Category Archives: policy

Japan’s nuclear dilemma

Six months since the Fukushima disaster and Japan is still in the midst of a nuclear crisis. After the earthquake and tsunami, and resulting problems at the Fukushima plant, Japan has shut down the majority of its nuclear power stations. For a country that relies heavily on nuclear power for its electricity this is nothing short of an economic disaster. The Japanese government will not re-activate the power plants until all have been cleared. For a while, rumors were that Japan may be shutting down nuclear power stations permanently, but that is not yet clear.

To compensate for the reduction in output, Japan is forced to import oil-fuel and natural gas. The increased fossil fuel demands seem to be mostly met by Qatar, Australia and the Arab states.

To avoid paying huge sums for imported fossil fuels, the Japanese government is working hard to reduce demand in the country. Industry has already cut its energy use by 20%. This is an astonishing drop. Naturally, companies are looking at alternative energy generation and/or movement of their operations overseas. For an economy already fragile, the latter is very disconcerting. Although there is a strong push to build renewable plants now, it will be some time before they could replace nuclear plants.

Japan is not the only country that is re-considering nuclear energy. Germany has moved to close its nuclear plants permanently. It is rather interesting because it is not yet clear from where Germany will get its replacement power. Ironically, the two main options are electricity from coal-fired power plants in, for example, Poland, and electricity generated by nuclear power in France.
Other large users of nuclear power have not as yet changed their views. India, China and Russia will not revise their nuclear programs. I wonder if France will, but I do not think that even today’s nuclear accident will make a difference.

In the meantime, Japan is in dire straits.

Obama’s drilling plan

Petroleum drilling rig. Capable of drilling th...

Petroleum drilling rig. Image via Wikipedia

President Obama announced last Saturday that, in an effort to promote greater domestic oil production and help relieve prices at the fuel pumps, he intends to expand oil and gas drilling in the Gulf of Mexico and Alaska. The move was apparently meant to appease voters that are angry over soaring gas prices. At the same time, Obama has continued to press for repealing $21 billion in tax incentives for the big oil companies.

This isn’t the first time Obama has proposed expanding drilling. On March 31, 2010, he also announced the need to open more areas to gas and oil drilling. At that time, environmentalists sharply criticized the move and Republicans only offered lackluster support. The BP oil spill that occurred in the Gulf of Mexico a few weeks later effectively killed the proposal, with the administration placing a moratorium on deep water drilling.

This time around, Obama wants the Interior Department to allow drilling in Alaska’s National Petroleum Reserve. He also called for the faster evaluation and leasing of new oil and gas areas in the Gulf of Mexico. Obama cautioned that, “while there are no quick fixes to the problem [of high gas prices], there are a few steps we should take that make good sense.”

Some have argued that the proposal is aimed more at voter psychology than good sense. It’s unclear whether the move would have much effect on gas prices. It takes a long time for a policy change to produce a noticeable rise in oil production. Moreover, oil is a fungible global commodity. The price is determined by global supply and demand. If China is willing to pay more for oil than America, oil companies will only be too happy to send Alaskan oil overseas. The only way drilling for more oil in America would appreciably alter the price of gasoline is if the oil industry were nationalized.

However, there are ways in which the move does make good sense. Obama now looks like he’s doing something, energy markets usually respond positively to the prospect of greater future oil supplies, and real jobs will be created. The effect on the markets and the creation of jobs are especially welcome as the economy continues to slowly recover.

IEA says more support needed for energy innovation

The IEA has recently released their Clean Energy Progress Report

A few days ago, we posted that the first quarter of 2011 saw the second largest amount of investment by venture capitalists in green tech. Despite these promising numbers, a recent report released by the International Energy Agency (IEA) says governments are still lagging far behind in providing public support for renewable energy and efficiency research. Such support is critical since private companies can’t pony up the kind of R&D funding that governments provide and without R&D, innovation falls behind.

The report, called the Clean Energy Progress Report, notes that the last decade has seen a dramatic rise in global investments in renewable energy, led by wind and solar. Energy efficiencies have also seen modest gains and car companies have added hybrids and all-electric vehicles to their product lines.

Despite these positives, the growth of fossil fuel development has continued to outpace clean energy technologies. In fact, coal has been the fastest growing global energy source for the past decade, providing 47% of new electricity demand. And while research investments in nuclear are high, the recent events in Japan leave that industry with a vastly uncertain future.

