The search for energy solutions
This year, a look at something just as worrying in the long run as the fiscal problems of the West: the search for energy solutions. This journey has been fraught with similarly quixotic dead ends, fairy tales and blunders ignoring economic (and thermodynamic) realities. This is important to us, since energy cost and availability is central to how we think about growth, profits, stability and our portfolio investments. As part of this effort, I made a pilgrimage to Manitoba to spend a day with Vaclav Smil. Vaclav is one of the world’s foremost experts on energy, and has written over 30 books and 300 papers on the subject (he’s #49 on Foreign Policy’s list of the 100 most influential thinkers). Vaclav’s book “Energy Myths and Realities” should be required reading for politicians or regulators impacting energy policy. We start with an unflinching look at these realities before turning to solutions, and some potentially encouraging developments, which have less to do with how electricity is generated, and more to do with how it might be stored.
Over the last 50 years, a lot of proposed [energy] solutions have not panned out as expected. While the process of discovery and invention always includes large doses of failure, energy policy is different than say, cell phones or VCRs, since more public money, time and effort are spent on them. Hopes are raised, and as a result, less flashy but more reliable solutions are sometimes postponed or avoided altogether. Here are a few memorable predictions of our energy future:
- 1945. Oak Ridge National Laboratory nuclear physicists Weinberg and Soodak predict that nuclear breeders will be man’s ultimate energy source; a decade later, the chairman of the US Atomic Energy Commission predict it would be “too cheap to meter”
- 1973. “Let this be our national goal: At the end of this decade, in the year 1980, the United States will not be dependent on any other country for the energy we need to provide our jobs, to heat our homes, and to keep our transportation moving.” — Richard Nixon
- 1978. “Through modeling of supply and demand for over 200 US utilities it was projected that, by the year 2000, almost 60% of U.S. cars could be electrified, and that only 17% of the recharging power would come from petroleum”
- 1979. An influential Harvard Business School study projects that by 2000, the US could satisfy 20% of its energy needs through solar
- 1980. Physicist Bent Sorenson predicts that 49% of America’s energy could come from renewable sources by the year 2005
- 1994. Hypercar Center established, whose lightweight material and design would yield 200 mpg cars with a 95% decline in pollution
- 1994. InterTechnology Corporation predicts that solar energy would supply 36% of America’s industrial process heat by 2000
- 1995. Energy consultant and physicist Alfred Cavallo projects that wind could have a capacity factor of 60%, which when combined with compressed air storage, would rise to 70 – 95%
- 1999. US Department of Energy hopes to sequester 1 billion tonnes of carbon per year by 2025
- 2000. Fuel cell companies announce 250-kilowatt production plants that can fit into a conference room and produce energy at 10 cents per kilowatt hour, with the goal of 6 cents by 2003
- 2008. “Today I challenge our nation to commit to producing 100% of our electricity from renewable energy and truly clean carbon-free sources within 10 years. This goal is achievable, affordable and transformative.” Al Gore
- 2009. Gene scientist Craig Venter announces plans to develop next-generation biofuels from algae in a partnership with Exxon Mobil
How have things turned out? There are no commercial nuclear breeders on anyone’s horizon; global nuclear capacity is only 20% of the Atomic Energy Agency’s 1970 forecast; the Hypercar is nowhere to be seen; solar and wind make up a miniscule portion of U.S. electricity generation; wind capacity factors range from 20%-30%; the U.S. is reliant for 50% of its oil from foreign sources; 70% of U.S. electricity generation comes from coal and natural gas; fuel cells haven’t worked as expected; hybrids are 2% of US car sales; “clean coal” is mostly a blueprint; and Venter announced that his team failed to find naturally occurring algae that can be converted into commercial-scale biofuel (they will now work with synthetic strains instead).
Unfounded expectations lead to suboptimal policy choices
One example: the Keystone Pipeline extension, which the President has opted not to consider until after 2012. The U.S. imports more oil from Canada than from any other country. With the extension, the Keystone system would account for 13% of US petroleum imports. The pipeline has been opposed on environmental grounds, but the extension itself would only add 1% to the entire network of crude oil and refined product pipelines already criss-crossing the U.S. Moving petroleum products by rail or truck instead is more expensive and riskier. If the US does not provide a market for the Alberta tar sands oil, it could end up on tankers to China; and the US will end up importing more of its energy needs from the Persian Gulf and Venezuela. Could misperceptions about wind, solar and biofuel feasibility explain why some people are opposed to this extension? Unclear.
