Category — Energy Sources

Part I yesterday described Evergreen Solar Inc.’s recent bankruptcy protection filing, which has left Massachusetts holding the bag for tens of millions of dollars in tax benefits and subsidies for a Devens, MA solar panel factory. Massachusetts wanted to be a true believer, and the promise of 800 jobs in a recession was too good to pass up even if the risks were high.

For politicians looking for good press this was a great opportunity—until reality hit the fan. So what lessons does this failed ‘green’ energy experiment impart for other political jurisdictions eager to create jobs? I offer five.

1. Being green does not mean being sustainable.

Evergreen Solar expanded just as the solar market was reeling from feed-in-tariff (FiT) subsidy cuts in Spain and later Germany, the then hottest markets in the world. Those FiT cuts were caused by rising and unsustainable costs to the Spanish and German governments seeking, just as Massachusetts had done, to prop up local business and create jobs when they were needed most.

2. Solar energy is governed by global markets for commodity prices—and few play that game better than China. So when China saw the luscious FiT subsidy fruit being dangled in Europe, it undercut the prices of local manufacturers for photovoltaic panels and took both market share and FiT subsidy Euros and sent them back to China. The European solar manufacturers were—pardon the pun FiT to be tied—but they were also still screwed because they could not meet or beat the low Chinese prices and saw their business fade away as unsustainable in a market that had become dependent upon unsustainable government subsidies.

These EU PV makers then dumped PV panels on the global commodity market at fire sale prices thus causing a worldwide problem of falling prices that swamped many solar players including Evergreen.

3. Feed-in-Tariffs are Risky Business. The EU story of industrial-policy good intentions gone unfulfilled is also a lesson unfortunately re-learned many times as disappointed results, this time in Massachusetts, remind us that when we seek to build entire new industries on a bed of sand. Our business future (sales, revenue growth, and supply chain channels) can be toppled by tremors in the markets half a world away. [Read more →]

Earlier this month, Evergreen Solar Inc. filed for chapter 11 bankruptcy protection, claiming the lower costs of Chinese competitors drove it to restructure. The Massachusetts Economic Assistance Coordinating Council, the Commonwealth board charged with overseeing MassDevelopment tax breaks to business, had previously voted May19 to end the 20-year, $15 million property tax break and terminate the $7.5 million in state tax credits for Evergreen, two months after the company shut its state-aided manufacturing plant in Devens, Massachusetts built and eliminated 800 jobs.

Adding insult to injury, Evergreen borrowed money to build a new solar manufacturing plant in China.

‘Clean-Energy’ Investments Up, but Performance Lags

According to Bloomberg New Energy Finance, new global investment in the clean energy sector (including solar) was up 27% to $41.7 billion in Q2:2011 from the prior quarter–and 22% higher than a year ago. This included several very large utility scale solar thermal projects including the BrightSource $2.2b 392-MW Ivanpah project in California, the 100-MW FPL Termosol project in Spain and Eskom’s 100-MW Upington project in South Africa.

Solar energy investment in the U.S. was also up 195% in Q2 to $10.5 billion according to Bloomberg, largely driven by successful financing of the Alta and Ivanpah wind and solar projects in California.

But after lusting for clean energy investment opportunities, the performance of many of those investments is not very satisfying. The WilderHill New Energy Global Innovation Index (NEX), which tracks 98 clean energy shares worldwide, fell 13% in Q2 2011 after a strong first quarter. Bloomberg New Energy Finance says the story is the same in every corner of the global with continued strong interest in investment in clean energy but poor performance has often been the result.

Evergreen blamed falling prices from Chinese competitors for solar panels, reductions in feed-in-tariff subsidies in Europe and the failure of the US to adopt supportive policies.

What!?#$%&! 

Let’s face it, if you can’t make a project go in a market where the state permits the project, mandates that utilities must buy renewable energy even above cost (and where the deals are done typically on long term power purchase agreements that substantially reduce the risk), and where the U.S. government writes you a Treasury Tax Grant check for 30% of the cost, the problem CANNOT BE a lack of policy support. [Read more →]

At a time when the federal government is debating whether to raise the debt ceiling, the U.S. Department of Energy’s Loan Programs Office (LPO) is offering guaranteed financing to First Solar Inc. for three solar panel projects in California for $4.5 billion. Not million but billion.

Carefully analyzed, these projects do little to fund efficient energy production or create permanent jobs. Such largesse is one of many rich targets for immediate deficit reduction in any budget deal.

