Renewables and the Future of Oil Companies

by John Brian Shannon.

It may surprise you to know that the world’s oil companies see renewables as an unstoppable force. Some oil companies have issued landmark reports informing us that by 2100 at the latest the world will be getting 90% of its energy from renewable energy, indicating this could happen as early as 2060 under certain geopolitical conditions.

Although oil companies were initially hesitant to embrace renewable energy, in recent years their position has changed somewhat, as the many positive attributes of renewables began to convince senior oil executives that changes were on the horizon and their choice was to either embrace that change or accept an ever-declining energy market share. By their own admission only 10% of late-century energy will be met by petroleum.

In the final analysis, energy is energy after all, and it is the energy business that the oil companies are in.

So, rather than cede energy market share to up-and-coming renewable energy companies, big oil decided to become involved in renewables, first with biofuel, then solar, and later, wind. Some oil companies even purchased solar companies with their already installed and operating solar farms to gain experience in the new frontier.

The Oil Industry: Early Oil

In the early 20th century it was all about the oil, but in the later 20th century it was all about refining it into diverse products and the oil industry then morphed into a much larger entity named the petrochemical industry which created billions of tons of plastics, fertilizers, liquids, products and even medicines every year. The petrochemical sector includes the natural gas segment and thousands of miles of pipelines exist on every continent except Antarctica to move methane from gas wells to processing facilities and then forward it as usable natural gas to the end users.

A much larger industry had sprung up out of the original oil industry, one that was far larger than the one that had merely pulled oil out of the ground and refined it for transportation use.

The High Cost of Oil

Almost all countries heavily subsidize their oil and natural gas industries, and the United States is a great example. Oil companies there get over $4 billion dollars per year (yes, every year) to ensure stable petroleum supplies, compliance with regulations even in difficult drilling locations, and to help levelize gasoline prices across the country.

It is commonly reported that the petroleum industry (worldwide) receives over $500 billion dollars worth of subsidies and tax breaks every year. The worldwide oil and gas subsidy reported by the EIA for 2012 was $550 billion dollars and 2013 will have a similar subsidy figure attached to it.

Besides the massive taxpayer funded subsidy scheme for oil and gas are the externalities associated with the burning of all those long dead and liquefied dinosaurs. For each ton of gasoline burned, 4.5 tons of CO2 are created. If you add up all the billions of tons of gasoline that have been burned since the first Model T Ford rolled off the assembly line on August 12, 1908, it totals an incredible amount of CO2. Not to mention the billions of tons of non-CO2 airborne emissions created by our petroleum burning transportation sector since that date.

All this burning has a significant healthcare cost for nations (look at China, for example) and pollution-related damages will continue to affect the agriculture sector and cause damage (spalling) to concrete structures like buildings, bridges and some roads.

Although an excellent source of energy for motive power with high output per unit, the necessary high subsidies and unfortunate climate-changing externalities have conspired to considerably shorten the age of oil.

Natural Gas, the ‘Bridge Fuel’ to a Renewables Future

The oil companies are ahead of regulators on this one. Knowing that emission regulations were getting stricter every decade, petroleum companies knew that they had to pull a rabbit out of a hat, as gasoline and diesel can burn only so cleanly without prohibitively expensive technology. This is why we hear every day about ‘Natural Gas the Bridge Fuel to the Future’ and how natural gas will revolutionize our power generation segment and transportation sector.

Convincing regulators, utility companies, and automakers to switch to natural gas became the new mantra of oil company executives in order to meet increasingly stringent emission targets in developed and emerging nations.

The ‘Bridge Fuel’ will peak between 2040 and 2045 in most published oil company scenarios and somewhere between 2060 and 2100 natural gas itself will be almost completely replaced by renewables.

Although natural gas is hundreds of times cleaner burning than other fuels, it still emits plenty of CO2, but emits only minute quantities of toxic gases — and, importantly, no airborne soot or particulates.

By mid-century or 2100 at the latest, cleaner burning natural gas will be replaced in order to meet emission targets, and natural gas would lose out to renewable energy anyway — even without emission regulations — for the simple reason that solar and wind have zero fuel cost associated with their operation, while natural gas will always have a fuel cost and a separate delivery cost per gigajoule.

