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The Problem with Renewable Energy is the Price
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The Problem with Renewable Energy is the Price

By Dr. Kent Moors, Global Energy Strategist, Oil & Energy Investor • @KentMoors_OEI • August 3, 2012

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Dr. Kent MoorsDr. Kent Moors

I haven't written about renewable energy in recent months for a very specific reason.

The market for sources such as solar, wind, and biofuel has collapsed.

There are two reasons. Both involve price.

First, while crude oil is beginning to move upward, and natural gas prices have increased by about 57% over the past three months, both had fallen to unusually low levels.

That means the primary ally of alternative sourcing - the acceleration in the price of hydrocarbons - has been absent.

Of course, there are environmental, lifestyle, and social considerations that would benefit from renewable energy. Taken by themselves, however, these do not have more than a marginal impact on the energy balance.

Price remains the main ingredient.

Since solar and wind also have hefty implementation prices - and they do not provide cost benefits compared to gas or oil - there are few incentives to adopt these technologies.

The largess of shale gas in the U.S. combined with newly affordable longer-term transitions from coal to gas are restraining a shift to alternatives.

While supporters continue to argue that the economies of scale involved in wider introduction of renewables will bring down generating costs, these alternatives will remain more expensive for some time.

Government subsidies have helped. But, in the current political climate, it's hardly wise to rely upon continuing government bailouts.

Nuclear remains the cheapest way to generate electricity; however, it contains enormous development and startup expenses. It also isn't popular politically today given the post-Fukushima concerns.

And while coal reserves in the U.S. remain plentiful and still constitute the energy source for nearly half of all electricity, the U.S. continues its marked movement away from its use.

That's because there are significant non-carbon emission standards being introduced that will dramatically change the economics of using coal in the production of electricity. These new requirements will substantially change the environment for power generation.

The standards require that the U.S. must cut 90% of mercury emissions by 2015, 80% of sulfurous oxides by 2018, and 52% of nitrous oxides by 2015.

And this is before any stricter carbon emissions are introduced. Coal may remain a cheaper alternative in some local areas, but the days of dominant "King Coal" in electricity generation are nearing a to close, at least in the United States.

The Big Shift to Natural Gas

According to my calculations from last year, new requirements will take an additional 20 GW of coal-fired electricity off line by 2020, adding to an already major shift to natural gas underway.

This is a significant development.

We already expected about 90 GW to be closed by 2020 for a host of reasons unrelated to EPA emission standards (mostly resulting from age). For each 10 GW replaced, we will need 1.2 billion cubic feet of gas a day.

Forgetting any additional generation needed to meet rising demand, if only half of the capacity removed is replaced by natural gas, the American market would eliminate almost three times the current gas surplus in storage.

Despite languishing prices, this was a reason why, at least until recently - operators were still opening new fields. They know a big boost in demand for power generation is coming.

Now we should expect some of this need could be handled by renewables.

There are some large solar and wind projects underway, especially in Arizona (solar) and Texas (wind). Yet they are still coming in as less cost effective than low-price, widely available gas projects. In addition, they will have an even greater problem should the federal government cut renewable subsidies.

That debate is coming.

Biofuel Generation Faces Steeper Problems

The second pricing consideration comes from the other direction.

This involves the position of biofuels, particularly in ethanol. A number of biofuel sources exist, but they all suffer from a lower energy production ratio. (I will have more to say about this issue over the next few weeks, since it is becoming a primary concern in the energy sector in general).

Now they do have the advantage of being renewable, domestic, and non-fossil. But they also have two major problems. One is the energy content provided. It is considerably less than oil or gas. For example, ethanol, on average, provides only 84% of the power provided by gasoline.

Paradoxically, for places where there are hills to navigate (here in western Pennsylvania for example), increasing the usage of ethanol actually increases the need for gasoline in the mix. This defeats the entire purpose of the biofuel and creates entirely new problems with the problems it creates for the engines.

The other major problem, and the prime issue these days, is the price.

The bulk of American ethanol comes from corn. This year's corn crop may experience the worst yields in two decades. A crippling drought continues to plague major growing regions across the country. Corn prices have soared, and ethanol prices have followed.

Currently, analysts believe the corn harvest may come in another 5% below forecasts. That has translated into a 40% increase in ethanol prices, and, consequently, the closure of several plants.

American reliance on crude oil causes concern over what the Middle East may do to our energy pricing. However, renewable sources create an entirely new reliance on Mother Nature.

So, if you are wondering why I spend so much time these days talking about oil and gas, the answer is simple.

It's the price.

Of course, with indications that crude and natural gas may be moving back up, the government may once again have another serious conversation about the cost efficiency of the energy balance in the not too distant future.

