I received a request recently from one of Ontario’s top colleges asking if they could distribute a version of the energy story below to their students. These excerpts appeared originally in Canada’s oldest and perhaps most conservative plumbing & heating magazine, Plumbing & HVAC. Both its publication and the college’s request are achievements for the alternative version of the truth about global energy economics.
The Changing World of Energy Economics
By Bruce Nagy
Today: As of now about 80% of homes and businesses in the world are heated by oil & gas. About 67% of the world’s electricity comes from coal, oil and gas. But even the most optimistic prophets don’t predict more than 100 years supply of any of these fuels, and most admit it’s more like 30-50 years at affordable prices. That likely includes the current shale gas celebration in the USA, which investors are now seeing as a bit of a sham. Consumption of fossil fuels is still increasing. If Asia keeps growing at the current pace, the energy landscape will have to change a lot in the next 20-30 years. What will take the place of oil and coal?
Tomorrow: For install trends of mechanical equipment used to heat and cool North American buildings in the next few decades, a lot will depend on natural gas. Natural gas powered equipment continues to improve its efficiencies, and given most of the current load requirements, the capital cost for gas appliances has not yet been matched by renewables. Affordability of natural gas and building efficiencies will be the key factors.
Shale Gas Realities
Forget about Matt Damon’s movie the true fiction related to fracking may be its business model. American politicians would rather not create panic by talking about shrinking oil reserves, and they have used trouble in the Middle East as a rationale for discovering new USA energy sources. So it’s not surprising that something like shale gas might suddenly become a miracle cure. The shale gas revolution is based on newish technology that right now creates a higher cost model than traditional extraction. American investors jumped in because they were told it was profitable, but according to several petroleum industry analysts, the business cases that were used to prove this made questionable assumptions about gas field yields.
Now many shale projects are reaching peak production after just a few years, with dramatic fall-offs after that. This is a serious problem for investors, unless extraction becomes more effective and costs go down. If mistakes have been made then the statement ’100 years of cheap natural gas’ contains two inaccuracies. It might not be cheap and there might not be a 100-year supply.
No. The economics of nuclear energy are in even worse shape. Once a plant is built it supposedly provides a lot of power very inexpensively, but the truth is coming out. Due to chronic overruns, investors stopped taking cost estimates for new nuke plants seriously around 1980. The USA Congressional Budget Office says the actual cost of building 75 nuclear power plants in the U.S. exceeded industry quoted estimates by more than 300 percent (actual cost about $3000 per kW not including waste storage).
In 2007 Moody’s Investor Service increased estimates to $5,000-$6,000 per kW and Keystone Center researchers found surprisingly high operating costs of 30 cents per kW. A proposed new Florida project was quoted at $8000 per kW in 2008. It takes something like 16 years from conception to operation, allowing costs to mushroom and making the whole exercise a bit moot in today’s accelerating energy innovation environment. Waste-to-energy, biomass CHP, big wind and huge solar farms are all more competitive and much quicker to build.
In the 1960s and 1970s the USA and Germany tested another kind of nuclear that uses thorium rather than uranium as a fuel. There has been some recent interest in resurrecting its possibilities. India has some reactors under construction and continues to conduct research. China has started a program. Thorium is less expensive, much more efficient and safe, and more abundant, especially in the USA, India, Australia, Turkey and Canada.
There are some who say that thorium nuclear is far better than uranium nuclear because it leaves very little radioactive waste behind that must be stored for thousands of years, and might even be able to burn up the stockpiles of waste we have now. With thorium reactor designs available, meltdowns are reportedly easy to avoid and the likelihood of a terrorist (or country) using the technology to make a bomb is almost zero. Thorium reactors might even be less expensive. The problem is, we don’t know. We are just starting detailed, costly research. We could have started in the 1940s when R&D was affordable. Why didn’t we? Because you could make a bomb with plutonium and power a nuclear submarine for war efforts, so that’s where the research dollars went.
Several kinds of wood products, waste products and agricultural biomass are making a huge impact on the generation of electricity and are also gaining in popularity as fuels for heating buildings. Theoretically biomass is one of the only base load renewable energy sources with widespread availability, considered by some as inexhaustible. It currently supplies about 14% of global primary energy with technologies now spreading from Europe to every corner of the world. Traditional biomass products like ﬁrewood, charcoal, manure, and crop residues provide the main source of household energy use for 2-3 billion people worldwide. It now involves grasses and woody plants, leaves, wood, wood chips, rice husks, peanut shells, sugarcane fiber, garbage, and waste. It is also now much more common as a fuel in many kinds of electric power plants (and large institutional or district heating plants). According to Pike Research, worldwide biomass power generation capacity will grow to at least 86 GW by 2021, from 58 GW in 2011. That represents a total investment of $104 billion. The main ecological concern is greed and breaking rules. For example making wood pellets from beetle kill lumber or from forest slash that would normally be burnt wastefully in the open air by foresters are both environmentally sensible, but clear-cutting forests is not.
