Friday, 22 May 2009

Geothermal, the 'undervalued' renewable resource, sees surging interest

Nearly 200 million acres of public lands, mostly in the West, could become prime generators of emissions-free electricity by extracting steam heat from the earth's core to drive electric turbines.

Yet despite a $400 million stimulus bill allocation to spur geothermal energy production in the United States, industry groups and other experts say the technology remains a distant third behind wind and solar with respect to combined public and private investment in renewable resources.

That could soon change.

Efforts by Congress and the Obama administration to fast-track renewables development nationwide has the geothermal industry on the verge of an unprecedented expansion, the groundwork for which is being established by the departments of Energy and Interior. The Energy Department is expected this month to announce its list of geothermal projects that will be helped along with the $400 million from the American Recovery and Reinvestment Act. Meanwhile, the Bureau of Land Management and the Forest Service are working together to streamline permitting for new geothermal projects that could occur on federal lands.
The moves have sparked a flurry of activity on public land, with industry geologists scouring prospective federal sites in search of exploratory drilling locations that could later host geothermal production facilities, said Kermit Witherbee, BLM's national geothermal program manager.
And just this month, the Interior Department said it would open new permitting offices in four Western states and place renewable energy teams in five others as part of its broad push to expedite renewable energy projects on public lands (E&ENews PM, May 5).
"As a result of all the new stuff that's going on, we're starting to receive new lease applications and we can better deal with them now."
According to Interior's estimates, by 2025 geothermal power generated from federal lands will produce enough electricity to power more than 10 million homes. If realized, that would be a huge increase over current production and could place the technology on par with the two leading renewable energy resources, wind and solar.

An underused resource?

While the United States remains the world's leader in geothermal energy production, the industry's current generation capacity of 3,000 megawatts is a pittance compared with the 28,200 megawatts of capacity for wind-generated power, or the 9,183 megawatts of capacity for solar power.
"Geothermal energy is, in our opinion, an undervalued option that needs a serious look and could pay off big if there is a long-range, year-to-year commitment to it."
Meanwhile, some question whether the recent federal moves, including the stimulus spending, signal the kind of long-term commitment necessary to move geothermal production into the mainstream of U.S. energy supply. Industry leaders who have consulted with federal officials on the $400 million allocation say it appears the money will be used to develop longer-term commercial technology rather than tapping the huge amounts of readily available energy that could get several geothermal plants up and running.
"This has caused a lot of angst among our members."
Gawell said his members want more money spent on technology to reach existing underground resources and to locate the best sites for drilling. The Bush administration consistently cut funding for such work, industry observers say.
"The stimulus money would be a blessing compared to the zero dollars [the industry] has gotten in the past. But I'm equally as concerned about what happens next. If things go back to where they were before, it's the kiss of death."

Prospects for expansion

But a retrenchment may be unlikely given the current momentum toward large-scale expansion of renewable energy production. President Obama has set an aspirational goal of achieving an 80 percent dependence on renewable energy nationwide by 2050. Meanwhile, Congress is nearing completion of far-reaching energy legislation that includes a mandate that by 2020 at least 15 percent of the nation's electricity must come from renewable energy sources like wind, solar and geothermal.
The Bush administration in December finalized programmatic environmental impact statements for 11 Western states and Alaska identifying 111 million acres of BLM land and 79 million acres of national forests with modest potential for geothermal energy development.
The government has also streamlined the geothermal permitting process, allowing applicants in development-approved areas to secure leases and begin production without undergoing the years-long environmental reviews that industry officials say have slowed U.S. production.
"But it will probably be another two years before there is a significant increase in drilling activity and production. That is because most companies want to do extensive research before committing to build expensive production-scale plants. A single well, for example, can cost more than $5 million to drill. Much of the new geothermal production in the short term is likely to occur in two states, California and Nevada, which host most of the 530 geothermal leases issued by the government so far. Lagging investment and anemic past public interest has resulted in 29 of those leases being used to produce geothermal power, yet they still generate about 1,275 megawatts of electricity."
Currently BLM, which handles subsurface leasing for both its lands and those belonging to the Forest Service, is reviewing about 200 lease nominations involving parcels identified by industry as having potential geothermal resources. Besides California and Nevada, nominations have been filed for sites in Oregon, Utah and Idaho, Witherbee said. And other states getting more focused attention include Arizona, Montana, Washington and Wyoming.
"I think we have more geothermal projects under development now than at any time in history."

