November 06, 2008

Below are a few letters we received on topics that appeared in the past few weeks. They capture the essence of how many readers say they feel.
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Promising Shale Foundations - September 19, 2008

I think the keyword here is resource, and the country has a lot of gas resources even before the recent spotlight on shale. Besides the vast amount of coalbed methane in Rockies and Powder River Basin, Gulf of Mexico still holds a lot natural gas, but just not shallow water gas. Minerals Management Service has been encouraging deepwater drilling since the turn of the century, seeing that the production from shallow water was shrinking. A report in 2004 from MMS estimated that reserve for natural gas was around 175 Tcf. The number from MMS was 420 Tcf for all federal offshore areas in 2007. However, in order to turn resource into production, a certain price level needs to be reached to incentivize investments.

There was a perception that our country was short of natural gas, especially when we received boat loads of LNG in the summer of 2007. Then there was a flurry of regas terminal applications, riding on this perception of gas shortage. But the fact was that the Europeans didn't need the gas with a mild summer, so the LNG was "dumped" to the U.S. With the recent push on natural gas use, Chesapeake Energy could potentially monetize on both the land lease and the underlying gas, but for now, the resources are still just numbers that don't appear on balance sheets.

Dulles Wang

Critiquing RTOs - October 15, 2008

Not only is grid electricity 24/7/365, non-storable, and hugely capital and environmentally intensive, the grid is complex and requires coordination and planning, which are illegal and collusive under anti-trust law.

What we need is real restructuring: There are a number of things that the City of Seguin, Texas could do to increase conservation, efficiency, and good jobs installing and maintaining insulation, solar water heaters, ...etc. as well as rate structures that help social equity and energy conservation, such as eliminating "basic service charges" and shifting the total effective price of kwhrs to inclining block rates that charge more the more one uses.

Roland James

Backing Nuclear Power - October 17, 2008

There are a couple points I'd like to address in your recent editorial "Backing Nuclear Power." You wrote that the projected $9 billion price tag of a new nuclear plant is "a lot more than a conventional fossil fired plant or a renewable energy facility." The former is true, but the latter is not. On scale, a renewable energy power plant will cost as much or more than a nuclear power plant. T. Boone Pickens's Mesa Pampa Wind Project in the panhandle of Texas is a perfect example.

The wind farm will consist of 2,700 commercial wind turbines spread over 200,000 acres or 312 square miles. It will provide enough electricity for one million average U.S. households. Because wind farms operate around 30 percent of the time, the wind farm will require backup power supplies (most likely natural gas) for when the wind isn't blowing. Testifying before the Senate Energy and Natural Resources Committee in June of this year, Mr. Pickens said the project will cost close to $10 billion and will take seven to eight years to complete.

In contrast, the smallest new advanced reactor will generate electricity for 1 million average U.S. households, while the largest will power 1.6 million homes. The plants will run continuously for 18 to 24 months and will need backup only during refueling outages that are scheduled for low-demand times (spring or fall). The new plants are expected to be productive at least 90 percent of the time. At a projected cost of $7-to-$9 billion per single unit and an estimated build time of four-to-six years, new nuclear plants will cost less and take less time to build than Mr. Pickens's wind project. And it's important to note that the projected lifetime carbon footprints to build and operate both are nearly equal; one new nuclear plant will occupy about one square mile, and most new nuclear plants will be built on existing plant sites with ready access to electrical infrastructure and transmission lines. In addition, due to their inherent strength, nuclear plants aren't as vulnerable to extreme weather or aircraft impact.

Regarding financing, renewable energy supplies are highly dependent on government incentives. The American Wind Energy Association made it very clear that no new wind farms would be built and thousands of jobs would be lost if the federal tax credits stopped. New solar projects (projected to be the most expensive energy projects) are equally reliant on incentives.

There is broad misconception that nuclear energy has received a large share of federal incentives. Actually, it's quite the opposite. A comprehensive study recently released by Management Information Services, Inc., determined that nuclear power received just 9 percent of federal energy incentives over the past five decades. Renewable energy sources and hydro received 18 percent while oil, gas and coal received the lion's share of 73 percent.

