Oil: Gasoline Gets Expensive Again

The financial collapse of September 2008 took the wind out of oil’s bullish run from $10 per barrel in the late 1990s to over $140 in mid-2008. But as the US economy regains its footing (even the housing sector by late 2011), gasoline is shooting back up toward $4 per gallon. Prices recently climbed back above $3 per gallon – meaning that Americans are again sending over $1 billion per day for overseas imports to serve our oil addiction.  It’s time for our country to embrace the bicycle and more walking – but I’ll leave more on that for another post. I see gasoline increasing toward $3.25+ on $100 oil due to an inability of non-OPEC producers to increase supply that matches higher demand, particularly from China. And most OPEC nations seem reluctant to increase output levels while prices rise.

Coal: Historic Highs on Their Way

China and India are becoming huge net importers of coal and this development will tighten the global coal market significantly. South African, Indonesian, and Australian exports will be maxed out, sending importers on the lookout for coal from the US and elsewhere. Supply increases take time so the tight global market will likely push spot market coal prices above $150/ton, potentially challenging mid-2008 levels above $175/ton.

Natural Gas: Rising from the Bottom

Natural gas prices in the US have remained relatively low even during the recent 18-month run-up in oil prices, a departure from the usual price link between oil and natural gas. This divergence in price is due to recent growth in natural gas supply based on new drilling techniques that use potent chemical mixes to extract shale gas formerly too difficult to retrieve. Unless the extraction techniques are slowed on water pollution concerns, this drilling is poised to keep a lid on natural gas prices and thus help natural gas keep market share it took from coal in 2009. I see natural gas rising from the bottom ~$4 per MMBtu lately but staying mostly restrained below $7 (still significantly below the summer 2008 high ~$10).

Solar: The Boom Continues

2010 is turning into another record year for solar. Globally, solar installations grew more than 100% to ~16 GW. This occurred in a year many analysts were fretting for solar due to accelerated cuts in German subsidies. But Germany still grew tremendously thanks to lower solar costs and the country remains almost half of the global market. German officials are considering more accelerated subsidy cuts in 2011 to slow their overheated market greater than 7 GW this year, causing some analysts to worry again. But I see next year playing out in a similar way to 2010, with another record year ahead as the global solar market passes 20 GW.

I expect German subsidy reductions will help solar consumers everywhere enjoy 10-15% price reductions for solar PV panels, bringing them below $1.50 per Watt. The strong recent profits of many solar producers such as First Solar, Trina, Suntech, Yingli Green Energy, JA Solar, and Jinko show that most producers can handle a price drop of this magnitude. Such a low price for modules and panels would send solar electricity prices below 30 cents per kWh for residential, below 20 cents per kWh for commercial, and ~15 cents per kWh for industrial. This is a price that can now compete without subsidies in islands and remote applications that don’t yet have access to a grid (a market that includes over a billion people). And sufficient subsidies in growing solar markets such as the US, China, India and Italy are poised to take up the slack from German demand stagnation until larger grid parity is achieved in 2012-15.

Wind

After record growth in 2009, 2010 has been a tough year for the wind industry. Low natural gas prices and the lack of new projects signed during the Great Recession has dramatically slowed wind power installation in the US and most of the world. Though China wind growth continues unabated due to its white-hot electricity demand growth and may have just passed the US as the global leader of wind power capacity. But the stagnant overall market this past year means that wind turbine prices are lower and getting more competitive with fossil fuel-fired electricity. Look for wind turbine prices below $1.45 per Watt and total cost including installation below $2 per Watt onshore. The offshore market has higher installation costs that are offset by more consistent winds and close proximity to demand centers (cities). Offshore wind can begin to take growing market share in 2011.

Efficient Renewables Closing the Gap with Fossil Fuels

As described above, I see solar and wind power prices further converging with fossil fuel prices in 2011. Therefore renewable subsidies can be lowered in cash-strapped countries without risking market collapse. Increasingly efficient lighting (such as CFLs and LEDs) and other appliances will open up solar and wind resources to the masses, especially when complemented by efficient active transport by bicycle along growing greenways and bike lanes. The key potential game changer for oil and other commodity prices would be a significant weakening or strengthening of the dollar, either stoking higher prices in the US or taming the increase, respectively.

The energy system is in for big change during 2011. Investment in efficiency and renewables will pay off for early adopters as cleantech moves from niche market to more mainstream source.

