Energy firm npower latest firm to see revenues up - posts 11% increase

The 'Big Six' energy supplier npower is the latest energy firm to reveal a surge in its UK gas revenues.

Figures from its parent company RWE showed an 11% rise in revenue for the first half of the year - with figures reaching a total of £1.1bn.

Npower put up its gas prices by 8.6% back in November 2012, and has subsequently benefited from one of the country's coldest springs for years to see its UK revenue soar in the first six months of the year. In total the firm has 6.5 million gas and electricity customers in the UK.

It wasn't all positive news for the energy supplier however, as npower also reported its operating profits were down three per cent on this time last year at £176m.

The firm blamed the shift in government regulations and schemes pushing UK energy suppliers to offer energy consumers ways to make their home more energy-efficient.

It said: "The persistent trend towards energy efficiency also led to earnings shortfalls."

RWE npower is one of the few 'Big Six' energy suppliers not currently participating in the government's flagship Green Deal initiative, however it is set to join the scheme later in the summer.

The Green Deal scheme offers energy consumers loans on ways in which they can improve their property's energy efficiency, for example the fitting and installation of wall insulation or the upgrading of an old boiler to a more energy-efficient model.

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'Big Six' UK energy provider E.On posts first half profits of 15%

'Big Six' UK energy provider E.On has posted profits of 15% for the first half of the year.

The firm attributes the cold start to the year as part of the reason behind the £273m it generated in profits in the first half of 2013.

In total, E.On's UK revenue rose more than nine per cent to £4.4bn for the first six months of the year.

E.On UK chief executive, Tony Cocker, said: "We are continuing to work hard for our customers, make improvements to service and operate a sustainable business that delivers a fair profit.

"The colder start to the year meant more energy has been used, so sales are up; the costs we control have come down at a time when those we don't control are continuing to rise; meaning that ultimately whilst our profit has increased slightly our overall supply profit margin is very much in line with last year."

The rise in UK revenue comes after the firm hit its 5.3 million UK customers with bill hikes of 8.7% on duel fuel bills and 9.4% on gas in January, although due to its policy of not rising prices again in 2012, it was the last of the 'Big Six' energy suppliers to put its energy bills up last winter.

Elsewhere however, E.On has blamed the financial crisis in Europe for a poor first half showing which was seen its profits slump. The firm's underlying net income fell 42% to €1.9 billion.

E.On chief executive, Dr Johannes Teyssen, said: "A sober view of the situation indicates that, at least for 2013 and 2014, no recovery is in sight."

As part of the government's Green Deal scheme, E.On is a listed Green Deal supplier. The Green deal offers energy customers the opportunity to take out a loan on energy improvement measures such as the fitting of loft insulation or fitting of a more energy efficient boiler.

 

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ARPA-E Announces a Different Path for Solar Energy Innovation

Despite the House of Representative’s recent vote to cut appropriations for the Department of Energy’s breakthrough research agency, ARPA-E, by 74 percent, the agency continues to advance the development of next-generation clean energy technologies. ARPA-E recently announced a $30 million funding opportunity, Full-Spectrum Optimized Conversion and Utilization of Sunlight (FOCUS), aimed at developing new hybrid solar energy systems that include storage, at lower costs and with greater performance.

The FOCUS program is looking for projects that research and develop solar technologies beyond current photovoltaic and concentrated solar power models. Research will specifically confront the persistent and most inhibiting performance weakness of existing solar technologies and a major obstacle for improving solar cost competitiveness: providing consistent energy supply when the sun is not shining.

Like ARPA-E projects in general, these solar projects won’t look like your average commercial panels. Instead of funding incremental improvements in solar cell efficiency, ARPA-E’s investments aim to accelerate transformative changes to the way we think about harnessing and controlling solar energy. The FOCUS program recognizes that to reach cost-competitiveness, new solar technologies must not only improve efficiency, they must do so in a way that provides immediate access to solar-based electricity as well as incorporate advanced technologies that can store electricity until it is demanded.

The decision to create a program devoted specifically to addressing solar energy storage was informed by ARPA-E’s mission to identify crucial white spaces in energy technology development. Prior to releasing its FOAs, the agency holds workshops with university, national lab, and industry experts to assess the technology and research gaps and market barriers associated with contemporary technology systems. One such workshop held in April, “Solar Beyond Grid Parity: Spectrum-Efficient Solar Energy for Dispatchable Electricity or Fuels,” focused on developing the conversation around how to store and use solar energy most efficiently and effectively when it has reached parity with grid electricity prices all over the country, while keeping costs low. Identifying weaknesses of current photovoltaic (PV) and concentrated solar power (CSP) systems is necessary to sustaining, and hopefully improving, the strength of the solar industry in the United States.

As renewable energy storage and grid integration are researched extensively within the Department of Energy, these workshops serve to expose the areas where more innovation is needed, foresee future technology and cost roadblocks, and enable the development of an investment strategy uniquely suited to ARPA-E’s abilities as an agency.

The FOCUS program follows on the heels of ARPA-E’s Grid-Scale Rampable Intermittent Dispatchable Storage (GRIDS) and High Energy Advanced Thermal Storage (HEATS) programs, which aim to revolutionize cost-effective solutions to storing thermal energy on the grid. These programs, like FOCUS, support breakthrough technologies that can lower the cost of integrating renewable energy on the grid, while strengthening its reliability. ARPA-E invested a total of $71 million in these two programs.

ARPA-E’s investments in far-sighted and cutting-edge clean energy research suggest that seemingly impractical realities are not only attainable, but actually within our reach – as long as we invest in the technology innovation to get us there. The importance of ARPA-E to the acceleration of these endeavors and for the future of next-generation clean energy technologies is immeasurable.

Already this year ARPA-E has invested in a number of projects advancing vehicle technology development through manufacturing, battery chemistries, and fuel sources. If the House appropriations bill is an indication of the future of funding for ARPA-E, the agency’s ability to invest in these kinds of high-risk, high-reward technologies will effectively be terminated. The amended House FY2014 budget allocates $70 million for ARPA-E, which would likely only allow for, at most, two FOCUS-sized funding opportunities, without factoring in agency operation costs.

In order to attain clean energy technology breakthroughs – particularly with solar and wind technologies that also require accompanying and complementary innovations in manufacturing and energy storage and grid integration systems – support for ARPA-E must be sustained and expanded, rather than contracted, as the agency invests in the nation’s best opportunities to realistically achieve a cost-effective clean energy future.

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Impact of Energy Storage on Solar PV Grid Parity

Proponents of intermittent renewable energy such as solar PV and wind often claim that these energy sources will reach parity with standard grid power in the near future. As discussed in a previous article, however, this is a highly misleading claim, primarily because intermittent and non-dispatchable renewable energy is worth much less per kWh than steady and dispatchable baseline power. 

In order to illustrate the implications of this distinction, the aforementioned article valued intermittent PV similarly to unrefined coal. The central assumption underlying this way of thinking is that the costs associated with energy storage (which is required to make PV useful to society at higher penetration levels) are comparable to the costs associated with thermal power plants (which are required to make coal and gas useful to society at higher penetration levels). Under this assumption, solar PV turned out to still be about one order of magnitude more expensive than coal power. 

Naturally, this is a fairly crude assumption and accurate calculation of the real grid parity target for solar PV will be much more complex. This article will discuss the most important complexity: the fact that the costs associated with energy storage of intermittent renewables will be a strong function of the level of penetration into the local electricity grid.  

The cost of storage

Under the assumption that the costs associated with storage are similar to the costs associated with thermal power generation, storage would increase costs roughly by a factor of 4 (as is the case for coal at $100/ton and coal-fired electricity at $0.06/kWh). However, this cost increase will be a substantial over-estimate at low penetration levels where almost no storage is necessary and a substantial under-estimate at high penetration levels where most renewable energy generated will have to be cycled through some form of storage.

The graph below illustrates the price at which solar PV reaches parity with coal for five different storage cost scenarios assuming a coal price of $100/ton, a 30 year panel lifetime and a 5% discount rate on gradually released PV electricity.

 

The most important comment to be made about this graph is that we will move downwards with increased PV penetration. I am fairly confident that, for most locations, we will reach the light blue line at the bottom long before intermittent renewables come close to supplying 100% of our electricity. The exact penetrations at which each of the lines on the graph will be crossed is much more uncertain though. I will give some rough estimates in this article, but would welcome any corrections by experts on this site.

Initially, when solar contributes less than about 1% of electricity, the intermittency will be essentially negligible. As the blue line shows, current utility scale installed PV prices (~$2/Wp) are already close to parity with coal in the most ideal locations (highest PV capacity factors) under this assumption. However, this first percent of solar PV penetration is the only region where the standard grid parity mantra of renewable energy advocates is relevant. 

As we move up to a 10-20% penetration of intermittent renewables, we also move down to the red line in the graph. Under this scenario, solar PV (and wind) starts to rely significantly on the energy storage implicit in fossil fuels. Standard power plants then have to be operated at lower capacity factors and at lower efficiencies due to more ramping and more spinning reserve.

