China To Become Green Super Power?

WASHINGTON – Many Western environmentalists and commentators openly praise China for its declared energy policy objective of turning itself into a truly “Green Super Power”. They claim that, unlike Trump’s America, (ignorant and backward), China (smart and forward-looking) truly understands the threat of global warming, and is actually doing something very serious about it.

Hundreds of billions for green power projects 

Indeed China has committed hundreds of billions of dollars to renewable energy projects. It is leading the world in massive investments in wind and solar projects, with more to come.

Contrast that with heretic America now led by a President who believes and publicly affirms that global warming is nothing but a hoax. Indeed, instead of leading the way in renewable energy investments, President Trump’s America promises to revive (dirty, high emissions) coal production, while he just signed executive orders that will re-start two major oil pipeline projects that had been blocked by President Barack Obama, at least in part because of environmental concerns.

Responsible China

So, there you go. Communist China’s leaders are acting as responsible stewards of our Planet Earth, while democratic America is the prisoner of anti-science bizarre bigotry that ignores “the facts” about green house gases and global warming, and the dire consequences of disastrous energy policies still based on fossil fuels that will end up cooking the world.

The truth is more complicated 

Well, this is how the critics of American policies would like to frame the argument. But the truth is far more complex. It is indeed true that China is investing very substantial amounts in green energy projects. But it is also true that renewables are and will continue to be a small fraction of China’s power generation capacity. The fact is that China relies today and will continue to rely in the future mostly on coal –yes, old-fashioned dirty coal– to produce about 66% of its electricity.

In contrast, if you look at the current mix, U.S. electricity generation is on balance far greener.

Green America?

In the U.S. coal is now used for only 33% of power generation, a much lower proportion than China’s, (50% less, in fact). On account of the shale gas revolution that made natural gas abundant and cheap, America now relies on low emissions natural gas for 33% of electrical generation capacity. This percentage is destined to increase, mostly at the expense of dirty coal. While this transformation is driven by market factors, as opposed to government green policies, the added bonus here is that natural gas is a much more environmentally friendly fossil fuel.

If you add 20% of power generation produced by nuclear and 6% from hydro, (an old-fashioned source of renewable energy), the picture is not that disastrous.

Less coal, more natural gas 

While the contribution from other renewables is still rather small in America –solar represents only 0.6% of total power generation capacity, while wind is a still a modest 4.7%– the fact remains that America relies on coal for only 33% of its power generation, while China uses this dirty fuel for almost 70% of its total electricity generation.

So, looking at the numbers, (to date at least), America is far greener than China.

The truth is that coal-fired plants are and will continue to be for years to come the major electricity producers in China. Even at current levels of new investments in renewables, it will be a long time before China becomes green in a meaningful sense.

Biomass 

In the meantime, if we break down China’s renewable energy mix, we see that (if we exclude hydro) by far the biggest percentage is represented by biomass. As noted by Bjorn Lomborg in a recent op-ed piece published in The Wall Street Journal (A “Green Leap Forward” in China? What a Load of Biomass, February 5, 2017):

“It is peculiar—though unsurprising given the sensibilities of Western environmentalists—that those who celebrate China’s “Green Leap Forward” almost always focus on wind and solar technology. By far the largest source of renewable energy used in China is traditional biomass—that is, people burning charcoal, firewood and dung, as China’s poor do to stay warm. Biomass is the biggest source of killer air pollution in the world.”

Health concerns 

As biomass energy production entails burning animal dung, wood and charcoal, this type of fuel is hardly green, because of the fumes and soot produced by its combustion. If you consider that in China biomass is used for home heating and cooking mostly by the rural poor, this means that the fumes released by these “green fuels” cause a variety of respiratory diseases to vulnerable, low income people.

It will take a long time 

So, what is really going on here? It is true that China is committed to increasing the percentage of its electricity generation provided by clean solar and wind. In absolute numbers, China’s renewable generation added capacity is truly impressive. However, as a percentage of the total (keep in mind that China has a population of 1.3 billion energy users), this contribution from renewables is and will continue to be rather modest.

Still reliant on coal 

The fact is that major efforts in wind and solar notwithstanding, China still relies and will continue to rely on traditional dirty coal as the key component of its power generation mix for many years. In fact, while wind farms are built, China is adding more coal-fired generation.

It is therefore a misrepresentation to state that China is well on its way to becoming a “Green Super Power”. While the intention may be there, it will be a long time before China will be able to rely mostly on renewables for its power generation needs.

Let the markets decide 

The larger lesson here is that in the end it will be superior technology delivered at competitive prices that will tilt the power generation balance. When renewables will be really cost competitive without subsidies, then they will be adopted on a massive scale in China, in America and elsewhere.

Right now, at least in the West, the push for early adoption of still expensive technologies is not driven primarily by economic considerations. It is pushed forward by policy-makers through mandates, set asides and tax breaks created because of strong environmental concerns.

While this is understandable, we should not muddy the waters by arguing that if China can go all the way with renewables, so should America. China is doing something important. But, on close inspection, a lot less than what is stated by Western environmentalists.