Onwards in the Sustainable Energy Transition-

Dennis Markatos-Soriano

Global Growth Shines

The global wind power market also grew at an astounding rate — clocking a 37.5% growth rate in its annual market (37 GW vs. 27 GW in 2008). China’s annual growth became the biggest in the world at 13 GW, which makes sense due to their larger electricity demand growth. At the end of 2009, China became the 3rd largest wind energy producer after the US and Germany (35.1 GW, 25.8 GW, and 25.1 GW). China will become the 2nd biggest wind producer in 2010 and may challenge the US by 2011.

The global solar market didn’t grow as quickly due to the collapse of its top market of 2008 — Spain (~50% of the world market that year). But Germany rode to the rescue and extended its lead as the biggest solar power producer in the world (it may have passed 8 GW). Germans took advantage of a 40+% decrease in solar module prices and had record growth (becoming ~50% of the global market themselves).

In the US

As I wrote last year, wind was already replacing oil-fired electricity in 2008. In 2009, wind took some market share from the most polluting power source, coal. In the years ahead, wind and solar can provide for new electricity demand growth and then begin to take significant bites out of the market for the leading electricity sources, coal and natural gas.

At 35 GW, wind now produces ~2% of US electricity demand. At almost 2 GW, solar produces ~.1% of US electricity demand. Biomass and geothermal produce ~1.5% and hydro almost 7%. The big three power sources today are nuclear (~20%), natural gas (~23%), and coal (~45%). When you look at particular states, it is exciting to see that wind power already provides three states with more than 20% of their power needs (Wyoming, Iowa, and North Dakota). By 2023, wind could provide 20% of the whole country’s electricity and solar another 12.5% (based on growth rates of 17.6% per year for wind – half the recent rate – and 40.4% for solar – a slight pickup from the last few years).

The US Energy Information Administration predicts US demand growth for electricity at a rate of 1% per year through 2035. I personally think that rate is higher than necessary as electricity demand growth has fallen every decade since the 1950s and it only grew .4% per year in the ’00s. Increased efficiency efforts can help electricity demand stay flat or even fall, as Google presents in its Clean Energy 2030 Plan.

Trends in Europe as a Glimpse at Our Future?

Europe installed over 10 GW of wind power capacity in 2009. The continent now gets ~9% of its electricity from wind and wind was the top source of of new electrical capacity at 39%. Solar power was third at 16% after natural gas which supplied 26%. Adding hydro and biomass, renewable energy provided 61% of new capacity. Meanwhile, coal is on the decline, as over 3 GW were decommissioned. The US can accomplish this same feat of most new demand coming from renewables in 2010 and beyond.

Price Curves Favorable for Wind & Solar

The prices of wind and solar should continue to drop in 2010, as opposed to an increase in the price of oil, natural gas, and coal. This trend should help maintain swift growth from these sources and make them the new energy titans within a few more years.

The Human Toll of Fossil Fuels

As I discussed a few months back, our addiction to fossil fuels has a serious human toll (on top of inducing global warming and hurting air quality). The tragic blast at a Connecticut power plant that killed at least five people today is a grim reminder of this. Our transition to an efficient reliance on renewable energy will help to reduce such accidents in the future.

Nuclear & “Clean Coal” Not a Near-term Remedy

While Obama has been trumpeting nuclear and “clean coal” as a necessary bridge to a renewable energy future that he thinks is decades away, renewables are actually better situated to provide for us. It takes ten years to commission and build a new nuclear power plant. And carbon sequestration coal is not market-ready yet. In contrast, wind and solar are growing quickly, proven technologies, and falling in cost. Here’s to further record growth for wind and solar in 2010 — finally putting to rest any doubts that they can lead us to a new climate-friendly energy future.

Onwards in the Sustainable Energy Transition-

Dennis Markatos-Soriano

The Details

After 2008 witnessed a US emissions fall of almost 3% (due mostly to oil demand decreasing in response to higher prices), all fossil fuels are contributing to this year’s emissions drop. Coal has the biggest drop, now estimated to be ~6.9% due to lower industrial demand and low-priced natural gas replacing some coal in the electricity sector. Oil demand is revised downward from June to a fall of 3.3% for the year. And natural gas was revised downward to a consumption level 2.3% below 2008. All of these drops translate into energy-related emissions that are 4.3% below last year.

1990 Levels Not Far Away

Such a drop would make 2009 emissions just ~6.5% above 1990 levels and already 7.5% below 2005 levels. It would make 1990 emissions levels within reach by 2015 and the Waxman-Markey goal of 17% below 2005 achievable by 2017 (rather than 2020) by just reducing emissions 1% per year going forward.

