SUSTAINABLE ENERGY: A DOUBLE BOTTOM LINE PLUS AFTERTHOUGHT?

November 30, 2011 § 2 Comments

 The definition of sustainable enterprises is the so-called Triple Bottom Line, wherein economic, ecologic and community benefit are all considered and balanced. Is that last leg of the stool given mere lip service or is the practice of energy recognizing this element fully?  And ought it to be?

The economic consideration is a given.  Without that there is no profit, and absent profit, no enterprise.  The ecologic or environmental piece is much in evidence today and few new energy enterprises would dare ignore this element.  The societal element is harder to define.  One is tempted to think that this is strictly composed of negative impacts upon society, because that is where the rhetoric is directed.  In some ways it suits the developers to cast it in this light rather than a more generic one.  So, for example, visual pollution is denigrated as a personal preference rather than pollution in the classic sense.

The Reality of Visual Pollution:  Perception is reality, the saying goes, and marketing folks know well that this is a powerful adage.  One cannot bully people into feeling a certain way.  Certainly not in commerce.  But on an issue of alternative energy, some nudging, in the Thaler sense, is in order.  Richard Thaler and Cass Sunstein wrote a powerful essay Libertarian Paternalism in the top-economics journal American Economic ReviewNon-economists, such as I, must not be daunted by the staid prominence of said journal; this is an easy read.  A further easier read, one that costs some money or trouble (going to the library) is their book Nudge.  Basically they posit the notion that given free choice people generally do not make the best decisions for themselves, even in an economic sense.  They need to be given a nudge.  The point of all this meandering is that just because folks “feel” a certain way about visual pollution does not mean they cannot be nudged to a different position.

One way to do that is to clarify the options.  Until recently the Sierra Club was against coal, nuclear and hydrocarbons in general (coal is a hydrocarbon, but one challenged in hydrogen content, and most think of it as a different species, but it is not).  Last time I looked, that position was tantamount to suggesting we grind industry and life as we know it to a halt.  And this is me, a life member of the organization talking.  Wind and solar are great options.  But they are still fledgling and incapable of base load service.  In the interests of fairness, the Sierra Club now supports natural gas as a transitional fuel, still to the consternation of much of the membership.

Duke professors recently made famous by their paper connecting well water methane concentrations to shale gas production suggest in an op-ed piece in the Philadelphia Enquirer that we eschew shale gas in favor of wind and solar.  No matter that each of these has opposition as well.  There are entire communities that will not permit a visible display of solar panels on homes.  Wind power has long been opposed on visual lines.  North Carolina, the home state of the aforementioned professors, has a law preventing wind farms on mountain sites, known as the Ridge Law.  Many communities have strong opposition to offshore wind production in sight of land.

When one flies into Amsterdam airport, wind farms are in abundance in the water.  Personally, I think they look like a flock of birds; but I am a techie, what do I know.  Perhaps their acceptance is premised on the Dutch having had windmills as a way of life on farms.  More likely is the explanation that it is that or Russian gas.  In Holland that may not be the direct option, but in Greece, which is dominantly dependent on Russian gas, it would be.  Southern Germany still remembers when the Russians capriciously shut down the pipeline through the Ukraine in the cold days of January 2009.  So, opposition to something should come hand in hand with a consideration of the alternative.  Unfortunately, a well-informed public is an oxymoron, and the fault does not lie with the public.

Societal Benefit:  Fair and equitable economic benefit to the local and regional communities ought to be a goal of sustainable energy development.  In Australia’s Northern Territories, uranium mining has provided a dividend to each native Aborigine, conjuring up the image of traditionally garbed locals riding on the beds of Toyota trucks.  Every resident of Alaska gets an oil related dividend of substance.  But these are the exceptions.

One measure would be similar to that in Alaska.  Royalties on production would in part be distributed to the county in question.  At the very least, this would go to ameliorate some of the damage to infrastructure.  In the case of shale gas drilling, the principal one coming to mind is the deterioration of lightly constructed farm roads by heavy trucks.  Beyond the issue of mitigation of damage, the community as a whole ought to benefit in some measure from the overall enterprise.  The fortunate leasers of mineral rights should not be the only ones to benefit.  That sort of inequity is a sure recipe for neighbor turning on neighbor, particularly when the have-not neighbor incurs some direct negative consequences of the activity.