 

 

 




Hillary Clinton Will Ban Fracking -Less Energy For America

WASHINGTON – When it comes to America’s energy needs and viable alternatives to fossil fuels, it looks as if Democrats running for the White House live on another planet. Front runner Hillary Clinton recently declared that, as President, she would place so many restrictions on extracting oil and natural gas from shale formations using hydraulic fracturing, or fracking, that this will amount to a complete ban. Her opponent Bernie Sanders declared that he is totally against fracking.

The benefits of fracking 

Indeed. And yet fracking has been one of the few pieces of real economic good news of the last decade. Thanks to fracking America doubled its oil production. This means importing less crude oil, and keeping billions of dollars at home, every day. And fracking used to produce natural gas means abundant supply and lower electricity prices.

But no, this is not good news. The Democrats are telling us that this energy revolution that increased supply and lowered prices is actually bad, because of the environmental impact of fracking. Well, this allegation, even though endlessly repeated by the green movement, is almost entirely baseless.

Fracking is safe 

Of course there have been incidents of pollution deriving from poorly constructed wells and other sub standard practices. But there is no evidence of any systemic risk. If energy companies follow best practices and established industry standards, and most of them do, fracking is safe. And, by the way, this industry is regulated, and heavily monitored.

Environmental protection agencies at the state level keep an eye on it. At the federal level the Environmental Protection Agency, EPA –certainly no friend of oil and gas companies– reviewed the entire US fracking industry and could not come up with anything bad to say about it. Again, while the Obama EPA is certainly not in the pocket of the energy lobby, it could not come up with any justifications to restrict fracking, let alone banning it.

Renewable energy will become more important… 

If we look at the broader world context, it is clear that fossil fuels, (and natural gas in particular), will continue to dominate as essential energy sources. It is true that the most recent energy outlook produced by the energy company BP clearly indicates that the renewable energy sector is rapidly growing. It is gaining a bigger share of total energy consumption. But it starts from a very low base. Therefore, even if it continues its impressive growth, it will take years before it will be able to displace fossil fuels.

…But oil and gas cannot be replaced

In the meantime, oil and gas will continue to dominate. In particular, natural gas share of total energy consumption will grow significantly. And –guess what– most of the new natural gas produced in the USA comes from fracking shale formations.

The very tangible economic benefits coming from new natural gas extracted via fracking are stable or lower electric rates, (natural gas is used mostly for electric power generation), and huge advantages for US petro-chemical industries that use natural gas as feed stock. Cheaper natural gas means lower costs, and therefore more competitive prices for finished products.

Therefore, all sane people know that until we shall have truly cost-effective alternatives to oil and gas the fracking revolution is and will continue to be a major asset for the US economy. It allowed America to become once again a major energy producer, with clear advantages for industry, US global competitiveness, and huge savings for millions of consumers in terms of lower energy bills.

Politics 

So, why do Clinton and Sanders make such outlandish statements about banning or restricting fracking? Very simple. This is just politics. They both want to appeal to the Democratic Party far left where the greens and the pure environmentalists are strongly positioned. In order to get their precious votes, they need to assuage these ideologues with ritualistic anti hydrocarbon policy statements.

This makes no sense 

And yet, if you think of it, all this is absolutely crazy. In the real world, for would be presidents of the USA –one of the largest oil and gas producers on this planet — to state that they will ban a significant component of the production of this vital source of energy should be dismissed as totally preposterous.

But no, nothing happens. Both Clinton and Sanders declared that they will ban fracking. And no one says anything. I wonder how will Democrats in North Dakota, Pennsylvania, Ohio, and Texas –all of them major energy producers– react to this nonsense.




Solar Energy Coming to Africa

WASHINGTON – A few months ago, a photograph of a little Asian child sitting next to a city lamp post, trying to do his homework there because of no electricity at home, went around the world. Think of the hardships of poverty. And think of the resilience of this little child, trying to overcome adversity with a little bit of ingenuity.

Think darkness 

Yes, lack of electricity in the home is a huge, in fact horrible problem. But there is worse. Much worse. Think of no electricity in the home –and no lamp posts. Think about complete darkness at night because your village or township is not connected to any grid. And you are not alone. Millions of others are in the same conditions.

Most of Africa has no electricity 

And where does all this happen? Well, in many places in Asia. But the worst of the worst is in Africa. While statistics vary from country to country, on average, well over 50% of all Africans have no electricity whatsoever. Not in the home. Not in the streets. We are talking nothing. Zero. In sub-Saharan Africa, if you leave out a few cities where there is electricity (even if unreliable), about 70% of rural people have nothing.

No take-off 

Until the collapse of commodity prices, the buzz was that Africa was finally emerging. Growth rates of about 7% on average in sub-Saharan Africa seemed to indicate an economic take-off.

Well, not so. Not even close. Growth was driven by the China-induced high demand for commodities. This new demand drove prices up. And this meant more money coming into Africa, (and beyond: think Brazil, Chile, Argentina, Indonesia, Canada and Australia). Unfortunately, though, the new money was not invested wisely to modernize countries. In many instances it was used to buy expensive imports.

Well, now the party is over. The Chinese boom ended, and commodity prices have collapsed. African currencies have lost altitude. In some cases they lost 30% or even 50% against the US dollar. And all the economic diversification strategies discussed, and in some cases approved at the highest level, have yet to be implemented.