One recent study for wind power calculated that costs of keeping backup fossil plants operating at lower capacity factors and efficiency (together with some added transmission costs) would increase the real cost of wind to triple the price of new gas and 1.5 times the price of new coal in the US. This represents a doubling of the standard costs calculated when the intermittent and non-dispatchable nature of wind energy is simply ignored. 

As we move beyond a 20% penetration of intermittent renewables, specialized energy storage becomes necessary. According to EIA estimates, the most feasible option; pumped hydro storage, will cost about twice as much as a coal plant per watt. It will, however, lose only about half the energy lost by the coal plant in the energy conversion process. It can therefore be estimated that pumped hydro storage will inflate solar PV prices roughly by the same factor as a thermal power plant inflates the price of coal. 

Even though the installed PV price of roughly $0.3/Wp required by this scenario seems highly unlikely ever to materialize, it should be noted that regions with abundant natural hydro capacity could potentially achieve these penetration levels of intermittent renewables at much more affordable prices. Denmark's wind backed up by hydro from Sweden and Norway is one such example. Very few regions on earth are suited for this kind of arrangement though.

Pumped hydro is only available in certain (relatively rare) topographies. Thus, for most cases, a day or two of battery storage will be most practical. Despite lots of noise from battery optimists, the 150-year old lead-acid battery is still the cheapest option we have for this purpose, but suffers from drawbacks such as short lifetimes (especially at deeper discharge rates) and relatively low efficiencies (about 20% of energy cycled through the battery is lost).

Lithium-ion batteries reduce these problems, but are also more expensive. One case study found that a lead acid battery and a lithium-ion battery could store energy for about $0.34 and $0.40 per KWh over their respective lifetimes. This cost (which must be added to the cost of renewables) is much greater than fossil fuel power even by itself. To better link this to the graph above, consider that most suppliers will sell you about $4 of batteries per watt of solar PV for protection against blackouts (example) where the battery warranty period is only about half that of the panels. 

It should also be mentioned that, in the hypothetical scenario of very cheap solar PV and relatively expensive storage, it could be more economical to simply build a large overcapacity of intermittent renewables and spill a large portion of the power produced. In the graph above, this will reduce the capacity factor of the installation, but could create a transfer from the purple to the green line. 

Finally, the light blue line right at the bottom comes into play when one starts thinking about longer term energy storage to compensate for longer cloudy (or wind-still) periods or even for slow seasonal variations. This line (which really is a matter of complete impossibility for intermittent renewables) is especially applicable to regions with long cloudy spells and seasonal mismatches (e.g. solar PV in Germany). On the flipside, however, it is also much less applicable to regions with very reliable renewable energy resources that are well aligned with seasonal demand (e.g. solar PV or solar thermal in desert areas).

Chemical storage is probably the only viable option for such longer-term storage requirements with hydrogen normally being the first option that comes to mind. A Spanish study found that hydrogen from combined wind and solar projects would cost about €25/kg which translates to about $0.90/kWh of hydrogen internal energy. Converting this stored energy back to electricity at a later time will inflate the price by another factor of 3 (similar to natural gas power plants), bringing the total cost up to $2.70/kWh - about 50 times more expensive than conventional power. Other forms of chemical storage might be more economical, but it will be very difficult to rise above that light blue line.

The previous article stated that current solar PV technology is still about one order of magnitude more expensive than coal. Based on the above analysis, it can be stated that this will be the case at roughly 20-40% penetration of solar and wind into our electricity networks (about 8-16% of total energy), beyond which the prospects for PV (and wind) will rapidly deteriorate. This is a good example of the law of receding horizons discussed earlier.

However, the cost of storage is not the only influential variable in determining the real grid parity target for solar PV. The next article will therefore investigate four additional factors: the coal price, the PV panel lifetime, the PV discount rate and a CO2 price.

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Love Solar Energy but Hate Paperwork? Help Is On the Way.

Peter Lehner, Executive Director, New York City

When I put up solar panels on my house several years ago, the process was, if I may speak plainly, a royal pain. In the end, it was worth it to be able to generate my own, pollution-free energy, but every step seemed designed to make my life more difficult. Even after the system was installed and paid for, I still had to wait months, for more inspections, new meters, and other painful delays, before I could officially turn it on.

If we want to get solar energy into more homes and business across the country, the process needs to be more efficient. In addition to being a headache for homeowners and solar contractors, procedural inefficiencies actually increase the price of solar power.  While the cost of solar hardware—panels and such—has come down 80 percent in recent years, Americans, on average, pay nearly twice as much for solar energy as they do in Germany. Much of this price difference is due to “soft” costs, including the inefficient, expensive permitting process.

But change is afoot. Last month, New York launched a simplified solar permit that can be adopted anywhere in the state, and momentum is building across the country to bring down the cost and hassle of solar permitting, making it easier, and as much as $600 cheaper, to install solar power in your home.

(image courtesy Green MPs, via Flickr)

For contractors, the permitting process makes it difficult to do business. Big solar contractors employ a team of people just to research and fill out permit applications, as well as “permit runners,” whose full-time job is to bring stacks of paperwork to multiple permitting authorities, stand in lines, and pay fees. Solar contractors also pay big up-front costs to buy equipment, which ties up much of their available credit. While they wait weeks or even months to install that equipment, their business is essentially paralyzed. It’s a waste of time and money, and it can keep smaller contractors, and their potential customers, out of the game.

In New York, a group of solar contractors, most of whom couldn’t afford to employ “expeditors” for their paperwork, approached the county government for a solution.

“There are 113 different municipalities in Long Island,” explains Sail van Nostrand, the owner of Energy by Choice, and former head of the Long Island Solar Energy Industries Association. “So there were 113 different ideas about what the requirements for a solar permit should be.  We never knew how many sets of drawings were required, or even what had to be in them. Some of them required surveys, which don’t even show the roof! The fees were astronomical. The paperwork was a nightmare. ” 

The association worked with the county government and the Long Island Power Authority to establish unified standards for solar permitting, which nine out of ten towns in Suffolk county—the vast majority of Long Island’s solar market--have since adopted.  That standardized form served as the model for New York State’s newly minted Unified Solar Permit, a simple online form that any of the state’s 1,600-plus cities, towns, and villages can adopt for residential solar installations. The streamlined permit recommends, among other things, a single fee, a single inspection, and a decision within 14 days.

Vermont has taken things a step further by eliminating the need for a permit altogether. If you want to put in a small-scale residential solar installation in Vermont, you fill out a one-page registration form. That’s it. No fees, no permit. The registration process takes only ten days, allowing customers to get their systems up and running quickly, and freeing up capital for contractors so their businesses can keep rolling. Though the state doesn’t have much by way of rebates, tax breaks, or other solar incentives, it’s not going to kill you with paperwork. And that little efficiency makes a big difference for consumers and contractors.

“We arguably have the lowest soft costs in the country,” says Andrew Savage of All Earth Renewables, in Williston, Vermont.

Making solar permitting more efficient across the country could help bring down the cost of solar energy nationwide. At SolarPermit.org, some 800 permitting authorities, covering 90 percent of the solar market, are posting their permitting requirements, making it easier for contractors to figure out what paperwork they need.

Our friends at Vote Solar, together with the Interstate Renewable Energy Council, have developed a set of 9 best practices for solar permitting that can bring down the cost of permitting by as much as 60 percent—as much as $600 per home.  At their new website, Project Permit, you can find out how easy it is to get a solar permit where you live—and if it’s not, they give you the resources you need to get the ball rolling.

We need to make clean energy an easy option for homes and business. Eliminating wasteful red tape by creating a sensible, unified permitting process will make it simpler, and less expensive, for homeowners and businesses to use solar power. The more solar power we produce, the more energy dollars stay in our communities; the more good, local jobs we create (although perhaps not for permit runners); and the faster we speed the transition to a cleaner, more efficient energy system that reduces pollution and helps stabilize the climate.

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The Future of Energy: Why Power Density Matters

This is the first column in The Energy Transition series by Robert Wilson. This series, exclusive to theenergycollective.com, will take a critical look at the prospects of a transition away from fossil fuels, and promises to abide by the advice of Richard Feynman that reality must take precedence over public relations.

The twenty first century will almost certainly witness a transition to an overwhelming urban human population, and hopefully a transition to a low carbon energy system. The former however will have a significant impact on the latter, because a fundamentally urban species cannot be powered locally.

The  continued, and essentially unabated, accumulation of carbon dioxide in the atmosphere may at times make considerations of the requirements of a de-carbonised energy system appear somewhat self indulgent, but I must ask the reader to indulge me, and at a little length.

What would a low carbon energy system look like? (And let's avoid such fanciful ideas as "zero carbon," because that would be truly self indulgent.) In essence we would get as much electricity as possible from some combination of renewable and nuclear energy, and electrify as many aspects of our energy systems as is feasible. Predicting the relative composition of such a system is a largely fruitless exercise. However, we can say something about the extent to which it a low carbon energy system will be distributed and "local". This confidence comes from the difference between the high physical concentrate of energy use in cities, and the relatively low physical concentration of renewable energy resources.

Power density

There are fundamental physical limits to how much energy we can extract from renewable resources for a given area of land. If we want to rigorously quantify this we calculate an energy source's power density in watts per square metre (W/m2 ).