Just like other new power supplies, new nuclear plants will be capital intensive. And because new designs are involved, along with the fact that the industry is essentially starting over, loan guarantees will be necessary to acquire reasonable loan rates. Reasonable loan rates will not only facilitate construction of the plants, they will also benefit consumers.

Every new commercial power supply will be expensive. There are no exceptions. And unless the companies building new supplies have extremely rich backers like Mr. Pickens who are willing to take great risks with their money, they all will need some form of federal backing.

Tom Kauffman
Media Relations Manager
Nuclear Energy Institute

You left out any mention of a huge risk that new nukes face: litigation risk. Construction and operation of nuclear plants have been delayed because one group or another is always suing, and it's easy to tie up a nuke for a decade or more. A financier at the front end has no idea when the nuke will start to produce electricity, and hence won't put his money on the table. This problem does not afflict any other construction enterprise as badly. Hence the need for loan guarantees.

Thomas P. Sheahen
Senior Analyst
National Renewable Energy Laboratory

I have worked in nuclear industry and hence can say a few things. I see from your article that different utilities have significantly varying price tags for their proposed plants. This is not understandable. When we have such a big plan to construct so many nuclear plants, there has to be a coordinated plan at the national level to standardize the specifications, designs, and plant engineering that will apply to all the plants or at least groups of plants. Every utility customer seems to have their own way of writing specifications, and tendencies to customize things which ultimately bring no true benefit to power generation, but escalate costs. In nutshell standardization is the only way to cut costs. NRC, utilities, and other nuclear energy related agencies must get together to have a common approach to revitalize this industry.

Jasbir Bhatia

One of the key reasons for the loan guarantees was to put the government's and the taxpayers' hands on the bag. Nuclear collapsed in the 1970's because a few kids (literally) could tie up a billion dollar project at no risk to themselves, and neither government nor taxpayers saw it as a risk to themselves either. By the time of Jimmy Carter's election, the political support for nuclear power had vanished. It was fashionable to be against big industry, easy against regulated utilities, and even fun to get into the headlines and on TV.

We worked very hard in the mid '80's to reform the licensing process, to keep it open and public, but to overcome the populist gaming. For example, the certification of standardized design was to eliminate groups from using the same contentions that had been raised and settled in previous public hearing processes. It remains to be seen how this reform will work in practice. Opponents know that if the first applicant receives its combined construction permit/operating license, the barrier to fighting the next plant becomes much higher. Same with the waste repository, but Harry Reid won a lot of rounds on that one. The EPA and the National Academy of Scientists threw science out the window to mess up Yucca Mountain. There are really no safety issues of any kind there! The idea of worrying about radiation from Techicium 10,000 years from now is ludicrous on its face.

Dave Rossin

The article talks about the lobbying of the nuclear industry implying that lobbying is its only reason for success and ignoring the fact that virtually everyone lobbies. This includes alternative energy companies and environmentalists. In short, lobbying is a fact of life, whether good or bad, and just about every significant group with a stake in government dollars, or regulations does it.

This article ignores the fact that existing nuclear power plants have become more cost effective and are the lowest cost supplier of electricity among the main baseload generators in the U.S. They have become more cost effective primarily because the capacity factors of the plants have increased from the 60-70% levels in the 1970s and 80s to the 90+% level the industry is seeing today.

I would be interested to understand the prices for new plants you quote since they are substantially higher that the ones I hear from people in the industry. Prices have been increasing for nuclear plants as well as other power generation technologies, but these are much higher than what I have heard.

Bart Roe

Editor's Note: Only a small portion of the letters related to this story were published in this edition of the Letters from Readers. More letters will be published future editions of the Letters from Readers.

Growing Green Jobs - October 20, 2008

Something has gotten lost in translation in your article "Growing Green Jobs". You have written:

According to the Worldwatch Institute, the renewables sector now employs globally about 2.3 million people. Germany, Spain and Demark are leaders in this area, it says, noting that this emanates from strong government support.

Except for national legislation, a few brochures, and subsidies for manufacturers (particularly in economically depressed eastern Germany), Germany's success in renewable energies has little to do with government support. Under the Renewable Energy Sources Act, operators receive guaranteed payments for renewable power; the costs are redistributed to all grid subscribers. Banks accept this mechanism as a basis for providing low-interest loans that invariably cover equipment costs and leave a profit for the operator. The whole system is plug-and-play.

