The Black Swan Blog

T’was the night before Christmas and all through the town
The temperature was dropping, going down, down, down, down
The weatherman said that a front was to blame
A high pressure ridge from Alaska he claimed

It sat like a lump on the hard prairie stubble
Refusing to budge, clearly looking for trouble
On the map it was grinning, toothy and blue
From Montana through Texas to the Long Island zoo

And under that dome of slow falling air
Grew a problem so nasty it hardly seemed fair
For the flags hung like rags across the mid-west
Not a whisper of wind to wake them from rest

Outside of the town the turbines stopped spinning
On the weatherman’s map the cold front kept grinning
At the company office the manager frowned
As the power from the wind farms kept going down

A coal-fired plant was called and called fast
They’d always been there in a pinch in the past

“We can’t help you out” was the somber reply
“Our boilers have been cold since the 4th of July
It will take us all night with a talented crew
To get things in order and working like new”

The manager hung up the phone with a sigh
He had one last option he knew he could try

He called up the plant that was fired by gas
“Can you give us more power?” the foreman was asked
“I would if I could but the answer is ‘No’
We’re going full out – any more and she’ll blow!”

So he hung up again – no more numbers to call
All attention was fixed on the instrument wall
The manager watched as the meter hit zero
He knew the next day he would not be a hero

The grid creaked and groaned then it finally buckled
It seemed like the weather map grin actually chuckled

And now it spread out like a fast moving fire
The blackout was coming the outlook was dire
In no time at all the breakers were flipping
The wires were sparking, transformers were tripping

One after one the streetlights went out
In the blink of an eye there was clearly no doubt
That this was a night that we all would remember
As the coldest darn night in the darkest December

Now some folks stayed warm by a hearth that was crackling
But for most bitter cold finally made them start packing
And in thousands of homes linemen pulled on their boots
As they headed outdoors trying to turn on the juice

And back to the coal-fired plants went the men
That had kept the lights on since I don’t know just when
They worked through the night and by noon Christmas Day
The dinners were cooking in the usual way

A few short days later the cold front receded
The wind farms spun up, coal no longer was needed

The utility manager decided to go
To visit a plant, maybe stop, say hello
They shared some bad coffee as they sat for a while
Then a grizzled old coal-man spoke up with a smile

“Now I’m a recycler and I love to hug trees
But wind without storage is just a big tease
Here is one thing that I know for a fact
You didn’t quite get it when you called for the MACT”

“My dirty old cold-fired plant had to close
But when it comes down to it everyone knows
My coal-fired plant you can count on to run
No matter what happens with the wind and the sun”

“If you really want power through all kinds of weather
Treat coal with respect – we can work well together”

The manager left but what stuck in his head
Were the words that the grizzled old coal-man had said
Energy storage is something we need
Without it “green power” is useless indeed

We can launch a sleek rocket, land a robot on Mars
We can build hybrid engines to power our cars
A storage solution can surely be found
If we dare to think different, turn our thoughts upside-down

Taleb and Khosla have shown us the way
It’s “Black Swan” ideas that are needed today.

As anyone who has read some of my blog posts knows I do not believe that we should be basing our transition to a sustainable energy environment on the need to moderate climate change. I’m not convinced that eliminating the burning of hydro-carbons altogether would make a huge difference to what our planet is doing.

But having worked in the oil & gas industry for more than 25 years and despite the current glut of oil on world markets there is one thing I am quite sure of. We will run out of hydro-carbons that can be economically extracted in less than 100 years – I might even see a significant shortfall of world production and as a result much higher prices within my lifetime.

It would be reasonable to argue that predictions of “peak oil” have consistently been incorrect as higher prices and more sophisticated technologies have helped maintain production levels. But hydro-carbons, and crude oil in particular, are finite resources and they will eventually run out. As a result I have done some analysis of how much of a problem that could be and how quickly we need to address the problem.

First things first. How much energy is the world currently using and what fuels are meeting energy demand?

Trying to find accurate and consistent numbers on global energy consumption is much more difficult than it should be. I was struck more than once by the obvious bias towards inflating the impact of renewables and their role in meeting global energy demand. This is a phenomenom that I have identified in a previous post.

One good source that provides an overview of global energy use is the U.S. Energy Information Agency. Figure 1-5 from the International Energy Outlook 2016 provides data from 1990 onwards with forecasts to 2040.

The table below displays the data from this report for 2015, converted from Quadrillion BTU to TW-Hours.

