R-Squared Energy Blog

Pure Energy

Redirect on Thursday

Plans are to set up the redirect to the new site for R-Squared on Thursday the 18th. If you subscribe via an RSS feed, you will continue to receive the feed from the new location.

My first post at the new R-Squared will be a position statement. I will briefly cover my views on oil, coal, ethanol (cellulosic, corn, and sugarcane), renewable diesel (green and biodiesel), nuclear power, solar power, wind power, and climate change. That should provide a framework for initial discussions.

As always, suggestions are appreciated. Please let me know if you have questions or comments.

March 17, 2010 Posted by | Uncategorized | 4 Comments

Changes Coming to R-Squared

At the end of the week, I have to go to New Zealand for 10 days. As is often the case, my posting will be limited while I am traveling. Any time I travel, this always highlights one of the major weaknesses with a personal blog: Traffic is driven by new content, and if there is no new content for a week, traffic falls off. For this, and other reasons detailed below, I have decided that I would make some changes to the operation of this blog. I believe that they will ultimately result in a better experience for readers.

There are multiple reasons for making the changes. In addition to the travel issue, the blog is taking up more of my time. But a large portion of that is due to peripheral issues. Each morning I have to clear out a lot of spam, make template changes as needed, and deal with any technical issues.

Second, I don’t like Blogger’s comment structure. It becomes difficult to keep up with who said what, and then when comments exceed 200 in number, it becomes difficult to find the newer ones.

Third, I have a great number of technically savvy readers. My readers have shown that they have a lot to contribute. They frequently bring my attention to new energy stories, and they often post links to new stories. I have always felt like we needed a forum where readers can start their own discussions – and then discussions needn’t fall off if I am traveling.

If there is a noteworthy or controversial energy-related news story (e.g., the Bloom Box), instead of posting a link in the comments following the latest essay, I want readers to have the ability to start that topic themselves. That would also open up the discussions so that they aren’t so dependent upon me posting something new. I am always hesitant to post on areas that I don’t know a lot about, but with more reader-driven content the discussions could become more diverse.

I have been thinking about this change for over a year, but never quite found a good solution. Now I have found a solution (or maybe the solution found me) to all of these issues, but it requires migrating my blog to a different place. After a number of discussions with Sam Avro, founder and editor of Consumer Energy Report (CER), I have decided to base my blog there. CER is a comprehensive site for all things energy-related. It covers the spectrum from fossil fuels to alternative energy to politics to investments.

Over the next week or so, my blog will migrate there. You can read about CER’s mission here, which is consistent with my mission to have serious, thoughtful discussions on energy issues. But by combining with CER, I will have access to more tools than I have now. You can check out the new blog format here:

R-Squared Energy Blog at Consumer Energy Report

There will be a discussion forum for readers to start their own threads:

Discussion Forum

Readers who wish to participate in the forum will need to go through a 30-second registration procedure (Link here). It simply requires a user name and an e-mail address (which will not be shared, nor will it be publicly visible). This should help to minimize the spam. I also believe that this will facilitate civil discussions.

There will be a redirect from this blog starting later this week. Hopefully readers will come and join the discussions there. I will continue to post on a regular basis. It will still be “R-Squared”, just under a different roof with a number of improvements.

I want to build on the foundation that Sam and his staff have put together so that I can take R-Squared to another level. But it is of utmost importance to make sure it is a good experience for readers. We are open to suggestions from readers, and happy to answer any questions you may have. I believe Sam will be stopping by to introduce himself in the comments.

Questions, comments, or concerns?

March 15, 2010 Posted by | Uncategorized | 30 Comments

Strategizing for the Ethanol Industry

A reader recently sent me a link to the following story:

D.C. Discussions Advance Corn Issues

Extension of the Volumetric Ethanol Excise Tax Credit (VEETC) – This blender’s tax credit provides $.45 for each gallon of ethanol blended with gasoline and expires at the end of this year. The credit provides thousands of jobs, fuels economies and helps the U.S. to meet its mandated biofuels-production standard. The elimination of this credit will result in a 38-percent jobs and production loss. VEETC brings dollars back to the U.S. Treasury in the billions, eliminates more than $22 billion in oil imports and has led to a reduction of farm payments of more than $10 billion. Despite the success of the ethanol industry, some members of the Ohio delegation want its advancement to end – even delegates from areas where corn represents the largest economic portion of their district.

Granted, this is from the corn lobby, but that’s just unadulterated nonsense. It is scare-mongering, and given the advantages they already enjoy (and I am not opposed to some subsidies for the industry) it is sad to see corn farmers groveling for welfare like this. (The irony of this is that I grew up on a farm, in a farm community, and farmers love to gather at the local coffee shop to complain about “people on welfare” taking their tax dollars).