Imagine all of the costs involved in prospecting for and siting natural gas fields, purchasing the land, drilling, installing pipelines, processing methane into natural gas and adding even more pipelines to deliver natural gas to the end user. It all adds up, and even the most efficient gas producers/processors/pipeliners must cover their overhead.

There are no comparable ongoing fuel or distribution overheads with renewable energy.

What will we miss in the Clean Energy Future?

Once a solar or wind power plant hits completion all it needs is for the Sun to rise or the wind to blow. No drilling, no processing, no pipelines, no supertanker spills or pollution, and no CO2 sequestration required. Just plenty of clean renewable energy.

For all the right reasons, renewables are making progress. Economics, human health and our environment are the factors driving this energy change-up.

Let’s hope in our energy future that oil companies and gas companies, simply yet profoundly, morph themselves into energy companies and upon actualizing it, become renewable energy companies in the process.

For further renewable energy reading:

World Cumulative Solar Photovoltaics Installations,  2000-2012
The world installed 31,100 megawatts of solar photovoltaics (PV) in 2012—an all-time annual high that pushed global PV capacity above 100,000 megawatts. There is now enough PV operating to meet the household electricity needs of nearly 70 million people at the European level of consumption. Image courtesy of the Earth Policy Institute
World Cumulative Installed Wind Power Capacity 1980-2012
Even amid policy uncertainty in major wind power markets, wind developers still managed to set a new record for installations in 2012–with 44,000 megawatts of new wind capacity worldwide. With total capacity exceeding 280,000 megawatts, wind farms generate carbon-free electricity in more than 80 countries, 24 of which have at least 1,000 megawatts. At the European level of consumption, the world’s operating wind turbines could satisfy the residential electricity needs of 450 million people. Image courtesy of the Earth Policy Institute.

Distributed Energy – The Next Logical Step

by John Brian Shannon

Distributed Energy adds capacity to the electrical grid during the hours that electrical demand is highest, adding to grid stability and lowering costs for consumers

Over the centuries, different kinds of energy and energy delivery systems have been employed by human beings. In the Neolithic Period some 10,000 years ago, our ancestors sat around campfires for the light, warmth and security that a fire can provide. Neolithic people mostly ate their food raw, but are known to have cooked meat and occasionally grains over a fire.

For many centuries that general energy usage pattern continued and the only difference was the kind of fuel (coal later replaced wood and straw) and the size of the fire and the number of people it served.

New ways of using energy

The Industrial Revolution changed all that for people in those suddenly developing nations. New energy technology offered huge economies of scale — whereby the larger the power plant, the more efficiently it could produce affordable power for large numbers of people.

The first electrical grids were then formed to transport electricity from large-scale coal power plants or hydro-electric dams to population centres.

Since then, every decade shows larger and more efficient power plants and ever-larger populations being served by this wonderfully efficient grid system. Huge power plants and sprawling electrical grids delivered electricity to citizens over very long distances and at reasonable rates, while investors, utility companies, and power producers received reasonable rates of return on their investment.

It was (and still is) an excellent model to employ, one which brings electrical current from remote power plants to electricity users at an energy price that works for everyone. Except for the fact that some power plants produce unimaginable amounts of pollution and are necessarily and massively subsidized by taxpayers, this has been a winning energy model for a number of decades. And this very successful and reliable model will continue to provide our electricity for many years to come.

But there are serious drawbacks to grid power

Utility-scale power generation requires huge power plants, each costing tens of billions of dollars in the case of nuclear power plants, billions of dollars each in the case of hydro-electric power plants, and hundreds of millions of dollars in the case of coal power plants.

All coal and nuclear power plants were heavily subsidized by taxpayers, or they couldn’t have been built in the first place

It doesn’t end there, as coal fired power plants use hundreds or even thousands of tons of coal every day of the year at a cost of $50. to $160. per ton, not to mention the huge infrastructure costs required to build the ports and rail lines to transport the coal — paid for by taxpayers. And then add to that, the freight costs paid to the shipping companies and the railway companies to transport that coal to the power generation site. Most of the coal that Asia burns comes from North America and Australia. Even within coal rich North America, thousands of miles of railway tracks were laid down to transport North American coal to North American coal power plants.