To get an understanding of this concept consider the recently opened London Array wind farm to the south of England.This is the world's largest offshore wind farm and according to its owners will generate "enough energy to power nearly half a million homes." Its total capacity is 630 MW covering a total of 100 km2, and is expected to have a capacity factor of 39%. In other words the power density of the London Array will be 2.5 W/m2. This number is also very similar to the average calculated by David MacKay for existing UK wind farms. The United Kingdom is windier than a lot of the world, and some research suggests that large extraction wind farms will reduce average power density closer to 1 W/m2, so 2-3 W/m2 can be viewed as an upper limit on the power density of large scale wind power. This power density reflects average output, however peak power density of wind farms will be perhaps three times higher, and minimum power density will be close to zero. And it should be noted that it excludes the requirements for manufacturing steel required for turbine towers and the extraction of fossil fuels for conversion to plastics for wind turbine blades. However inclusion of these factors is not likely to result in a significant reduction to power density estimates.

Globally solar radiation available for conversion to electricity averages 170 W/m2, and in sunnier locations it can reach above 200 W/m2. This solar energy however is currently not converted at anywhere close to 100% efficiency. Commercial solar photovoltaic panels typically average between 10 and 15% efficiency. Power density of solar installations must also account for space between panels, either for servicing in solar farms or for spacing between houses in rooftop solar installation. As a result the highest power density achieved is around 20 W/m2 in desert solar PV farms, whereas solar farms in Germany generally achieve 5 W/m2. Future improvements in panel production will hopefully see significant improvements in panel efficiency. However there will remain a firm physical upper limit of 200 W/m2, which will be significantly lower when only considering large scale deployment of residential rooftop solar, due to obvious physical restrictions on panel placement.

At their best biofuels might be able to produce close to 2 W/m2. However power densities of 0.5 W/m2 and below are more typical, with prominent examples of this being corn ethanol for transport and the burning wood for electricity. We will see later that this is a very important consideration for the scalability and sustainability of biofuels.

In contrast typical generation of fossil fuel and nuclear electricity has a power density of at least an order of magnitude greater than that of renewable energy. Power densities are comfortably above 100 W/m2 after accounting for mining etc. And conventional power plants often have power densites in excess of 1000 W/m2. A simple example of this higher power density is this small propane powered generator, providing in excess of 1000 W/m2. This is far in excess of the power density of any conceivable new method of generating renewable energy.  

Why power density matters

A simple thought experiment can demonstrate why power density needs to be a fundamental consideration when evaluating renewable energy. Here it is: Imagine a world where all energy comes from bio-energy. What would be the requirements?

Currently the planet consumes energy at a rate of over 16 TW (16 trillion watts). If we include non-commercial biomass energy used in Africa and Asia, an uncertain figure, this number would increase. However for simplicity I will ignore non-commercial sources and will round our figure down to 15 TW. If we got all energy from corn ethanol we would need to convert a total of 75 million km2 to corn ethanol plantations. This is roughly half of the land surface of the entire planet, land which is somehat scarce. So this simple thought experiment shows there very real limits on how much energy we can, and should, get from biofuels. If we want large scale biofuels to become truly sustainable, a questionable prospect, we will need to see significant improvements to their power density, perhaps improvements of at least an order of magnitude.

Physical concentration of energy consumption

How much energy do we consume per unit of land? For ease of comparison this figure again can be calculated in W/m2. On a global level this is 0.1 W/m2, if we only consider land surface area. Global averages however are not very instructive, power density averaged at the scale of countries and cities is much more important. David MacKay has visualised this much better than I can in his "Map of the World." Here is the average rate at which countries consume energy, in W/m2, compared with the power density of different renewables: Ideally a country wants to have lots of available land for renewable energy, i.e. they want to be in the bottom left of this graph. Being in the top right however may lead to some problems.

Consider first the United Kingdom and Germany. Both use energy at a rate of just over 1 W/m2. So a back of the envelope calculation will tell you that getting all of their energy needs from onshore wind will require covering half of the UK or Germany in wind turbines. If you have ever been confused by why these countries are building wind farms in the North Sea, instead of on land where it is much cheaper, now you know why. Wind energy's low power density means you need to put it in a lot of back yards. And there are not as many of them in the North Sea.

Things are even worse in Japan and South Korea. If you covered all of South Korea in wind turbines they would generate less energy than is consumed there. Japan has a similar problem. And this ignores another difficulty: trees. Both Japan (68%) and South Korea (63%) have very high forest cover. If we ignore forested land (which should be out of bounds for large scale renewable energy generation, unless large scale biomass plantations are deemed acceptable) energy is used with a power density of almost 6 W/m2 in Japan and 7.5 W/m2 in South Korea. This calculation makes it clear that these countries can only be predominantly powered by renewable energy through the large scale utilisation of the more power dense solar energy. And social and political constraints may mean this can only happen if the efficiency of typical solar panels increases significantly from their current 10-15%.

Local Energy Is Not A Solution

Some environmentalists and renewable energy advocates have an ideological preference for small and community scale renewable energy. However what if your community looks like this: Tokyo skyline

Some people may like the idea of running Tokyo on local renewable energy. They will have some difficulty actually doing it, and that's putting it mildly.

Since 2008 the majority of humanity live in cities. And by 2050 it is probable that we will see seventy or eight percent of humanity living in cities. The key energy challenge this century will be providing energy for these cities, and quite clearly local distributed energy is not a solution. To see why this is the case requires untangling some issues.

Here are some considerations. An average North American has an annual energy consumption of just over 7 tonnes of oil equivalent (toe)., which is the equivalent of a rate of 9,000 watts. However, this is almost double what it is in countries such as Germany, France and Japan. A comparison of these countries in terms of key well being measures makes one thing clear: there is no evidence that North Americans have greater well being as a result of their excessive energy use. Americans don't live longer, aren't healthier, or better educated than countries that consume half as much energy per capita. That this high per capita energy consumption comes with a very significant environmental cost - global carbon dioxide emissions would drop by almost 10% if North Americans consumed like Europeans - but little gain in terms of human well being, suggests that is is not desirable for other countries to emulate North American consumption patterns.

Further evidence for the desirability to limit, and probably reduce, per capita energy consumption in modernised countries is given by its evolution in recent decades. Instead of increasing in the long term, per capita energy consumption now appears to have peaked in almost all modernised countries. Here are some examples:

Per capita consumption has decline steadily in the United Kingdom for the last decade and is now at its lowest point for over four decades:

The United States saw peak per capita consumption in the 1970s, with consumption now seeing an apparent decline. And the fact that per capita consumption did not rise in the age of the Hummer suggests significant room for movement.

Germany is also now seeing declines in per capita consumption.

In Japan per capita consumption appears to have peaked in the late nineties and is now in decline:

So, many modernised countries are now seeing reductions in per capita energy consumption, and this is not being accompanied by a reduction in quality of living. Any sensible long term energy and climate policy should include a strong desire to continue this trend. The belief that the world can transition to both American levels of energy consumption and to a low carbon energy system by the middle of this century ignores the vital lessons of previous energy transitions, and given the current position of renewable and nuclear energy it appears delusional. The world therefore must be much more like Japan than America.

And cities must play a key role in reducing energy consumption. The most important and effective way to do this is simple: make them dense. For a full elucidation of why, I recommend books by Edward Glaeser and David Owen. But the key reasons are easy to understand: a dense city lets you walk or take public transport instead of drive and it lets you live in a more energy efficient apartment building instead of a large inefficient house. Packing people more tightly together in cities may not be to the taste of everyone, but it appears to be one of the most achievable and practical ways to reduce how much energy people consume.

Let us now move forward to 2050, and the world is as I hope it will be. Global population will have peaked below 9 billion as a result of the spread of the demographic transition to modernising countries, and the success in reducing infant mortality and widespread availability of contraception. Perhaps 7 billion of us will live in cities, and they will consume much more like modern day Japanese than Americans.

How will we provide energy for these cities? The answer appears to be large, centralised power plants, whether they are wind, solar or nuclear. Here I assume, wishfully, that we have managed to get rid of fossil fuels, an unlikely prospect. The answer however is almost certainly not local distributed energy, and for simple reasons.

Consider Manhattan, not what many would typically look at as the green ideal. Yet here you will find significantly lower per capita energy consumption than in almost every American city. You will also find energy consumption far greater than can conceivably be provided by local renewables. A recent study managed to map energy consumption in the city that never sleeps right down to the individual city block. This is what it looks like:

A typical block in Manhattan consumes energy at a rate of over 1,000 kWh per square metre each year, a power density of over 100 W/m2. This is almost two orders of magnitude greater than the power density of wind power, and obviously you could not plaster Manhattan in wind turbines. Solar power is not much better. Imagine that we could cover 20% of Manhattan in solar panels. This would give us no better than 5 W/m2. Clearly Manhattan is not getting its energy locally. And as you can see from the above map the other boroughs of New York are not going to fare much better.