Liquid Fuels/Oil	Coal	Natural Gas	Renewables	Nuclear	Total
55,599	47,116	37,673	20,548	7,689	168,625

I always like to have multiple sources for information, especially when there are unit conversions involved. The following sources provide confirmation for the EIA report figures.

Oil: Bloomberg quoted an International Energy Agency figure for demand in 2015 of about 94 million barrels/day (bpd) which translates into about 58,293 TW-Hours which is within 5% of the figure provided by EIA. BP pegged the average amount as 92 bpd which would amount to 57,066 TW-Hours, even closer to the EIA figure.

Coal: Enerdata lists 2015 coal production as 7,800 Megatons which translates into 46,084 TW-Hours, very close to the EIA figure.

Natural Gas: BP listed Natural Gas production as 3,500 Billion Cubic Meters in 2015 which translates into 36,606 TW-hours. This figure is also close to that presented by EIA.

Combining these figures yields a figure of 139,742 TW-Hours for hydro-carbons compared to the EIA figure of 140,387.

Nuclear: Multiple sources including the World Nuclear Association and the Shift Project list global nuclear power production at about 2,400 TW-Hours rather than the 7,689 TW-Hours presented by the EIA. The EIA report itself presents 2,300 TW-Hours as the proper figure for nuclear generation for 2012 in Figure 1-7.

The source of the discrepancy is the difference between “Total Primary Energy Supply” and “Total Final Consumption”. “Total Final Consumption” discounts the energy used in generation, distribution, and conversion before reaching its final end user. Because hydro, wind, solar, and biomass all deliver electricity or heat to end users these sources are not impacted. Fossil fuel energy sources and nuclear are very significantly impacted. For example, in burning coal or consuming uranium fuel in a nuclear reactor to generate electricity more than 60% of the energy content of the fuel is lost as heat and through the limitations of thermodynamic engines. Therefore 7,689 TW-hours of uranium derived energy are consumed in nuclear plants to deliver 2,400 TW-hours of electricity to consumers.

Renewables: This is the category which has the most confusing and difficult to confirm backup data.

The best source of information regarding the complexities involved with renewables is the Ren21 network. The Global Status Report published by the group in 2016 and weighing in at 272 pages, is a great reference document although it also confuses matters a bit. The confusion comes because this report uses percentages of Total Final Consumption rather than actual consumption.

Using a global Total Final Consumption figure of 102,000 TW-Hours for 2015 (implied by the percentages for hydro and nuclear and roughly confirmed by the figure of 9,300 Mtoe on page 28 of the IEA Key World Energy Statistics) figure 1 of the Global Status Report can be reworked to present actual consumption rather than percentages, as shown below.

The aggregate figure of 19,692 matches the figure presented for renewables in the IEA report (20,548) quite closely. From the REN21 report almost half of this “renewable” energy is in the form of “Traditional Biomass” which represents the “use of fuelwood, animal dung, and agricultural residuals in simple stoves with very low combustion efficiency” (Note 12, page 201), primarily in undeveloped regions. Although this energy source is technically renewable it is certainly not one that we would want to increase or even maintain decades into the future. In fact the REN21 report points out that as the economic circumstances of a population improves these “Traditional Biomass” energy sources are replaced by the burning of hydro-carbons.

The largest category under “Modern Renewables” is “Biomass, Geothermal, Solar Heat” a large portion of which is produced in Combined Heat and Power (CHP) installations such as those common in Denmark. The economics of CHP plants are being under-mined by subsidized wind and solar power in many jurisdictions and as a result growth in this energy source will be severely constrained in the future.

The second largest category under “Modern Renewables” is hydro. Hydro has many very positive attributes including very low generation costs over many decades. It is a fact that almost all of the large installations developed in the last 100+ years continue to operate efficiently and reliably today. However, increasing environmental scrutiny and few remaining sites with significant potential will severely limit hydro growth in the developed world. There is significant potential in the developing economies but any new hydro power sources in those countries will be used to serve increasing domestic demand.

So in the end the job of replacing fossil fuels will come down to wind and solar (and hydro-kinetics and geothermal if they ever get the support they deserve).