Let’s not forget the environmental costs associated with all that toxic smoke either. China and the U.S. each produced 7.2 billion tons of coal fired CO2 in 2010 and that number is rising every year. Not to mention the many toxic oxides of nitrogen and sulfur, along with soot and airborne heavy metals that are produced wherever power plants burn coal.

Nuclear power plants likewise, use expensive to produce nuclear fuel rods or pellets and simply could not survive without massive government subsidies. Then there is the storage problem, as the so-called ‘spent fuel’ is highly radioactive and must be securely stored for up to 20,000 years in temperature-controlled conditions. Again, massive taxpayer funded infrastructure must be provided to store the world’s ever-growing pile of spent fuel.

Other than costing billions of dollars and disrupting river flows and fish habitat, hydro-electric power is a benign and good electrical generation solution. If only there were enough rivers to provide all the electricity that 7.1 billion people require! With almost every possible river already dammed on the planet, hydro-electric power plants provide only 16.2% of the world’s electricity.

An even better energy model has arrived in the form of distributed energy

Simply stated, distributed energy is created when many homes or businesses place solar panels on their rooftops or wind turbines on their properties — and then connect it to the electrical grid. Either solar panels or wind turbines can be used in the distributed energy context.

With progressive policies designed to strengthen and balance existing electricity grids, distributed energy can play a large role in ameliorating our present energy challenges.

Distributed energy is the opposite of utility-scale electrical power generation in three very important ways

  • Distributed energy emits no measurable pollution.
  • Distributed energy assists the grid operator to locate the energy source close to electrical demand centres.
  • Unimaginably large and expensive national utility grids crisscrossing the countryside are not required in the case of distributed energy.

Connecting distributed energy to the grid results in many positives for micro-energy producers, homeowners, businesses, and the grid operator. During the daytime, solar panels may produce more electricity than the homeowner or business can actually use — although during that same time of day, the utility company power plants may be straining to produce all the electricity that the grid demands during those peak hours.

Net-Metering to the Rescue!

Therefore, energy-sharing takes place via the use of a net-metering system allowing the homeowner or business owner to sell their surplus electricity to the utility company. Net-Metering allows homeowners and businesses to sell their excess electricity to the grid at a profit, while retaining all the benefits of grid connection. Installation of a net-meter at each home is the essential part of a distributed energy grid.

New financing options are becoming available to homeowners and businesses to install rooftop arrays — and even renters are able to purchase renewable energy through innovative programmes designed to boost the market share of renewables.

Some auto assembly plants in Germany and in the U.S.A. have installed wind turbines on their properties, or on nearby land purchased specifically for that purpose. Both BMW and Volkswagen are famous for building great cars, and for being distributed wind producers that have installed wind turbines near their factories, to ensure more reliable power and to avoid energy price spikes. Many ‘world citizens’ admire their environmental commitment.

IKEA, WalMart and Walgreens are famous for installing solar power plants on their store rooftops and warehouses, and WalMart, Google and Apple Computer and others, have purchased wind farms in an effort to Go Green and to alleviate the energy price spikes which are so common in the U.S. and Europe. Well done.

Distributed Energy pays off!

In California, homeowners with solar panels on their rooftops are receiving cheques for up to $2000. — or even larger amounts in the case of larger rooftop solar installations — from their utility company every January, to pay for all the surplus electricity they’ve sold to the utility company during the course of the year. California law mandates that distributed energy producers be paid up-to-date by February 1 of each year and other energy policies in the Great Bear state prove their commitment to a

In Australia, many thousands of homes with solar panels on their rooftops have dramatically added to overall grid capacity and stability by curtailing the power outages common there during peak demand hours, and some coal power plants have shut down while other coal plants are now planning for decommissioning.

Understandably so, the heavily subsidized coal and nuclear industries fear the rapidly growing distributed energy model, although coal exports to China from coal giant Australia continue at a frenetic pace.

Turn down the burners — the Sun is up!