Nothing without power 

Alright. Things do not look great in Africa. But what about electricity, or lack thereof? It is obvious that not much can be done to grow these economies, unless affordable and reliable electricity can be produced and distributed on a much larger scale. It is just impossible to think of any economic development model worth its name without electricity.

Is solar coming? 

And here there is the proverbial ray of hope. After many false starts, it seems that solar power may contribute to solve this systemic power deficiency problem in a significant way.

Many countries in sub-Saharan Africa have plenty of sunshine almost all year round. Therefore they are ideal for solar power installations.

Until yesterday, however, the critical obstacle was price. It was just too expensive to build and maintain solar power plants in Africa. There could be no way to make money.

Better and cheaper 

But now it is different. Solar technologies have become more sophisticated, more resilient, and much cheaper. Therefore, it is beginning to make sense to install solar in Africa.

The additional advantage represented by solar is that solar solutions now can be customized. You do not need a large investment in a huge plant. You can bring the panels directly to the village, to the individual dwelling. Likewise, no need for sometimes prohibitively expensive transmission lines.

New companies 

For example, Off-Grid Electric (www.offgrid-electric.com) is a US company that drew from the experience of the growing solar panels business in the US to create a model that could work in Africa. Right now it is operating in Tanzania and Rwanda, in East Africa. Off-Grid Electric offers affordable products and simplified payment systems that allow even the poor to access its technology. And, as the company’s name says, it is all “off-grid”. No need to wait for transmission lines to get power.

Can the poor pay? Yes, even the poor spend money on fuels. They use charcoal to cook, kerosene and other fuels to power very inefficient (and dangerous) lamps. These traditional tools are rudimentary and expensive. It turns out that solar is better and cheaper. A payment system customized to the ability to pay allows this business to grow.

Revolution 

Needless to say, the difference between having zero electricity and having it all the time, is truly revolutionary. You can have light at night. You can read, do homework. You can recharge mobile phones, you can have power for tools and appliances, and more. 

Of course, these type of scaled-down, village level applications are not designed for large industrial use. Those would require bigger plants. But, if indeed solar is becoming cheaper, it will be possible to finance larger plants that are cost-competitive vis-a-vis conventional fossil fuels. 

A new era 

Have we entered a new era? I dare say, yes we have.

Africa’s electricity shortage was mostly about high cost, and very poor end users who could not afford expensive service. Now we are able to bring affordable power directly to them, without huge up front investment in new plants, and equally large distribution costs, due to the need to create new transmission lines.

Yes, with electricity life in the village is going to be completely different.




Where Is The New African Middle Class?

WASHINGTON – In a recent article focusing on why the African middle class is still rather small, The Economist points out that rosy expectations about more broad-based prosperity failed to materialize. Indeed, while sub-Saharan African economies have experienced significant economic growth in recent years, this is simply not enough to expand the ranks of a new middle class.

Scaling back 

The news is not entirely negative. There has been some expansion. But far less than what many had predicted. For example, the article points out that Shoprite Holdings, a major South African retailer, just a few years ago announced that it planned to open anywhere between 600 and 800 stores in Nigeria, Africa’s most populous country, (173 million).

Well, Shoprite ended opening up only 12 stores. You see the difference. 600 stores assume a large, reasonably affluent middle class that can afford supermarket shopping, as opposed to low income buyers who do their shopping with street vendors who barely get by with a tiny volume of sales. A total of 12 stores in a country of 173 million indicates that this scenario of more widespread prosperity failed to materialize. Most Nigerians are still poor.

The commodities boom is over

In truth, many African economies are growing. But in recent years this growth was the result of the global commodity prices boom triggered in large measure by Chinese unprecedented demand. This commodities explosion proved to be a short-lived, exceptional phenomenon. Now that China’s artificial boom is over, demand for Africa’s raw materials has declined. And this means lower revenues and stagnant standards of living.

Beyond this, you have to add Africa’s chronic malaise, a mixture of inefficiency, cronyism, lack of accountability, and corruption. This malaise in many cases translates into large income inequalities. Those in power and the well connected benefit in a disproportionate way from whatever growth is produced. Most of the others get little. Hence a small middle class.

Fine. We get all this. However, while good governance matters, the real reason why the middle class is not expanding in Africa is that the economic base is still very narrow.

Lack of electricity is the number one problem 

And by far the main reason for this is lack of electricity. Yes, lack of electricity. We can talk all we want about democracy, transparency, the need to fight corruption while creating systems that improve accountability. However, the fact is that without electricity you cannot have broad-based economic growth.

For many readers in developed countries this may sound really odd. We take electricity for granted. But imagine a situation in which, if you live in a city, power is cut off for several hours, every day. And if you live in a rural area there is no electricity whatsoever, period. Imagine doing routine things, (reading, ironing, riding an elevator, running a washing machine, watch TV, use your computer), without any power.

No power, no growth 

Of course, if you are a rich city-dweller in Africa, you can buy a generator. But making your own power is expensive. Imagine running a small manufacturing company relying on your generator for several hours, every day. This is possible, of course. But it adds to costs, in a major way. And this means non competitive products and smaller markets. If you live in a city and you are poor, forget about expensive generators. Lack of electricity means no lights, no refrigeration, no chance to watch TV.