A 'robust, long-lasting option'

Yet research suggests the geothermal boom could expand even more, with big implications for the nation's future electricity profile, which remains largely skewed toward coal, natural gas and nuclear power generation.
According to a comprehensive Massachusetts Institute of Technology study completed in 2006, geothermal technology "provides a robust, long-lasting option with attributes that would complement other important contributions from clean coal, nuclear, solar, wind, hydropower, and biomass."
More recently, the U.S. Geological Survey estimated that the nation may have enough super-heated water underground to generate more than 30,000 megawatts of electricity, enough to power upward of 25 million homes. And the technology already exists to access a significant portion of the nation's geothermal resource, said David Blackwell, a geophysicist at Southern Methodist University in Dallas and one of the co-authors of the MIT study. Meanwhile, advances in water injection technology may expand that resource even further, he said. Scientists are working to develop a type of geothermal technology in which wells are drilled miles down to the super-hot rocks and water is injected. When the water comes into contact with the hot rocks it turns to steam and powers turbines that generate electricity. Widescale commercial development of these "enhanced geothermal systems" or EGS could result in the annual production of as much as 100,000 megawatts of electricity, or enough to power about 85 million homes. These systems could operate around the clock, unlike solar and wind power, providing the much sought-after baseload electricity to millions.
"Geothermal energy from EGS represents a large, indigenous resource that can provide base-load electric power and heat at a level that can have a major impact on the United States while incurring minimal environmental impacts. Further, EGS provides a secure source of power for the long term that would help protect America against economic instabilities resulting from fuel price fluctuations or supply disruptions."
The cost to develop this technology is no more than a $400 million investment over the next 15 years, according to the MIT study. That is the exact amount allocated to DOE for geothermal energy development in the economic stimulus package.
"It's only a valuable resource when we figure out how to get it and how to use it."

Looking beyond the West

The petroleum industry may also hold a key to expanding geothermal development beyond its traditional Western production center, including locations in the Midwest and Gulf Coast, where oil and gas producers have compiled extensive geologic data over decades of drilling. In much the same way regulators are looking to use abandoned hardrock mines to house wind farms and solar arrays, geothermal experts say thousands of spent oil and natural gas wells could be used to tap into the super-heated water in regions where thick layers of cap rock have made geothermal drilling cost-prohibitive.
"Texas and northern Louisiana, for example, could both be potential hot spots for geothermal energy."
Blackwell, whose SMU laboratory last year eceived a $500,000 grant from to map geothermal hotspots, said he has identified at least 3,000 oil and gas wells drilled in the last five years that have hit water as hot as 400 degrees Fahrenheit, more than adequate temperatures for most geothermal systems.
"In the oil and gas areas, there's a lot of deep drilling and we know about the [geologic] conditions already. We've been trying to make people aware that there are high temperatures associated with gas and oil development in old gas wells. If we can use existing formations, it's there to be mined."

Launch of Clearing Services for Electricity Swap Futures

Operational Risk - Launch of New Clearing Services for Electricity Swap Futures

CME Group yesterday announced the launch of clearing services for two new electricity swap futures contracts, scheduled to launch on June 7 for trade date June 8. Clearing services will be available through CME ClearPort®, a set of flexible clearing services open to over the counter or OTC market participants to substantially mitigate counterparty risk and provide capital efficiencies across asset classes. These contracts are listed for trading by NYMEX through CME ClearPort, and are subject to NYMEX rules and regulations.
The swap futures contracts and their commodity codes will be: PJM PECO Zone 5 MW peak calendar money day-ahead LMP (4N) and PMJ PECO Zone 5 MW off-peak calendar month day-ahead LMP (4P).
Utilities and marketers will use these contracts to provide liquidity and transparency, in conjunction with the other zonal products cleared through CME ClearPort.

The first listed month will be July 2009

The contracts will be listed for current year plus the next five consecutive years. The peak contract will be 80 megawatt hours in size, and the off-peak contract will be five megawatt hours. The minimum price fluctuation will be $0.05 per megawatt hour.

Tuesday, 19 May 2009

Energy Risk - Smart Grid, New Products Promoting Wise Use of Energy

When discussing Smart Grid and Smart Metering, the topic usually centers on the new advancements with the energy distribution and metering capabilities. This not only includes the utility companies themselves, but also the metering hardware and software vendors supplying them. The implementation of these system wide modernizations provide the critical backbone of the infrastructure, but the capability of achieving the goal of using energy wisely to reduce the carbon footprint and manage peak demand is also dependant on new parties entering and fulfilling the important role of providing necessary products and services to consumers.
New developments in home appliances will be required in order to complete the overall infrastructure of the Smart Grid.
Many of the new players in the industry are large, well established companies who will be adding the new functionality and expanding their existing product lines to meet the new Smart Grid requirements. I imagine there are several engineers excited about the opportunities these changes are bringing.