Jeffrey Michel

We are presently spending over $500 Billion a year on imported oil. That will soon again increase to $1 Trillion or more as the dollar again drops in value due to the gigantic 'dilution' perpetrated by the Federal Reserve recently. How many jobs paying $100,000/yr including benefits will $1 Trillion support? Simple arithmetic: 10 jobs per $million, 10,000 per $Billion, 10 Million per $Trillion.

The question is: Would we prefer 10 million new, environmentally friendly, national security enhancing, permanent new jobs that pay a good living wage -- or would we rather continue to borrow from China to send the money mostly to the Middle East, Russia, Venezuela (and Canada)? From my simple perspective, it is a 'no-brainer.' But then again I am an engineer and Project Manager, not a politician.

Keith E. Bowers

Fuel Cell Forecast - October 22, 2008

The merits of stationary fuel cells are difficult to fathom.

Hydrogen-based fuel cells have 47% efficiency, but where do we get the hydrogen? From a methane reformer? If that be the case, then the electrical efficiency drops to about 33%, about equal to an advanced gas engine or a gas turbine. Even with combined heat and power, there is no advantage to using such a complex, costly and physically large system to produce electricity.

The reformer could work with a variety of fuels but the fuel cell is sensitive to impurities in the Hydrogen and the high capital investment could easily be rendered useless if poisoned by CO.

For standby power, reliability is paramount and the complexity of a fuel cell is a great disadvantage. To this day, we lack an inexpensive carbon-free source of hydrogen. However it can be made from electricity, the benefits for stationary power are elusive.

George Santamaria

Concerning the statement, "They have an electrical efficiency rate of 47 percent compared to 30-35 percent for legacy combustion systems, says FuelCell Energy." The fuel cell only runs at this efficiency when new. Now, look at the complete cycle for a new system: if you add a chemical plant to produce hydrogen, this runs at 60-70% efficient, add the inverter to convert fuel cell DC to AC (say 95%) and the net fuel pipe to buss bar efficiency is .27 to .31. Over time the 47% decays resulting in a time driven decrease in the .27 to .31 efficiency. Is there any remaining mystery why fuel cells fail to enter the market?

Granted, fuel cells offer a fascinating technology: direct energy conversion; however, wide scale use required a significant increase in efficiency, or the ability to run on hydrogen + carbon monoxide mixtures. Not even tax incentives overcome Thermodynamics.

Bruce Gerhold PhD PE
Bartlesville, Okla.

Financial Undertow Drags Reliant - October 24, 2008

Your question as to an event in isolation or part of a trend should be answered as being part of a trend. For nearly 100 years economists have been aware of an economic principle known as the "acceleration principle". Paul Samuleson improved on the original formulation in several ways but most particularly in crafting the "deceleration" phase. This is a fundamental transformation that no one can stop.

Other economists, such as F A Hayek, have also added valuable insights about business and economic cycles.

An overriding reality in every industry is there develops a "group think" component in how businesses are designed and operated. Conventional wisdom dominates design which means if the design is flawed then the industry is universally infected or handicapped by these flaws.

Two good current examples display this reality. The first is the universal participation of Wall Street firms in the crafting, selling and of all things acting as principals in the formulation of asset backed securities. The second example comes from Australia where financial over gearing and excessive fee generation has put one firm insolvent, Babcock & Brown about to be insolvent and the Macquarie Bank looking like it will be next. All three used the same business model and it has proven to be too fragile to make it through troubled times.

Nicholas Hayek, founder of Swatch Watch, spoke to a group of European business folks this summer in Baden Baden. His central theme was that businesses have let the financial folks dominate business decisions. It must be evident to everyone that this domination has placed all businesses in danger and that is now evidenced by the dramatic reductions of the stock markets.

I think it is premature to suggest that the energy industry in the USA or even in other parts of the world will escape a fundamental financial reformulation. Assets will be placed into the care of others by forced sales and auctions until such time as proper balances are achieved that diminish the dominance of fina nce.

