Will Cheap Natural Gas Hurt Renewables?

June 18, 2011 § Leave a comment

A recent story posted by the Worldwatch Institute addresses this issue.  The story in of itself has nothing new, in that it discusses the various elements in play but offers no new insights.  But it does cause us to mull the issue, because it has come up repeatedly at lectures I have given on natural gas-related matters.

We have blogged on and published the view that shale gas production will keep gas prices low.  This is largely due to shale gas wells being on land and shallow by industry standards.  These wells can be in production in 30 to 60 days after commencement.  This short duration effectively keeps a lid on the price.  If the three month strip is seen as going up, new wells can be in production well within three months.  This sort of certitude will also discourage speculative investment in the commodity.  The floor price will get set by the conversion from coal to gas for electricity.  50 percent of coal plants not expected to meet the latest EPA standards on mercury and NOx are over 40 years old.  So these fully depreciated plants will not be refurbished.  The only options are new coal, nuclear and natural gas.  New coal is disadvantaged on price alone until a natural gas price of $8 per million BTU.  Today that price is $4.40.  So, with the aforementioned ceiling, coal is not the economic choice.  Nuclear has suffered a blow due to the Fukushima Daiichi disaster.  So, natural gas will be the fuel of choice.  Eventually, the shift to gas will cause the price to rise, but the lid will still be around $8.

Cheap natural gas will also cause a shift from oil to gas whenever possible.  This additional demand will keep the price up in the medium term.  So, let us assume a price of $8 as the stable price.  At this price, electricity will be delivered at a little under 7 cents/kWh.  This is the grid parity price that alternatives will have to meet on a direct economic basis.

This benchmark price is lower than the fully loaded price of new nuclear plants, which will be over 10 cents.  Currently, wind delivers at 9 to 16 cents, depending on where it is.  Offshore wind may be higher yet at this time.  Wind also often suffers from the need to add transmission infrastructure.  This is especially the case for offshore facilities.  There is also the celebrated case of Boone Pickens terminating a major land-based investment due to absence of concrete plans to add transmission lines.

Strictly from a techno-economic standpoint wind still has an upside.  Engineered solutions are likely to drop the price from current levels.  But it continues to suffer from diurnality, and so needs to be companioned to another source or to storage mechanisms.

Policy Matters:  Without a price on carbon, the carbon-free alternatives of wind, nuclear and solar are seriously disadvantaged.  Taxes are anathema to the current Congress.  Cap and trade has not worked particularly well in Europe, in part due to the uncertainty, which effectively increased the discount rate on investment.  Also, any cap and trade conceived by Congress will undoubtedly have numerous exclusions and grandfathering.  The province of Alberta in Canada has an interesting model.  They tax high carbon footprint heavy oil production over a certain volume.  The money is placed in a special fund expressly for the purpose of addressing environmental issues associated with oil and gas.  Such directed use of tax proceeds is more palatable.  Conceivably, the fund could subsidize renewables for a period of time.

Finally, one could resort to the current method of imposing a renewable portfolio standard.  This in effect is a tax on the consuming public because the renewable energy costs more.  The solar subsidy in Germany is passed on directly to the consumer as well.  But that is largely possible due to the considerable influence of the Green Party.  Short of taxing conventional oil and gas, consideration could be given to decreasing the incentives and redirecting those funds.

Conclusion:  Cheap natural gas will place every other source of electricity production, including renewables, at a disadvantage for the short to medium term.  Reliance on market forces alone will slow the introduction of renewable energy.  Policy mechanisms are needed to level the playing field, at least from the standpoint of carbon neutrality.  The most equitable methods may be a U.S. analog to the method used in Alberta.  By all accounts, that policy is embraced by the public and industry alike.

Energy Engineering in the Triangle

September 30, 2010 § Leave a comment

The national imperatives of energy security and sustainable energy development will drive the creation of new businesses centered around alternative energies. We expect these to fall into t wo areas: replacement of oil for transportation and less carbon intensive electricity production. In addition, research regarding intelligent electricity grid has become an interesting combination of these two areas.

Furthermore, the more efficient use of energy will also play a central role in sustainability. The engineering work force required to execute all of these would benefit from college training that recognizes these specific fields of study. An Energy Engineering (En E) curriculum could well be the solution. Here’s what such a discipline might entail.

The foremost disciplines in the general field of energy engineering are those of Nuclear Engineering and Petroleum Engineering (Pet E). We will use the latter for discussion because it is more widespread and serves a mature industry fairly well with a defined set of required training (Nuclear is similar). Thus it is able to sustain a specialist discipline.

This will not be the case for the En E program serving the alternative energy industry. The industries served could have elements of the following: solar electricity, wind electricity, biofuels with biochemical and thermochemical variants, smart grid and related enablers, energy efficient devices, batteries and other storage, clean coal, carbon sequestration, electric cars and related endeavors such as fuel cells, and hydro. This breadth alone hinders a unique En E four year program.

Even Pet E is subject to the whims of the industrial cycle. In a recent trade publication, an influential department chair recently put out a plea for hiring their graduates. One of the problems is that the hottest play in petroleum today is shale gas. They are hiring, but the volume required is in the hard core disciplines of Mechanical, Electrical and Chemical Engineering, not Pet E. In fact, far more of these comprise the petroleum work force in general. Alternative energy programs should use this knowledge as a guide.

A minor not a free standing major

The solution is to offer concentrations in En E, perhaps even minors. These would be enhancements to core engineering degrees. There would be an analog for the sciences, wherein a Chemistry degree could be supplemented with an Energy Science concentration.