Appliance Manufacturers

General Electric and Whirlpool are two major appliance manufacturers that are taking a lead role in providing smart appliances to help shift some of the energy load from peak hours to other parts of the day to reduce the need to build new peaking power plants. Both companies are working with industry leaders to help accelerate the adoption of these new capabilities to address how appliances will interact with the Smart Grid. Bracken Darrell, president of Whirlpool Europe recently announced that by 2015, the company will “make all the electronically controlled appliances it produces—everywhere in the world—capable of receiving and responding to signals from smart grids…” This promise is based upon two key conditions:
  1. The development by the end of 2010 of an open, global standard for transmitting signals to and receiving signals from a home appliance and
  2. Appropriate policies that reward consumers, manufacturers and utilities for using and adding these new peak demand reduction capabilities.
General Electric is introducing appliances that are capable of receiving pricing increase signals and adjusting their functions to reduce power consumption until prices goes back down.
They currently have a pilot program in Louisville, KY to determine the effectiveness of the Smart Grid enabled appliances. The utility is providing a pricing plan where prices varies across the day and once customers have established their preferences based on pricing, these smart appliances will adjust their operations automatically. However, customers will have the ability to override the automated response at any time.
In addition to the major appliance manufacturers, several manufacturers already have thermostats and other proven products that not only allow automatic control of the heating and air, but also serve as portals to display both pricing and billing information. A variety of companies are ready to deliver wireless energy dashboards that will monitor energy consumption data, i.e., Google PowerMeter, GreenBox and EnergyHub. Some of these companies are targeting end users while others are focused on utility partners. Regardless of the equipment, providing the customer the ability to control all of their smart devices without requiring a Ph.D. is critical for the acceptance of these new products. Manufacturers must balance the customer's desire for using energy wisely and managing their energy spending with their need for convenience and simplicity.


While smart metering providers have incorporated communication networks within their devices, wireless carriers such as AT&T and T-Mobile have started to work with partners to enter the Smart Grid arena. These wireless companies already have high-bandwidth communications infrastructures in place. By taking advantage of these networks that are already in place, utilities have another option to consider going forward for local area networks and many are already using cellular communications for wide area network communications.
The utilization of existing wireless networks may also facilitate the support of cell phones and other wireless devices for control and monitoring of home appliance and other energy consumption.
With Congress allocating the $4.5 billion of the economic stimulus package to develop new smart grid technologies, the major U.S. wireless carriers are working to create a business model that will allow them to effectively enter the smart grid market with new products and services that can compete with the existing utility vendors.


As in every sector of the industry, various levels of government play a critical role in the successful implementation of the Smart Grid. The new US administration has been activity defining and promoting the implementation and acceptance of the "Smart Grid" initiative. On March 16, the DOE worked with the Senate to introduce S.598 "Appliance Standards Improvement Act of 2009" which would amend section 324A of EPCA to strengthen the joint DOE/EPA Energy Star Program. The plan is for these new standards for appliances to save consumers over the long run despite higher up-front costs for improved products.
Individuals and companies are also given the opportunity to take advantage of tax credits and deductions by installing approved energy saving products. State and local regulations will need to be modified to introduce new pricing models with saving incentives based on these new products and consumer awareness of using energy wisely.
With the stimulus package and the increased focus on green policies, the government is aggressively promoting development and acceptance of the Smart Grid. These actions are providing incentives for new players to invest in the development of the necessary products and services to make the Smart Grid successful.

Utilities and Traditional Utility Vendors

The addition of these new players in the industry sector provides opportunities for new partnerships and acquisitions. Traditional software and hardware vendors will need to be able to support these new appliances, whether through pricing structures, billing, data gathering, inventory, monitoring and controlling. Security and the volume of data will also present new challenges. Utilities need to be able to respond to the needs of the customer, which will change significantly as smart appliances and metering penetrate the market. Education and marketing programs will need to be developed to introduce their customer base to these dramatic changes. Utilities will also need to invest in additional training for their call center agents to use new systems and features and be able to assist customers with new pricing plans, smart thermostats and in-home display devices, as well as investing in new systems and business processes to support these new products and services.