As I have been arguing, eliminating the ethanol credit (VEETC) wouldn’t absolve gasoline blenders from their obligations under the Renewable Fuel Standard (RFS). If the credit was eliminated today, gasoline blenders must still blend 12 billion gallons of ethanol in 2010, and 15 billion gallons by 2015. They just wouldn’t get paid to comply with the law.

Most of the attempted rebuttals to my recent essays on eliminating the VEETC completely missed the mark. People acted as if there was no RFS in place, and therefore they argued that eliminating the VEETC would completely destroy the ethanol industry. That was the gist of Growth Energy’s call to arms for their members; the VEETC was just too important to ethanol’s survival. That might have been a valid argument prior to implementation of the RFS, but it is not a valid argument today. If they really require both a mandate and a subsidy in order to compete, then we might as well stop this charade right now.

There was one response to my argument – made by several different people – that does have some merit. That response was that the VEETC helps incentivize blenders to blend more ethanol than what is required by law.

OK, setting aside for a moment the other arguments for and against the subsidies, it is true that the subsidy may result in the blender going above and beyond the law. But the response to that is simple: Only pay for what was blended above and beyond the law. Arguing for a subsidy that will cost almost $6 billion this year by some incremental blending above what the law requires is silly. In fact, that means you would be paying a very high subsidy for that incremental ethanol blending. How much? Try $4.18 per gallon of incremental ethanol blended.

Several related articles have recently been published along the same theme; that not only is a subsidy on top of a mandate redundant, but it subsidizes driving and wastes taxpayer dollars:

Mandates, Tax Credits, and Tariffs: Does the U.S. Biofuels Industry Need Them All?

It is puzzling why the biofuels industry continues to defend these subsidies when it has its mandates in place. Tax credits cost taxpayers more than $5 billion per year, and import tariffs convey the message that the ethanol industry is so uncompetitive that it needs protection against foreign competition. It would seem that there would be major political benefits from simply giving up all subsidies and import tariffs and for the industry to rely solely on the mandates . . .

Pay close attention to this bit: “Expanded mandates under the Renewable Fuel Standard provide ethanol and biodiesel producers a guaranteed future market at volumes that exceed what they have produced in the past.”

Think about what is going on here. Ethanol producers already enjoy mandates that guarantee a growing market. What other industry has that luxury? And on top of that, they want subsidies to complement the mandates? Outrageous.

I am in the middle of preparing my taxes, so tax dollars are much on my mind right now. And I strongly resent my tax dollars being wasted. The issue of taxpayer money has become a bit of a running joke with all of the multi-billion dollar bailouts and stimulus packages, but that money still comes from taxpayers, present and future. I will not sit idly by while we mortgage our children’s futures to pay a redundant subsidy.

That is a perfect lead-in to the theme of this article, which is what I think the ethanol industry’s strategy should be with the VEETC expiring this year. Now the ethanol/farm lobby might be able to push this redundant subsidy through regardless. I won’t be surprised if they do. But it is going to be a nasty fight, and it is going to shine a spotlight on this issue that they would rather have keep at a low profile. They are going to have to resort to scare tactics and exaggerations (as in the corn lobby’s missive above), and major questions will be asked as to why this industry still requires so much protectionism and taxpayer money to survive.

But imagine that instead of spreading a $6 billion subsidy across 12 billion gallons of ethanol (that oil companies are legally obligated to blend), that it was instead targeted at incremental E85 production. So instead of $6 billion, you could maybe spend $2 billion to get an incremental 2-4 billion gallons of E85 into the market. That would be smart politics by the ethanol industry, would save taxpayer dollars, and would still potentially grow their industry above and beyond their already guaranteed future market.

I haven’t been able to find E85 sales statistics for 2009, but there were lots of stories about how demand had dropped off during the year. The major problem here is in pricing; E85 is currently at about a 15 cent disadvantage (with the subsidy) relative to mid-grade gasoline (but only a nickel disadvantage relative to premium gasoline). If the VEETC was focused entirely on the E85 market, that disadvantage could be made to disappear at a fraction of the cost of the current program.

Further, I think E85 would be a much better outlet for the ethanol industry than trying to get nationwide E15 or E20 in the system. Instead of fighting the EPA, boat owners, the oil industry, the auto industry, etc. to force higher ethanol blends into the system (and I haven’t seen them step up and offer to assume the liability from potential damage caused by these higher ethanol blends), use it in cars that were designed for it.

There are numerous E85-ready cars on the road now. If the price is right, the demand will be there. The industry doesn’t even have to rely on the oil companies. There is nothing stopping farmer’s coops from getting together and opening up their own E-85 stations throughout the Midwest.

I am a fan of efficiency, and to me it doesn’t make much sense to produce ethanol in Iowa and ship it to Texas, while shipping finished gasoline products from Texas to Iowa. The Midwest consumes 40 billion gallons of gasoline per year. The ethanol industry should enjoy the largest cost advantage in the Midwest, close to the source of production. If we are going to incentivize ethanol, let’s first focus on getting E85 sales up in the Midwest, in the local markets where ethanol is produced.