How about the rest of North America? If we reduced per capita energy consumption to Japanese levels, a sensible but unpopular idea, could many American cities run largely on local renewables? The graph below shows population density versus energy use density in this lower consumption America:

Low density Phoenix perhaps has a shot at getting most of its energy from solar power. Covering 25% of Phoenix in solar panels would produce as much energy as is consumed in Phoenix. The practicality of this is of course rather questionable, and getting more than 50% of Phoenix's energy from local solar will require something that currently does not exist: a cheap way to store energy on a large scale. A system involving more than 50% of energy coming from solar will thus inevitably require the accounting of land requirements for large scale storage, an uncertain prospect, and significant losses of solar panel output due to efficiency losses during storage and curtailment of excess.

The prospects of American cities running largely on local renewables thus seems unlikely, and 83% of Americans live in cities.

A global appraisal

The world's two hundred largest urban areas are home to over 1.2 billion people, and a quarter of these areas are more densely populated than New York (10,000 people per square kilometre). This is shown below:

Before asking if these cities can run on local renewables I must first mention the too real disparities in global energy consumption. Below is a comparison of the population of countries with their per capita energy consumption, with population plotted on a logarithmic scale due to China and India being much larger than other countries. And I include lines showing typical European and North American per capita energy consumption.

While there are about 350 million North Americans who can, and should, reduce their energy consumption to European levels, there are even more at the bottom who must increase their energy consumption significantly to improve their quality of life. Quantitative comparisons are sobering. Over 35 countries have per capita consumption at less than 10% of North American levels, with populations totalling over 2 billion. Despite the apparent desires of some environmental NGOs (for an example see page 11 of this WWF report) it is therefore undesirable to propose reductions in global energy consumption. The modernised world may consume excessive energy, but energy consumption is much too low in modernising countries to let us decrease global energy consumption without negative humanitarian impacts.

We therefore should have a desire to both reduce excessive consumption in modernised countries and increase energy consumption in modernising countries. I am not going to suggest a prescriptive end point. Instead I will assume that consumption levels in modern day Japan can provide a very good quality of life, and exceeding these levels is unnecessary.

If the populations of the world's 200 largest cities consumed energy like modern day Japanese energy use density would look like this:

In total 10 cities would have power density greater than 100 W/m2, 56 would have power density greater than 50 W/m2, while 181 would have power density of over 10 W/m2. That is 90% of the planet's 200 largest cities almost certainly cannot be powered predominantly by local renewable energy. The population densities of these cities are not significantly different than the rest of the world's cities, so we can conclude that the the vast majority of cities cannot be powered by local renewables. And this suggests very serious limits to the role of local distributed energy in a world where more than 70% of us will probably live in cities.

The prospects are even worse in individual countries. Of the world's 200 largest urban areas, 17 are in India. Below I have isolated these cities.

120 million people live in these cities. Covering any of them entirely in 10% efficient solar panels will generate less than half of their energy needs. And look at that dot in the top right, that is Bombay. For Bombay to get all of its energy needs from solar in my hypothetical future it would need to harness almost 100% of the solar radiation that strikes it, a remote prospect. This extremely high population density is routinely ignored by western environmentalists calling for distributed energy to be the solution to India's energy problems. It quite clearly is not.

In this century the bulk of humanity will live in large densely populated cities. If the citizens of of these cities are to attain a high quality of life they will require large centralised energy generation. This is not a matter of ideological preference, but of engineering reality.

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The Importance of Renewable Energy in China

In a world where its populations are increasingly proactive in battling problems such as climate change, greenhouse gas emissions, and rising oil prices, renewable energy is not only an option – it is now considered a necessity. Being one of the most populated countries in the world, China is not short of human resources and is a force to be reckoned with in terms of economic growth, not the least of which in the manufacturing sector where China is poised to be the world’s hub of manufacturing activities. However in recent years, China has come under intense scrutiny for the negative impacts this rapid growth has brought with it, most specifically in regards to the environment. The government is prompted to take effective emergency measures in order to preserve the amount of energy available within the country. This is supported with a continued interest in the matter even though the current economic development and growth is slowing down.

The subject of renewable energy has been on China’s main agenda these last few years, primarily since China has been in a rush to complete its self-prescribed target to reduce, among other environmental-related matters, carbon dioxide emissions released from greenhouse gasses. The development of renewable energy in China has been nothing short of rapid, and this can be seen by the increased amount of investment in renewable energy technologies and installations that have shown a significant rise throughout the 2000's in China. However, while all this significant interest and rapid growth are encouraging, the consequences of rapid infrastructure building out such poorly aligned integration points (wind turbines to smart grid, for example) must first be dealt with before China can realize any of the aggressive targets it has set for itself.

In order to acquire better insight into this continued interest in renewable energy in China, it is important to gauge its main causes. Solidiance has analyzed and identified 3 key factors: (1) China’s increasing demand for electricity; (2) the need to reduce its reliance on coal; (3) the need to reduce its greenhouse gas emissions. That being said, China’s increasing demand for electricity can be explained by a combination of the country’s rapid urbanization and significant fixed asset investment over the last two decades. China is not showing any signs of slowing down its productivity, but its increasing demand for electricity in order to keep these activities afloat can only hinder the available resources in the country. Despite that, there is encouraging progress regarding the use of electricity in China: according to World Watch Institute, about 17% of China’s electricity came from renewable sources in 2007, led by the world’s largest hydroelectric generators.

Meanwhile, China is also quickly realizing that coal will no longer be able to support the growth of its economy. Its reliance on fossil fuels in general, and coal in particular, is unsustainable and will put pressure on its abilities to continue a rapid growth trajectory in the long run. Moreover, there is also the fact that China is recorded as the third consumer of coal and peat in the world, generating up to 77% of the total electricity in 2010, after Brazil and India.

Source: BP Statistical Review of World Energy June 2011

China’s constant reliance on coal and peat also makes it the world’s highest emitter of greenhouse gasses, which results in alarmingly high carbon dioxide emission. China’s carbon dioxide emissions had reached such high levels in 2005 that it made the Chinese government pledge to reduce it by 40-45% in 2020. Based on these findings, the Chinese government has made a priority to heavily invest in renewable energies and increase the use of sustainable energy sources. However, much of this commitment is doubted by many experts who have commented that China’s reliance on coal and peat is indeed too heavy and they don’t see the situation changing any time soon, despite the fact that the Chinese government is confident in their ability to meet the self-prescribed target to heavily invest in renewable energy by 2020.

The government’s decision was first demonstrated officially with the implementation of the China Renewable Energy Law, which was accepted as China’s first state-supported mandate to help develop the use of renewable energy in China. Even though the Chinese government is implementing multiple policies to promote renewable energy, the China Renewable Energy Law is still the key driver of renewable energy development in China. Passed in 2005 and officially implemented in January 2006, the China Renewable Energy Law stresses that the development and the usage of renewable energy is to be prioritized in the energy department.

By prioritizing the renewable energy sector, it presents China with an opportunity for global leadership. As further stated by China’s Vice Premier Li Keqiang: “In that environment, all we need to do is to take advantage of these [market] trends; if we respond appropriately we can seize this opportunity, gain the upper hand, and push forward a new breakthrough in development.” Indeed, China later proves its commitment in pursuing global leadership in renewable energies by increasing its investment at a staggering 80% per annum since 2004, as shown in the Solidiance analysis.

China’s driving policy doctrine, referred to as the “Five Year Plan”, is in its 12th issuance for the period from 2011 – 2015 and has a distinct and new focus on adjusting the country’s economic growth model with a specific focus on energy.

For the country’s energy objectives, it was decided that there would be 3 areas of focus for investment: clean energy, energy conservation and clean energy cars. Energy use is targeted to be reduced by 15% per unit of GDP, with carbon dioxide emissions to be reduced by 17% by the end of the planning period. However, despite its ambitious planning, there are many who are still not quite convinced by this pledge. As expected, many still question how effective these strategic targets will be at developing the supporting industries.

For example, to help meet its target during the 11th Five Year Plan, factories were shut down periodically during peak season. Naturally, as it was not the most effective and innovative method, it raises questions as to how well the government targets at a national level are coordinated with the development of China’s manufacturing and industrial sectors. .

The rapid growth of renewable energy projects being seen across China must be taken with a grain of salt. The “accomplishments” cannot be measured by the number of solar panels produced and the number of wind farms erected across China’s vast lands, but rather, the effectiveness of these tools to harness energy and the industrial population gradually shifting their reliance from traditional coal and peat to alternative sources is the true and only gauge of achieving these aggressive targets. Being acutely aware of this reality, the government’s energy plan aims to properly incent behaviors in these large emitters of greenhouse gas emissions to properly, albeit gradually, seek ways to reduce their dependence on coal. At the end of the day, the market economics must make sense for both the energy companies and the industrial consumers to come close to achieving the government’s aggressive targets.

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Germany’s Turn to a Renewable Energy Future

Energiewende. Literally, it means energy turn. And since the turn of the millenium, Germany has decided to turn toward renewable sources for generating electricity in a big, big way. By shutting down its dirty power plants and weaning itself from fossil fuels now, the country aims to generate nearly all its electricity from renewables by 2050.

As recently as 2000, Germany produced less electricity from renewable sources than the U.S. A short 12 years later, Germany’s use of renewable energy had tripled, and by 2012 it was producing more than twice as much as the U.S. By 2040, Germany is projected to produce 65% of its electricity from renewables — 4 times the expected U.S. rate.