LPO specifically targets projects that promote clean energy and includes “job creation; reducing dependency on foreign oil; improving our environmental legacy; and enhancing American competitiveness in the global economy of the 21st century.”

Specifically, these loan guarantees promote projects that include biomass, hydrogen, wind and hydropower, advanced fossil energy coal, carbon sequestration practices and technologies, electricity delivery and energy reliability, alternative fuel vehicles, industry energy efficiency projects, pollution control equipment, nuclear, and solar power.

Moreover, support by the LPO is for borrowers in case they default on their financial obligations while the project is constructed. Clearly, this is all about government picking energy winners at the expense of market preferences and forces. [Read more →]

When New York Magazine reported earlier this month that the national editor of  the New York Times had sent an internal memo laying out a “surprisingly detailed” defense of reporter Ian Urbina’s latest front-page attack on natural gas, the hope was that the memo would spur an equally detailed response by Arthur Brisbane, the Times’ public editor.

That hope was realized when Mr. Brisbane’s 1,100-word piece was postedon the paper’s website over the weekend, a column in which Brisbane takes square aim at the Times for going “out on a limb” and “lack[ing] an in-depth dissenting view in the text” (see the Appendix below for more of his piece).

The Brisbane piece is remarkable for a number of reasons and on a number of levels, continuing the healthy scrutiny that spontaneously emerged from various respected experts over the past three weeks.

Just yesterday, in fact, the head of the U.S. Energy Information Administration (EIA) told the U.S. Senate that “the data clearly show that shale gas is rapidly becoming a significant source of natural gas supply” – a direct hit to the Times. According to POLITICO, he went on to tell the lawmakers that emails from EIA cited by the Times as part of its reporting “came from an entry-level staffer who had been hired as an intern in 2009.”

Digging In and Doubling Down

Notably, as the criticisms of the Times have continued to pile up — most recently from paper itself — the response on the part of the reporter who authored the piece (and the editors who allowed it to run on the paper’s front-page) has been to dig-in and double-down. In an interview on public radio last month, Urbina sought to defend his story by characterizing it simply as a way to advance a “full and candid discussion of all the factors that play into the long-term viability of [natural gas].”

Urbina’s editors took a different tack, basing their defense on the notion that, since it took him six months to do it, and since it includes lots of emails from “industry insiders,” it must be good. Of course, activity isn’t the same thing as achievement. Just like volume isn’t the same thing as veracity.

Brisbane Weighs In [Read more →]

[This factual rebuttal against peak-shale by Chris Tucker and Jeff Eshelman of Energy In Depth (a project of the Independent Petroleum Association of America, or IPAA) is a serious moment in the energy debate. MasterResource reproduces their rebuttal in total and invites comments, particularly from the 'peak oil' community that received the front page article of their dreams (or nightmares, depending on the ultimate outcome of this fact-versus-fact debate).]

“What [the New York Times] isn’t entitled to, at least in our view, is to represent its piece as an original investigation; not when the story was essentially outsourced to a well-known critic of the industry whose predictions on shale’s imminent collapse grow less defensible (and more difficult to find on his website) by the day. Nor do we believe The Times is entitled to mislead its readers on the expertise of those whose “leaked” emails — many written in 2008 and 2009 – are used to form the basis of the story, especially when real-world production numbers from 2010 and 2011 directly contradict those speculative accounts.”

- Chris Tucker and Eric Jeff Eshelman, June 27, 2011

The United States produced more natural gas in 2010 than at any point in the previous 37 years, a stunning reversal of fortune given the country’s supply picture earlier this decade, and one that could not have been possible without the massive volumes of American energy that continue to be generated from shale.

So what happens from here? By now, you’ve likely heard the stories and seen the estimates: with everyone from IEA to EIA to PGC to MIT projecting a future in which shale’s production trajectory continues along an aggressive upward path, delivering literally quadrillions of cubic feet of clean-burning natural gas to generations of consumers not only in the United States, but around the world. It’s a view that’s supported by the preponderance of science and a majority of scientists, not to mention one that’s continuously reinforced by new data.

Over the weekend, The New York Times sought to advance a contrarian view on the subject, and to that view The Times (and reporter Ian Urbina) is more than entitled. What it’s not entitled to, at least in our view, is to represent its piece as an original investigation; not when the story was essentially outsourced to a well-known critic of the industry whose predictions on shale’s imminent collapse grow less defensible (and more difficult to find on his website) by the day. Nor do we believe The Times is entitled to mislead its readers on the expertise of those whose “leaked” emails — many written in 2008 and 2009 – are used to form the basis of the story, especially when real-world production numbers from 2010 and 2011 directly contradict those speculative accounts.