I think some version of this argument – only use the VEETC to incentivize incremental ethanol production – would be a win-win for the ethanol industry. But continuing to argue that they need a subsidy for something oil companies are legally obligated to do anyway is not going to sit well with most people.

Note 1: (My recent Range Fuels’ essay has been republished in the current issue of Subsidy Watch).

Note 2: Major changes are coming to R-Squared. Details on Monday.

March 12, 2010 Posted by | Uncategorized | 218 Comments

Book Review: Big Coal

Big Coal: The Dirty Secret Behind America's Energy Future by Jeff Goodell

One of the triumphs of modern life is our ability to distance ourselves from the simple facts of our own existence. – Jeff Goodell

Big Coal by Jeff Goodell is a book I have had on my reading list for a long time, but I only got around to reading it during my recent trip to Europe. It has taken me a very long time to finish this review for a number of reasons, but one is that I had a hard time deciding what to write. Normally, when I read a book I will dog-ear the pages that I want to revisit either because 1). There was something significant that I did not know; or 2). I want to reference a particular point in the book review. By the time I finished reading this book, I probably had 50 pages dog-eared.

My introduction to Jeff Goodell came a couple of years ago when he was writing an article for Rolling Stone about ethanol. He contacted me and we talked a few times, I got to know him a bit, and he published a pretty scathing article during the early days of the ethanol euphoria. For more on that episode, see Rolling Stone Article, Jeff Goodell Debates the Rolling Stone Article on CNBC, or Bob Dinneen Responds to Rolling Stone.

I wish I could write like Goodell. I really enjoy his writing style. I sometimes disagree with particular points, but in Big Coal he makes a very compelling argument that we don’t come close to paying the societal costs of coal usage when we pay our electric bill.

Even though we don’t often see it, coal is a part of daily life for most of us. It produces a great deal of our electricity. But we don’t spend a lot of time thinking about the implications. As Goodell notes on the first page, “We love our hamburgers, but we’ve never seen the inside of a slaughterhouse.” Isn’t that the truth? I have always imagined the number of people who would become vegetarians if they ever saw the inner workings of a slaughterhouse.

When we fuel up our cars, we don’t think (much) about the ramifications of our oil dependence. When we flip a light switch, we do not associate that with the coal-driven mountaintop removals in West Virginia. In this book, Goodell thrusts those associations right in your face.

The book is divided into three parts: Extraction, conversion to power, and the resulting emissions. He covers the history of the industry, tells the stories of the people in and around the business, and while most of the book is based on U.S.-happenings, he does spend a chapter on China.

I would imagine the coal industry was none too pleased with Big Coal, because it paints a really ugly picture of the industry.  Goodell contrasts the coal industry with the individuals whose lives have been negatively impacted by coal in one way or another. He details corruption and politics that allowed the industry to delay implementation of pollution control equipment. And on a big picture level, he argues that continued usage of coal poses a serious threat to the earth’s climate.

This book will leave you shaking your head, wondering why we use coal at all if the overall picture is as troublesome as Goodell suggests. I found myself wondering as well, which was actually what led to my post on the cost of various energy sources. There at the top of the list for the cheapest source of energy was Powder River Basin coal, which is why we continue to heavily use coal despite the issues Goodell spells out.

We humans aren’t very good at willingly making sacrifices today in order to potentially improve the situation a few years down the line. We want instant gratification and coal fits the bill. (I would argue this is also why the U.S. is so deeply in debt and our personal savings rate is so low.)

I noted in my book review of Crude World that Peter Maass didn’t present a balanced picture of the oil industry; it was all bad. His book was intended to highlight the negative aspect of our oil dependency. Big Coal is the same in that respect. It is hard to argue that coal hasn’t improved the lives of a great many people around the world, and I know a number of people who would argue that these improvements outweigh the negatives. Further, it is fair to say that the coal industry has come a long way in cleaning up their emission profile over the past few decades.

But it is clear which side of that argument Goodell would come down on. To be honest, I come down on that side as well. I would like to see us limit our coal consumption and boost electricity generation from other resources. I know a great number of people who feel this way, but coal is like oil in that replacing it will likely entail economic sacrifices that individuals don’t like to make. Coal produces half of the electricity in the U.S., and I would have a hard time arguing that anything – outside of nuclear power – can scale up and take on the role that coal currently plays.

The realist in me thinks that we will eventually use up all of our coal, as will China, Australia, India, and all of the other major coal producers. This is primarily why I sit out the debates on climate change; I can’t realistically envision anything that will get the world to collectively NOT burn up all the coal. In an energy-constrained future, prices will rise and people who feel morally opposed to coal will suddenly find their moral fiber weakening as high energy prices bite into their budgets.