Contributing to Germany’s rapid progress is the fact that Germany has no oil or natural gas reserves of its own, but there’s far more than energy independence at play.

Unlike the U.S., Germany has no mainstream political movement that denies man’s influence on climate change, and nearly two-thirds of its citizens support a turn toward renewables.

Instead of mandating a top-down solution, the government has encouraged private sector investment, such that homeowners, farmers and small businesses can sell the renewable energy they generate and buy it back at a profit.

For all its successes, Germany’s approach is not without problems. The country is burning more dirty, soft coal than ever to generate electricity on windless and cloudy days. The surcharge required to support buy-back profits has increased energy costs by about two-thirds, and the nation is desperately in need of a smart grid.

Nevertheless, all major political parties and the citizenry remain convinced that generating power from renewable sources is the wave of the future, and together, they are determined to seize it.

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New Material Stores More Energy

A new material that can store large amounts of energy with very little energy loss has been developed by researchers at Australian National University.

The material has practical applications in renewable energy storage, electric cars and defense and space technologies.

“Dielectric materials are used to make fundamental electrical components called capacitors, which store energy,” said Associate Professor Yun Liu of the ANU Research School of Chemistry, co-author of the paper detailing the new material.

The new metal oxide dielectric material outperforms current capacitors in many aspects, storing large amounts of energy and working reliably from -190°C to 180°C, and is cheaper to manufacture than current components.

“Our material performs significantly better than existing high dielectric constant materials so it has huge potential. With further development, the material could be used in ‘supercapacitors’ which store enormous amounts of energy, removing current energy storage limitations and throwing the door wide open for innovation in the areas of renewable energy, electric cars, even space and defence technologies,” said Associate Professor Liu.

The material could be particularly transformative for wind and solar power, which can cause problems when fed into the power grid at low demand times.

“Power going into the grid has to balance with the demand for power at any given time,” said co-author Professor Ray Withers. “This means that it is very important to be able to store energy until such time as it is really needed.”

Researchers have been trying to design new dielectric materials to make more efficient energy storage devices for years.

The design process has proven difficult because the materials need to meet three requirements: a very high dielectric constant, meaning they can store a lot of energy; a very low dielectric loss, meaning energy doesn’t leak out and get wasted; and the capacity to work across a broad range of temperatures.

“If you have a higher dielectric constant but also a high loss, the material is basically useless because it doesn’t store energy well – it’s like a leaky bucket. The material would also be useless if it only performs well at a certain temperature, because it couldn’t deal with normal daily temperature fluctuations. It is very difficult to achieve all three of these features,” said Professor Withers.

After five years of hard work, the research team has developed a material that meets all these requirements.

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Fewer Rain Forests Mean Less Energy for Developing Nations, Study Finds

That is the conclusion of a group of experts whose findings, released Monday, run counter to the conventional understanding of deforestation’s impact on watersheds.

For years, scientists and engineers have noted an increase in river flows when the trees along streams are removed. The water in the soil, which would otherwise have been taken up by the tree roots and sent into the atmosphere, instead moves directly into streams and rivers.

At the same time, large areas of tropical forest actually create rain clouds as moisture from their leaves evaporates. So the elimination of swaths of these forests decreases rainfall. Cut down enough trees, the scientists argue, and the indirect impact of lost rainfall outweighs the direct impact of removing trees.

The study, published by The Proceedings of the National Academy of Sciences, predicts that extensive deforestation will leave less water in the rivers to generate hydropower from projects like Belo Monte, which is under construction on the Xingu River in Brazil and will be the world’s third largest hydropower complex.

The Belo Monte project, whose massive scope and impact on the landscape have led to opposition, is expected to generate at least 4,400 megawatts of electricity, the study said. The project’s overall capacity would be more than 11,000 megawatts; because of wide variations in seasonal flows of the Xingu River, the lower output is what developers guarantee.

But the study warns that by 2050 as much as 40 percent of this power could be lost because of the reduced rainfall caused by regional deforestation.

Loss of tropical rain forests in the Amazon basin, Central Africa, Indonesia and other parts of the world has been a pressing environmental issue for two decades, but the debate has been framed largely in two ways. First, that the loss of the forests accelerates worldwide climate change be removing a large carbon sink that absorbs carbon dioxide from the atmosphere. Second, that the deforestation destroys the livelihoods of indigenous communities.

The idea that deforestation could reduce rainfall and thus economically harm a country like Brazil, which gets more than 80 percent of its energy from hydropower, is less familiar news.

Noting the established connection between the loss of trees and an increase in river flow, Claudia M. Stickler, the paper’s lead author, said researchers in the Amazon basin “saw effects where the conventional wisdom did not hold true.”

“They removed so much forest that it reduced rainfall and reduced the stream flow,” she added.

A co-author, Daniel C. Nepstad, who like Dr. Stickler works at the Amazon Institute for Environmental Research in Brasília, said rain forests create rain because they “are in the equatorial sun, evaporating a huge amount of water that goes up through the stems and into the leaves and out into the atmosphere.” That moisture feeds rain clouds.

In some eastern and southern tributaries of the Amazon, he added, “the cycle has changed.” The Xingu River, he said, is already near a tipping point where the increased flows caused by the loss of tree roots will be nullified by the overall loss of rainfall.

The authors concluded that “as tropical rain forest nations turn increasingly to hydropower to meet growing demands for ‘green’ electricity, it is important” that planners take into account the links between forest cover and stream flows.

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Climate Change Will Cause More Energy Breakdowns, U.S. Warns

The effects are already being felt, the report says. Power plants are shutting down or reducing output because of a shortage of cooling water. Barges carrying coal and oil are being delayed by low water levels in major waterways. Floods and storm surges are inundating ports, refineries, pipelines and rail yards. Powerful windstorms and raging wildfires are felling transformers and transmission lines.

“We don’t have a robust energy system, and the costs are significant,” said Jonathan Pershing, the deputy assistant secretary of energy for climate change policy and technology, who oversaw production of the report. “The cost today is measured in the billions. Over the coming decades, it will be in the trillions. You can’t just put your head in the sand anymore.”

The study notes that 2012 was the hottest year on record in the contiguous United States, and last July was the hottest month in the United States since record keeping began in 1895.

The high temperatures were accompanied by record-setting drought, which parched much of the Southwest and greatly reduced water available for cooling fossil fuel plants and producing hydroelectric power. A study found that roughly 60 percent of operating coal plants are in areas with potential water shortages driven by climate change.

Rising heat in the West will drive a steep increase in demand for air conditioning, which has already forced blackouts and brownouts in some places. The Energy Department’s Argonne National Laboratory found that air conditioning demand in the West will require 34 gigawatts of new electricity generating capacity by 2050, equivalent to the construction of 100 power plants. The cost to consumers will exceed $40 billion, the lab said.

Mr. Pershing, who joined the Department of Energy this year after serving for several years as the State Department’s deputy special envoy for climate change, said much of the climate disruption was already baked into the system from 150 years of rising levels of carbon dioxide in the atmosphere. He said that the nation must continue efforts to reduce climate-altering emissions, but that the impact of those efforts would not be felt for years. In the meantime, Mr. Pershing said, cities, states and the federal government must take steps to adapt and improve their resiliency in the face of more wicked weather.

President Obama referred to these vulnerabilities in his speech on climate change at Georgetown University on June 25. He said Hurricane Sandy, which devastated the Northeast in October, had provided a wake-up call, if one was needed after the run of climate-related disasters in recent years.

“New York City is fortifying its 520 miles of coastline as an insurance policy against more frequent and costly storms,” Mr. Obama said. “And what we’ve learned from Hurricane Sandy and other disasters is that we’ve got to build smarter, more resilient infrastructure that can protect our homes and businesses, and withstand more powerful storms. That means stronger sea walls, natural barriers, hardened power grids, hardened water systems, hardened fuel supplies.”

After Sandy, Mayor Michael R. Bloomberg of New York commissioned a study of how to protect the city against storms. The report called for nearly $20 billion in investments to enhance resilience, roughly equivalent to the costs of responding to the hurricane. The study said that unless the city took precautions, the next storm of similar magnitude could cost the city $90 billion.

The new Department of Energy report does not provide any firm estimates of expected costs and provides no specific recommendations for immediate action, much of which would be the responsibility of the companies that produce and transport all forms of energy.

But the authors do suggest a series of steps to reduce vulnerability. Power plants and oil drillers should use less water and recycle what they use. Electricity providers should harden their transmission grids and build emergency backup systems. Operators of hydroelectric dams should improve turbine efficiency. And residential and commercial energy users should find ways to reduce demand.

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Obama-California Energy Efficiency Mandates Coming to a Town Near You

President Obama’s recent “climate action” speech includes an expansion of subsidies and mandates requiring additional energy efficiency. The president calls these policies a “great deal” for consumers, but they are anything but—energy efficiency mandates impose lawmakers’ and bureaucrats’ preferences on the American people. These mandates assume that most Americans do not make wise choices and therefore Washington must require more energy-efficient products.