Against that backdrop, we attempt below to pull back the curtain a bit on some of the tricks employed in The Times’ latest front-page assault on responsible natural gas development: [Read more →]

“I’m sorry for you—coming to Texas [in 1915] to look for oil. Don’t you know there is no oil in Texas?!”

- Wallace Pratt (oil and gas geologist), quoted in “Oil Finding—the Way it Was,” Petroleum 2000 Issue, Oil & Gas Journal, August 1977, p. 144.

The New York Times has published two amazing front-page articles on shale gas (here and here), which raise a number of issues about the prospects for the resource, suggesting that the reserves and profitability are vastly overstated. A careful reading of the articles, however, suggests that it is more smoke than fire.

Two specific issues raised in the article are important: the profitability of shale gas wells and their long-term production profiles. Many ancillary issues are also raised but can be dispensed with.

First, the reports that many landowners were not paid the promised bonuses or made much less than expected: this is hardly unusual when a resource boom occurs. Some companies are overly optimistic, rush in with offers that are intended to line up prospects as quickly as possible, then find that they can’t satisfy them.

The method’s use of water and potential contamination are certainly concerns, and is being addressed by the government. While the industry downplays concerns, and much of the coverage is the usual NIMBY hype, it is quite possible that this will add to long-term costs.

The entire articles are very poorly done, making references and implications that are completely unsupported by any real facts. A Fed official is skeptical? Some wells are described as underperforming?

Skepticism, True and False

That there are skeptics is hardly surprising: there are always skeptics, those who grumble about new technologies, who think that claims are overblown, and downplay the long-term success or applicability of techniques that appear promising. [Read more →]

[Ken Glozer's new book, Corn Ethanol: Who Pays, Who Benefits?, sponsored and published by Hoover University Press, will be released this month. Mr. Glozer is president of OMB Professionals, a Washington, D. C. based energy consulting firm. He was a senior executive service career professional with the White House Office of Management and Budget in the energy, environment, and agriculture area for 26 years.]

“Clearly, reducing petroleum imports with the current ethanol policy is a costly ineffective policy. The nation and its taxpayers and consumers would be far better off if the federal government adopted a competitive market-reliance policy for ethanol and thereby avoided the very substantial costs that current ethanol policy has imposed on the nation’s consumers and taxpayers. The current corn ethanol policies should be phased out over a year or two.”

My new book provides detailed a political history of how the United States ended up with current federal corn ethanol policy.

Part I relates the significant external events that have driven the politics that in turn has driven the policy since 1977. I address important questions about when the policy started, how it evolved, what were the major political and market forces that drove it, and, most important, who were the key officials that formed and shaped the policy.

Part II of the book contains an in-depth objective evaluation of the major claims made by those who have advocated the ethanol policies during the past thirty years. I probe how well the ethanol policy has worked compared to the claims made by two presidents, three federal agencies, and the corn, soybean growers, and ethanol producers.

The book evaluates the Renewal Fuels Standard (RFS), which was first enacted in 1975 then doubled, to a mandatory 15 billion gallons of corn ethanol blended into the nation’s gasoline supplies. The surprising finding—that federal ethanol policy has little to do with energy and everything to do with wealth transfer—is particularly compelling because, after three decades of federal subsidies, trade protection and most recently mandated ethanol blending, ethanol remains uneconomical.

According to the Department of Energy’s Energy Information Administration, ethanol never has and never will have a significant impact on petroleum imports compared to what could be achieved under a competitive market policy. Thus my sober conclusion: taxpayers and consumers are the victims of the current policy in that they have no choice but to pay and pay.

From the Preface [Read more →]

When it comes to climate, are all fossil fuels equal?

“No,” the answer has been until very recently. In terms of how much carbon dioxide (the major force behind the human alteration of the atmospheric greenhouse effect) is produced when burning various fossil fuels to produce a unit amount of energy, there is a definite ranking. From the most CO2 produced to the least, the list goes coal worst, oil next worst, and natural gas least worst.

While it would be stretch to call natural gas the sweetheart of climate-change-fearing environmentalists, many have considered it to be the lesser of the reliable-energy-source evils. Of course, they rally behind the wind and the sun, but even renewable energy idealists understand that there needs to be a bridge between where we are now and where they would like us to be—and that bridge is envisioned to be constructed primarily from natural gas (a foundation furthered by the nuclear problems in Japan).

But a new study out of Cornell University makes the natural gas bridge out to be another Gallopin’ Gertie rather than a secure pathway to the future—at least when it comes to being a climate-change mitigator/savior.