Room for Further Reductions in 2009

And I believe the EIA may still underestimate 2009 reduction in fossil fuel energy demand. Its prediction that oil demand will fall 3.3% is slower than the current consumption decrease rate above 5%. And coal demand is also falling faster than 8% so far this year (rather than the ~6.9% EIA predicts). Continuing current demand trends could send emissions down more than 5% in 2009.

Looking Ahead

The EIA predicts some rebound in energy demand in 2010, but only a fraction of this year’s drop. In fact, the .8% expected recovery in electricity demand in 2010 could be provided in full by wind, solar, and geothermal rather than switching the fossil fuel plants back on.

Bottom line: US greenhouse gas emissions are falling quickly in 2009 and bringing us within close reach (a few years) of 1990 levels. This fact means that the Senate can comfortably promote Waxman-Markey’s goal of 17% below 2005 levels by 2020 or even strengthen it back to 20% below 2005 levels by 2020. We need their leadership to get climate legislation to the President’s desk. Renewable energy and efficiency are ready to simultaneously drive economic growth, create jobs, and lower our nation’s emissions. I will keep you updated on progress as it happens.

Onwards in the Sustainable Energy Transition-

Oil Output Slides Slower than Demand

Oil demand is down more than 5% in 2009 thus far and shows few signs of change. The Energy Information Administration (EIA) Petroleum Weekly Report shows demand of most oil-based fuels nosediving. Gasoline, distillates (mostly diesel), and propane demand fell 3.2%, 24%, and a whopping 39%, respectively. As a tempering force to supply gains, US crude output slid 1.8% to 5.163 Mbd last week, just .8% higher than in 2008. Much further reduction in production could bring US stockpiles back into the average range and threaten to lift prices above $70 per barrel again. But more economic stability is necessary to raise prices much further.

Natural Gas Storage Finally Slows its Growth

It took sub-$4 per MMBtu and a heat wave across the South to finally keep natural gas inventories from its above average growth. Output may fall below 2008 levels in July and send prices back above $4. But again, some economic recovery is important for prices to climb significantly above $4.50 per MMBtu. Storage remains more than 20% above average, and is poised to hit new record levels by October. Natural gas will remain a strong substitute for coal this summer even though coal prices are half their 2008 average.

Low Energy Demand Means Slow Renewables Growth

It’s hard to justify strong demand for new renewable energy when overall energy demand remains significantly below 2008 levels. But if solar and wind producers can continue to lower costs and economic recovery picks up in the second half of 2009, we may be on the cusp of another wave of strong expansion.

Bottom line: The recession maintains its grip on fuel prices midway through 2009. Whether demand recovery, output decreases, or changes in the exchange value of the dollar will change that reality in the months ahead is difficult to know. I’ll keep you posted on these trends and their influence on greenhouse gas emissions in the weeks ahead.

Onwards in the Sustainable Energy Transition-

Thousands of Deaths per Year

The same combustibility that makes fossil fuels a generous energy source claims the lives of thousands of people per year worldwide. A natural gas plant in Saudi Arabia recently exploded and killed 40 people. Several helicopters ferrying offshore oil workers have crashed in the last few months in the UK, the US, and Canada, killing scores of workers. But the most deaths probably occur in the coal mines of China, where thousands of miners lose their lives each year in explosions, collapses, and floods.

Renewable Energy Not Immune to Accidents

Wind turbines hundreds of feet in the air and rooftop solar installations can sometimes result in injuries or even a fatality as well. So the industry will need to take care and government regulations will be crucial to keep those numbers low as these industries scale up. Another risk that wind companies must take responsibility for is potential accidents at iron ore mines that are the source of their turbines’ steel (a recent iron ore flooding accident in China claimed 29 lives).

Bottom Line: The transition to efficiency and renewable energy reliance can help reduce mortality in our global energy system – not just from the effects of climate change and pollution. But even though wind and solar power may have inherently fewer risks, safety regulations will need to adapt to keep up with these new technologies and ensure the safety of the growing green-collar workforce.

Onwards in the Sustainable Energy Transition-

One of the most compelling speakers at our last day of REFF Wall Street was Deutsche Bank’s Global Head of Asset Management, Kevin Parker.

The focus of his talk was the importance for the finance community to respond to resource scarcity amidst a growing world population and the threat of catastrophic climate change. Parker cited capital markets validating renewable energy with scores of billions in investment over the last few quarters, while “clean coal” is only a dream receiving government support because it is years away from commercial viability.