The IEA notes a number of ways governments can address the situation, such as policies that support the longer term goals of meeting clean energy and carbon reduction targets. For instance, many of the renewable energy government subsidies  have expired while fossil-based technologies continue to receive them. In 2009, renewables received $57 billion in subsidies while fossil fuels received $312 billion. The difference in those numbers is understandable when compared to the amount of energy provided, but for change to occur, renewables will need continued and greater support until their development is cheaper. Governments should also continue providing tax credits and other incentives to stimulate private sector investments.

In short, the world needs nothing short of “a clean energy revolution,” says the report. And while it outlines possible combinations of policies that could provide such a result, the recent wrangling in Washington over the US budget, in which Republicans want to axe funding for renewables while continuing tax benefits for oil companies, shows that not everyone is in agreement.

Although it’s hard to argue with Republicans given the amount of energy and jobs fossil fuels provides, we should also take note of other approaches. For instance, the Wall Street Journal recently reported on the growth of renewables in China, due in large part to government policies. As a result of those policies, wind energy has increased substantially and Chinese solar panel companies are now the largest in the world. The success of China’s clean energy policies hasn’t only helped its own supply-chain companies, it’s also attracting U.S. and European manufacturers.

You can read the entire IEA report here.

Loan guarantees are a no-brainer

In one of our previous posts

, we discussed the House Continuing Resolution sections that called for a stop on loan guarantee programs for large scale renewable energy projects. Today, 34 CEOs of renewable energy companies wrote to House and Senate leaders to protest against this proposal. They say the loan guarantee program will help create tens of thousands of jobs and generate billions of dollars in investment from the private sector. Of course it will. Moreover, without a loan guarantee program it simply cannot happen.

I’ve had various arguments in the last weeks with people about this. “Unfair treatment of renewable energy over traditional (fossil fuel) energy” is the most heard argument against such loan guarantees. Of course, this is a crazy statement to make. All industries receive government support in forms of loan guarantees, tax subsidies, hidden tax subsidies, accelerated depreciation programs, stimulus programs, you name it. The oil, gas and coal industry certainly receive their fair share. In fact, I’d argue that at this point in time, the renewable energy industry is not at all yet at a level playing field with the established fossil fuel industry. The price tag for large scale renewable energy projects over the duration of their lifetime is nearly fully determined by capital costs: fuel is free. If a company cannot get a decent loan, with a decent interest rate, the price of the renewable energy resource will go up and its competitiveness will go down. Is it fair that large scale solar plants cannot get the same interest rates as a nuclear power plants, or coal-fired power plants? Typically rates are determined by perceived risk. Here’s a catch 22. The current perceived risk is high because we have little experience with large scale renewable power plants. But, if as a result, the capital costs remain unfairly high, we will never get this experience.

A governmental loan guarantee eases the discomfort that financial institutions may have with lending money to “risky” businesses. The guarantee means that the government agrees to pay part of the money owed to lenders if a company defaults. The government itself estimates a risk associated with the loan guarantee. Suppose that a plant will cost 2 billion dollars to construct. The government could, say, provide a loan guarantee for 80% of this capital investment, and decide that it needs to actually put aside 10% of this 80% for each project as insurance against the loan guarantee, so 160 million dollars. The higher this insurance set-aside is, the harder it is to convince congress to put the loan guarantee up. But, ultimately all it is is a perception. There is little base in numbers, because there are so few numbers.

In short, without a loan guarantee program, we will in the current economic climate not get anywhere with large scale renewables. Besides, the chief executives also say, the cuts would “defeat America’s effort to compete with China, Germany and others in the clean technology marketplace.”

Together, the companies these 34 CEOs represent have already invested $13.3 billion dollars in projects that are being considered for the loan guarantee program and should break ground before the end of September. The projects are in 28 states, and will create an estimated 25,000 construction and operating jobs. Companies include solar panel maker First Solar Inc (FSLR.O: Quote), solar thermal company BrightSource Energy, solar panel maker SunPower Corp (SPWRA.O: Quote), geothermal power company U.S. Geothermal Inc (HTM.A: Quote) and biofuels maker POET, among others.

I’m hoping this CEO plea will help. Particularly now that nuclear energy is being seen by many as a no-no, and we will (tomorrow) be commemorating the anniversary of the Deepwater Horizon disaster, it seems like such a crazy idea to halt large scale renewable projects and kill this industry before it even has a chance.