The hype around wind and solar is amazing and very deceptive. It was extremely difficult to find reliable figures regarding actual generation from these sources although there was no problem finding hyperbolic statements about additions to wind and solar capacity. But commonsense tells us that because a solar panel can deliver 1 KW of energy between noon and 1 pm that does not mean that it can produce 1 KW of energy 24 hours a day, 365 days a year. Germany, with the second largest build-out of solar power in the world reports that solar generation over the course of a year is about 11% of installed capacity. Worse still, generation in the peak demand periods during the winter is almost zero.

Things are not much better with wind – maybe worse. Although wind generation continues to grow, availability of wind at peak demand times is unpredictable and inconsistent. On a cold, calm night in Northern latitudes (where more than 50% of the world’s population live) we will continue to be 100% reliant on fossil fuels until cheap and reliable energy storage solutions are developed.

But let’s assume that energy storage solutions can be developed sometime in the next few decades. How much wind and solar generation will be needed and how much will the development of those sources cost?

From the figure above wind and solar currently represent about 1.4% of the “Total Final Consumption” or about 1% of the “Total Primary Energy Supply”. According to REN21 the contribution of Fossil Fuels towards the “Final Total Consumption” is over 78%. A transition to 100% renewables will inevitably involve significant transmission and energy storage losses but for the moment lets ignore those. Therefore in the best case scenario wind and solar will have to increase by a factor of 78/1.4 = 55.7.

The development of wind and solar generation has been taking place aggressively since about 2004 when Germany started providing significant financial support for its Energiewende. Since then the world has invested more than $US 2.4 trillion in the development of renewables.

While it is true that the cost of renewable generation has decreased significantly during that time I would argue that the need to provide energy storage solutions and vastly upgraded transmission systems will more than make up for those savings. There will also be difficult challenges around replacing transportation fuels and finding new source materials for plastics and the many other products based upon petroleum feedstocks.

As a result the probable cost for the energy transition in constant 2017 dollars will be on the order of 2.4 * 55.7 = $US 134 Trillion. I think it will actually be much higher than that. That scale of investment would require that the world triple its current level of investment in renewables and maintain that higher level of investment for the next 100 years.

The next question is, do we have a hundred years to make this transition? I don’t think so. Peak oil is coming. That is inevitable. The date that peak oil will happen is the subject of heated debate. Some argue that oil production will start declining within a decade, others that production declines will not begin for many decades. Many major oil producing countries are already well past “peak oil” production.

Personally, I believe that a growing resistance to “fracking”, the rapid decline rates of tight reservoirs, and increasing demands for oil in developing economies will result in a permanent shortfall in oil production vs. demand by the middle of the century.

In a very thoughtful and I believe accurate article Robert Rapier postulates that peak oil is dependent upon price to a large extent. Higher prices allow the use of more expensive exploration and production techniques which bring to market supplies that were previously uneconomic. A graph from a 2008 publication serves to illustrate how unconventional sources may begin to play an important role in future years.

However, there will come a time when the input costs required to bring new production on stream exceed the value of that production. After that point in time oil production will decline monotonically.

In the decades leading up to that milestone event it will become more and more expensive to find and develop oil and gas resources which will lead to higher prices for fossil fuels. That reality will provide more incentive to develop renewables but it will also consume more and more of the world’s GDP to keep the hydro-carbon based economy functioning. So at a time when the world will need to spend ever increasing amounts to develop renewables and potentially on climate change mitigation measures rising energy costs will become a serious problem.

What’s the bottom line?

In order to transition away from a hydro-carbon based economy before oil and Natural Gas either run out or become prohibitively expensive the following must happen;

1) Investment in the development of renewables must ramp up to approximately triple what it was in 2016 and stay at that level for the next 100 years.

2) One or more very inexpensive and reliable (for decades) energy storage systems must be invented and deployed at a scale completely unimaginable today. To get an idea of how challenging that may be I invite you to read Euan Mearn’s analysis of the storage requirements to backstop wind in the U.K.

3) Peak Oil must occur after a significant percentage of the needed renewable generation is in place. It has taken 15-20 years to get to 1.5% of “Total Final Consumption”.

4) Global “Total Final Consumption” cannot increase or at worst must increase very slowly so that additions in renewable generation can displace fossil fuels. Inevitable increases in the energy consumption in developing economies must be offset by reductions in the energy consumption of developed economies.

Sounds tough, doesn’t it? But who among us doesn’t like a challenge?

And it could be worse. Consider the scenario described in this clip from Ghostbusters!

I think I will sign on to be one of Elon Musk’s first Martian colonists.