Technology Forks in the Road:  Technology choice can often have a direct effect on the local populace.  These forks in the technology road fall into two broad categories: benefitting the local environment and aiding the local economy.  The first one is an easy choice if other things are about equal.  An example of that is in fracturing operations associated with oil or gas production.  As the industry became more skilled at drilling horizontally, the increasing reach of a given well allowed a new technology, known as pad drilling.  This involves drilling and producing from up to 25 wells from a single location known as a pad.  The number of roads needed drops as does the areal extent of the effects of traffic.  Also, this aggregation of wells allows for better supervision and oversight to minimize mistakes.  Pad technology was developed in Colorado for the express purpose of minimizing road footprint.  It now is even more important in farming communities such as in Pennsylvania.

Biofuels could face similar forks.  The conventional approach would be to transport the biomass or crop great distances to giant chemical processing plants.  Technologies are being developed to bring the mountain to Mohammad, as it were.  These must be specialized to not incur the penalties of reduced scale, but that is happening.  This will not only reduce road transport, but also it would create local jobs, which in many instances are high paying ones.

Distributed power is another example.  Small 50 to 100 megawatt plants using biomass, wind or mini-nuclear, to name a few, could provide localities.  In the limit they could eliminate the need for costly and unsightly transmission lines.  At short distances, direct current would be a viable and preferred option to alternating current.  Edison would have smiled.

In summation, the societal benefit component of energy alternatives need not be an afterthought.  Many elements can be brought to bear with no adverse consequences to the economics of the enterprise.  Also, the lasting value of being a good citizen cannot be underestimated.  It’s simply good business.

Natural Gas as a transition fuel for Carbon Mitigation

February 11, 2010 § Leave a comment

Synopsis:

Natural gas is increasingly being proposed as a transitional fuel for carbon mitigation; even by NGO’s that in the past were firmly opposed to all fossil fuels.  RTEC has examined the underlying premise and concludes that it is well placed as an organization to play a significant role in informing on the policies that will drive the energy sector in this area.  This is in keeping with a key RTEC goal for this year: to be a more visible player in energy.

Why Natural Gas?

The most popular carbon mitigation strategies center on renewable energy sources.  The foremost among these are wind, solar and biofuels, with just the last addressing oil replacement.  This discussion will focus solely on power production.  The majority of power is produced from combustion of coal, especially so in China and India.  Despite strong support for coal in Washington, and the technical viability of clean coal, a confluence of events suggests a slow down in coal combustion is likely.  These are discussed below.

  • California has already taken the lead to require coal plants to reduce emissions to the levels of natural gas plants, which is a fifty percent reduction, as opposed to ninety percent that previously was seen as a target.  Federal legislation is likely to emulate this in some manner.  This means that gas burning plants require no CO2 sequestration.
  • The lower requirement reduces the cost for sequestration at coal plants.  For post combustion capture, depending on the technology, the cost is likely to be in the general vicinity of 3 to 3.5 cents per KWh.  The current cost is about 6 to 6.5 cents per KWh.  So the fully loaded cost will be close to 10 cents.
  • The cost of electricity from natural gas can, as a rough rule of thumb, be estimated to be one cent per KWh for every $ per MMBTU.  So, at today’s natural gas price of about $4 per MMBTU, the cost is roughly 4.5 cents per KWh.  At $10 per MMBTU the cost would be about 9.5 cents per KWh.  In the last two decades, gas spot price has been above $12 for only four months, non contiguous.   If domestic supply holds up from the new shale gas reserves, few expect the price to go beyond $8, certainly not $10.  $10 is the effective breakeven with cleaned up coal, and with much lower capital investment.   Consequently, purely on economics and environmental compliance, gas plants make a lot of sense.
  • Gas plants are an effective complement to renewable sources, which have diurnal and other variability.

Why Not Natural Gas?