I don’t discount that renewable energy can eventually make a bigger impact (I hope so, because that’s what I am doing for a living), but it is starting from a very small basis compared to electricity generated from coal. While coal produces about half of the electricity in the U.S., renewables other than hydropower account for only about 3.5% (per the EIA).

So I think Big Coal will continue to be a very big part of our lives for many years to come – although with a strong political commitment the nuclear option could put a dent in our coal dependence.

March 9, 2010 Posted by | book review, coal, Jeff Goodell, nuclear energy | 142 Comments

Why Summer Gasoline Means Higher Prices

Spring is approaching, and gasoline prices are once again climbing. But you may not know that this ritual of climbing prices happens almost every year about this time. If you check the history of gasoline prices at the Energy Information Administration’s (EIA) website you can see that gasoline prices almost always rise between January and May.

The primary reason this happens is due to a seasonal switch in gasoline blends. There are two key (although not the only) specifications that refiners must meet for gasoline. The gasoline must have the proper octane, and it must have the proper Reid vapor pressure (RVP). While the octane specification of a particular grade is constant throughout the year, the RVP specification changes with the seasons. (See Refining 101: Winter Gasoline for a more detailed explanation of gasoline blends).

The RVP is based on a test that measures vapor pressure of the gasoline blend at 100 degrees F. Normal atmospheric pressure varies, but is usually around 14.7 lbs per square inch (psi). Atmospheric pressure is caused by the weight of the air over our heads. If a liquid has a vapor pressure of greater than atmospheric pressure, that liquid boils. For example, when you heat a pan of water the vapor pressure increases until it reaches atmospheric pressure. At that point the water begins to boil.

In the summer, when temperatures can exceed 100 degrees F in many locations, it is important that the RVP of gasoline is well below 14.7 psi. Otherwise, it can pressure up your gas tanks and gas cans, and it can boil in open containers. Gas that is vaporized ends up in the atmosphere, and contributes to air pollution. Therefore, the Environmental Protection Agency (EPA) has declared that summer gasoline blends may not exceed 7.8 psi in some locations, and 9.0 psi in others. The particulars vary, but key considerations are the altitude and motor vehicle density of a specific location.

The EPA publishes a schedule for the RVP transition:

Guide on Federal and State Summer RVP Standards for Conventional Gasoline Only

The schedule varies somewhat from region to region, but in general is as follows. After allowing vapor pressures as high as 15 psi in the winter, the limit drops starting on May 1st:

May: 9.0 psi
June – Sept. 15: 7/7.8 psi

More congested areas and hotter areas will tend to have a limit of 7.0 psi, while cooler climates generally opt for 7.8 psi. Some cooler climates maintain a 9.0 psi limit throughout the summer. One of the disadvantages of having different requirements for different areas is that summer gasoline is less fungible. This can cause price imbalances in different areas, and sometimes prevents product from flowing from one area into another to ease the shortage.

Refiners will start to pull down their inventory of winter gasoline well in advance of the May 1st deadline. On that date, all gasoline in the system has to meet the stricter requirements, and this “summer blend” is costlier to produce because it contains less butane.

Butane, which has an RVP of 52 psi, can be blended into gasoline in higher proportions in the winter because the vapor pressure allowance is higher. There are two advantages in doing this. First, butane is a cheaper blending component than most of the other ingredients. That makes fall and winter gasoline cheaper to produce.

But butane also adds to the total gasoline pool, so that means that gasoline supplies increase in the winter as more butane is added to the mix. Not only that, but this takes place after summer driving season, when demand typically falls off. These factors normally combine each year to reduce gasoline prices in the fall (even in non-election years). The RVP is stepped back down to summer levels starting in the spring, and this usually causes prices to increase.

One misconception some have is that they can save money by buying cheap gasoline in the winter and storing it for the summer. Remember that winter gasoline will pressure up as the weather heats up, and the contained butane will start to vaporize out of the mix. You will end up with less gasoline than you paid for, and that would also contribute to the air pollution problem that summer gasoline was designed to avoid.

If, on the other hand, you were to buy summer gasoline and try to store it until winter, you might find yourself having problems getting the fuel to ignite, due to the lower vapor pressure. This would be like putting a little bit of diesel in your gasoline – not very good for your car.

So how high might gasoline prices climb this spring? The EIA’s gasoline inventory database can provide some guidance. In the spring of 2007 gasoline prices spiked above $3.00 a gallon for the first time. But that year gasoline inventories also dropped sharply. Rapidly falling gasoline inventories are a good predictor of sharply higher gasoline prices. In the fall of 2005, Hurricane Katrica also caused a sharp drop in gasoline stocks, leading to an atypical fall price increase.

So far in 2010, gasoline inventories have been at very healthy levels. While some inventory draw down can be expected during the transition to summer gasoline, it is a pretty safe bet that the current high level of gasoline stocks will prevent a rapid escalation of prices this spring. I would expect no more than a mild price increase between now and summer, and at the current inventory levels it would not be surprising to see prices start to decline from present levels.