In searching for technologies that can aid in the transition to a low carbon environment the following characteristics would define the ideal new energy source;

¹Of course some would argue that wind turbines and utility scale solar have negative environmental impacts but those are not severe compared to the environmental advantages of transitioning away from a hydro-carbon based economy.

From the table above the clear winner is hydro-kinetics which captures the energy of water flowing in a river without using a large reservoir.  And yet this is the least developed renewable source on the planet.  I would suggest that this ideal energy source faces challenges which are not technical but rather are political and regulatory.  This posting will discuss the state of hydro-kinetic developments and suggest a path forward towards wide-spread deployment (this post focuses on river hydro-kinetics technologies deployed successfully in North America – there are other projects underway overseas but these face many of the same issues discussed here).

Hydro-kinetics – An Attractive But Elusive Technology

A number of companies have spent the last two decades attempting to commercialize hydro-kinetic turbines in one form or another.  These companies have consumed, in aggregate, well over $100 million in Research & Development funding, have overcome many technical challenges and have staged numerous successful trial installations.  However, despite the best efforts of talented and dedicated teams none of these companies have achieved a commercial deployment of a single hydro-kinetic turbine.

Free Flow Power

Free Flow Power developed a 40 KW turbine unit which was deployed in a test configuration in the Mississippi River near Baton Rouge for six months in 2011.  The results of the tests were encouraging and the company undertook detailed site evaluations and identified more than 3 dozen locations on the Mississippi where turbines could be installed.  A serious drought and low water levels in 2012 called into question the viability of many of the sites and the company decided to focus on retrofitting conventional turbines in existing dams that did not already have electrical generation facilities.

In late 2014 the company was split into a non-operating entity holding the Intellectual Property rights for the SmarTurbine and a new company, Rye Development was formed to pursue the dam retrofitting.

Hydro Green Energy

Hydro Green developed a 100 KW hydro-kinetic turbine unit which was deployed near Hastings Minnesota in 2009 in what is claimed to be the first licensed hydro-kinetic generating facility in the U.S.  This turbine operated until 2012 when Hydro Green Energy, like Free Flow Power, decided to focus on dam retrofit.

Clean Current

Clean Current was a Hydro-kinetic company that developed several versions of turbines for use in both saltwater and freshwater environments.  They conducted several tests of the technology, most recently at the Canadian Hydrokinetic Test Centre on the Winnipeg River in Manitoba from September, 2013 to May, 2014.  At the end of May, 2015 it was announced that the company was being wound down after 15 years of Research & Development work.

RER Hydro

With substantial funding from the Quebec Government RER Hydro developed a technologically advanced hydro-kinetic turbine unit which was deployed in the St. Lawrence River near the city of Montreal in 2010.  It functioned as designed for more than 4 years.

Based upon the success of this initial test the Boeing Corporation entered into a global marketing and distribution agreement for the TREK turbines in November, 2013.  Phase II of the RER Hydro business plan involved the production of 6 additional turbine units in a brand new manufacturing facility in Becancour Québec opened to great fanfare November 11, 2013.

On April 7, 2014 the Parti Québecois lost the Provincial election.  The new Liberal majority government immediately halted payments to RER Hydro that had previously been confirmed.

With turbine construction for Phase II well underway and purchase agreements being in place with suppliers RER Hydro was immediately short of funds. Shortly thereafter the company made a court application for the Issuance of an Initial Order under the Companies’ Creditors Arrangement Act which was granted.  All RER Hydro staff were laid off in July, 2014 and after several further court applications what remains of RER Hydro is the Intellectual Property, some inventory related to the turbines being constructed and the contracts with the Boeing Corporation.  The company was declared bankrupt at the end of 2015.

Verdant Power

Verdant has been working on tidal power turbines in the New York City area for more than 15 years. From 2006-2009 KHPS (Gen4) turbines were installed in the East River in a grid-connected configuration as part of the Roosevelt Island Tidal Energy (RITE) project. In 2012 Verdant was awarded the first commercial license for tidal power issued in the U.S. There is no indication that any turbines have been deployed or power generated in regards to this license.

Turbines developed by Verdant Power have been proposed to be installed as part of the Cornwall Ontario River Energy (CORE) project with $4.5 million in funding from various government agencies and utilities. The project has been ongoing since 2007 but it appears that in 2013 the project was abandoned.

In the spring of 2016 Verdant announced the formation of a partnership that will focus on hydro-kinetic projects in Ireland.