Energy efficiency mandates are truly a lousy deal for the American people. But that does not stop bureaucrats from imposing new energy efficiency requirements. California, for example, began regulating energy efficiency in 1974 with the creation of the California Energy Commission. Since then, the state claims it has been “at the forefront of American energy policy, working to protect the stability of California’s energy resources and the security of its energy consumers.” As alleged proof, the government boasts that its regulatory policies have kept per-capita electricity consumption flat since the 1970s.

While California’s per capita energy use has stopped increasing over the last three decades, a recent study commissioned by the National Bureau of Economic Research (NBER) finds that the state’s energy efficiency standards are not the cause. The study points to other factors which account for 90 percent of California’s residential electricity savings since the mid-1970s, concluding that the state’s policies provide “no lessons for other states or countries considering adopting or tightening their energy efficiency standards.”

The last part is important. President Obama’s climate action plan calls for reducing carbon dioxide emission by at least 3 billion metric tons by 2030, which the administration says is equivalent to half of all CO2 emissions from the U.S. energy sector in a given year. To that end, the administration will impose a host of new subsidies and regulations through unilateral executive action without input from Congress or the American people.

The Department of Agriculture (USDA), for example, will provide up to $250 million through its Energy Efficiency and Conservation Loan Program to encourage rural utilities to adopt energy efficiency upgrades. The USDA will also “streamline” its Rural Energy for America subsidy, which has already doled out nearly $24 million in grants and loan guarantees for agricultural producers since 2009. This is in addition to the almost $14 billion the Obama administration has spent on tax subsidies for energy conservation programs since 2009, according to IER’s new Federal Energy Spending Tracker.

If California’s history is any indication, the Obama administration’s latest efforts to engineer energy savings will fall woefully short. But it should come as no surprise, since many economists have long questioned the merits of energy efficiency mandates. An IER summary of recent research into energy efficiency shows how “rebounds” explain why government mandates often fail to live up to expectations.

As Professor Robert Michaels explains, rebound effects often negate the purported benefits of policies designed to reduce energy consumption. In general, rebounds occur because consumers who use products that are more energy efficient tend to use more of those products. The economics literature reveals, for example, that household behavior before and after installation of energy-efficient appliances produces rebounds between 10 and 60 percent. In some cases, efficiency mandates even increase net energy use, known as “backfires.” Even the environmentalistBreakthrough Institute recognizes the failure of energy efficiency mandates.

A 2008 study from Stanford University supports the conclusion that energy efficiency policies, at least in the case of California, fall short. The study finds that only 23 percent of California’s energy savings since the 1970s can be attributed to energy conservation measures. In other words, it is unlikely that exporting California’s energy efficiency schemes to the rest of the country would significantly reduce energy use.

Indeed, decades of energy efficiency mandates have left California “at the forefront” of high energy prices. California’s retail electricity rates are seventh highest in the nation, while the state’s gasoline prices are nearly 40 cents a gallon higher than the national average. California’s electricity rates are also higher than its neighbors: Arizona, Nevada, and Oregon.

The reality is that while energy efficiency is important, it is just one of many factors for consumers to consider. For example, if the choice is between two cars that cost the same, have equally powerful engines, and have the same amenities, but one gets better fuel economy, everyone will choose the more fuel-efficient vehicle. People are not stupid about energy efficiency.

But unlike the hypothetical car example, in real life there are tradeoffs. Cars with high fuel economy are usually smaller and more expensive than comparable cars. Energy efficiency is just one of many factors that matter when buying an automobile. But when the government mandates higher fuel efficiency, automakers are more likely to scrimp on other attributes such as size, comfort, safety, and price to meet the mandate.

Energy efficiency mandates are based on the premise that Americans need government bureaucrats to make wise choices about energy. The problem is that bureaucrats could never know what is in the best interest of all 114 million American households. Instead of imposing more costly and dubious mandates on the American people, the president should let the public decide for itself how to best use and conserve energy resources.

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World Bank Encourages Energy Poverty in the Name of Sustainability

Directions for the World Bank Group’s Energy Sector,” the World Bank backed President Obama’s call to end public financing for new coal power generation projects overseas. Echoing the President’s June 25 remarks, the report states that coal-based projects will receive support only in “rare circumstances” where there are “no feasible alternatives to coal” for meeting basic energy needs.

As the World Bank’s largest shareholder, “the United States plays a unique role in influencing and shaping development priorities.” Also, according to the Congressional Research Service, the U.S. contributed over $1.9 billion to the World Bank in 2012, ostensibly to advance its mission of ending extreme poverty globally. As such, U.S. taxpayers have a direct stake in World Bank energy policy, and with the President’s announcement, one of the practical questions for the public to consider is whether the exclusion of coal projects is compatible with the organization’s mission to improve conditions in the developing world.

Coal projects have the potential to reduce energy poverty and even improve the environment for over a billion people in developing countries. In that context, the new coal policy espoused by the Obama administration and the World Bank undermines the World Bank’s alleged goal of eliminating world poverty.

Lastly, we should note that this should not be taken as an endorsement of subsidies for coal or any other source of energy. It is IER’s position that no source of energy should be subsidized.

Human Impacts of Energy Poverty

The World Bank’s July 16 report outlines the stark challenges that lie ahead in the fight to end energy poverty, noting, “1.2 billion people are without access to electricity and 2.8 billion are without modern cooking facilities. Lack of energy limits opportunity, job creation, business development, and access to health and education.” That means nearly 2 out of 5 people on the planet still use wood, dung, or other “biomass” for cooking, and more than 1 out of 6 people have no access to electricity.

The unfortunate reality faced by communities without access to affordable energy is that the opportunity cost of not having power is significant. Where modern forms of energy are expensive or nonexistent, people cannot flourish. Instead, it takes much more of their time and resources to do things we take for granted—to find clean water, to trade their goods, to get to a hospital, or to read a book at night.

Given the bleak circumstances of the world’s energy poor, the World Bank’s bias against coal is misplaced. It is inconsistent to claim to help countries secure “affordable and reliable” energy while limiting access to coal power, which in many countries is absolutely the most affordable and reliable energy source.  As the World Economic Forum noted this year, “in terms of energy generated the biggest growth since the beginning of the century has been, by far, in coal – nearly twice that of natural gas, nearly three times that of oil, and almost ten times that of renewables. This is the result of high economic growth rates in emerging market countries and the rapidly rising need for power.”

In terms of sustaining and improving the lives of the world’s energy poor, the most “sustainable” energy is any energy at all. Referring to potential plans to finance a coal-fired power plant in Kosovo last April, World Bank President Jim Yong Kim said: “I don’t think it’s fair to tell the people in Kosovo ‘While the rich countries continue to burn coal, you’re going to have to freeze to death because it’s against our political ideology to support you…I can’t do that.” In other words, the cost of environmental “sustainability” is actually human life and human development.

Thus, the World Bank’s decision to support a narrow vision environmental sustainability over human development is contrary to the organization’s mission as a whole and contrary to the World Bank’s position just last year. The World Bank board of directors’ vote to cut coal out of the conversation demonstrates that it cares more about appeasing some people in rich nations than alleviating the suffering of real people right now. Confronted with the ultimatum to either provide much-needed energy by financing coal plants or to let people “freeze to death,” the World Bank’s new policy indicates that it might actually choose the latter.

Environmental Impacts of Energy Poverty

Given its hesitancy to help provide power in Kosovo, one might expect the World Bank to forecast huge environmental costs from providing energy to those without it. However, citing International Energy Agency estimates, the July 16 report states “achieving universal access would have a negligible environmental impact—increasing greenhouse gas emissions by less than 1 percent.” Therefore, the World Bank is tearing up the best ticket out of energy poverty for a “negligible” impact on greenhouse gas emissions. There must be more to it—what about other environmental impacts?

Perhaps counter-intuitively, coal-fired electricity can dramatically reduce negative health impacts from air pollution in energy-poor countries. For example, there are huge health problems associated with the indoor combustion of wood, dung, and crop waste—fuels we in the United States don’t think much about because we have cleaner indoor energy in the form of electricity and natural gas. The International Energy Agency highlights the issue:

The World Health Organization (WHO) estimates that 1.5 million premature deaths per year are directly attributable to indoor air pollution from the use of solid fuels. That is more than 4,000 deaths per day, more than half of them children under five years of age. More than 85% of these deaths (about 1.3 million people) are due to biomass use, the rest due to coal.

The reality is that coal-fired power plants will dramatically reduce the pollution that affects over a billion people worldwide. Affordable electricity means that people will not face these terrible impacts of indoor air pollution.

Economic Trends

The World Bank’s new “sustainability” policy also appears to ignore potential long-term savings that could result from the use of coal. The July 16 report states that “relatively high fossil fuel prices make alternative energy sources more competitive.” Ironically, however, the chart that is meant to show the increased costs of oil, gas, and coal prices shows upward trends in oil and natural gas prices, with a flat trend in coal prices.

It is commendable, however, that the World Bank remains committed to natural gas production. To that end, the July 16 report includes a section on ways the World Bank “will scale up its engagement in natural gas” and remarks that “[a]s the U.S. experience shows, unconventional gas holds significant economic potential.” U.S. shale gas production has supplied relatively low-cost energy in the recent era of tight regulations on coal. As the above graph suggests, other parts of the world may not have ready access to abundant natural gas supplies and, therefore, should embrace low-cost coal for heat and electricity generation. While it is laudable that the World Bank supports natural gas production, its shift away from abundant and inexpensive coal power cannot be justified by the price trends it cites.