Sunday, 17 May 2009

GridSolar Project fills demands, creates jobs, at lower cost

Despite claims to the contrary, we don't need to upgrade CMP's transmission lines in order to transmit the power from wind generation facilities in Maine to electricity users in the Northeast. Wind projects are already online in Stetson and Freedom and under construction at Kibby Mountain. New projects have been proposed in Rollins, Roxbury, Dixmont and Rumford, while many others are in the pre-development stages. Maine's current transmission grid is more than adequate for these projects and many more like them. This is because Maine's transmission grid was built to transmit electricity from Maine Yankee and Wyman Station, an oil-fired plant in Yarmouth, to businesses and households throughout the state.
Today, Maine Yankee is closed and Wyman Station hardly ever runs because oil is too expensive. These two plants had a combined capacity of about 1,650 megawatts, an amount that is almost as large as CMP's total load and more than three times the total capacity of all of the wind projects built, under construction or proposed for development in Maine today.
There is a much better way to promote renewable generation in Maine than to spend billions of dollars on transmission, as CMP has proposed.
On an average day, the amount of solar energy that hits Maine is more than the total amount of energy Mainers use in an entire year, yes, that's right, more than all of the heating oil, gasoline, electricity, coal, biomass, cordwood and all other fuels combined. CMP is wrong, Maine does not have to spend $1.5 billion to upgrade its transmission grid to meet projected energy needs on hot summer days when people turn on their air conditioners. This approach is the old way of thinking about electric grids, one that is designed to bring electricity from power plants in Canada into Maine.
The result will be that Canada receives the benefits of the jobs, investments and property tax revenues from the generation, while CMP's owner, the Spanish utility Iberdrola, gets a guaranteed 13% return on its investment. Maine ratepayers should not be asked to finance billions of dollars of transmission investments so that jobs can be created in Canada and businesses in Massachusetts can have cheaper power.
There is a much better way to ensure that our electric grid is reliable, our GridSolar Project.
The GridSolar Project is a first step in bringing the benefits of a "smart" electric grid to Maine. It relies on solar generation to serve the electricity demand of customers during the peak hours of the year when air conditioning is running full blast. Instead of a massive upgrade and widening of CMP's transmission corridors, GridSolar proposes building numerous small (25-acre) solar generating facilities close to the communities where the power is actually needed. These solar facilities will be backed up by propane-fired generators for those very warm summer evenings when consumer use of electricity remains high, but the sun isn't shining.
In this way, the GridSolar Project is a game-changer for the development of solar power and for Maine's future economic development, a once-in-a-generation opportunity for Maine to provide the needed power and reliability while creating thousands of "green collar" jobs in Maine, all at a cost that is substantially less than the $1.5 billion CMP is proposing to spend.
The GridSolar Project offers Mainers electricity at approximately 3 cents a kilowatt-hour for 20 years, compared to today's cost of about 8 cents a kilowatt-hour. It will reduce greenhouse gas emissions by the same amount as taking more than 100,000 cars off the road and will create far more jobs, long-term jobs, than any money spent on unnecessary transmission.
And if that is not enough, our GridSolar Project does not require us to use eminent domain to take land from private property owners. In fact, we have already had people call us to ask us to consider their property as possible sites for our GridSolar installations. When was the last time someone asked CMP to use his or her land to string high voltage transmission lines and towers?
Maine needs to look to the future and not to spend money on yesterday's technology. We need to invest in smart electric grids and distributed solar generation such as the GridSolar Project to enable us to become less dependent on fossil fuels, to reduce our collective contribution to global warming, to create long-term, green-collar jobs for Maine workers and to keep property tax revenues right here in Maine. This decision needs to be made now, because once the transmission lines are built, this opportunity will not be available again for decades.
Richard Silkman and Mark Isaacson are founding partners of GridSolar LLC.

Thursday, 7 May 2009

Energy Risk - Replenishing the Ranks

If green energy is to launch the nation into a new economic realm, then modern technologies and skilled engineers must be the catalyst.

But a flood of retirements may thwart that promise, prompting industry, academia and government to collaborate and offer tangible ways to ensure progress. President Obama's rise has also energized the utility sector and given it an opportunity to help pivot the nation into economic recovery. Indeed, the emphasis on reducing carbon emissions and the greening of corporate America is leading to the research and development of alternative generation and the intelligent utility that offers two-way communications between providers and their customers. And while that may spark interests in power engineering, the fear is that the overall effort may be insufficient.
"The corollary of 'the market will solve the engineering workforce problem' is that 'I don't have to take any responsibility for the solution'. The thesis of the Collaborative Action Plan is that all stakeholders need to take ownership of some part of the solution."
The Collaborative Action Plan to which Ray refers is led by the IEEE Power & Energy Society and is an initiative to address concerns about the U.S. power and energy engineering workforce. Federal and state regulators, for example, would consider how their rules might affect recruitment. Industry, meanwhile, would sponsor scholarships and research efforts while higher education would offer degreed programs to meet the expected future hiring needs.

Skill-gap risk in action

Over the next five years, roughly 45 percent of electrical engineers in this country will be eligible for retirement, according to a 2008 survey by the Center for Energy Workforce Development. That translates into the need
  • educate,
  • hire and
  • train 7,000 power engineers.
And while many of those eligible to quit working will continue on either because they choose to do so or because they cannot afford to stop, the same survey shows that the schools can't crank out enough graduates to fill would-be openings.

Pending retirements within academia are also undermining efforts to gear up.

The IEEE says that about 40 percent of electrical power engineering professors will have reached the age of retirement in the next five years but it goes on to estimate that 27 percent of them will actually step down. In any event, the process to encourage interest in power engineering begins at the elementary school level where math and science must be emphasized. Those students that excel by high school should then have an opportunity to receive scholarships. The goal is to double the number of graduate and undergraduate students completing electric power and energy engineering degrees and to assist by providing $4 million in immediate awards and $50 million in research to such schools over the next five to eight years.