Instream Energy

Instream was formed in Vancouver in 2008.  In 2010 the company, in partnership with Powertech Labs, deployed an array of 4 25 KW turbines near the Duncan Dam in British Columbia, Canada.

In August, 2013 a second demonstration site was established near Yakima, Washington State, U.S.  As of August, 2016 the company has plans for 2 more demonstration sites in the U.S. and anticipates a project in Wales, U.K. in 2019.

Hydro-Kinetics vs. Wind and Solar

It seems clear from the number of successful demonstration projects that have been undertaken over the past decade that the engineering problem of manufacturing a hydro-kinetic turbine that can reliably generate electricity has been largely solved.  It also seems clear that by combining the engineering expertise and learnings from several of the existing designs any residual problems can be resolved quickly and new designs that minimize fabrication costs could be developed.

The barriers to the implementation of hydro-kinetics are no longer technical.

Hydro-kinetics generation, like large-scale hydro and geothermal is qualitatively different from wind and solar power because it is reliable and dispatchable.  As a result, a backup power source (natural gas-fired plants being the most popular alternative in the current low gas price environment) is not required.  This is a very significant advantage which is not reflected in the various economic analyses that are used to justify regulatory and financial support for renewable energy.

In order to fully transition away from a hydro-carbon based economy it is necessary to have access to reliable electricity generation at times of peak demand.  In the middle and northern latitudes (north of about 35 degrees) peak demand occurs in the late afternoon and evening as the requirements for light and heat reach their maximum.  Obviously there is no solar power available at that time.  Wind energy is highly variable and generally speaking cannot be relied upon to generate electricity during a specific time period.

The most valuable measure of the contribution of wind generation would be the amount of wind available during peak demand times.  Very few organizations are willing to investigate that important metric because it would be hugely detrimental to the case for subsidizing wind energy.

MISO’s Independent Market Monitor (Potomac Economics) noted in a June, 2013 report on page 39 that

“wind resource output is negatively correlated with load and often contributes to congestion at higher output levels, so hourly-integrated prices often overstate the economic value of wind generation”

The report states that the MISO practice of counting 13.3% of wind as reliable is much too high.  They recommend instead that a value of 2.7% would be more appropriate (page 16 of the report).

If anyone was inclined to make a truly fair comparison of generation costs for wind and solar there would have to be a very large additional cost to maintain a reliable backup generation source for when wind and solar were not available.  This would probably come close to doubling the true cost of wind and solar generation.

Hydro-kinetics sources do not suffer from this problem.  They are reliable and predictable and can scale up to any degree without causing problems on the grid.  No backup generation sources are required.

Hydro-kinetics generated electricity is much more expensive per kw-hour of nameplate capacity than wind and solar – probably on the order of $8-10/kw of capacity.  But when reasonable capacity factors for wind and solar are considered (30% and 15% to be on the generous side) then the costs are not significantly different.  But the very important advantage of hydro-kinetics is that it is reliable during times of peak demand.

As long as a KW-hour of electricity is judged to be of equal value no matter the source then wind and solar PV appear to be much lower in cost than hydro-kinetics.

The Value of a Hydro-kinetics Partnership

The barrier to wide-spread implementation of hydro-kinetic generation is not technical.

The primary barrier is the perception, widely held amongst renewable energy advocates, government officials, politicians, and funding agencies, that wind and solar PV are the best options to fight climate change.

Utilities, that have a deeper understanding of generation issues and understand the problems associated with wind and solar PV generation, are not actively engaged in the debate.  This is because they largely see renewable generation as a nuisance that they have to deal with, like environmental regulations.  They continue to build out new natural gas fired plants and even a few nuclear plants to provide reliable generation.  They also are learning to manage rapid cycling of their plants in response to fluctuations in renewable generation.

Utilities do not own the majority of wind and solar farms and of course have no financial interest in distributed sources such as roof-top solar.

Finally, because they are either publicly owned, or earn an agreed upon return regulated by Public Utility Commissions, utilities are not particularly concerned about any additional costs associated with unreliable and unpredictable wind and solar PV generation.  Whatever costs they have to incur, including maintaining a duplicate fleet of generation assets that can be available when wind and solar are not, will ultimately be born by the rate-payers, not the utilities.  Consequently, utilities are not advocating for sensible options like hydro-kinetics.

The other perception, which is unfortunately firmly grounded in reality, is that hydro-kinetic generation has not been proven to be a really viable option at this time.