Erik Andersen
Economist

Sun Will Shine on Solar Industry - October 27, 2008

As always, Ken, I enjoy reading your articles. Years ago, I listened to a energy-related talk by a professor from the University of Texas. One of her contentions regarding solar energy was that when you consider all of the energy required to make solar components (aluminum, glass, mining, transportation, etc), there is a negative return on the energy invested. She claimed that one could never recoup a positive return on energy expended with the solar collection process.

Don Drumm

Slump Slows Carbon Efforts - October 29, 2008

Your article falsely accepts the conventional wisdom that CO2 reduction will be economically painful. The conventional wisdom is popular, and underpins much of the policy debate on GHG reduction. It's also dead wrong, for fairly simple reasons:

1. Fossil fuel costs money
2. Fossil fuel, when burned, emits CO2
3. Therefore, burning less fossil fuel lowers CO2 and saves money

Mathematically, if one stipulates that reducing fossil fuel is economically painful, then it implicitly implies that the ratio of fossil fuel combustion and the delivery of useful energy (warm homes, manufactured goods, etc.) is immutable, since the economy grows with delivered energy, not mine-mouth coal. Needless to say, it is not. From cost-plus utility regulation to new source review, we are awash in regulatory rules that penalize enhancements in fuel conversion efficiency and for decades have skewed capital investments away from profitable GHG reduction. Moreover, even if capital was perfectly allocated throughout the economy, there is no logical reason why capital deployed in an era of $2 gas and 6 cent electricity (as was the case for much of our aging industrial and power generation fleet) is remotely optimal in today's regime.

So does the economic crisis make it harder to justify expensive reductions in CO2 reduction? Of course, but that doesn't mean anything about whether or not the economic crisis makes it harder to justify profitable reductions in CO2 reduction - the scale of which is truly massive. DOE and EPA studies have identified 200 GW of potential investments in cogeneration and waste heat recovery alone, all of which would be at least twice as fuel efficient as the grid and if fully deployed would lower US CO2 emissions by about 20% - more than taking every single passenger car off the road. How much lies in other sectors of the economy?

Our political debate over GHG reduction remains stuck in a "who should lose" mentality that is as dangerous as it is unsupported by the facts. Let's move the conversation to profitable GHG reduction. Remove the regulatory barriers to energy efficiency. Question our underlying assumptions that all of our existing capital stock has been perfectly allocated. And most importantly, stop assuming that reducing our fossil fuel combustion must be economically painful.

Sean Casten
President & CEO
Recycled Energy Development, LLC

Warm Reception - October 31, 2008

Your otherwise very well written article unfortunately perpetuates the mindset that energy assistance programs are designed or intended to deal primarily with home heating. In the West, we suffer from under-allocation of these important resources because equal attention is not paid to cooling degree-days. Folks in Arizona can perish just as quickly in 115 degree heat as folks in New England can in freezing weather, if not more quickly. The disparity of funding to address the similar concerns-- basically, to keep our body temperatures in a healthy range -- is a great and institutionalized inequity that needs to be addressed once and for all by the new Administration.

Stephen Ahearn
Director
Residential Utility Consumer Office (RUCO)

All-Out Fear Unwarranted - November 03, 2008

From the people I talk with, I believe your predictions are very accurate. The utility industry in the last several years has settled on a business model that is stable and relatively conservative in expenditures. New projects while large (AMI, Demand Response, and Intelligent Grid) but they are realistically funded. If the industry views Demand Response as a method of better using the existing infrastructure, investors will reward companies for better using their existing assets without having to build new assets which may not be needed in the future. If the industry views Intelligent Grid as a method of reducing the impact of aging infrastructure which is still operational but not as reliable and a method of mitigating the effects of the aging work force, Intelligent Grids become a very sound investment.

On the eve of the election it appears that the nation over the next four years will move towards universal care, reduced medical costs, and reduced costs for retirement -- all of which are major costs for corporations with aging workforces. While utilities will not be given a free ride regarding these issues, at least the never ending accelerating costs for these items will be blunted.

Chuck Drinnan
Principal
eWAM Associates

I read your latest editorial concerning financial turmoil and I must take some exception to your view that the bulk of electric utilities; regulated and non-regulated will ride-out the credit-crunch that is impeding almost all economic activity here and around the globe.