Mass Exit

When deregulation of the energy sector surfaced in the 1990s, technically oriented positions were forsaken in favor of those emphasizing marketing and finance. But as the nation makes its transition to a digital economy that will profoundly affect the energy sector, the need to hire for power engineering jobs is paramount.
That immediate demand for knowledge, however, has run headlong into a recession that is forcing utilities to postpone their capital expenditures in generation and transmission.
Undoubtedly, the electricity industry faces a serious paradox involving its commitment to modernize its infrastructure with the short-term financial hits it is now taking. The economic lull may quell any sudden mass exit of qualified engineers. But utilities generally realize that it not a viable long-term solution. Both Wall Street and the credit rating agencies, in fact, have said that the 'utilities of the future', those that making key investments in the smart grid and clean energy generation, will be best positioned to attract capital and remain creditworthy.
"We will ride out the storm while our 401ks recover. But that masks the problem. We can try to keep those seniors engaged and they will for a period. But eventually they will retire. We will still have to bring in the new engineers to be mentored. The worst thing we can do is to not bring in new ones right now. We need to prime the pump.
Clearly, the power industry is trying to be proactive. According to a study performed by Sierra Energy Group, a division of Energy Central, about 57 percent of all utilities have a strategy in place for managing the impeding shortage of qualified workers. FirstEnergy of Cleveland, for example, has hired hundreds of experts in everything from engineering to information systems, all to permit newer employees to learn from veteran workers. The Progress Energy Foundation, furthermore, has distributed millions to educational institutions throughout North Carolina so as to attract everyone from engineers to linemen. Meanwhile, Colorado Springs Utility sponsors local power engineering classes and Bismarck State College in North Dakota offers technical instruction in electrical transmission and nuclear power technology.
"With the stimulus package and its thrust on the smart grid and renewable energy, the power industry is brandishing its image. It is not clear, however, that we have the people in place to deliver the desired outcome."
The push for next generation power plants and intelligent grids is certainly getting stronger and giving new luster to a utility industry long thought to be in the Dark Ages. The result, in any case, underscores the need for all stakeholders to collaborate in the effort to replenish the utility ranks with a fresh crop of power engineers.

Tuesday, 5 May 2009

Investors see bright future in wind energy

When President Barack Obama stood in front of wind turbine towers in a Newton, Iowa, factory last week he was not only pushing his green energy policies but promoting an industry that has been growing rapidly and gaining favor with investors.

Revenue from solar, wind power, ethanol and biodiesel fuel grew 50 percent to about $116 billion last year, according to Clean Edge Inc., a research and publishing firm. The spike in green revenue, and the backing of the federal government to explore these energy sources has excited investors.
"They favor green investment right now because they think that's the way the world is going."
The federal stimulus package includes $17 billion for the current fiscal year to upgrade and expand the antiquated national power grid. It also allocates $11 billion to develop a smart grid, an electronically controlled distribution system that will be much more efficient. All told, last year global investments in energy technologies expanded by 4.7 percent to $155 billion, according to research and consulting company New Energy Finance Ltd.
"The smartest investors put their own personal prejudices aside. Many people think global warming is propaganda, but they're aware that the bottom line is climate change legislation is going to happen. Investors smart enough to realize this know there's an opportunity there."


Investors looking to put their cash into an area that's seen tremendous growth might look to wind energy, said Ron Pernick, a spokesman for Clean Edge Inc. Wind has jumped ahead of other green energy sources because innovations in turbine technology (think: windmills) have improved the efficiency and made systems the most cost effective alternative. Turbines can generate electricity with wind speeds starting at 8 to 16 miles per hour according to the U.S. Department of Energy. Turbines are typically built in groups on wind farms where the wind is the strongest. The largest U.S. wind farm is near Abilene, Texas, with 421 turbines scattered across 47,000 acres.
"Of all renewable energy sectors, this is the one reaching the largest scale right now," said.
Another reason wind surged to the forefront is because many states passed standards that require that a percentage of the state's electricity to be made from renewable energy sources. California, Iowa, Oregon and Texas are among those with such goals. That pushes utility companies such as AES Corp, Alliant Energy and MidAmerican Energy to invest in wind farm ownership or at least buy a portion of their energy from wind providers to meet the minimum green energy requirements.