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EIA Outlook: Fossil Fuels Continue to Dominate World Energy Supply

Sources of Supply

Although coal demand in the United States is decreasing due to low natural gas prices from hydraulic fracturing and Obama administration regulatory policies against coal use, coal is still the second largest supplier of energy worldwide in the EIA forecasts. It is second only to petroleum. However, both petroleum liquids and coal lose some market share to natural gas, nuclear power and renewable energy between 2010 and 2040. Coal’s share declines slightly from 28 percent in 2010 to 27 percent in 2040. Petroleum liquids, including biofuels, capture 34 percent of the market in 2010, but its share declines to 28 percent in 2040. Natural gas increases its share by one percentage point as increasing supplies of tight gas, shale gas, and coalbed methane support growth in projected worldwide gas use.

Nuclear energy’s share declines by 2 percentage points; renewable energy’s share (all forms except for biofuels) declines by 4 percentage points. But, as you can see from the graph below, fossil fuels still dominate in providing reliable and efficient energy to the world, helping to fuel economic growth in the developing world.

Source: Energy Information Administration, International Energy Outlook 2013, http://www.eia.gov/forecasts/ieo/more_highlights.cfm

Nuclear Power and Renewable Sources of Electricity

Despite the nuclear accident at Fukushima, Japan in March 2011, electricity generation from nuclear power is projected to more than double during the 30-year projection period as concerns about energy security and greenhouse gas emissions support the construction of new nuclear units, mostly in developing Asia. China is expected to account for more than 40 percent of the net increase in nuclear capacity globally, adding 149 gigawatts of nuclear capacity by 2040. According to EIA, by 2029 China will be the world’s leader in total nuclear consumption. Other countries adding substantial nuclear power capacity by 2040 are:  India (47 gigawatts ), Russia (31 gigawatts), and South Korea (27 gigawatts).

The majority of new renewable energy is from hydropower and wind power. Of the new renewable generation added over the projection period, 52 percent is hydroelectric power and 28 percent is wind power, with the hydroelectric power occurring mostly in the developing countries and the wind power occurring mostly in the developed countries. Wind energy has grown rapidly over the past decade, increasing from 18 gigawatts of net installed capacity at the end of 2000 to 183 gigawatts at the end of 2010. The intermittence of wind and solar energy, however, hinders their economic competitiveness, as they are not necessarily available when they would be of greatest value to the system.

Source: Energy Information Administration, International Energy Outlook 2013, http://www.eia.gov/forecasts/ieo/more_highlights.cfm

Petroleum Liquids

Petroleum liquids production increases by 28.3 million barrels per day from 2010 to 2040. Petroleum liquids include crude oil and lease condensate, natural gas plant liquids, bitumen, extra-heavy oil, refinery gains, and other liquid fuels (coal-to-liquids, gas-to-liquids, biofuels, and kerogen). The EIA assumes that countries in the Organization of the Petroleum Exporting Countries (OPEC) will invest in incremental production capacity to maintain a 39 to 43 percent share of total world liquids production through 2040, which is consistent with their share over the past 15 years. Increasing volumes of petroleum from OPEC producers contribute 13.8 million barrels per day to the total increase in world liquids production, and petroleum supplies from non-OPEC countries add another 11.5 million barrels per day. (See figure below.) Non-OPEC oil supply growth is concentrated in 5 countries: Russia, the United States, Brazil, Canada, and Kazakhstan.

Nonpetroleum liquid fuels contribute about 3 million barrels per day to the total increase in world liquids production. Nonpetroleum liquid fuels production includes biofuels in Brazil and the United States and coal-to-liquids in China. The three countries supply the majority of the nonpetroleum liquids supply through 2040, accounting for almost 65 percent of the total increase in nonpetroleum liquids supply.

Advances in technology make liquids production in previously inaccessible regions increasingly feasible and higher oil prices make production in those regions economically viable. EIA indicates that while the total extent of the world’s shale oil resources is not yet fully understood, there is potential for shale oil production to increase non-OPEC supplies of liquid fuels substantially over the course of the projection period. EIA estimates worldwide technically recoverable shale oil resources to total 345 billion barrels, which would add considerable liquid fuels production potential if the resources became economically competitive with other sources of liquids supply.

Source: Energy Information Administration, International Energy Outlook 2013, http://www.eia.gov/forecasts/ieo/more_highlights.cfm

Conclusion 

According to the EIA, in 2040 the world will still use oil, natural gas, and coal for almost 80 percent of its energy supply. Petroleum liquids will continue to provide the largest share, followed by coal and natural gas. Nuclear energy and renewable energy will increase their market share, but will not be able to displace fossil fuels. Energy-related carbon dioxide emissions are projected to increase by 46 percent by 2040 because of increased consumption of oil, natural gas, and coal. Developing Asia is expected to account for more than 70 percent of the increase in energy-related carbon dioxide emissions. China and India will be responsible for half of the world’s increase in energy consumption as they use energy to fuel their economic growth.  It is clear from EIA’s assessment of the world energy picture that other nations will be using increasing amounts of energy of all kinds, but especially those from fossil energy sources, for decades to come.

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New York: An Energy and Economic Analysis

New York has oil and gas resources, including part of the Marcellus shale formation in the southwestern part of the state, but instead of developing its oil and natural gas resources the state relies principally on oil and gas supplies from other states, Canada, and overseas. Despite years of study, New York State still has a ban on high volume hydraulic fracturing—the technology that created the great increase in oil and natural gas production around the country.

The state’s electricity generation is mainly produced by natural gas, but nuclear power and hydroelectric power also supply a large portion of electricity to consumers. New York has the greatest hydroelectric power potential east of the Rockies from the Niagara and Hudson rivers.

Due to New York’s policies, it has some of the highest energy prices in the nation. In 2012, its electricity price was the 4th highest and in July, 2013, its gasoline price was ranked the 8th highest by AAA.

New York’s total energy consumption is among the highest in the United States. That consumption, however, is partially countered by low energy intensity and per capita energy use, due in part to New York City’s widely used mass transportation systems and high density housing. The commercial and residential sectors lead state energy demand, followed by the transportation sector.

SourSource: Energy Information Administration, http://www.eia.gov/state/?sid=NY#tabs-2

New York’s State Rankings

In 2011, New York ranked 22nd among the states in total energy production, producing 873 trillion Btu of energy.In 2011, New York ranked 26th in oil production, producing 30 thousand barrels.In 2011, New York ranked 22nd in natural gas production, producing 31,124 million cubic feet.In April 2013, it ranked 7th in electricity production, producing 10,101 thousand megawatt hours of electricity.In 2012, New York had the 4th highest average electricity retail price in the United States.In 2011, New York ranked the 2nd lowest in total energy consumed per capita, consuming 185 million Btu per person.In 2010, New York ranked 10th highest in carbon dioxide emissions, emitting 172.8 million metric tons of carbon dioxide.

The Marcellus shale formation, which contains unconventional shale gas, underlies southwestern New York, but the state does not allow the use of hydraulic fracturing to access the shale gas. The Marcellus shale is estimated to hold at least 141 trillion cubic feet in technically recoverable natural gas. New York also has some minor reserves of conventional natural gas, found primarily in the far western part of the State near Lake Erie.

Natural Gas

While western New York produces some natural gas, the vast majority of New York’s natural gas supply is brought in via pipeline from other states and Canada. The Transcontinental and Tennessee Gas Transmission pipelines from the Gulf Coast and the Iroquois pipeline from Canada link up with local gas distribution networks that supply the New York City metropolitan area and Long Island. Numerous other gas transmission systems branch in from Pennsylvania and Canada to feed other parts of the state.

New York also has natural gas storage capacity, developed mainly from depleted natural gas fields in the Appalachian Basin in western New York. These storage sites, along with storage sites in Pennsylvania, Ohio, and West Virginia, supply the Northeast region, particularly during the peak demand winter season. New York’s residential, commercial, and electric power sectors all consume large amounts of natural gas.

According to the Energy Information Administration, almost 56 percent of New York homes are heated with natural gas compared to almost 30 percent who use home heating oil.

Petroleum

New York’s petroleum products are supplied by refineries located in New Jersey and Pennsylvania, the Colonial Pipeline system from the Gulf Coast, and foreign imports that principally originate in Canada, the Caribbean, South America, North Africa, and Europe. Located in both New York and New Jersey, the New York Harbor area has a petroleum bulk terminal storage capacity of over 75 million barrels, making it the largest and most important petroleum product hub in the high-demand Northeast.

New York Harbor acts as a central distribution center for the region, and many of the petroleum products delivered to the Harbor are redistributed to smaller ports where they supply local demand. In particular, the Hudson River, which meets the Atlantic Ocean in New York Harbor, provides a major inland water route for petroleum product barges supplying eastern New York and parts of western New England. On the other side of the State, western New York product markets are primarily supplied from Canada at the Port of Buffalo, and via the Buckeye and Sunoco pipeline systems from Pennsylvania and the Midwest. The TEPPCO pipeline system from the Gulf Coast delivers propane to upstate markets.