If you live in an African village with no power, you are essentially cut off from the larger economy. Sure enough, these days you probably have a cell phone, and you may have access to a solar-powered phone charger.

The rural poor stay poor 

But you have no electricity. This means using wood or charcoal for cooking. Alternatively, you have to spend a large percentage of your truly small income, (we are talking about people surviving on a couple of dollars a day), to buy fuel for a stove.

And forget about basic developed world amenities such as refrigerators. Forget about switching on the (non existing) lights at night. In such circumstances of basic deprivation it is very difficult, in fact nearly impossible, to advance to the middle class. Lacking electricity, most African are condemned to a life of perpetual poverty in which at best people survive thanks to subsistence agriculture.

Other factors also matter 

Of course, there are additional factors that prevent economic growth, and therefore the expansion of a fledgling middle class. Health and education are key issues. Difficult to have economic progress with too many semi-illiterate and sick people.

Right next to these constraints, you have infrastructure, or lack thereof. While electricity is fundamental to any kind of economic development, good road, ports and modern customs systems that allow the easy movement of goods are also critical.

Yes, while this may sound odd, moving goods by truck on old roads is quite complicated in Africa. Likewise, clearing goods through antiquated (and often predatory) customs systems may take several days, or even weeks. All these obstacles hurt commerce and all companies that want to be engaged in international activities.

Economic growth will lead to the expansion of the middle class 

So, what about the future of the African middle class? Very simple. Hard to picture any significant expansion without basic modernization that will make more economic growth possible. Africa has come a long way. There are hundreds of millions of cell phone users, there are plenty of ATM machines, and internet penetration is improving. But African societies must fill huge gaps. While many issues are relevant and should be addressed, the number one problem is still power generation and distribution.

In Africa this is literally the difference between day and (hopelessly dark) night.

 




Obama’s “Power Africa” Initiative Never Took Off

WASHINGTON – Anybody who knows sub-Saharan Africa will tell you that the main obstacle to additional economic growth is lack of electricity. More than 600 million Africans are not connected to the grid. And the impact of this is devastating. Just look at any satellite picture of Africa at night. What you see is a huge dark continent. No lights means no electricity; and this means no economic activities, at night and during the day.

Little generation

A relatively small number of mostly urban African citizens (around 25 or 30%)  have electricity. But supply is unreliable. Most factories, workshops, hotels, hospitals and other businesses must have back up generators that kick in during the frequent power failures. Reliance on generators, while essential, is horribly expensive. Imagine any US small factory having to run diesel generators almost every day in order to keep its machines running and meet its production targets because the local utility would send power to customers only a few hours a day.

“Power Africa”?

Because of all this, when President Obama launched his $ 14 billion “Power Africa” initiative during a trip to South Africa, (Capetown, June 30, 2013), everybody paid attention. At the time it seemed that the US administration had finally decided to concentrate limited foreign assistance funds for Africa on one big ticket issue that, when properly addressed, would have enormous “force multiplier” effects.

It was also of great interest that the US government would work in close partnership with major US corporations. So, this was not just foreign aid. This was presented as an American public and private effort aimed at boosting Africa’s economic growth potential.

Electricity is of course essential. The difference between having it and not having it is huge. Access to reliable and affordable energy would allow immense economic progress for hundreds of millions in Africa, while improving everything: manufacturing, business, education, health care, financial services, you name it.

A bad plan

Upon review, however, Power Africa had enormous structural weakness. Its big budget would result from the consolidation of the grants, loans and investment activities of a variety of US federal agencies, while setting up –from scratch– cooperation mechanisms with major private sector companies (including General Electric and Symbion Power) that were expected to fork about $ 7 billion in new power generation investments.

And this is only half the story. The multiple US partners in this huge and untested arrangement would have had to interface with a variety of African stakeholders, (central and local governments, public utilities, private companies, chambers of commerce, financial institutions, and various NGOs), in several countries.

At some point, all this would have resulted in the creation and approval of an agenda, with feasibility studies, budgets, financial arrangements, and finally allocation of resources and construction of new power plants and distribution lines.

The complexity of all this is mind-boggling. The notion that US federal bureaucracies would be able to pull this off within a reasonable time frame was a dream.

A dream

And a dream it was. So far, two years later, not much has been done. Sure enough, there have been interventions here and there. Technical assistance has been provided for this or that project.

However, almost nothing when it comes to large “greenfield” projects. Critics argue that many of the projects that Power Africa would like to list as its own in fact were already in the making when this new initiative came about, therefore Power Africa cannot take any credit for them.

Failure?

Are we talking about failure? May be not total failure. But, if there are any achievements, they are not even remotely on the scale of what was announced by President Obama back in June 2013.

Additional proof of this is that Power Africa is seldom mentioned. A recent story in The Economist (The leapfrog continent, June 6th, 2015), is entirely devoted to Africa’s electricity needs. The article describes in some detail Africa’s power generation projects, while analyzing large plans being worked on, from South Africa to Ethiopia, with a special focus on the role of renewable energy.