Because it's an emerging technology, investors may choose to get involved by owning a piece of larger conglomerates such as General Electric Co. Its energy division lead the industry in newly installed turbines in the U.S. last year. It provided roughly 48 percent of the more than 5,000 turbines installed according to the American Wind Energy Association. This added an additional 3,657 megawatts. In its 2008 annual report, GE said its energy division brought in 21 percent of revenue for the year. That includes technologies developed to harness wind, oil, gas and water. The division has seen a 53 percent increase in revenue over the past three years and a 73 percent increase in profit due to worldwide demand for energy and alternative sources of power. GE shares are trading in the $12 range, well off their 52-week high of $34. Trinity Structural Towers, the Iowa company President Obama visited last week, is a division of Dallas-based Trinity Industries Inc. (TRN), a diversified company with railroad car, highway construction materials and wind turbine tower divisions.Shares of the company have gained nearly 18 percent since Obama's visit. They were trading 12 percent higher, near $15 a share and have traded between $6 and $41 over the last year. But significant growth in wind turbine installations was propelled forward by many European manufacturers. They've set up factories and distribution centers in the United States to meet demand for turbines, blades, and other large components that are too expensive to import. Many are traded in the United States including Vestas Wind Systems (VWSYF), which was second only to GE in terms of the wind power it supplied last year, some 1,120 megawatts. Siemens AG (SI), the German industrial conglomerate, with 791 megawatts, was third in terms of installed capacity. Other leaders investors may look to are Spain's Gamesa Corp. and Britain's Clipper Windpower, both considered pure play companies because they focus just on wind energy production.


Because many wind energy companies are foreign-based there are always geopolitical and currency risks to weigh. Investors also will want to be wary of emerging companies with unproven ideas. At a minimum, you'll want to be sure that the company is well capitalized and has a strong business model. When investing in a fund, such as an exchange traded fund, Siegel of Green Chip Stocks recommends making sure it is balanced. Some funds are very sector specific, focusing on solar stocks, for example. If something were to happen to impact that industry such as a shortage of the electronic components that convert sunlight to electricity, your entire fund could crash. There are funds such as Market Vectors Global Alternative Energy ETF Trust (GEX), which includes wind, solar, geothermal and other business types. As you look for investment opportunities, be aware that the global economic slump began hitting the renewable energy sector hard late last year and it's continued into the first quarter. Global new investment in clean energy fell 53 percent to $13 billion in the first quarter of this year compared with the same period a year ago. That's mostly due to inadequate bank financing, a result of the credit crunch and low stock market confidence from the continuing recession. In the United States, financing of new projects fell by $500 million, down from $5 billion in the first quarter of 2008. Analysts at New Energy Finance said the dramatic fall illustrates how badly government stimulus money needs to begin flowing to businesses. So, whether you're interested in investing directly into a green energy company, or seeking out a mutual fund, you have many choices to consider if you've been thinking of a greener investment strategy.

Monday, 4 May 2009

Business Musings From Woodstock for Capitalists

Buffett and Munger Play the Main Stage: Views on Newspapers, Triple-A Ratings, Complex Math and More

Here are some highlights of Warren Buffett's and Charles Munger's remarks at the Berkshire Hathaway Inc. shareholder meeting this past weekend.

Mr. Buffett on Newspapers

Mr. Buffett has long held himself out as a newspaper man. As a child, one of his first jobs was delivering newspapers. An Omaha newspaper Berkshire owned, Sun Newspapers, won a Pulitzer Prize in 1973 based in part on a tip Mr. Buffett provided. One of Berkshire's biggest investments in the 1970s was the Buffalo News, which it still owns. But his view on the future of the newspaper industry is dismal.
"For most newspapers in the United States, we would not buy them at any price. They have the possibility of going to just unending losses."
[Warren Buffett] Reuters

Warren Buffett, left photo, noshes on an ice-cream bar at Berkshire's annual meeting in Omaha, Neb., on Saturday.

As long as newspapers were essential to readers, they were essential to advertisers, he said. But news is now available in many other venues, he said. Berkshire has a substantial investment in Washington Post Co. He said the company has a solid cable business, a good reason to hold on to it, but its newspaper business is in trouble.

"a national tragedy.... These monopoly daily newspapers have been an important sinew to our civilization, they kept government more honest than they would otherwise be."
A Washington Post Co. representative couldn't be reached for comment.

Mr. Buffett on Insurance

In response to a question about the worst possible development for Berkshire Hathaway's vast insurance operations, Mr. Buffett responded: nationalization. If inflation jumped and insurance policies became extremely expensive, pressure could rise on the government to nationalize the insurance industry, he said.
"When people get outraged, politicians respond."
It's highly unlikely that such a development would happen, he added. But he did note the example of Social Security, which is a form of a nationalized annuity.

Mr. Buffett on Housing

"In the last few months you've seen a real pickup in activity although at much lower prices."
Mr. Buffett was citing data from Berkshire's real-estate brokerage business, HomeServices of America Inc., which is one of the largest in the U.S.

[Berkshire Hathaway] Reuters

Attendees wait in a food queue on Friday at the meeting's kickoff celebration.

In California, medium and lower-price homes, under $750,000, have been selling more, though there hasn't been a bounce back in sale prices, Mr. Buffett said.

"We see something close to stability at these much-reduced prices in the medium to lower part of the market."