Ethanol received a lot of attention a few years ago as a transportation fuel until it was realized that the energy input coefficient didn’t make much sense and neither did displacing USA food crops to make it. Nonetheless it’s still big business in some areas. In Brazil where it is made from sugar cane it is very successful, but sadly they reportedly clear-cut boreal forest so they can have room to grow the cane.
Investors now are excited about the prospects for algae. Algae absorbs CO2 while growing, can be generated pretty quickly using comparatively little acreage in controlled circumstances, and converted to a relatively clean burning transportation fuel. The economics and energy coefficients are all good; and although the process requires large amounts of water, the water is recycled, re-used and not polluted by the process. There is a lot of secrecy around this currently, but there are two key technologies still being taken seriously by investors. At least one of them is likely to succeed, primarily because the military is investing very heavily in its commercialization and it is a natural fit for their operations. It is expected to save a huge amount on air and ground transportation fuel costs. There are other possible applications, but we’re still four or five years from significant implementation.
Tipping point: Investors are now really committing to electricity from renewables. According to Bloomberg and the United Nations, global investment in renewable power and fuels increased 17% to a new record of $257 billion last year. USA investment leapt 57% to $51 billion. In 2010 China was the leader, investing $48 billion, while rooftop projects in Germany and Italy together reached $60 billion-worth of investment, up more than 90% from 2009.
According to the International Energy Agency (IEA) global wind power capacity was 238 Gigawatts (GW) at the end of 2011, up from 18 GW at the end of 2000, including an average growth rate of more than 25% over the past five years. PV was roughly 67 GW at the end of 2011, compared with just 1.5 GW in 2000, growing more than 50% each year since 2006. The IEA’s 2012 World Energy Outlook projects a 300%-400% increase in electricity from renewables by 2035, based on information from its member states, (the largest countries in the world). Eventually renewables are expected to provide half the world’s energy or more.
Hydro creates 17% of the world’s electricity. Due to long pay back periods, high capital costs, and environmental disruption, development of large-scale hydroelectric facilities has stalled in North America. Small-scale and micro-scale hydropower, however, show great promise for further development and expansion in the coming years. Only 2% of the more than 75,000 dams in the USA are currently used to generate electric power. And researchers are studying advanced turbine technologies that will help maximize the use of hydropower and minimize adverse environmental effects.
The German government commissioned a study which reported in September 2012 that even during the horrible years since 2007 while every other business suffered, clean tech has grown consistently, 12% per year, and is projected to double, becoming a 4.4 trillion in the next 7 years.
Are renewables profitable? The world’s largest producer of wind energy, Spain-based Iberdrola SA, blew way analysts’ expectations last year with a whopping $4 billion in profits. Canada’s energy guru and author Tom Rand reports that year over year investment growth for solar was 65% from 2005-2010, (and that in the USA solar employed more than 100,000 people in 2010-2011 compared with 82,500 for the coal industry).
Renewables economics should continue to improve as technologies are refined. In 2011 PV module prices fell by close to 50%, and onshore wind turbine prices dropped by 10%. Through district heating and cooling projects, geothermal capital costs are dropping, making levelized costs for geo increasingly attractive.
Conservation and Building Efficiency
HVAC in general is predicted to enjoy healthy growth in North America for the next few years. Analysts all agree that retrofits will be a huge business for the next 10 years at least. According to the UK’s Grantham Research Institute, increasing insulation, draft proofing, installing good-quality double-glazed windows and switching to more efficient appliances and light bulbs will save a minimum of 10% on energy in residential retrofits and 25% in non-residential retrofits.
As we all know for new construction, current savings are between 30% and 50% with contemporary thermal-bridge-minimized envelopes; except with the Passivhaus standard (now in the code in Germany) which saves about 80%-90%. Needless to say when all buildings are built to the Passivhaus Standard, the HVAC-energy discussion will be much different.
Bruce Nagy writes about sustainability and energy for several national magazines, an online webisodic green TV show, some ethical organizations, the Leader of the Green Party of Ontario and his blog http://NewEnergyAge.wordpress.com. See also @BFNagy on twitter, Bruce Nagy on facebook and http://www.linkedin.com/profile/view?id=169790088&trk=tab_pro