However if oil prices escalate, that could trump high gasoline inventory levels. This is why gasoline is presently about $1 more than it was last year at this time; oil prices were $30-$40 lower than they are now. But that’s a topic for a future essay.

March 7, 2010 Posted by | gasoline blending, refining, summer gasoline | Comments Off on Why Summer Gasoline Means Higher Prices

Electrifying the USPS

I usually scan the energy headlines each morning, but had somehow missed the stories on the recently introduced bills to electrify the U.S. Postal Service fleet:

U.S. Postal Service to test a repurposed electric vehicle fleet

Rep. Gerald E. Connolly (D-Va.) introduced a bill Friday that would pay for 109,500 electric vehicles, though the cost of that program isn’t known yet. “This, to me, would be a very productive thing and . . . likely to produce jobs and revitalize an industry,” Connolly said.

In December, Rep. José E. Serrano (D-N.Y.) announced an “e-Drive” bill that would give $2 billion to the Energy Department and Postal Service to convert 20,000 mail trucks into electric vehicles.

I have always liked the idea of electric cars. I have written a number of essays around that theme, primarily because electric vehicles could in theory be adequate replacements for internal combustion engines as supplies of fossil fuels deplete. Imagine that our electric grid eventually moves more toward renewable energy, and electric vehicles could be a much greener solution than the majority of the vehicles we have on the road today.

But note that I use words like “theory” and “imagine” to describe this idealistic future. I firmly believe that we need to have a look at the data from time to time to make sure that our idealism isn’t in direct contrast to reality. Unfortunately, in this case it might be.

Study: Electric cars not as green as you think

The environmental benefits of electric cars are being questioned in Germany by a surprising actor: the green movement. But those risks don’t apply in the U.S., the American electric-car lobby asserts.

Today, the German plants that deliver marginal electricity are fueled by coal. That is the main problem, according to the study. The research adds that to produce the same amount of energy, coal emits more carbon dioxide than even gasoline.

“The irony is that you don’t need a lot more electricity for electric cars,” Raddatz, said. “But the problem is that if they cause these peaks, we would have to have power plants that would be ready to start (as) the massive charging starts.”

An electric car with a lithium ion battery powered by electricity from an old coal power plant could emit more than 200g of carbon dioxide per km, compared with current average gasoline car of 160g of carbon dioxide per km in Europe, according to the study. The European Union goal for 2020 is 95g of carbon dioxide per km.

I have been thinking about this a lot, as I have recently seen some electric car/combustion engine comparisons in a report that is about to come out. I won’t divulge much about the report, but when it comes out I will link to it. But I will provide a quote from the soon-to-be-released report:

New Zealand energy consultant Steve Goldthorpe estimates that if the entire New Zealand vehicle fleet were replaced with electric cars, the amount of electricity New Zealand needed to generate to power this fleet would be increased by about 60%. Only a small percentage of this electricity could be produced sustainably; the balance would probably have to be generated by burning coal.

I think this is where idealism clashes with reality. As I pointed out in The Nuclear Comeback, over the previous 10 years electricity demand increased by an average of 66 million megawatt hours per year. That is without adding electric cars to the mix. The growth rate for renewable energy over the past 5 years or so has only been about 10 million megawatt hours (although last year saw an impressive 20 million). Still, this is a far cry from just keeping up with normal demand growth.

So the idealistic side of me sees renewable electricity continuing to grow, and powering a fleet of green electric cars. The side of me that looks at the data says that in reality, a rapid ramp-up of electric cars will have to be driven by non-renewables because renewable energy growth won’t be able to keep up. I wouldn’t personally have a problem with a nuclear-driven electric fleet, but I don’t think that’s the vision many have for future electric vehicles.

I am not factoring in the possibility that conservation of electricity can help close that gap. On that I remain hopeful, but our history is one of ever increasing consumption.

March 5, 2010 Posted by | electric cars, electricity, electricity usage, nuclear energy, renewable energy | 1 Comment

Will Solar Prices Fall into Grid Parity?

The following is a guest post written by Dan Harding. Dan has written numerous articles on the solar industry, and is a regular contributing author to CalFinder.

Will Solar Prices Fall into Grid Parity? 

By Dan Harding

The Holy Grail…in solar-speak, it translates roughly to Grid Parity. It is a goal either mythical or predestined, depending on which side of the solar power movement the speaker resides. A recent surge in supply and technology, coupled with increased government subsidies, are tipping the scales toward destiny, although by no means is the path to grid parity set in stone. The rapid fall in prices for solar panels and other system components in an oversupplied and flooded market could continue home solar power on its way to that mythical Grail but, all mythos and wishful thinking aside, what are the odds?