All of the hydro-kinetic companies discussed in this post are relatively tiny, privately held firms that are generally under-staffed and under-capitalized.  That statement is not meant as a criticism – these firms have achieved remarkable engineering accomplishments and have overcome very difficult technical challenges.   But it would not be much of an exaggeration to say that all of these companies are about one failed grant application or unsuccessful project away from bankruptcy.  Several have already succumbed.

This situation lacks “critical mass” in every dimension – economic, political, regulatory.

The only way to overturn the perception that wind and solar PV are better options than hydro-kinetics is through a very significant lobbying and public relations effort focused not only on national politicians in the U.S. and Canada, but also on regulatory agencies and utilities.  Hydro-kinetics is a superior option.  No exaggeration is needed to make the case.  But the case does need to be made.  Regulatory agencies and even utilities need to be strong advocates.

Politicians need to believe that additional support in the form of production tax credits or feed-in-tariffs as well as increased R&D funding are justifiable based upon the superior value of hydro-kinetics as compared to wind and solar PV.

At the moment a number of small companies are advocating different approaches and technologies using staff resources that have limited time and money to tell their stories.  Decision makers are faced with trying to choose a “winner” which leads to no decision at all in many cases.

A partnership of these firms could fund a professional and credible full-time lobbying effort.  As unsavory as that might seem to leaders focused on the development of hydro-kinetic technology the reality is that wind and solar PV already have entrenched and vocal proponents at all levels of government.

A partnership of these firms could also fund resources dedicated to interfacing with various regulators to understand their concerns and educate them with regards to hydro-kinetic technology.

Rye Development and Hydro Green Energy have extensive experience with the complexities of licensing facilities on the Mississippi, which has to be one of the primary targets for hydro-kinetic development.

Instream Energy, as well as former staff members from Clean Current and RER Hydro, have knowledge and contacts within the Canadian regulatory establishment.  The Fraser and St. Lawrence rivers also have great potential for hydro-kinetic development.

Verdant Energy has had success with regulators with regards to tidal energy development.

The pooled expertise of these firms with respect to regulatory and environmental matters would represent a very significant resource to aid in the advocacy of hydro-kinetics in North America.

Would a partnership of hydro-kinetic firms require that some technologies be abandoned?  Only if it made sense.

It is likely that collaboration on engineering issues under mutual non-disclosures would be beneficial to all parties, each of which would retain the Intellectual Property for their particular implementations.

Rationalization of the supply chain for major components and consolidation of some fabrication would reduce costs by increasing volumes even if the final products were quite different.

Centralization of some non-core administrative functions such as web site maintenance, legal services, and grant application preparation could be explored in order to reduce costs.

The “outside world” would benefit from having a single communications channel and a single core message representing hydro-kinetics.   The various technologies being offered by partner companies would be presented as options to address a particular opportunity.

It would be possible to have competing solutions proposed for a particular project in some circumstances but that would not be ideal.  It should be kept in mind that the real competition is wind and solar PV, not other hydro-kinetic technologies.  It would be preferable for the partnership to advocate one technology for a particular opportunity based upon the geographic location and availability of support staff and resources.  The possibility of supplementing staff at one organization with knowledgeable and experienced staff from one of the other partners would enhance the credibility of a response to any particular opportunity.

In Conclusion

Hydro-kinetics should be one of the most important foundations for a transition to a sustainable energy environment; more environmentally benign than large scale hydro, more reliable than wind or solar PV, and vastly scalable with every large river offering development potential.

Given the amount of investment and engineering effort that has been undertaken to date without attaining commercialization it seems clear that the current decentralized approach is not very effective.  A hydro-kinetics partnership would allow the technology to attain critical mass without compromising the technical achievements that have been made or will be made in the future by partner companies.

One of my pet peeves has been a metric with the glamorous acronym LCOE which stands for Levelized Cost of Electricity. This is the “go to” number when evaluating electricity generation sources and comments about solar and wind reaching “grid parity” relate to this measure.

My annoyance comes from comparisons of LCOE for solar (PV and thermal), wind, and hydro which truly is like comparing apples to zebras. In a recent publication by the respected Energy Information Agency the following figures for Total System LCOE were presented in Table 1b;

Wind: $64.50
Solar PV: $84.70
Solar Thermal: $235.90
Hydroelectric: $67.80

These figures are similar to others I have seen published in many places and they have never made any sense to me.