Irrelevance

Well, guess what, The Obama administration Power Africa initiative and its projected $ 14 billion dollars of new investments in electrical power generation is not even mentioned in this long piece entirely devoted to Africa’s energy needs. Not even mentioned. Talk about irrelevance.

And this was supposed to be the new grand plan for Africa coming from America. Some plan.

 




Tesla’s New Battery Is Not A Breakthrough

WASHINGTON – A fancy press release and a well-advertised CEO press conference are not good  substitutes for introducing real innovation. Tesla’s founder Elon Musk announced that his electric cars company will soon start selling batteries that can store renewable energy for home use and beyond.

Batteries will store power

According to Musk, these state of the art batteries will allow people who have solar panels at home to safely store the excess energy they produce, this way diminishing and potentially eliminating their reliance on the grid when there is no sun light, or when power outages may occur.

Game changer?

For a moment, I thought this was a breakthrough, a real game changer. Well, it is not. Quite possibly it is an advancement in the ongoing efforts, pursued by Tesla and others, to come up with integrated renewable energy systems that will make users totally energy self-sufficient, at a reasonable cost.

This is worthwhile goal. But Tesla’s new batteries do not get us there. The main reason is that they are still rather expensive. The price tag is $ 3,500 per item, to which you have to add converters and other parts, plus the cost of installation. And why would you buy this package? The reason is that when there is no sun, or in case of power failures, you will be fine, because you will no longer depend on electricity supplied by your local utility through the grid.

Why buy these batteries?

This is interesting, but I seriously doubt that it will motivate many average consumers. The fact is that the cost of this total autonomy is still relatively high. Besides, the grid, whatever its many imperfections, is usually reliable. Why spend all this money to protect yourself from the inconvenience of a power cut due to bad weather?

Of no use in developing countries

More broadly, for the moment at least these incremental innovations do not even begin to address, let alone solve, the massive problem of lack of power in large parts of the developing world.

Consider this. In sub-Saharan Africa about 585 million people do not have any electricity whatsoever. Even in Kenya, a country that is doing relatively well compared to others in Africa, only 23% of the population has electricity. In neighboring Tanzania the percentage goes down to 14.8%.

Lack of power means that hundreds of millions of Africans are also cut off from real economic growth opportunities. I cannot think of anything valuable that can be done without any electricity.

It would be nice if Tesla had come up with innovation that could help solve this gigantic problem –lack of power– that represents the single largest obstacle to development. But we are not there.

Way too expensive

I do not believe that a subsistence farmer in rural Kenya will be able to pay around $ 5,000 for a battery, and all the other parts that go with it, in order to get full cycle solar electricity, (assuming that he already has solar panels). The idea is good. The prices are still astronomically high for developing countries users who need affordable power the most.

I would imagine that at some point there will be breakthroughs. At some point someone will come up with solar panels that people making a few hundred dollars a year can afford. This is not impossible. But we are not there yet.

Tesla’s announcement made me dream for a moment. But then I realized that this is mostly hype. This innovation will have little use in mature economies, and it is totally out of reach for emerging markets users.

 




Solar Panels On Every American Roof?

WASHINGTON – Solar panels producing photovoltaic electricity are finally going mainstream, according to an interesting WSJ story, (Home Builders Tap the Sun, December 2, 2014). Until now the installation of still expensive solar panels has been mostly about retrofits: placing panels on existing buildings.

Solar panel comes with the house

But now we have a new trend. As the WSJ explains, Lennar Corporation, America’s second largest home builder, now offers installed solar panels on its new homes as a standard feature. This is big. And this approach may soon be adopted by other builders.

Of course, for the time being at least, this added feature works well only in specific markets. You need a lot of sunshine, (think California, Arizona or Nevada), and a favorable tax regime that gives credits for renewable energy installations.

California, Colorado and Nevada

For these reasons, for the moment Lennar offers this package –house and installed solar panels– only in California, Colorado and Nevada. And this is because these states meet the basic criteria: plenty of sunshine that translates into lots of electricity, and a favorable tax regime that make the investment cost-effective.

This is how it works. Lennar gives home buyers a choice: either buy the panels and pay more for the house, (about $ 10,000 extra), or lease them from Lennar, with an upfront guarantee of a 20% saving on future utility bills.

A breakthrough

My sense is that this “house and solar panel package” is a real breakthrough. Granted, this is only a beginning. However, we know that solar panels are getting better and cheaper. Right now it makes sense to offer the house and panels package only in regions with a lot of sunshine. In those markets the solar panels are more cost-effective. But, in the future, assuming lower panels and installation costs, it will make sense to place them on roofs even in regions with less sunshine.

As a result of this transformation, years from now most consumers will be either totally independent from the grid (California) or at least less reliant on it, (Michigan).

No more power plants?

This will be a dramatic change. Assuming more and more installations, over time electric utilities will be less relevant. In fact some may disappear altogether.

Imagine that. No more large coal-fired or gas-fired plants. No more transformers, no more power distribution networks. No more need to regulate rates, no more need to create a special tax regime for utilities, and so on.

Disconnected from the grid

If you and millions of other people will be able to generate in your own home all the electricity you need, you will not need to be connected to the grid. In the regions in which consumers will be able to “make” at home only some of the power they need, this will still mean lower demand, and therefore the scaling down of any plans to build new power plants.