Good, says Swami Venkataraman, Director of Corporate and Government Ratings at Standard & Poor’s, in a recent assessment of the U.S. solar market for Renewable Energy World. As of February, 2009, installed costs for residential and commercial photovoltaic (PV) systems had fallen to $7.60 per watt from $10.50 per watt just two years earlier. Prices continued to fall throughout 2009 and, while expected to stabilize somewhat as the national economy rebounds, they should remain on that downward slope in 2010 and beyond.

So when will solar cross that line? It could be soon, very soon in regions of the country with either abundant sunlight (southwest) or relatively high electricity costs (northeast). Yet some valuable help is still needed at the legislative level which, if provided, could propel solar power to grid parity in the short-term in the aforementioned regions.  

Three factors, says Venkataraman, can help make PV cheaper than, say, a combined-cycle gas turbine plant. One or all of the following could ensure solar power a level playing field in the long term:
  • Rising gas prices
  • Renewable portfolio standards that make renewable energy credits (RECs) more valuable
  • The passage of carbon legislation that would force gas power producers to buy carbon credits, thus forcing an increase in price for natural gas.

Including incentives, solar power is already close to grid parity in many areas. The Northeast holds the handy combination of some of the most lucrative solar incentives (per watt installed) in the country, as well as the highest electricity prices. Therefore, solar has far less distance to make up to reach at least natural gas, and gives solar power the best and fastest chance to reach grid parity in the nation. In California, where incentives have been declining for several years now, the primary advantage is in abundant sunlight (same goes for Arizona, New Mexico, west Texas, etc.), as well as a powerful RPS and a general eagerness from the public to adopt clean energy.

But as those two examples illustrate, grid parity will almost certainly NOT come to the United States as a whole all at once. Federal incentives were expanded in 2009, including the removal of the $2,000 cap on residential systems and the admittance of utilities into the Investment Tax Credit, but continue to vary widely between states. The feds provide a baseline subsidy, but what truly makes solar affordable for most homeowners and businesses are the added incentives offered by their state. So, in terms of reaching grid parity, we can expect the Southeast — despite its healthy share of sunshine — to be the slowest to reach the Holy Grail. This is due primarily to a lack of incentives, low electricity costs and a deep connection to fossil-fueled electricity.

Without incentives, there is still a real chance for PV, especially commercial PV, to reach grid parity in the relative short-term. Current capital costs for commercial PV are about $5.50 to $6.60 per watt depending on the size of the installation, according to Standard & Poor’s. Incentive levels in many northeastern states are upwards of $4.00 per watt, which means that, given incentives, the levelized cost of electricity (LCOE) of commercial PV systems was already below standard commercial rates. Furthermore, if falling panel prices enable systems to reach or fall below $5.00 per watt, then solar PV could reach parity even without subsidies.

Residential grid parity is more distant but still closest in the Northeast. Outside of the Southwest and Northeast, where solar irradiance and/or electricity costs make the solar-grid-parity question more complicated and uncertain, help will have to come from other renewables. Most notable among these are geothermal (Northwest) and wind power (Midwest). It is important when discussing grid parity for solar power not to forget its intermittency and the fact that some backup power system will be needed. Even if our solar infrastructure were so advanced as to provide all our power needs during peak load times, we would still need alternative sources to pick up the slack on cloudy days and at night.

Of course, straight-laced economics aside, we must also consider the inherent value of solar power beyond mere dollar signs. The point of renewable energy is to switch from pollutive, peaking sources of energy to clean, renewable ones. Solar power emits no greenhouse gases, no carbon dioxide and, when distributed, can provide power at or near the point of use without turning our cities into smog factories. That alone is reason enough to subsidize solar, wind, geothermal and other renewable resources until they reach the Holy Grail that is their destiny.

March 3, 2010 Posted by | guest post, reader submission, solar power, solar PV | 14 Comments

Range Responds

I just became aware that BiofuelsDigest wrote a story on my recent blog on Range Fuels, and got some comments back from Range Fuels’ CEO David Aldous:

Battle of the Falling Timbers

Aldous said pretty much what I would expect the CEO of Range Fuels to say. He defended his company, and complained that the funding includes money for future phases. That may be, but it is true that Range recently went back to the DOE for more money. If they are already funded for future phases, then why not show us what you can do before asking for more money now?

The truth is that the early public statements from those involved with Range – prior to them getting taxpayer funding – don’t remotely reconcile with what they are now prepared to deliver. The costs have escalated, the capacity has been ramped down, and production went from “cellulosic ethanol” to “cellulosic biofuels” to “mixed alcohols” to “methanol.” Those are the facts, and I think Aldous is trying to put the best possible spin on a bad situation that he inherited.

In fact, left unsaid in my original blog is that things have obviously gone horribly wrong from the days of Range’s early claims. Reading between the lines, I think the capacity downgrades are an indication that the gasifier didn’t scale up as expected. Gasifiers are tricky, and one that works fine at one scale and with one feedstock may not work at all at a different scale. I also think Range found out that producing ethanol from syngas is much more difficult than they expected, and they couldn’t get a catalyst to do what they had hoped.