Your editorial makes the observation that utilities will, in the main, retrench, cut cash-flow outflows, and build little-to-no new plant over the foreseeable financial future. They will hunker-down and spend as little as necessary. This is certainly a straight-forward projection. It makes sense, but it also raises huge questions as to whether-or-not all-out fear is really going to be mastered by the "chop & lop" brand of infrastructure-rebuilding carried-out by most electric utilities these days.

And financial retrenchment means that even nuclear plants that have been fast-tracked and already approved by their respective Public Service Commissions for inclusion in rate-base will now not be built. This very-real utility retrenchment you mention has far-reaching implications; one being the implosion of the nascent re-birth of America's nuclear-electric industry.

(Not only are large nuclear plants impossible to finance in present market circumstances, they still face the operational-absurdity of the U.S. Federal Government being out-of-compliance with its own nuclear-decommissioning laws; which have for years required the feds to take nuclear waste off the hands of present-producers. But there is still no federal nuclear waste facility available for any civilian nuclear-plant waste-products; and there is still no resolution in sight to this unlawful state-of-affairs.)

So, with big nuclear plant's out-of-the-picture, and with new coal/electric plants bumping-up against transport-constraints of their own (as U.S. Rail Roads continue their own retrenchment of track and other RR infrastructure); this leaves gas-fired aero-derivative turbines as the only viable electric-plant installation, other than wind and solar.

But your article makes clear that bringing any new electric-plant on-line means attaching it to an ancient electrical Transmission and Distribution system; a system that is not well-equipped to handle predicted peak loads 10-years out, nor is this system equipped to handle the rapidly-increasing "reverse" flow-of-electricity from new renewable-nodes now being tacked onto this old grid.

Just as the cable industry had to re-build their cable-infrastructure to handle two-way web-traffic; a situation they did not plan-for when first constructing their grid; the electric industry is faced with re-building its electric-transport infrastructure to deal with much-more complicated flows of electricity up and down the voltage-paths of their inherently unstable T&D Grid system.

But financial "retrenching" to focus on the maintenance of aging AC grid does not appear to be taking into account the changes required in grid-structure when say, 10% of all electricity is net-metered and flowing back into local patches of grid. Now is the time for regulated electrical utilities to step up to the plate and begin the construction of a modernized grid capable of smoothly integrating many small increments of renewable energy, all across the grid. And all electric utilities that do not work vigorously to make their aging infrastructure solar-friendly ASAP will ultimately be left to wither.

It will be most interesting to see if regulated utilities can make the changes required in their respective grid-systems that allow net-metering laws to be effectively carried-out. The surviving electric companies will be those who do modernize their grids to accept renewable-electric input; and who do vertically integrate to the point where they own the means of producing photovoltaic power, as well as field it and send it down their wires.

Roy Johannesen PE

Corporations Cutting Carbon Emissions - November 05, 2008

I agree that buying renewable energy and the sort is a good thing for industry to do but does that really reduce the carbon footprint at all? As far as I am able to ascertain, utilities are dumping their wind energy generated power on the grid and treating it as negative load. That is understandable but there are two points that cause me mental perturbations. If the utility's large base load generation is coal fired steam with lengthy ramp rates there is no load following going on hence no significant reduction in carbon output. And, again, doesn't that set the value of the wind at what it replaces - base load or a few cents per KWh, not something the wind energy community would be happy about. This seems to point out again the need for more nuclear power plants and reprocessing as well as long term monitored, retrievable storage of the "waste".

Thanks for your well placed efforts and hard work. I admire your tenacity and strength to get out your articles every day. Impressive.

Alan Miller

Those of us that focus on natural gas distribution also have some good news regarding reducing greenhouse gas emissions. While U.S. and world-wide greenhouse gas emissions continue to rise, there has been one little known and very surprising exception to that trend. According to EPA data, total CO2 emissions from residential and commercial natural gas customers in the United States have declined substantially in the 2000-06 period. The 2000 emission level of 443.3 Tg CO2 equivalent had fallen 11.7% to 391.6 in 2006. What is truly surprising is that this absolute decline in greenhouse gas emissions came during a time when the number and size of homes and businesses served by natural gas increased steadily. Today individual households use 31 percent less natural gas than they did in 1980 due to more efficient appliances, programmable thermostats and better insulation.

Roger B. Cooper
Executive Vice President for Policy and Planning
American Gas Association

 

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