid fuel, renewable energy will remain a trivial shadow of what it could be, and a money-losing proposition, for good measure. Until renewables get made financially viable and freed from all kinds of confusing subsidies (also used for polluting energy to an even greater extent), there seems to be little possibility that NY State can hold its own. And the probability that we can “gently slide” back to peasant based agriculture, also seems extremely remote. Or that we can gently slide to a low energy lifestyle with 20 million inhabitants mostly destitute due to a lack of viable employment/lack of affordable energy also seems remote. If we slide, it will be mostly likely be quite fast, and quite brutal, just like NY winters without heat or much food. Actually, it seems so trivial – pass a Feed-In Law, and start installing onshore and offshore wind farms and pumped hydroelectric energy storage facilities, ASAP. Issue bonds to do some of these (such as the pumped hydro facilities), while for others, let the private industry route work where it can. But, trivial or not, the fact remains that under the present pricing systems for both electricity and biofuels, renewables are still money losers when prices are set by old, established polluting energy systems which, in the case of oil, have essentially run their course, and will soon no longer be affordable by most NY residents. One would suppose that education of the public would be the key, but since corporate owned media in the state show close to zero inclination to push for sensible pricing, that option is mostly closed. Furthermore, many in the “liberal” and “environmental” organizations of note still pursue the “CO2 pollution tax” (“carbon pricing”, “cap and dividend”. etc) route to raising pollution based energy prices to the point where renewables are less expensive. Unfortunately, since median NY family incomes shrank in the last decade (and the percentage shrinkage increasing as income decreased), this becomes a de-facto tax on average NY’ers, and one of little consequence to the upper 10% and upper 1% ruling class. They also assume (incorrectly) that renewable energy prices will drop significantly, to the point where CO2 pollution taxes of significant magnitude can be avoided – also a grand illusion. Thus, most “name brand” environmental and liberal organizations propose solutions that are no solutions, or which will be most regressive on those with the least income. Many of these same so-called liberal leaders fail to recognize that a revived manufacturing sector is the key to economically reviving the economic prospects of MOST NY’ers (and not just the predator class), And perhaps this is due to a combination of social class, where they get their money from and the fact that so many work in or with or know people who work for the “predator class”, and the inability of the liberal /environmental “leadership” to comprehend what actual manufacturing is and can be and why it is so important; they swallow the “knowledge based society” theme hook line and sinker, and fail to realize where wealth really comes from, other than by financial machination. Actually, the idea of pushing the main problem of viable societal change that leads to a more equitable society, and one with a more ecologically and environmentally sustainable/sensible society onto “price systems for renewable change” may be shocking
to many. But, without sensible pricing, the Green Jobs/Green Economy possibility seems to morph into a mirage. Without some kind of financial incentive for workers and opportunity hungry companies, the political changes needed for a Green Jobs/Green Economy seem even more improbable than they may be even with sensible renewable energy pricing systems. Even the recent horrendous set of THREE nuclear reactor partial core meltdowns might not be enough to foreclose the nuclear option, since that has been (and will be) pushed hard by its advocates as a cure for CO2 pollution-less electricity, hydrogen and “homegrown energy”. The positive lure of huge economic growth, profits, employment and numerous benefits to society vanishes without the economic viability that comes from sensible pricing systems for renewable energy that are based on the actual cost to make this renewable energy. Pricing renewables based on whatever nonrenewable energy is priced at (and with the non-renewables often loaded with huge governmental subsidies and permission to avoid risk (like nuclear accidents and Global Warming consequences) seems like buying a first class seat on the Hellbound Train. And so, can “sensible renewable energy pricing” be used as an organizing feature? Probably not, but a successful progressive social movement will need to have this as a central end result. It may need to be the sales job of a century, and not just to the general public, but to those who are the dominant voices in the progressive movement, and those who are the present “progressive leaders”. Maybe have some rock concerts pushing Feed-In laws as the organizing theme. After all, to quote the boys from Led Zepplin; “Cryin’ won’t help you, prayin’ won’t do you no good When the levee breaks, mama you got to move…” Notes: The Ethanol synthesis from CO2 is modeled on a Rhodium Selenide (Rh10Se) catalyst that was demonstrated to have the following yield: 6.35 H2 + 2 CO2 0.825 C2H6O + 0.35 CH4 + 3.175 H2O 12.7 88 39.75 5.6 57.15 Reference: http://www.platinummetalsreview.com/pdf/pmr-v41-i4-166-170.pdf Other systems with improved yields are quite possible. The hydrogen made by water electrolysis is made using existing commercially available 2 MW electrolytic cells (Statoil, ex-Norsk Hydro) in an 82.5% yield. For this, 21.9 kw-hr of electricity is required to convert 9 lbs of water into 1 lb of hydrogen and 8 lbs of water. File = bwag022611g.doc