One interesting comment from Aldous was that their methanol would be a qualifying fuel because they will put it into biodiesel. Imagine that. Biodiesel is already struggling to compete, and now we are going to pay a subsidy on the methanol that is used to produce biodiesel, and then we will probably end up reinstituting the subsidy on the finished biodiesel.

That is going to be some expensive biodiesel (from a taxpayer perspective). Methanol presently trades at about $1.10 a gallon, so if we subsidize that as a cellulosic biofuel we would presumable pay a subsidy of $1.01 per gallon on top of the market price. In a nutshell, the real cost of that methanol going into biodiesel would be double what it should be. It all begs the question, of course, of why you wouldn’t just use the methanol directly as fuel.

There was a comment left following the story that allows me to finally tell a funny story that happened at the Pacific Rim Summit last November (here are my slides from my presentation). Alan Propp wrote the following:

Dear Editor,

My comment is this: you describe Mr. Rapier at the outset of your article with these terms, “Noted and widely respected energy writer…” I have met Mr. Rapier, and my description of him would have been, “Controversial, highly opinionated and frequently misinformed energy writer…”

His lack of knowledge or understanding of the Range Fuels project is indicative of his blog and other writings.


Alan Propp, Ph.D., P.E.
Merrick & Company

That comment is priceless on several levels. First, while Propp is smearing me he conveniently doesn’t mention that his company is the engineering firm for the Range Fuels plant. His company has made a lot of money on all the hype, and his fingerprints are all over the project. Think he might have an axe to grind?

But here is the really priceless part. At the Pacific Rim Summit, I was having a bite with a colleague at an evening conference event. Joining us was David Bransby, a professor from Auburn (and advisor to Range Fuels) who gave a presentation that I really enjoyed. His wife was also present, as well as some members of the Hawaii Science and Technology Council. We were having some interesting discussions around logistics, energy density, and the problems of scaling up biomass-based solutions.

Up walks Alan Propp, Ph.D., and he immediately began to berate me. Shortly thereafter, one person got up and left the table (telling me later that Propp’s behavior was the reason he left the table), and two more later asked “What was that guy’s problem?

We were talking about the difficulties with scaling up biobutanol (which I have blogged on here) and Propp said “You are wrong. They now have a new process which can get butanol titers above 10%.” I looked at him with a puzzled look, and said “That’s impossible. Butanol phases out of water at 7.7% concentration. You can’t have a 10% solution.”

Propp was undeterred. He said that a certain company had given a presentation that day, and if I had attended it “I might have learned a thing or two.” (I would have attended but had a conflict). I was really puzzled, and couldn’t figure out what he was talking about. I decided I would investigate later, but I knew one thing: He was wrong about butanol titers above 10%. That’s like saying “Our water freezes at 40 degrees.”

The conversation turned to energy balances, and Propp’s position was “Energy balances don’t matter.” We were discussing a municipal solid waste project for converting trash into fuel. I said that if the energy inputs into the project were higher than your outputs, then in most cases you don’t do the project (unless you are using non-fungible fuel like coal as an input to produce a liquid fuel output). Propp said (paraphrasing) “If the biomass is free, then usage of those BTUs is what matters.”

I knew that we were looking at this problem in two very different ways. I was looking at it from the long-term viability of an energy project. Propp was locked into the idea that because the BTUs are free, then any usage of them is an improvement over the status quo. I couldn’t get it through his head that if the usage involved consuming more BTUs than you could extract from the free biomass, you don’t do the project. So we had a very fundamental disagreement. For an energy project, I won’t consume more than 1 BTU of fungible fuel to produce 1 BTU of fuel unless there are some really special circumstances (e.g., if the project is really a waste disposal project and energy would have been consumed regardless).

The evening went on like that. Propp was extremely arrogant and condescending. Had I known then of his involvement in some of these biofuel projects, I would have had a better grasp on why he behaved as he did. But then I went back to my hotel and looked up the company he had been talking about. It turns out that the good Dr. Propp was actually confused and had been talking about iso-butanol, a fundamentally different compound than normal butanol (which is almost always shortened to just “butanol”).

From a biological perspective, it is true that i-butanol is less toxic to microbes than n-butanol, but the phasing concentration for i-butanol is also higher. What is needed to crack open the economics of producing butanol biologically (which used to be the case before the much cheaper petro-route came along) would be to get butanol concentrations above the phasing level, so it could be skimmed off instead of having to distill it all. From that perspective, the lower toxicity of i-butanol is offset by the higher phasing concentration.

Further, in the chemical industry the chemical properties of n-butanol are generally preferred over i-butanol. Therefore, butanol production is shifted to the greatest possible extent to n-butanol, and i-butanol almost always trades at a discount to n-butanol. There is still a market for i-butanol, but it is unclear if i-butanol would be an attractive renewable fuel. The published test results I have seen were all of n-butanol.