My parents had a cottage on Lake Agnew in Ontario which was formed by the building of the Big Eddy dam in 1929. There are 5 other smaller dams within a short distance and I know that they are all still operating and producing significant value for their owners. Several are more than 100 years old and will not be decommissioned in the foreseeable future.

So it is clear to me that these dams produce the least expensive electricity that can be generated from any source. Why then is it that LCOE values for hydro are not dramatically less than other renewable sources?

After some investigation it has become clear that this is an issue that has a lot more to do with politics and “spin” than it does with anything meaningful. And the same problem applies to any capital intensive project that has a very long service life (for example, solar thermal with molten salt storage which has a major advantage over solar PV because it can generate electricity 24 hours a day to meet peak demand).

In this post I will focus on the “Site C” dam in British Columbia, currently under construction. For this particular project is is possible to say that the LCOE is $164/MW-Hour or $31/MW-Hour – neither statement is factually wrong but one is more realistic and more likely than the other (Note: all figures in this blog post were updated Dec. 12, 2017 to reflect an increase in the estimated capital cost for the dam – from $9.1 Billion to $10 Billion).

The large discrepancy in LCOE values demands an explanation.

The major factors underlying this wide variation in values for LCOE are the cost of capital, the time period being considered, and the forecast capacity factor for the dam.

Anyone that has purchased or has considered purchasing a house understands that the longer the amortization period the more you will end up paying for your house. If you paid your mortgage off in 20 years at a 6% interest rate you would end up paying about 1.8 times the purchase price (the total interest paid would amount to about 80% of the purchase price). If you paid the mortgage over 35 years at a 6% interest rate you would end up paying almost two and a half times the purchase price (note that I use 6% as the interest rate = discount rate because that is the BC Government mandated rate for assessing large capital projects).

Given that reality why would anyone choose a 35 year amortization period rather than a 20 year amortization period? Why? – because longer amortization periods require lower monthly payments. As a result there is always a trade-off between what a house purchaser can afford to pay each month and how much they will spend in total to purchase the house.

So imagine if you paid off your house over 70 years. Most houses are still being used for at least that length of time. Many houses in Europe are hundreds of years old. Choosing a 70 year amortization period would reduce your monthly payments even further but at a 6% interest rate you would end up paying over 4 times the purchase price for your house. That doesn’t make sense and banks don’t offer mortgages for more than 35 years.

But that amortization period is exactly what is used in the most commonly published LCOE values for Site C.

Now you might wonder why BC Hydro would choose that approach when it clearly results in the highest total cost for the Site C dam. Well, if you need to present the lowest LCOE during the amortization period then longer amortization periods give you lower numbers. That doesn’t make sense but the optics are better.

For example, if you used a more realistic amortization period of say 30 years the LCOE during that 30 year period would be around $138/MW-Hour. That is not a very attractive number. It also does not reflect the true cost of electricity that will be produced from this dam.

In order to understand the true long-term LCOE it is necessary to consider the period of time after the capital cost for the dam has been paid off (end of the amortization period) until the end of life for the dam.

How long will the Site C dam be in operation? There are many hydro dams in the world that are more than 100 years old and operating just as efficiently as when they were constructed. Personally, I think most of these dams will be in operation in a thousand years. Why wouldn’t they be? (the Cornalvo dam built by the Romans is over 1,800 years old!).

However, projecting service life beyond 100 years is a bit speculative so let’s leave it at 100 years. That’s what BC Hydro has done in published materials for Site C.

If a 70 year amortization period is used then the only costs for the dam over the last 30 years are operating and maintenance expenses which are very small compared to the capital cost. Although it is again highly speculative to try and forecast O&M expenses 70 years from now reasonable guesses result in LCOE values of $5-10/MW-Hour. Combining the costs during and after the amortization period for the Site C dam results in LCOE values of around $75-90/MW-Hour.

But what if a more realistic amortization period of 30 years is used? BC Hydro could easily borrow that amount on capital markets or issue bonds with that type of maturity. In that case the LCOE during the first 30 years (assuming 6% interest/discount rate) would be $138 but the LCOE taken over the full 100 years would be about $45/MW-hour. That’s a much more attractive number.

It will likely even be better than that.

The LCOE values quoted so far have been based not only upon 6% interest rate but also using a capacity factor of 55%. That is to say that the dam would only produce 55% of the electricity that it is capable of producing. The capacity factor will depend upon demand and water conditions.