However, we know that it won't happen today.

Related Articles and Links:

  • Money Morning:
    Why Gas Prices are Heading Higher
  • Money Morning:
    Oil Prices Look For Steady Rebound
  • Money Morning:
    Four Things Suppressing Crude Oil Prices Today
  • Money Morning:
    The Trajectory is for Oil Prices to Rise

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Dr. Kent MoorsDr. Kent Moors

About the Author

Browse Dr. Kent's articles | View Dr. Kent's research services

Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.

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kent behlen
kent behlen
10 years ago

I believe that in the long run, geothermal will be our primary energy source.

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Joe
Joe
10 years ago

The problem with renewable energy is the perceived current value of human life.

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Manfred Zettl
Manfred Zettl
10 years ago

I wonder what is going on with Hydrogen ? I had hared that such company, like Flying J is starting to make it available at their truck stops, this could be one answer. I have done lots of research in solar,
howevr find many problems and confused statements, it is not as simple and relyable as the sellers of cells and converters say.
Thank for your work Manfred Zettl

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sean
sean
10 years ago
Reply to  Manfred Zettl

mhhmmmm

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Tom Hegarty
Tom Hegarty
10 years ago

One thing you can be sure of, the consumer will pay through the nose for the start up and running costs for windfarms and the like.
I thought Pebble Bed Modular nuclear reactors were on their way, small and safe, could supply the needs of individual towns. When exhausted, recycled by the manufacturer. Something similar used in Alaska with isolated oil production companies.
Hills and methanol? Why not bleed in to the carburettor, hydrogen cracked off from a small water tank.
There are Hydrogen kits out there now to increase mpg. The best researched one I found, was overly complicated for daily use but seemed to be a thorough piece of work nonetheless. A large
manufacturer could more easily integrate it into the CPU and emission control systems than a man working in a shed!
Of course the fly in the water/ hydrogen ointment, is that would it by pass the petro chemical industry and I don't think they would sit for that, no matter what!

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Billy
Billy
10 years ago

The premise of this article is a lie. For wind and solar there is no market price. The price is set by government mandate and only reflects on political will.

Due to the non-dispatchabile, intermittent and unreliable output characteristic there is no free market demand for this energy. Ontario Hydro pays .20/kwh to export wind energy. Germany has paid over 1 euro/kwh to export wind energy. Denmark pays Norway and Sweden to take its power and buys it back at a premium price when needed. So, in fact the actual price of renewables is actually very low and in fact negative.

The real problem is that this energy cannot be used without backup by spinning reserve peaking capacity. This type of capacity is inefficient unless done with hydro. In any case using peaking capacity to back up renewables makes it unavailable for normal peaking and generation demand.

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kpjudenhout.nl
kpjudenhout.nl
9 years ago

Thanks for sharing your thoughts about renewable energy. Regards

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Architekt-Bud.Pl
Architekt-Bud.Pl
9 years ago

White-collar criminals, tax evaders and also the oil-rich make terrific targets for property foreclosures sales.

0
Reply
Corey Barcus
Corey Barcus
9 years ago

We are in a precarious position. The value of an energy source includes:

– convenience
– abundance
– scalability
– energy return over investment

Alternatives like the popular renewables fail every one of these criteria, making them particularly uneconomic. The consequence of this reality is that they are incapable of supplementing for our fossil fuel economy.

Nuclear is incredibly energy dense, yet its development has stalled for decades. Even within the small modular reactor program, the current candidates will be modest variations of the machines in wide use today- light water reactors. They do not produce the high quality process heat necessary for many industrial processes, require water for cooling, and use fissile very inefficiently.

Right now we have only one possible source of clean energy capable of being deployed at the scale of tens of terawatts (global energy consumption is about 17 TW). Four decades ago, one of the most promising and successful energy programs to ever be developed was terminated in favor of fast neutron reactors. Now that we face a myriad of risks from rising costs and debt, climate, and the general problem of sustainability, it is long past due to bring this long forgotten technology out of the basement and put it to use by finishing its development cycle. I am of course writing about the Molten Salt Reactor Experiment, which has its modern champions in the guise of the Thorium Energy Alliance (their 5th annual conference is being held in Chicago at the end of this month). This efficient machine with its inherent safety features, high quality process heat, and miserly fuel economy has the capability of transforming our economy and ushering in a new industrial age of clean energy. It is up to us to remove political barriers long erected to deter its development. We need to quickly re-examine our restrictions on domestic rare earth mining, experimental reactor size, and the use of the mildly radioactive isotope Th232. Our future depends upon whether we can competently attend to this problem in a timely fashion.

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