This means huge cascading consequences on the coal and natural gas generation industries, all the way to hydro-power and nuclear power plants equipment manufacturers. Not to mention the vast industrial sectors that make turbines and other machinery necessary for power generation and distribution. I guess there will be a point in which we shall look at out of commission, old transmission lines as relics of a bygone era.

A new world?

So, a brave new world? Well, we are not quite there, yet. Still, if other major US builders follow Lennar’s example, at the very least we can anticipate that in the South West there will be very few new power plants built, because many consumers will make their own electricity, right at home. This is a big change.




Lockheed Claims Nuclear Fusion Breakthrough

WASHINGTON – I have observed in previous pieces that our long season of economic stagnation here in America (and beyond) is in part due to a lack of significant technological innovation. We badly need “something new” , real game changers that will cause major qualitative advances, opening up growth opportunities in brand new economic sectors. Indeed, beyond fast changing ICT, there is very little out there that can be called “new”.

Nuclear fusion?

Well, here is a ray of hope. Reuters reports that US defense and electronics giant Lockheed Martin may be on the verge of something really sensational. Its celebrated Skunk Works, (Advanced Development Programs), research facilities may have resolved the up to now intractable technological problems related to controlled nuclear fusion.

Through Tom McGuire, the scientist in charge of the nuclear fusion efforts, the company decided to go public about its development of a “compact fusion reactor”, (CFR), with the hope of identifying partners that could work with Lockheed to speed up the process.

And here is the news. Based on its work to date, Lockheed claims that economically and commercially viable nuclear fusion will be possible in about 10 years from now.

An energy revolution

If this is true, this means that we are on the verge of an energy revolution comparable to the invention of the light bulb.

Lockheed claims that soon enough it will be able to build a compact 100-megawatt reactor that could fit on the back of a large truck. This “compact fusion reactor” would be a power plant about 10 times smaller than other prototypes being worked on elsewhere. According to McGuire, small size is a huge advantage for design, manufacturing and deployment.

Plenty of power

Commercially viable nuclear fusion, if indeed feasible, would be a really a big deal. It amounts to reproducing in a safe, controlled environment what happens in the sun. It means the ability to release enormous amounts of energy, with no dangerous waste or other byproducts, (this is the case with nuclear energy produced by conventional nuclear reactors). Nuclear fusion produces four times the energy that is generated by conventional nuclear fission reactors.

Energy for development

If commercially viable nuclear fusion became a reality, this would mean affordable electricity for everyone. This would result in an amazing transformation of our entire energy universe and a boost to most economic activities.

It would also mean access to reliable power for the hundreds of millions of people in Africa, India and other countries who never had any electricity, and who are therefore condemned to a life of poverty and under development. Just one of these compact reactors could provide enough electricity for at least 80,000 people.

Replacing old power plants

In the Western world these compact power plants would replace large coal-fired, oil-fired or gas-fired plants that deliver electricity to consumers via a complex, expensive and fragile network of transformers, sub-stations and thousands of miles of old and new power lines.

Imagine instead a new world in which all or most power is provided locally by a series of compact nuclear fusion reactors. This would mean getting all the energy you need without the problems related to building large-scale plants, while maintaining a nationwide power distribution grid. Imagine that: no more fossil fuels, no harmful emissions, easy maintenance.

Development for Africa

In Africa and elsewhere this could mean a gigantic leap from endless poverty to getting a real chance to join modernity. Most of Africa has little or no electricity. No electricity means no manufacturing facilities, and a serious constraint on all modern economic activities.

Most African cities are underserved. Power outages are frequent. But in the rural areas it is far worse. Usually there is no electricity –none at all. No power means no real economy, only subsistence farming. In the villages, the only sources of heat or light are expensive and difficult to obtain devices, like kerosene lamps, and burning wood for cooking.

A different world?

If and when electricity generated by nuclear fusion will arrive in an African village on the back of a truck, it will really be the beginning of a new era.

As William Pentland put in a Forbes piece: “If it works, the world will be in a different place”. Indeed, it will be.

Let’s hope it works.

 

 




Germany’s Green Energy Revolution Based On Belief, Not Economics

WASHINGTON – An interesting WSJ story, (Germany’s Expensive Energy Gamble, August 27, 2014), provides a good illustration of  top-down economic policies motivated mostly by ideological, as opposed to economic, reasons. The German government, presiding over the world’s fourth largest economy and number one within the European Union, years ago decided that the country had to embrace renewable green energy not because it is cost-effective; but because it is “good” for mankind.

Mandates

In order to achieve this gigantic power generation and distribution shift, the Berlin government imposed mandates on the use of electricity produced from renewable sources, (mostly wind and solar), while subsidizing the cost of green energy production. The goal was and is to discourage the use of fossil fuels. The government also decided to phase out all nuclear power plants.

This was a political move. There is a very well-organized anti-nuclear movement in Germany. The government felt that after the Fukushima nuclear power plant disaster in Japan it had to act in order to prevent additional public demonstrations against nuclear energy. This decision had little or nothing to do with any assessment of the safety of German nuclear power plants.