Reformulated gasoline blended with ethanol is required in New York City and the surrounding metropolitan areas. The New York Harbor area is the primary Northeast distribution hub for ethanol supplies. Ports located on the New Jersey side of New York Harbor receive ethanol rail shipments from the Midwest and marine imports from Brazil and the Caribbean, and then redistribute these supplies to markets throughout the Northeast. Another large ethanol storage facility serving the Northeast is located in Albany, New York.

New York uses fuel oil for home heating during its winters. Almost 30 percent of New York households use fuel oil as their primary energy source for home heating, higher than the national average of 6 percent due to the Northeast’s high use of fuel oil for home heating and to reduce the risk of fuel shortages due to weather and other issues, the Department of Energy established the Northeast Heating Oil Reserve. The Reserve gives Northeast consumers adequate supplies for about 10 days, the time required for ships to carry heating oil from the Gulf of Mexico to the New York Harbor. The Reserve’s storage terminals are located in Perth Amboy, New Jersey, and Groton and New Haven, Connecticut.

New York gets its generation mainly from natural gas, nuclear, and hydroelectricity.  Natural gas is the leading generation fuel, accounting for 44 percent of the state’s generation, followed by nuclear power from its four nuclear plants (Nine Mile Point , Indian Point 2 and 3, James A Fitzpatrick,  R. E. Ginna), which contribute 30 percent of the state’s electricity. Hydroelectricity produces 18 percent of the state’s electricity. Coal, wind, and biomass contribute a combined share of 7 percent. New York also imports electricity from neighboring states and Canada.

New York has considerable renewable energy potential. Several powerful rivers, including the Niagara and the Hudson, provide New York with some of the greatest hydropower resources in the nation. Its hydroelectric generation is the highest of any state east of the Rocky Mountains. When New York’s Robert Moses Niagara plant opened near the Niagara Falls in 1961, it was the largest hydroelectric generation facility in the world. Today, the 2,353-megawatt power plant is New York’s largest electricity generator.  In 2006, the New York Power Authority completed a $300-million upgrade and modernization at the Robert Moses Niagara Power Plant. All 13 turbines were replaced and other improvements were made to generating equipment in the power dam.

New York’s Catskill and Adirondack mountains offer wind power potential. The state is one of the nation’s top generators of electricity from municipal solid waste and landfill gas.  Because parts of New York are densely forested, wood is also a potential fuel source.

 

Source: Energy Information Administration, Electric Power Monthly, February 2013, http://www.eia.gov/electricity/monthly/

In September 2004, the New York Public Service Commission adopted a renewable portfolio standard that was updated in January 2010 to require 30 percent of the State’s electricity to be generated from renewable sources by 2015. (See next section for more details of New York’s renewable portfolio standard.)

Various power and electric grid failures led to major electricity outages affecting New York in 1965, 1977, and 2003. The August 2003 blackout was the most severe blackout in North American history, affecting an estimated 55 million people in the U.S. Northeast and eastern Canada. Because nuclear power plants are required by Federal law to shut down if back-up power systems fail for safety reasons, all four of New York’s nuclear power plants were forced offline. As a result, almost the entire state lost power during the incident.

According to EIA’s Residential Energy Consumption Survey, 53 percent of New York households use individual window or wall air conditioning units; only 20 percent have central air conditioning systems.

New York State Regulatory Environment

Below are some facts about New York’s regulatory environment that are likely to affect the cost of energy or the cost of using energy. Although affordable energy is a vital component of a healthy economy, regulations frequently increase energy costs.  And New York has imposed a number of costly regulations.

New York does not require a cap on total greenhouse gas emissions, but the 2009 State Energy Plan discussed the opportunities and challenges of an 80 percent reduction from 1990 levels by 2050. The State Energy Plan recommended a climate planning process to meet GHG reduction goals, and promotes key interim GHG reduction policies, including policies that increase energy efficiency and reduce the amount of energy consumed, and programs that promote the development and deployment of technologies to generate, store and transmit energy generated from low carbon or near-zero-carbon sources.

Also, New York is a member of the Regional Greenhouse Gas Initiative, which has imposed a cap on greenhouse gas emissions from power plants. The Regional Greenhouse Gas Initiative (RGGI) is a regional agreement among nine Northeast states to limit greenhouse gas emissions. The agreement requires states to cap carbon dioxide emissions from the electric generation sector at 2005 levels in 2009 and to reduce those emissions by 10 percent by 2019 through a cap-and-trade program.

The New York Public Service Commission (PSC) adopted a renewable portfolio standard (RPS) in September 2004 that requires utilities to generate a certain percentage of electricity from qualified renewable energy sources. Implementation rules were issued in April 2005. As originally designed, New York’s RPS had a renewable energy target of 25 percent of state electricity consumption by 2013, but was expanded in January 2010 to 30 percent by 2015. Of this 30 percent, approximately 20.7 percent of the target will be derived from existing renewable energy facilities and one percent of the target is expected to be met through voluntary green power sales in 2015. The remainder will be derived from new, eligible resources centrally procured by the New York State Energy Research and Development Authority. Eligible new renewable resources fall into two tiers: a Main Tier (about 91.56 percent of incremental renewable generation) and a Customer-Sited Tier (about 8.44 percent). Resources eligible for the Main Tier include methane digesters and other forms of biomass, liquid biofuels, fuel cells, hydroelectric power, photovoltaics (PV), ocean power, tidal power, and wind power. The resources eligible for the Customer-Sited Tier are fuel cells, photovoltaics, solar hot water, wind turbines, and methane digesters.

New York does not require the state’s gasoline to be mixed with renewable fuels. However, New York requires that motorists in the New York metropolitan area use reformulated gasoline blended with ethanol.

New York imposes automobile fuel economy standards similar to California’s, which include attempts to regulate greenhouse gas emissions from new vehicles. The New York State Environmental Board adopted California’s vehicle emissions standards in 2005.

New York requires new residential and commercial buildings to meet energy efficiency standards. Residential and commercial buildings must meet the New York Energy Conservation Construction Code, which is based on the 2009 International Energy Conservation Code (IECC) and ASHRAE 90.1-2007. The IECC (developed by the International Code Council) and ASHRAE 90.1 (developed by the American Society of Heating and Refrigeration and Air Conditioning Engineers) are model codes that mandate certain energy efficiency standards.

Governor George Pataki signed Executive Order No. 111 in 2001, requiring executive state agencies to reduce energy consumption 35 percent from 1990 levels by 2010 in buildings they own, lease, or operate. State agencies must also purchase Energy Star products based on life cycle cost when acquiring or replacing energy using equipment. Governor Pataki also committed the state to buy 20 percent of its electricity from renewable sources by 2010. Executive Order 111 also requires new state construction and substantial renovation to meet the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) standards to the extent possible. New state buildings must also exceed the state energy code by at least 20 percent. Certain State Entities were required to purchase alternative-fueled vehicles. The State Fiscal Year 2009/2010 requirement was set at 90 percent and increased 10 percent a year until 2010/11, when all newly acquired, non-emergency, light-duty vehicles were to be alternatively fueled.

Governor Andrew Cuomo signed Executive Order No. 88 on December 28, 2012, directing state agencies and authorities to further improve the energy efficiency of state buildings. Executive Order No. 88 establishes a target of reducing average energy use intensity (EUI) in state-owned and managed buildings by 20 percent relative to the fiscal year 2010/2011 baseline by April 1, 2020. It also tasks the New York Power Authority with creating a Central Management and Implementation Team to administer the order, and directs the state Office of General Services and the New York State Energy Research and Development Authority to provide technical assistance to the team and affected state agencies.

New York also has an Energy Efficiency Resource Standard that sets goals for reductions in electricity and natural gas use relative to projected usage. For electricity, it sets a 15 percent reduction target in electric sales relative to projected electricity consumption in 2015. For natural gas, it sets a reduction target in natural gas sales of 112 billion cubic feet annually by 2020, which equates to 14.7 percent of projected consumption in 2020.

New York imposes state-based appliance energy efficiency standards. For consumer audio and video products and digital television adapters, the New York legislation required the Department of State in consultation with New York State Energy Research and Development Authority to develop standards by June 30, 2006 and to implement such standards no sooner than six months after issuing final rules. Temporary emergency rules were adopted and renewed several times during 2006 and 2007 but have since expired and not been renewed. The regulatory process for these equipment types appears to be ongoing as of August 2012.  Efficiency requirements for other products (commercial hot food holding cabinets, portable electric spas, residential pool pumps, bottle-type water dispensers, portable light fixtures) were adopted by legislation in 2010. The legislation required the Department of State in consultation with the New York State Energy research and Development Authority to develop regulations by December 31, 2010. As of August 2012, no such regulations were adopted. The Secretary of State can, in consultation with New York State Energy Research and Development Authority, add any additional commercially available products that are not covered under existing federal standards.

New York allows electric and natural gas utilities to “decouple” revenue from the sale of electricity and natural gas, respectively. By allowing utilities to decouple, New York allows utilities to increase their revenue by selling less electricity and natural gas.

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