Parker also emphasized the opportunity over the next several months as money moves from the sidelines (safe-haven money market accounts) back into the market. He talked of more than $10 trillion, of which a small fraction flowing into renewable energy financing could revolutionize our global energy system.

Parker believes investors are waiting for some regulatory certainty — in the form of US cap and trade bill passage and a potential federal Renewable Electricity Standard (RES). If the House passes ACES today and it is able to get through the Senate and to the President’s desk this summer, investors will have some certainty to help them get further involved in the renewable energy sector.

First Solar and other solar companies could definitely use more capital to help them continue to simultaneously break efficiency records and lower costs. First Solar announced yesterday that they aim to lower module production costs per watt by a third or more in the next five years, approaching 50 cents per watt in 2014. Such progress would put solar power on equal footing with coal electricity and lower the risks from future fuel scarcity, since there is practically an infinite supply of energy available from the sun.

The hundreds of billions of dollars that flow every year into coal and oil can shift into renewables. Such a flow would mobilize bright minds to improve energy storage and grid management and overcome the challenges from intermittency.

The technology for carbon capture and storage for coal and other fossil fuels has several years before it is ready for prime time on a multi-GW scale — Parker mentioned the date 2020. Meanwhile, renewable energy is ready to provide the US with more than 10 new GW per year in 2010 and beyond. Globally, the number is poised to approach 50 GW per year in 2010.

Parker and other speakers closed REFF-Wall Street on a positive note. The solution to climate change and resource scarcity is available and getting better in the form of efficiency, wind, solar, and other renewable energies. As debt markets and tax equity improve, regulatory frameworks solidify, and stimulus funds become available in the second half of 2009, massive amounts of capital will be deployable for the renewable energy sector. The hurt from our current recession will remain for many months, but lower prices for renewable energy in 2010+ makes it the go-to technology to achieve a stable climate and a prosperous world.

Coal Use Projected to Fall ~5%

Building on the lower coal consumption trend of the first quarter, the EIA estimates coal demand to be ~5% lower in 2009. With oil and natural gas demand down ~3% and 2.2% (respectively), energy-related US carbon dioxide emissions are projected to fall ~3.5%.

Still room for lower emissions

I still see room for even these projections to be overestimates. Coal consumption could remain almost 10% below 2008 levels due to the huge supply of natural gas and the cutbacks in industrial production from the likes of GM and Chrysler. And oil demand projections are based on a significant increase from the first five months. I see more likelihood that oil demand remains low to leave 2009 consumption at 5% or more below last year.

Such consumption would send overall carbon emissions down more than 5% in 2009 and to less than 5% above 1990 levels. Since the Waxman-Markey ACESA sets targets based on 2005 emission levels, I will also express these emissions relative to 2005. By my estimates, 2009 emissions falling 5% would lower them to more than 8% below 2005 levels. It makes the Waxman-Markey goal of 17% below 2005 achievable by reducing emissions only .8% per year.

Bottom Line: US emissions are poised to fall dramatically in 2009, putting us in a good position to lower emissions significantly below 1990 levels in the 2010s. Based on the prospect of strong growth for wind, solar, and efficiency in the years ahead, emissions levels of 20-25% below 2005 in 2020 (~8-14% below 1990 levels) are achievable by lowering emissions at a reasonable rate of ~1.5% per year.

Let’s make it happen!

ACES Act caps US greenhouse gas emissions

The passed bill would establish a cap-and-trade system to achieve lower US emissions levels by allowing institutions to trade their emissions permits so that the most efficient reduction projects are executed. This market-based incentive is estimated to be cheaper than mandating all institutions to lower emissions the chosen percentage without regard to each institution’s costs. The cap, beginning in 2012, is set for 2020 emissions to equal 17% below 2005 (or ~4% below 1990) and then 2050 emissions at 83% below 2005 (~80% below 1990). The original bill draft called for 20% below 2005 by 2020 but was relaxed as a compromise to shore up support among legislators from coal states.

The sharp drop in emissions during 2008-09 already has emissions at 6% below 2005 levels, so 17% below seems unaggressive to me. I hope advances in solar, wind, and efficiency help persuade legislators to lower the cap at least back to 20% below 2005 during the bill’s continued development or after it becomes law.