The Climate Impact of Natural Gas

According to the carbon dioxide emissions factors given by the Energy Information Administration (which assume 100% combustion), coal burning emits on average about 95 kilograms (209 lbs) of carbon dioxide per million BTUs produced. Burning oil to produce a million BTUs of energy produces about 20kg less, or about 75 kg (165 lbs) of CO2. And burning natural gas to do the same thing saves you another 20kg, producing only about 55 kg (121 lbs) of carbon dioxide.

So, on the face of things, numbers like these are what make natural gas the darling of climate change mitigators. They see that a switch from coal to natural gas could cut global-warming CO2 emissions by more than 40%. This number falls quite a bit short of the long term goals of reducing greenhouse gas emissions by more than 80%, but nevertheless it is a big step in the right direction. Thus, natural gas is viewed as a “bridge” to a largely carbon-free energy production—that is, it is a construct which buys time for other technologies to mature and/or be developed. [Read more →]

Remember all this? America is running out of natural gas. Prices will soar, making imported liquefied natural gas (LNG) and T. Boone Pickens’ wind farm plan practical, affordable and inevitable. Well, reality intervened. We are having an energy transformation, but just the opposite of what the non-market energy planners predicted.

Shale Gas Revolution

Barely two years later, America (and the world) are tapping vast, previously undreamed-of energy riches – as drillers discover how to produce gas from shale, coal and tight sandstone formations, at reasonable cost. They do it by pumping a water, sand and proprietary chemical mixture into rocks under very high pressure, fracturing or “fracking” the formations, and keeping the cracks open, to yield trapped methane.

Within a year, U.S. recoverable shale gas reserves alone rose from 340 trillion cubic feet to 823 tcf, the Energy Department estimates. That’s 36 years’ worth, based on what the USA currently consumes from all gas sources, or the equivalent of 74 years’ of current annual US oil production. The reserves span the continent, from Barnett shale in Texas to Marcellus shale in Eastern and Mid-Atlantic states – to large deposits in western Canada, Colorado, North Dakota, Montana and other states (and around the world).

Instead of importing gas, the United States could become an exporter. The gas can move seamlessly into existing pipeline systems, to fuel homes, factories and electrical generators, serve as a petrochemical feedstock, and replace oil in many applications. States, private citizens and the federal government could reap billions in lease bonuses, rents, royalties and taxes. Millions of high-paying jobs could be “created or saved.” Plentiful gas can also provide essential backup power for wind turbines. [Read more →]

Author’s note: No, I have not been in a cave for the past two weeks.  The impacts of unconventional gas on energy markets will be measured in months and years, not in days and weeks.  There is essentially nothing that current unconventional gas production can do to moderate crisis-driven escalation of oil prices and oil-linked LNG prices in the next few weeks.

In Part I and Part II of this series, the impacts of unconventional gas discoveries in the U.S., Australia, Canada and elsewhere were explored.  Gas-to-gas competition was seen as a powerful force for price moderation.

U.S. shale gas discoveries and production from coal bed methane (CBM) have already provided great benefits for energy consumers in the Atlantic Basin.  Gas-to-gas competition – shale v. LNG – has led to interesting market outcomes and investments.  Gone are the panic days of encouraging any and all LNG regasification plants in the US in the fear that the US might “lose out” to others on the LNG bonanza.

Now, the U.S. is quickly moving toward overall sufficiency in gas supplies with investments in two-way (regasification and liquefaction) LNG plants now firmly on track in Texas and Louisiana.

Other markers of the sea change in gas markets include proposals for another two-way LNG plant in Canada and investments in gas-to-liquids production in British Columbia.

In the U.S., shale gas production has led to investment in new gas separation facilities and a revival of moribund petrochemical firms.

Australia’s exploitation of its CBM resources has created investments in more than 14 million tonnes/y (mtpa) for export to Asian markets.

In China, India, Poland and elsewhere, drilling is firming up new supplies of shale gas and CBM.

Even the U.S. government has entered the fray, with its Global Shale Gas Initiative.  The program aims to assist countries in identifying shale gas resources and the technology to produce it.

Where will it end?

Will the Gas-to-Gas Party Be So Much Fun That Oil Joins In?

The short answer is no, or at least not yet.  However, detailed investigations of the impacts of unconventional gas on energy markets in the US, Indonesia and elsewhere indicate that eventually the unconventional gas bonanza will “leak” into markets where gas can act as a near substitute for refined oil products. [Read more →]