Mr. Buffett on Moody's

Mr. Buffett was asked about Moody's Investors Service, which gave a triple-A rating to billions of dollars of mortgage securities that subsequently lost value. Berkshire has a 20.4% stake in the company.
"Basically, four or five years ago, virtually everybody in the country had this model in their heads, formal or otherwise, that house prices could not fall significantly. It was stupidity and the fact that everyone else was doing it."
He said that if Moody's had started to take a negative view on residential real estate, the ratings provider would have been hauled before Congress to testify about why it was hurting the U.S. economy with its bearish ratings.
"They made a huge mistake, and the American people made a huge mistake."
[Fruit of the Loom mascots] Bloomberg News

One Fruit of the Loom mascot adjusts the hat of another at the Berkshire meeting on Saturday. The apparel maker is one of Berkshire's holdings.

A Moody's representative couldn't be reached for comment.

Mr. Buffett on Treasurys

Berkshire Hathaway had only one slide at this year's annual meeting. It displayed a Dec. 19 trade ticket showing a Berkshire sale of $5 million of Treasury bills. They were coming due on April 29 this year, roughly four months after Berkshire sold them. Berkshire sold the bills for $5,000,090.70. If that buyer had instead put their money in a mattress, by April 29 they would have been $90.70 better off, he said. Negative yields on Treasury bills show how tumultuous last year was, Mr. Buffett added.
"We may never see that again in our lifetimes."

Messrs. Buffett and Munger On Math and Theories

Messrs. Buffett and Munger made clear their complete disdain for the use of higher-order mathematics in finance.
"There is so much that's false and nutty in modern investing practice and modern investment banking, that if you just reduced the nonsense, that's a goal you should reasonably hope for."
Regarding complex calculations used to value purchases, he said:
"If you need to use a computer or a calculator to make the calculation, you shouldn't buy it."

Said Mr. Munger: "Some of the worst business decisions I've ever seen are those with future projections and discounts back. It seems like the higher mathematics with more false precision should help you, but it doesn't. They teach that in business schools because, well, they've got to do something."

Mr. Buffett said:
"If you stand up in front of a business class and say a bird in the hand is worth two in the bush, you won't get tenure....Higher mathematics my be dangerous and lead you down pathways that are better left untrod."

Mr. Munger on the Future

"As I move close to the edge of death, I find myself getting more cheerful about the economic future."
Mr. Munger sees "a final breakthrough that solves the main technical problem of man," he continued.

By harnessing the power of the sun, electrical power will become more available around the world. That will help humans turn sea water into fresh water and eliminate environmental problems, Mr. Munger explained. "If you have enough energy you can solve a lot of other problems."

Friday, 1 May 2009

Test drive: All-electric Mini and Ford Fusion Hybrid

It's not every day that you get to drive an all-electric car and a brand new gas-electric hybrid. But that's just what I did last week when I took both the Electric Mini Cooper and 2010 Ford Fusion for a spin. The two cars represent two technical approaches to gaining fuel efficiency through bigger car batteries. Like the Toyota Prius, the newly released Ford Fusion is a gas-electric hybrid that drives primarily on the gas engine, supplemented by a nickel-metal hydride battery. By contrast, the Mini Electric, which will start to be leased to drivers next month as part of a trial, runs entirely on lithium-ion batteries, the latest battery technology.

The trade-offs of both approaches are pretty apparent.

The Fusion gets over 40 miles per gallon and it's more or less like any other car you've driven: you fill it up with gasoline and it goes.
The Mini Electric, on the other hand, sacrifices the entire back seat for its battery pack. That allows it to go 100 miles on a charge, sufficient for most daily driving. Two of its advantages are that you never go to a gas station and there are no emissions from the car itself. There's another technology in the mix, what General Motors calls a range, extended electric vehicle or what engineers call a series hybrid, as opposed to a parallel hybrid. In that case, an internal combustion engine does nothing but charge the batteries that propel the car.

On the road

There's a lot of focus on how lithium-ion batteries are paving the way for cars with a longer range, although cost is still a great concern. In both the Ford and the Electric Mini, there are a number of other fuel-saving tricks at work. The big one is regenerative braking, where the battery charges when the driver presses the brake. The Ford Fusion didn't feel very different from any other automatic transmission car. But the regenerative braking in the Electric Mini was different. When I took my foot of the accelerator, the car slowed significantly. It's noticeable but something that I got used within a few minutes of riding. Automakers say a key component to mainstream electric car adoption is an in-board feedback system that lets drivers know how to maximize their efficiency. This is probably old hat to Prius drivers looking for ways to save on gas. But it becomes particularly important in all-electric cars, as automakers don't want drivers getting stuck with an empty battery and no place to charge.