Overall, the public policy objective is to have soon a truly “Green Germany” that uses zero nuclear power, while relying less and less on fossil fuels. Germany’s energy will be cleaner, and soon enough truly clean. Because of this epochal transformation, Germany will no longer contribute much to global greenhouse gases emissions.

Tech leader?

Beyond the green goals, policy-makers assume that, by virtue of establishing itself as a global renewable energy leader, Germany will ensure that its technologies will be adopted world-wide.

Once it will be clear to all that renewable energy is really the way to go, most countries around the world would turn to Germany, the technology leader.

If successful, this major energy turnaround would prove that you can be green, innovative and profitable.

High cost

All this sounds really good. Except for one fact. For the time being, renewable technologies, while improving all the time, are still rather expensive.

Therefore the German government must subsidize them in order to make them economically viable. The cost of these subsidies is passed on to consumers.

As a result, on average, the Germans pay more than double for electricity than the average US consumer. That is a lot of money.

German energy intensive industries like chemicals, smelters and steel mills have already seen their operating costs rise and their global competitiveness reduced. Some of them are planning relocations and/or expansions in countries where electricity is cheaper, including the US.

Besides, as most of the wind energy is produced in the North of the country, Germany now needs to build new and very expensive transmission lines that will carry all this power to the energy hungry industrial South.

Why do all this?

Given all this, here is the question. Why on earth would the government in Berlin impose on the German economy –via expensive mandates and subsidies– the high cost of still immature green energy technologies?

Wouldn’t it be wiser to allow the market place to decide on what are at any given time the most cost-effective electric power generation technologies? Wouldn’t it be better for the government to limit its role to financing more R&D in renewable energy, this way helping its development, without picking winners today? Indeed, what if you pick the wrong winners?

There are other technologies

It fact, there is much progress in other (more conventional) energy technologies. We know from the recent US experience that an unexpected leap forward in new and cost-effective ways to develop immense shale gas reserves (hydraulic fracturing and horizontal drilling) led to large-scale production of really inexpensive natural gas for power generation.

This shale gas revolution completely transformed the entire US domestic energy supply picture in just a few years. Very important to point out that this happened while most of the leading energy experts where looking the other way. Key Washington policy-makers and their advisors did not see any of this coming. And yet it came. The real point here is that the market decided; and not policy wonks who believe they know what works and what does not.

Private sector in the lead 

It is important to stress that the US shale gas development revolution has been entirely a private sector-led effort.

Energy companies did not pursue shale gas development because of tax exemptions, mandates or subsidies. Companies invested in shale gas because they were hoping to make money. And they did.

The net effect of these massive private sector investments is that (thanks to cheap shale gas) millions of Americans now enjoy comparatively lower electricity costs.

“Good” and “bad” energy

Back to Germany, the only explanation for the top-down, forced investments in renewable energy is that this momentous “green choice” is based mostly on politics and ideology, and not on economics.

For a variety of reasons, most Germans now believe that green energy is “good”, while nuclear and fossil energy is “bad”.

Therefore, going green is a moral and ethical choice. It has very little to do with economics.

Ideological argument

Indeed, the basis of this costly energy policy is not cost-effective technology choices, but a mix of arguments grounded on (what most Germans believe are) final and definitive assessments about the damage to the environment and to public health caused by “bad” energy.

And, of course, there is also the argument that all responsible people must act –now– to stop and hopefully reverse the emission of greenhouse gases, the byproduct of burning fossil fuels, responsible (this is the undisputed consensus) for global warming.

Environmental protection is important

Now, having said that, I certainly do not want to dismiss the fact that the unrestricted use of “dirty” fossil fuels does indeed cause environmental and public health damages.

Therefore, all governments have an obligation to regulate any kind of power generation, with the goal of minimizing its environmental and public health impact.

For instance, ancient coal-burning power plants may indeed produce cheap electricity; but their harmful emissions also damage, (in some cases destroy), the health of communities living nearby. Therefore, either the plants can be retrofitted so that their emissions are within safe public health parameters, or they should be closed down.

No reasonable person would argue that, since obtaining cheap energy is our primary goal, we do not really care at all about the way it is produced, or about the consequences.

“Expensive Energy Gamble”

That said, the German government decision to progressively phase out all fossil fuels, while mandating the use of costly and still imperfect green technologies is indeed a very “Expensive Gamble”, as the WSJ story tells us, based on the sweeping assumption that all fossil and nuclear energy is bad.

Of course, we do not know how all this will play out, 10 or 20 years from now.

May be the German government will be praised for its incredible foresight and ability to anticipate future trends. May be the decision to gamble on renewables will turn out to be extremely smart.

What if they are wrong?

But what if things turn out differently? What if still expensive renewable energy will be unable to compete with, for instance, abundant and even cheaper shale gas?

Yes, in case you did not know, beyond the vast reserves we have in the US, there are incredibly vast amounts of shale gas all over the world, in countries such as China, Russia, Argentina, the United Kingdom and more.

If wind and solar became really inexpensive, it would make no sense to invest massive amount of fresh capital to develop non competitive fossil fuels. But if the cost of renewables remains relatively high, while the cost of producing shale gas stays the same or goes down, then fossil fuels will win, at least for a while.