Electricity Emissions Continuing to Plunge

The EIA just published its preliminary estimate for March electricity generation, and the numbers are even more climate-friendly than last month. The most notable change is the large substitution from coal to natural gas due to the recent lower prices for natural gas. Coal use fell 14.5% from March 2008 while natural gas consumption increased 5%. More good news for the climate were a 1.2% increase in hydroelectric power generation, a .3% increase for nuclear, and a 4.8% decrease for petroleum liquids.

Year-to-date, 2009 coal consumption for electricity is down a whopping 10.2% (much more than the EIA projection of ~2.5%, as I wrote last week would probably occur). Natural gas use for electricity has fallen .8%. US emissions could fall as much as 5% in 2009 (to 7.5% below 2005 levels) if current trends continue. But for now, I’ll stick with the more conservative projection that they will fall more than 3%.

Here’s to swift passage of climate legislation to ensure emissions continue falling during our economic recovery in the 2010s.

Onwards in the Sustainable Energy Transition-

The Details

The EIA expects oil consumption to fall 3% in the US to a little more than 18.8 million barrels per day. Most of the reduced demand is projected to come from lower use of distillates (mainly diesel) and jet fuel. For coal, the EIA predicts consumption to fall ~2.6% based on much lower industrial and coke plant demand and a substitution to natural gas for electricity generation. Even after taking up some slack from coal, natural gas consumption is expected to fall 1.9% (.1% further than estimated in April). Adding all these decreases together produces emissions that are 3% lower than in 2008.

Room for Further Reductions

I see room for emissions to fall even further than 3% as petroleum demand is currently more than 5% below last year (not just 3%) and substitution from coal to natural gas may drive a huge drop in coal demand of 4+% (compared to their ~2.6% estimate).

Some Background on Natural Gas Substitution of Coal

The report included a supplement on coal-to-natural gas substitution which helped me understand the situation more clearly. Since natural gas power plants are more efficient (less heat needed per kWh generated), natural gas prices that are higher than coal prices by 33% or less are often competitive. While most coal demand is guaranteed through long-term contracts, as much as 10-20% of some regional electricity markets can switch from spot market coal to spot market natural gas purchases. A natural gas price of $4 per MMBtu is more economical than a coal price of $3.25 per MMBtu in many efficient combined cycle natural gas plants.

Bottom Line: US greenhouse gas emissions from energy are now predicted by the EIA to decline faster than the swift fall of 2008. For us to continue this trend in 2010 and beyond, we must base our economic recovery on efficiency and renewable energy deployment (through federal climate legislation and a Renewable Electricity Standard).

I’ll keep you updated as progress is made-

Denmark offshore, photo by Jim Hodson of Greenpeace

SET’s home state of New York is moving to become a leader in offshore wind power. Both the New York Power Authority (NYPA) and the Long Island Power Authority (LIPA) have offshore wind farms they are pursuing. The NYPA project would be the first major freshwater wind farm in the world. And the LIPA project could end up as the biggest proposed offshore wind farm in the US.

New York Needs to Accelerate its Renewable Deployment

New York has one of the highest renewable shares of electricity at ~21.5%, largely due to the hydroelectric plant at Niagara Falls (only Washington and Oregon currently have higher renewable shares, also mainly due to hydro). New York aims to get 45% of its electricity from renewables by 2015, a goal that will take tremendous deployment to achieve. In fact, renewable capacity of ~10 GW is necessary to reach 45% at current generation levels. Achieving such a high capacity by 2015 would translate into average annual deployment of 1.5 GW.

As I wrote a few weeks ago, NY recently became one of only eight states with over 1 GW of wind power capacity. All of the existing wind capacity in NY and the rest of the country is land-based. Now, state leaders have their sites on offshore wind helping NY reach several GW capacity by 2015.

First Freshwater Wind Farm

NYPA aims to build the first freshwater wind farm in the world. On Earth Day, they announced a Request For Expressions of Interest (RFEI) which will be followed by a Request For Proposals (RFP) from wind developers. Siting and construction will take time, but it’s great the process is in motion. I will share the MW capacity proposed as progress is revealed.

First US Offshore Wind Farm

Europe has had offshore wind farms since the 1990s. LIPA seeks to finally commission the first American one a few miles into the Atlantic Ocean. Initial capacity proposed is 350 MW with potential for a second phase to achieve 700 MW.

Sustainable Energy Transition Takes Time and Effort

Freeing NY from the need to burn coal (~12.5%) and oil (~10%) for electricity is not a quick and easy process. It will take solar and wind deployments more than double recent growth. Its nice to see NYPA and LIPA taking concrete steps to take advantage of the steady, powerful winds offshore.

Here’s to more progress in the months ahead-