So I chuckled at the thought that Alan Propp, Ph.D., didn’t know the difference between i-butanol and n-butanol, yet berated me for not knowing about new technology that produced “butanol titers above 10%.” I sent him a note later that night and said “I think you meant iso-butanol.” He responded back “Yes, that’s correct.” (In fairness to Merrick, Propp did have a colleague with him – Steven Wagner, VP from Merrick – who I found to be much more reasonable and more interested in simply have a conversation about technology).

The next day, I saw Propp and his demeanor had changed entirely. Gone was the arrogance from the night before. (I presumed he was feeling pretty sheepish). He had promised to show up for my presentation later that day and put some tough questions to me, and I said “By all means, show up and give me your best.” He was a no-show.

So it is with an extreme sense of irony that I read Propp’s comment above. It is a classic case of projection. Of course the sort of pseudo-knowledge displayed by Propp that night is a big reason that Range is in the position it is in. The initial promoters failed to distinguish between cellulosic ethanol and biomass gasification, and therefore made certain representations that many of us knew were incorrect.

Second, they didn’t understand the chemistry of alcohol production well enough to know that the production of pure ethanol via this route is problematic, and that a mixed alcohol is what they would produce. Pure ethanol would only be produced at a very high cost. As reality began to settle in, we have seen the statements from Range evolve a very long way from the initial claims of what they would do.

So despite comments from Aldous and Propp, the verdict on Range is the same. What they are proposing to deliver is a far cry from the technology (and cost) that they initially went out and hyped. The public statements are there for anyone to read, and don’t need any particular interpretation from me to see that things have not gone according to plan. So whether I understand Range’s grand plans isn’t the issue. I understand what they have said publicly.

March 2, 2010 Posted by | butanol, ethanol, hype, methanol, range fuels | Comments Off on Range Responds

A Day Late on the Bloom Box

I wasn’t going to write anything on the Bloom Box, but people keep writing to ask what I think. My initial reactions were “What a lot of hype” and “I have seen this all before.” I also wondered why it is that people keep falling for these kinds of stories.

But fuel cells aren’t my specialty, and as such I won’t weigh in on the relative technical merits of this design over another. I know that fuel cells have been very expensive for many years, and the initial projections I have seen over the Bloom Box are that they will be very expensive.

Lots of people with expertise in fuel cells have weighed in on the matter, though. If you want a more technical assessment, see the National Geographic story:

Bloom Box Launch Is “Big Hype”–Invention Nothing New?

The Bloom Box—an as yet unbuilt in-home “power plant” designed to be about the size of a mini-fridge—could provide cheap, environmentally friendly electricity to U.S. households within ten years, according to Bloom Energy. Or not.

But fuel cell experts say that, based on the information the company made public today, the Bloom Box technology is not revolutionary, nor is it the cheapest or most efficient fuel cell system available.

“It’s a big hype. I’m actually pretty pissed off about it, to be quite honest,” said Nigel Sammes, a ceramic engineer and fuel cell expert at the Colorado School of Mines. “It really is nothing new. Go to any [solid oxide fuel cell] Web site and you’ll see the same stuff.”

Those were my initial feelings as well, and here is why I say we have seen this before. The year was about 2001, and I was younger and a bit more subject to being influenced by massive hype. There was a company called Plug Power (still in existence today; stock symbol PLUG, but they are flirting with getting themselves delisted) and they came out with pretty much the same story.

In fact, if you go back into Google’s news archives on Plug Power, you can see a histogram that shows the news stories on Plug Power spiking in 2000, remaining fairly strong until about 2005, and then falling to lower levels in the past few years.

The buzzwords used to describe Plug Power were the same as those used to describe the Bloom Box. The technology was called revolutionary, disruptive, and a real game-changer. There was a prediction made that most people would have Plug Power’s fuel cells in their homes by 2010 and we would all be locally producing and using our electricity in a refrigerator-sized box.

What happened? Plug Power’s stock soared to $2 billion on the hype at a time when investors would bid up companies that had no earnings but incredibly high growth projections. It just so happens that hype can lead to those growth projections (a hard lesson for me that permanently changed my investing style), and what happened was that reality eventually caught up with the hype.

Plug Power, like Range Fuels from my previous essay, could not deliver on the hype. They couldn’t deliver cheap fuel cells, and so they didn’t get the market penetration many had (unreasonably) expected. Their valuation came crashing back down to earth. Today Plug Power is worth about $70 million, or about 96.5% less than it was when I was following the story.

Bloom Energy looks like both Plug Power and Range Fuels to me. It is a company that is attempting to produce energy cheaper than all those who came before using known technology – and using hype to attract investors. And if Bloom Energy fails to deliver, they will learn just like Range Fuels that hype is a two-edged sword.

March 2, 2010 Posted by | Bloom Energy, hype, investing, range fuels | 3 Comments