  • A shift away from coal to natural gas has to meet the critical hurdles of affordable gas and supply assurance.  The UK took this step in the belief that North Sea natural gas would be plentiful. This forecast did not hold up, and now the UK is forced to import, often at high cost.  For the US, reliance on foreign sources of Liquefied Natural Gas (LNG) would present issues, not the least being the high carbon footprint of LNG.  Alaskan gas, while plentiful, has deliverability issues.  So the future of such a shift relies upon the ability to exploit the massive shale gas reserves.  As noted above, if available, the price of gas is likely to be competitive with that of cleaned up coal.  Also, unlike oil, gas will not have any hidden military costs associated with assurance of foreign supply, since it would be entirely domestic.
  • The bulk of the shale gas potential is in New York and Pennsylvania, states that are substantially unused to petroleum production (despite Pennsylvania being essentially the birthplace of oil in the US).  Public push back has been substantial, on the grounds of pollution believed to be caused by the fracturing operations essential to the production.  Drilling in parts of New York has ceased on account of this.  When ExxonMobil purchased XTO for over $30 billion, they considered the threat material enough to make closing of the deal conditional on freedom to operate.  Resolving the looming impasse could be critical to any strategy to replace coal with natural gas for electricity production.

Role for RTEC

  • There does not appear to be any entity that has knowledge in the areas of the issues mentioned above and yet is non-aligned.  This is the opinion of executives at two petroleum related companies and two NGO’s with whom we have spoken.  A stated goal for RTEC is to identify compelling energy issues and play a key role in matters pertaining to a select few of these issues.    RTEC members have in depth understanding of the technology and economics associated with clean coal and natural gas production.
  • In the critical area of economic viability of producing shale gas in an environmentally acceptable manner, RTEC will enter the debate with insights regarding the validity of public angst and the ability of industry to be responsive to the issues with merit.  In particular, we have been approached by the Sierra Club to work with them and others to craft legislation in Pennsylvania.  The Sierra Club, World Watch and EDF have all realized that their absolute objection to new coal derived electricity is not reasonable without support for an alternative.  Consequently, they are backing natural gas as a transitional fuel.  However, they want this to happen against the backdrop of environmentally secure production of shale gas.  Hence their need for a respected third party to weigh in on the issues.  RTEC expects to source one or two other non-aligned experts to augment its expertise, provided the costs are borne by the Sierra Club or another entity.  The Sierra Club is clear on the point that RTEC does not support their opposition to clean coal and is merely acting as a resource to resolve shale gas issues.
  • If we feel we are making a real difference, we will consider measures to have a cadre of experts on call for consults from NGO’s and government bodies.  This may require seed funding, especially if a relational data base is part of the solution.  Ultimately, this could be a free standing unit whose span of influence could expand into other areas.


Potential Impact on US Energy

If natural gas fired plants are employed for new capacity, either for demand growth or replacement of ageing coal facilities (Progress Energy just closed thirteen coal fired plants in North Carolina), it provides breathing room for alternatives.  In particular, it gives time to resolve the issues surrounding clean coal, whether real or perceived.  RTEC continues to hold the view that clean coal is a viable part of the energy mix, especially when one considers the world at large.  Specifically, we expect post combustion capture and storage to be strongly in play for existing coal fired plants, especially those with many years depreciation remaining.

Eventually new base load capacity could go to Integrated Gasification Combined Cycle (IGCC), the long term clean coal solution.  We would expect also, that in the next ten years or so the nuclear option will be selected for new base load capacity and natural gas will begin to be phased out.  Price and availability of gas will determine the rapidity of this decline.  This is where the shale gas comes in.  If the known reserves can be accessed, there is reason to expect availability to be high.  Unlike offshore reservoirs, the time horizon between decision to drill and actual production is relatively short.  This is likely an effective antidote to rising demand driving up prices to double digits per million BTU.  Much of the new shale gas is profitable at $5 per MMBTU.  All of this leads to the hypothesis that natural gas prices will stay in single digits.  If they do, gas will remain competitive with clean coal and with lower up front investment, and so a shift away from it may not happen until nuclear power build up is significant.

In conclusion, if shale gas can be recovered in a fashion acceptable to the public, the reserves could be sufficient to support natural gas as a transitional fuel until cleaner alternatives become viable.  RTEC is positioned to play a key role, possibly a deterministic role, in the outcome.

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