For sale, for cheap: Clever ideas in energy innovation

The wee town of Startup, Snohomish County, Washington State

If you have a little cash, an entrepreneurial drive and an interest in energy, but you lack the innovative idea of your new start-up, shop around at the Department of Energy. This week, our Secretary of Energy Steve Chu announced a new program, part of the Startup America Initiative, called “America’s Next Top Energy Innovator“. OK, cute play on America’s Next Top Model, although perhaps not as appealing to the general public. Here’s the deal: for a little money ($1000) you can obtain an option agreement to license a patent held by one of our 17 national laboratories. In the past, this would have cost anywhere between $10,000 and $50,000. So, the new deal is a bargain. There is more though: filing is made much easier with a streamlined online process, and DoE will even help you promote your new business idea to potential investors at the 3rd Annual ARPA-E Energy Innovation Summit in 2012, as well as give you access (at some costs for some time) to national research laboratories. The announcement boasts that there are 15,000 unlicensed patents and patent applications on the books to choose from. That sounds like a nice well-stocked ideas stop. The Department hopes that through this simpler and much cheaper process, more startups will be formed based on innovative ideas developed using federal support. In fact, its goal is to double the number of new startups.

It all sounds terrific at first. I’m all for stimulating market innovation. We are in danger of loosing the battle with other countries in this area and, like many others, I’m concerned about our industrial competitiveness in renewable energy, energy efficiency and carbon emission reduction schemes.  Without stimulus, we may become dependent on other countries, such as Japan and China that are investing very strongly and at increasing rate, for our clean energy innovations. Patent applications are telling. Globally around 20,000 new patents are filed per year in the energy area. US patents account for around 4-5% of total, which is less than the annually than patents filed by countries like China and Japan. Applicants from Japan accounted for the largest number of applications in the fields of solar energy and fuel cells.  In the last decade, Japan filed over 40% of the patents in this area, with China 13%, the US 12% and Germany 6%, approximately. Germany and Japan were the top two countries of patent origin for wind energy technologies in that same time period. Of course it is not only the number of patents that counts, but also the quality of them. And it is (still) true that the number of citations, a measure of the innovation level of a patent application, is much higher for US patents at this moment than for Chinese patents, say, but this advantage is also shrinking over time.

So, it seems like a great idea, this ANTEI (aye, bad acronym) program. But, can we expect it, though announced with a lot of trumpeting, to achieve much? It’s hard to gauge. First of all, how many startups are formed now? I could not find the statistics. The Department does mention that at the moment only 10% of all available patents are licensed. I take it those are the good ones. Would there still be pearls amongst the remaining unlicensed patents, and was it really the higher fee and more arduous application process that kept savvy entrepreneurs away?  If so, these changes are certainly welcome. But more importantly, how many of these startups formed are actually successful in bringing innovation to the marketplace? And would the program really make a difference in this successrate, which is what really matters?

If you’ve ever tried to launch a successful startup, you know that strength of the underlying innovation is only one factor deciding your successrate. Especially in energy. Market penetration is particularly difficult because of large established players. Margins are relatively small. Competition is fierce, also international competition. And, moreover, the market is highly dependent on economic policies that are not always steady.

It seems to me that we need much, much more than this Next Top EI (hey, that’s funny, “ei” in Dutch means “egg” – Next Top Egg program!) to successfully launch more US startups in energy innovation. We need to help create the market. A carbon tax, or consistent and clear carbon trading, would help. Clear consistent policies on tax credits as well as loan guarantees would help. And of course, if we are wanting to tap more into clever ideas generated through governmental research support, we should keep supporting that kind of research, rather than constantly reduce its level of funding.

Burton Richter’s blunt honest commentary on energy politics

When we interviewed Burton Richter on nuclear energy two weeks ago, just before the Japan earthquake, we ended up talking a fair bit about energy politics in the US. I always enjoy asking Burton about his views on DC and you will understand why when you listen to his views on some of the current political actions or non-actions. Who else would refer to the House Continuing Resolution as a China Advancement Bill of 2011?  He’s got a very good point there.

Check out Burton’s book Beyond Smoke and Mirrors also, and let us know what you think.

Fractitious fracking?

Shale gas production featured strongly again today with a thought provoking article on fracking in the New York Times. I highly recommend it. It once again shows the strong role politics plays in energy production. This is no surprise since energy is a multi-billion dollar per day industry. It is also no secret that the fossil fuel industry, including the gas industry, spends millions on lobbying in Washington and at state levels.

I think that the pressure applied by the gas industry and supporters will lead to fracking permits, some of which will be given too hastily and without enough thought or oversight. What I hope is that the current debate, and the many protesting voices raised from other segments of the population, will help to caution the industry, and convince it that it is better to be safe than sorry.