Now let’s take a (desperately needed) look at some good news. Over the last 3 decades, the oil intensity of the developed world has been falling, followed by non-OECD countries. This is not meant to suggest that declining availability of cheap crude oil isn’t a problem, since it is. There are lots of studies showing rapid declines in the production rate of existing crude oil fields, and that the discovery of new fields is (a) not keeping up, and (b) are located where marginal costs of extraction are considerably higher. No need to repeat them here. But oil’s importance to economic growth has been declining over time, and there is no reason to believe that these improvements have completely run their course. There is also room for reduced fuel consumption, although here’s another case where energy fairy tales might have postponed smart policy choices. While waiting for a holy grail, the US left fuel efficiency standards unchanged from 1983 (light trucks) and 1987 (cars) until 2010. Chrysler head Lee Iacocca said this in 1986 when Ford/GM lobbied the Reagan Administration to lower (“CAFE”) fuel efficiency standards: “We are about to put up a tombstone that says, ‘Here lies America’s energy policy’. CAFE protects American jobs. If CAFE is weakened now, come the next energy crunch, American car makers will not be able to meet demand for fuel-efficient cars.” Well, the rest of the world kept on truckin’ as he suggested, and have more efficient fleets (see chart). If the US fleet were 30% more efficient, US gasoline consumption could fall by 40 billion gallons per year (~1 billion barrels). For context, the US imports 0.36 billion barrels of crude per year from Venezuela, and 0.62 billion from the Persian Gulf. The US just increased fuel efficiency standards, but it will take time to make an impact.
Other possible good news includes ongoing research by Daimler Engine Research Labs on improving gasoline engines, something the world should not give up on just yet. Prototypes with fewer cylinders and smaller displacement may yield a car with both lower fuel consumption and lower emissions, eventually at fuel efficiencies greater than hybrids like the Prius. The US Recovery Act included $100 million for Advanced Combustion Engine Research and Development; it could be money well spent. One example the DoE is working on: semiconductors, powered by the heat exiting the car in its exhaust pipe, used to create electricity and power the car’s accessories, which are usually powered by belts driven by the car’s engine.
A potential game-changer: electricity storage that works, in commercial scale
What would potentially change the energy equation is storage. The world has been generating commercially available electricity for over a hundred years, but as things stand now, the world has almost no electricity storage. The benefits of electricity storage, if it could be implemented, are self-evident:
- increased cost-effectiveness of intermittent solar and wind power, and lower electricity costs, since electricity produced by wind at night could be stored and sold during the day; and electricity produced during sunny days could be stored and sold during cloudy spells. There are obvious tie-ins to the feasibility and cost of electric cars
- lower required peak production capacities of large urban power systems, by drawing on stored electricity reserves
- deferral or avoidance of costly upgrades to the transmission grid. As per the North American Electricity Reliability Corporation, only 27% of grid upgrades relate to integrating renewable energy. Almost half are designed to improve overall reliability, due to fluctuating loads (since the grid has to accommodate peak loads, and not just average ones)
- reduced consumption of fossil fuels which power most stand-by generators
Unfortunately, battery storage has moved along at a snail’s pace. Moore’s Law on doubling semiconductor capacity is something of a distraction; technology improvements over 15-18 months are hard to find anywhere EXCEPT semiconductors. Solar photovoltaic cell efficiency has doubled over 15-18 years; and battery storage has progressed even more slowly as it relates to commercial-scale applications9 (rather than lithium ion applications for cell phone and laptops). As a reminder, electricity is simply defined as the movement of electrons, which can only be “stored” as potential energy, for example via large height or chemical gradients (e.g., batteries).
The accompanying chart shows the existing state of commercial-scale electricity storage; it’s all about pumped hydro10, a process that uses cheaper electricity at night to pump water uphill into a reservoir basin, and then releases the water during the day to power a hydro-electric generator. The other technologies are an afterthought, at least right now. Note that more energy is expended in pumping the energy uphill than is generated by releasing it downhill; the economic value derives from much higher electricity prices during the day. Around 10%-20% of the potential pumped hydro energy is lost over time through evaporation and conversion losses.
There’s no room to go through the complexities of the storage technologies shown below. Here are a couple of generalizations:
- Less expensive options like pumped hydro and compressed air storage require favorable sites with the right geology, which are rare in nature and expensive to build from scratch (and often not located near electricity demand centers), and in the case of compressed air, require co-located gas turbines for compression
- Many battery-based technologies suffer from high upfront capital or operating costs; low energy storage volumes; delayed response times; safety issues (such as zinc bromine); or short lives (limited number of recharge cycles)
I had a meeting a few weeks ago which was notable for its optimism and enthusiasm. I met with the managers of Eos Energy Storage, which is working on a zinc air battery solution which aims to conquer all of the obstacles outlined in the second bullet point above. If the Eos projections bear out, they will offer battery storage at a capital cost of ~$160 per kWh, in the form of a 1 MW battery that is the size of a 40 foot shipping container (for 6 MWh of storage). The concept of “levelized cost” synthesizes upfront costs, financing costs, useful life, fuel costs and ongoing maintenance expenses. Rather than looking projections of capital costs per kWh, levelized cost comparisons are more useful.
As shown, Eos aims to be the cheapest option that can be scaled, and flexibly and safely located where needed. Note as well that they expect to be cheaper than natural gas peaking plants. This is a relevant benchmark, since most utilities rely on natural gas peaking plants to meet daily peak load requirements and to compensate for intermittent renewable generation of wind and solar. If storage works, the need for lots of peaking facilities could disappear. Eos has a prototype of its zinc-air technology that has run around 2,000 cycles so far; we should all pray either for their success, or for the success of similar efforts undertaken by their competitors. Based on the outcome of energy dreams, we should always be skeptical of breakthrough claims, given the complexity of the challenge.
More info at CCRES site.