Such concentrations would be expected to comprise four to five courses of nominally three units each. Courses would be selected from a menu, with the selections directing the student to particular industries. But the key to this approach is that a down cycle in that industry is not a catastrophe. The student can rely on the core engineering skill set for an entry level job.

Social Science is a key ingredient

An important element of this minor would be the treatment of the social science component. Engineering curricula typically requires few social science courses. But an En E concentration (minor) will enable students to learn more about the social science approach to sustainable energy.

In order to incorporate this concept into the minor, students would be required to choose courses from a set list that include the themes of energy and the environment. The intent would be to learn the principles of economics, psychology and the like, but linked to an energy setting. This could necessitate modified courses in those departments. Energy is a field of considerable interest to students today, as evidenced by surveys in the local institutions. So, such modifications would likely be welcome at a broad level.

The 3 U offering

When the offerings are compiled there will undoubtedly be gaps in faculty resources. NC State already has a concentration in power engineering, but even they will face gaps in other areas. The Triangle area offers the unique opportunity for a program that allows for collaboration between all three universities. We are referring to this as the 3 U solution.

Bi-lateral programs already exist, including the Robertson program (UNC and Duke) and the Biomedical Engineering curriculum (NC State and UNC). While faculty additions will be needed, the resource pooling will allow the program to get on track more quickly. RTI can also be expected to be a player, most likely in the biofuels space. The possibility exists for the participation of some of the RTP powerhouses playing in the energy space.

In short, the Triangle area is unique in that three important research universities participating in the energy space are in close proximity. Add to that the presence of RTI, an unquestioned leader in energy research, with a recent Department of Energy $169 million award directed to carbon sequestration. This powerful combination allows for a jump start to Energy Engineering. No other area in the world has this capability.

The Energy/Water Nexus

June 23, 2010 § Leave a comment

This piece is loosely based upon the RTEC Breakfast Forum on June 15, 2010

Sustainable energy can fall in two buckets.  One comprises all the means to lower the carbon footprint of current energy sources.  This would include clean coal, using natural gas in place of coal to produce electricity, combined cycle approaches to energy production, and the like.  The second bucket is that of renewable energy.  The outstanding examples of that are biofuels, wind energy and solar energy.

Each of the foregoing has very different water utilization.  One billion persons do not have access to drinking water.  Should efficiency of water utilization be a factor in our choice of alternatives, and not just carbon footprint?  Going further, should water usage be a litmus test in areas in which the citizenry suffer a high level of privation?  This was the subject of the RTEC Breakfast Forum on June 15, 2010.

We tend to use fresh water for everything when something less could do the job.  This is likely an artifact of water being relatively cheap.  If some of the major users were able to tolerate less than fresh water, water would be freed up for human consumption. An extremely topical area for this thought is shale gas drilling in the US.  Each well uses up to 5 million gallons per well as the main component of fracturing fluid.  Only about a third of the fluid used returns to the surface.  Currently it cannot be re-used because of contaminants, salt in particular.   Even if this were to be cleaned up for re-use, the other two thirds would need to be made up from fresh water sources.

Fortunately, industry is taking a hard look at the problem and is moving to modify formulations to be able to tolerate significant salinity.  So, not only would the flow-back water be re-usable, but other saline waters of convenience, such as sea water, come into play.  In an odd twist, it turns out that salinity is actually good for the operation (it stabilizes the clays).  Lemonade from lemons, as it were.

While not particularly applicable to the shale gas play in the eastern United States, a lot of “tight gas” exploitation occurs in the middle of the country, in areas that are severely drought prone.  Here, water for energy competes with that for agriculture.  The ability to tolerate salinity would be huge.  This is because saline aquifers are plentiful.  Supporting technology would be required in areas such as benign biocides.  Bacteria in these waters are often pernicious, some being sulfate reducing, and thus producing hydrogen sulfide in situ when used for fracturing fluid.  But these are all tractable if the major issue of some level of salinity is traversed and if innovations in cost effective water treatment are forthcoming.

The key to water treatment is to have a fit-for-purpose output.  Potable water is the most expensive.  An intermediate product could be adequate and meet the economic hurdles.  Today almost all desalination approaches have fresh water as the output.

Agriculture tolerant of brackish water is a new area without significant currency today.  The most obvious example is algae for bio fuel production.  Algae, of course, thrive on salt water (and consume carbon dioxide as another plus).  A class of plants known as halophytes make themselves saltier than the salt water, thus causing fresh water to flow into them by osmosis.  Most such would likely be for biomass for energy production, not food.

Water used in conventional energy production is also highly variable.  The paper by Mulder et al describes water efficiency of different energy production methods.  Any eye-opener is the significant difference between closed and open loop cycles.  An interesting nuance is also the difference between water withdrawal and water use.  For example, if a facility such as a nuclear plant, withdraws water from a river, and then returns hotter water, the subsequent evaporation downstream is not counted in some measures.  The withdrawal number remains low, even though the net usage was higher.

Using less water is not always productive.  Apparently in some areas drip irrigation leads to salt build up around the plant.  Also, drip irrigation returns no water to the aquifer.  But on balance that must still be more effective than spraying, where evaporative losses may not necessarily be returned as convective rainfall.

Drought tolerant biomass is highly touted these days.  Jatropha in India and elsewhere is seen as an important crop for biodiesel production.  However, an interesting twist on this is that these plants can tolerate drought, but they grow much faster with more water.  A farmer with water access will draw on it.  So, what is needed is clever business models and associated policy drivers to encourage water conservation in the face of a compelling economic driver to use more.  An interesting problem for a behavioral economist.

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