Natural gas and hydro-electric power producers cautiously embrace distributed energy as an augmentation of their efforts to provide reliable electricity to the grid — as they can all exist as energy producers at different hours of the 24 hour day — and for very different reasons none of them are able to eclipse the others.

Distributed energy typically produces its power during peak demand hours, and is known for reducing electricity costs across-the-board due to the Merit Order effect, which is a ranking system utility companies use to decide which energy generator to employ (in real-time) throughout the day and night.

In fact, distributed energy is all about adding peak demand power to the grid — resulting in a stronger, more reliable power grid while displacing dirty energy in the process — and monetarily rewarding citizens for their surplus electricity.

Wind Power Setting New Records in Asia

by John Brian Shannon.

Global Wind Power Capacity Set to Rise

In recent years, about 100,000 MegaWatts (MW) of wind power have been installed every three years, globally. As wind turbine technology and production facilities have ramped up, turbine costs have fallen significantly — resulting in a predictable demand curve.

The U.S. and China are by far, the world’s major players, with Germany, Spain, and Japan holding respectable positions in capacity and in turbine technology. As China entered the game, their massive manufacturing sector went into overdrive to meet expected demand. Some countries, (like the Netherlands) licensed their advanced turbine technology to China which worked to further speed production and installations inside the Middle Kingdom.

Huge increases in turbine supply, have resulted in huge increases in installations. The supply/demand result displays brilliantly in the chart below.

World Cumulative Installed Wind Power Capacity 1980-2012
World Cumulative Installed Capacity 1980-2012. Image courtesy of the Earth Policy Institute.

Looking at the chart, is there any doubt that the brisk pace of turbine installations will continue? Barring localized disruptions due to changing regulations or lowering of regional subsidy schemes, it looks like 100,000 MW will be added to the world grid every three years until 2020 at the very least.

Wind Power Ready for Takeoff in Asia

A recent Global Wind Energy Council (GWEC) report informs us that 2013 was a relatively ‘slow year’ for turbine installations with only 12.5% global growth over 2012 numbers. Most of the blame for this rests on the ‘on again — off again’ uncertainty surrounding the expiration of the PTC (Production Tax Credit) in the U.S. which was responsible for severely limiting the number and size of installations in that country.

Except for America, most of the world saw growth in turbine installations for 2013. China, especially, took off at a full gallop,beginning 2013 with 75,324MW of installed wind power and adding another 16,100MW by Jan 1, 2014 – amounting to almost half all new wind power installations worldwide! Installed capacity in China now totals 91,424MW leading the GWEC to speculate the country’s wind industry may be entering a new phase of maturity.”

China has embarked on the greatest push for renewable energy the world has ever seen. A key element involves more than doubling the number of wind turbines in the next six years. Already the world’s largest producer of wind power, China plans further massive increases. From a current installed capacity of 75 GigaWatts the aim is to achieve a staggering 200 GigaWatts of installed wind power by 2020.” — BBC

Wind surpasses Nuclear in China in 2013

At 2% of total electrical power generation in China wind surpassed nuclear (1.2%) last year, to become the country’s third-largest generator of electricity, after fossil fuels (all fossil fuels together total 78.2%) and hydro-electric (18.5%).

By 2020, even accounting for the growth of all other kinds of energy in China, it will represent 4% of total electrical generation. Which doesn’t sound like much, but it is a staggering number in itself, especially when compared to the rest of the world’s turbine installations combined!

What can renewable energy investors expect 2014-2020?

Plenty of growth for one thing. Better turbine technology and enhanced reliability, for another. More focus on so-called ‘wind corridors’ — those areas within a country’s boundaries where it happens to be most advantageous to place each turbine — yet close enough to electrical demand centres to be economical. Dramatically increased efficiency due to placing the turbine unit atop taller towers in the 200-300m range. Falling turbine prices will continue, courtesy of the massive entry into the global turbine market by China. And, turbine technology improvements and installations will continue at a rapid pace within China, and at a steady pace globally.

Perhaps the final word on the state of the industry in 2014 should go to David Shukman, the BBC’s science editor: “If any country can industrialise wind power and make it pay, it’s China.”