In capitalistic economies, it is not unusual for private sector companies to make huge bets on still unproven products. Sometimes the bet pays off, sometimes it does not. In either case, corporate managers put at risk investors’ money.

The government chooses

But here we have the government of Germany, a large modern country, betting huge amounts (hundreds of billions) of other people’s money on something that it believes to be right not because of persuasive economic reasons; but purely because of beliefs that amount to a “green ideology”.

Is this really a sound foundation for public policy?

 

 

 

 

 




Instead Of Funding Green Political Candidates, Billionaire Tom Steyer Should Use His Millions To Support More Research In Renewable Energy

WASHINGTONTIME magazine has a lengthy portrait of Tom Steyer, (Green Giant, June 2, 2014), a California billionaire who decided to spend millions in order to support political candidates who pledge to fight global warming.

Global warming is the enemy

According to the TIME article, Steyer seriously believes that global warming is the defining issue of our times. It is an urgent matter that requires immediate policy changes. Hence his determination to support political candidates and major legislative or regulatory initiatives that will result in diminishing the use of carbon based energy, while favoring renewables.

On the face of it, all this is really odd. Even assuming that Mr. Steyer is totally right and that indeed man-made global warming is real, the notion that throwing his money to elect Democrat Terry McAuliffe Governor of Virginia will help stop or reverse global warming –a planetary phenomenon– is so bizarre that it looks really stupid.

Electing green candidates in the US will change nothing

Here are some simple facts. Whatever you may believe about global warming, without the active committment of China, India and many more major polluters to drastically cut their emissions, there will be no total emission reductions. (By the way, it looks as if the world is in fact moving exactly in the opposite direction. In case Mr. Steyer missed it, China just signed the carbon energy deal of the century with Russia, worth $ 400 billion. Russia will supply natural gas to China for the next 30 years. What’s Mr. Steyer going to do about that? Will he fund a political campaign to unseat Vladimir Putin, so that he can force Russia to reverse this deal?)

And, even assuming that the worst Asian polluters were totally on board (as of today, obviously they are not), even assuming a global and enforceable committment to reduce emissions by curbing the use of carbon based energy, the impact on global temperatures would be minimal. In other words, unless we want to outlaw carbon altogether, this way regressing to pastoral, pre-industrial societies, reducing carbon based energy consumption here and there would make little difference.

If this is so, does Mr. Steyer (and his political allies) really believe that passing this green measure in California or electing that Governor in Virginia will really move the needle on a vast problem that is by their own definition global?

Of course one might reply to this question by stating that “Surely it is better to do something rather than stand by and do nothing, while our planet is cooked by global warming…you have to start somewhere to build an anti-global warming coalition, etc.”

OK, I get it. But I do not agree.

Futile effort

Indeed, the whole effort, even if well-intentioned, looks really impractical, in fact utterly futile. And, from a public policy stand point, the approach –forcing emission cuts through laws and regulations– looks extremely expensive and therefore ill-advised.

Even if Mr. Steyer won all his political battles and green friendly elected officials will be able to set policy for the entire United States, new mandates forcing everybody to use renewables will cost a fortune while they will produce negligible results.

This is not a way to say that greenhouse gases emissions do not exist or that global warming is just a minor issue.

Focus on developing cost-effective renewables

This is to say that we need a different approach. And this has to focus not on curbing the use of carbon based energy but on producing economically viable alternatives to carbon.

To borrow a fictitious example, word processing did not get established as the normal way to compose documents because in the 1980s policy-makers put a tax on typewriters, while granting tax brakes to Microsoft.

The market simply adopted a superior technology –but only after it was proven that the new technology was demonstrably superior.

When it became obvious that word processing run through PCs was a better tool, typewriters disappeared. This revolution did not require special laws, mandates or policy changes. A more efficient tool replaced the old one.

The simple truth is that solar panels, wind and other alternatives have not yet reached this stage. While progressing, the renewable energy revolution is still immature. As yet, we simply do not have truly cost-effective alternatives to carbon based energy sources. If the currently available solar panels, wind farms and what not were economically viable, then they would be adopted by all users, whatever they believe about global warming, simply because they would be efficient and cheaper. As of today, they are not.

And this is why well-intentioned policy-makers (some of them elected via Mr. Steyer’s money) can deploy these still imperfect technologies only through mandates, subsidies and tax cuts. The simple reality is that, as of today, renewable energy solutions have to be imposed because they are not yet mature.

Europe tried and failed

And Mr. Steyer should just look at the outcome of Europe’s disastrous attempts to force an energy production revolution by deploying currently available renewable energy technologies.

Solar panels in Germany and wind power in Spain have produced some of the highest electricity prices in the world, with no appreciable environmental impact in Europe, let alone the world.

Use money to fund more R&D

Given all this, here is a practical suggestion. Mr. Steyer’s precious money should be devoted to fund more research and development in renewable energy alternatives. I am confident that human ingenuity sooner rather than later will come up with economically viable alternatives to carbon. More R&D money invested in this effort hopefully will accelerate the innovation-seeking process.

When we reach that point, the new zero-emission technologies will be adopted not because they are virtuous but because they are viable. Commercially competitive renewable energy, not politically mandated regulations, will help us cut emissions.