The Ford's dashboard LCD shows when you're using the gas motor and when you're running on battery. The way to optimize for efficiency is to get to cruising speed and then tap the brakes to charge the battery. The car also has an on-dash rating system that displays a plant sprout. More leaves distinguishes the hypermilers from the lead-foots. The Electric Mini feedback system is pretty simple: how much juice you have left is on the front dash while another meter shows whether you're drawing from or charging the battery.

How do you like these two electric cars?

Would you like to drive electric car in the future?

Energy Risk: Renewables Challenge Utility Interconnections

When wind farm developers lined up at a grid operator's or utility's door a few years ago, plans to add a new project didn't cause undue concern. After all, 10 megawatts here, 50 megawatts there, weren't going to significantly change the scheduling. Now that wind projects are measuring in the hundreds of megawatts in recent years, they are not only creating interconnection issues on their own, but are also occupying a more prominent place in the overall resource mix in large or multi-state regions. And while utilities are still adding smaller projects, they present their own challenges as many are even smaller than the original wind projects, like solar PV installations on a warehouse roof or hundreds of individual homes. While wind can't be expected to provide on-demand or base-load power, a larger share of generation is being counted on in the states and by an expected federal mandate for renewal energy over the coming decade. However, with many states mandating increased use of renewable energy, wind generation is often given priority when it is available and traditional forms of power sources have to be backed off to accommodate it.

Various Scenarios

Various scenarios have been created by wind energy advocates and the U.S. Department of Energy under which up to 20 percent of U.S. electric generation could be supplied by wind by 2030, so this is no longer just an academic exercise. Texas is the national leader in wind nameplate capacity, by far, with more than 7,000 megawatts, with another 52,000 megawatts under review. The grid operator for most of the state, the ERCOT or Electric Reliability Corporation of Texas, manages the flow of electricity from the sparsely populated West Texas wind region to the populated load centers of Dallas and other eastern cities. The state has recently adopted a transmission development plan with a funding mechanism, competitive renewable energy zones, with a $5 billion price tag that will accommodate up to 18,000 megawatts of wind when it is completed. A similar plan to create National Renewable Energy Zones was introduced into Congress last year. Bonneville Power Administration in the Pacific Northwest states also has an exploding growth curve, with 1,600 megawatts of wind currently it its territory, with the potential for 10,000 megawatts by 2016, counting projects under development or in the transmission interconnection queue. Never was the need for plans for integrating large quantities of wind more evident than on Feb. 26, 2008, when dying wind caused a sudden drop-off in generation and forced ERCOT to use its plans for interruptible customers to balance the system during the event. The grid operator blamed inaccurate wind forecasts and a fast ramp-up in demand for the shortage.

Confronting Issues

What the event did was expedite work already started by ERCOT to more smoothly integrate large quantities of wind generation, said Dottie Roark, ERCOT's communication manager.
"There is a stakeholders' committee with ERCOT reviewing protocol changes that would involve all the participants."
These initiatives include developing more forecasting tools with a wind assessment company, improving control room operator awareness through automated tools and developing a risk based management program. The BPA has different issues to confront, with Oregon and Washington State among the national leaders in wind capacity. While seemingly blessed with copious amounts of hydropower that can supplement wind, nuclear and fossil fuel generation sources when needed, there are limitations. While true, the process isn't always as simple as ramping up hydro assets as soon as wind speeds appear to be declining.
"An example is when we need generation it's not just a matter of spilling runoff because there are fish management issues, especially during spawning season."
Solar power presents its own set of challenges, not only by its smaller scale than most commercial operations, but because of the more gradual appearance and retreat it makes on the power grid. But the challenges solar power presents no less daunting, as many commercial sites may generate one to two megawatts at peak, while home systems are measured in a few kilowatts.
"When you're thinking about a landfill topped with a solar array, that's quite a different scenario from a homeowner's roof. There's a whole different loading considerations, instrumentation, and there's a different sort of marketing issues."
The state is now expanding eligibility for net metering that allows such users to sell back into the grid. Dan Zaweski, assistant vice president for energy efficiency and distributed generation at the LIPA or Long Island Power Authority, said the home- and business-based generation systems do not yet create operational challenges for the public utility that serves Long Island, N.Y. There are about 1,600 residential solar systems out of a customer base of about 990,000, and 83 commercial customers out of a base of 1.1 million. For a utility that operates with megawatts as its crucial unit measure, smaller generating stations present new issues. Its operations strategy is running one to two megawatts on a distribution feeder.
"An average homeowner with a solar PV system might generate six kilowatts at peak, so there has to be 333 of them operating before you really see any grid impact."
Business operations are also impacted on Long Island, as elsewhere, when smaller renewable energy systems are added. Utility systems are geared toward the amount of revenue gathered from retail sales, but savings from reduced demand don't create income for the utility. Billing is the most obvious area affected both in terms of the potential impact on the utility's bottom line, but also the upfront costs of meters and any other operational expenses and customer care processes needed to accommodate these energy sources.
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