Within the next 100 years all automobiles will almost certainly be electric drive which will significantly increase electricity demand in the province. But we also need to stop burning natural gas to heat our homes and businesses. The renewable alternative is heat pump/geoexchange technology which requires considerably more electricity than traditional heating systems. Burning huge quantities of diesel fuel in our railway locomotives also doesn’t make a lot of sense if we are trying to de-carbonize our economy. Electrification of the railway system will add another significant new load on the electrical system.

Finally, if Alberta follows through on its commitment to eliminate burning coal to generate electricity then there will also be additional demand on BC hydro power as a balancing resource for wind farms. Taking all these new system loads into account and barring a drought it is conceivable that the capacity factor for the site C dam could increase to as much as 75%.

And what about interest rates for a large loan? BC Hydro would be able to obtain capital at the most attractive rates possible for a loan of the size required for Site C. BC Hydro could issue a Site C 30 year bond at a rate of 4.5% which would be competitive with other high quality debt instruments.

Using an interest/discount rate of 4.5%, an amortization period of 30 years and a capacity factor of 60% would yield LCOE of about $36/MW-hour over 100 years. In my opinion that is the most realistic and likely LCOE for the Site C dam.

The tables below provide other values which indicate the sensitivity to amortization period, interest/discount rate, and capacity factor.

It it clear to me that hydro, amortized over a reasonable period, is by far the least expensive renewable resource available. More importantly, hydro power is available when it is needed each and every day because of its ability to follow system load. The only other renewable technology that can do that is geothermal and it is not available in most geographic areas (hydro-kinetic turbines would also be able to provide that kind of reliability and that technology deserves R&D funding and other financial supports).

For solar PV and wind it would only be reasonable to add a significant additional cost for energy storage or some other reliable generation source to provide power on calm nights. Those critical additional costs are conveniently ignored when comparing LCOE values for solar, wind, and hydro. As a result claims of “grid parity” for solar PV and wind are nonsense. Solar thermal with molten salt storage, on the other hand, is becoming a reliable and cost effective generation source in subtropical regions as demonstrated by a recent project by Solar Reserve being built in Chile.

One final note. It can be argued quite reasonably that those of us who will “shuffle off this mortal coil” before the Site C dam has been paid for will never see the benefits of the low cost power this dam will generate for decades or perhaps centuries in the future. So be it. We have, without question, enjoyed and will continue to enjoy some of the world’s lowest electricity rates because of the investments made in dam construction decades ago. As far as I am concerned I can imagine no greater legacy for our children and grandchildren than a source of clean, renewable energy that will last for their lifetimes and beyond.

The documentary written and produced by Jeff Gibbs and promoted by Michael Moore has certainly generated a lot of heat. If we could tap into that effectively we might solve humanity’s energy crisis.

As someone that has been blogging about alternative energy and sustainability for the past 8 years I feel I have a very keen appreciation of both the points made in the film and the reaction of the outraged critics who have attacked it quite viciously.

As with all Michael Moore documentaries the film does take an extreme view which is not completely supported by the facts on the ground; but it has at its core enough kernels of truth to hopefully make people think. That’s what Michael Moore’s all about.

For example, in perhaps his most famous documentary was there any logical reason for him to drag two victims of the Columbine shooting that had bullets embedded in their bodies from that horrendous tragedy to a K-mart to claim a refund by trying to “return” the bullets? Of course not. But did that sequence make us think about the morality of selling ammunition in a department store to anyone with a 10 dollar bill or a credit card? Did it make us think, just for a moment, about what share of responsibility the merchants that profit from selling the weapons and ammunition for those weapons have when they are used to perpetrate senseless acts of violence?

In my viewing of “Planet of the Humans” there are three central themes presented.

1. The environmental movement is misleading the general public with regards to how effective available green energy technologies such as solar and wind are when it comes to weaning an industrialized society off of fossil fuels.
2. The environmental movement has become entangled with various billionaire investors/supporters as well as the industrial complex that has grown up around manufacturing and installing solar panels and wind turbines and companies that consume vast amounts of fossil fuel energy to transform corn into ethanol or chop down and burn forests to create biomass energy.
3. That the only way to prevent the destruction of the planet and to reverse climate change is for humanity to drastically reduce its energy consumption. “Green” energy is not a solution. Green energy is not even “green” when full cycle costs are properly accounted for.

If one accepts the conclusions of the film then the future looks pretty much hopeless. And I think a brutally honest assessment of where we are at with the development of alternative energy sources and energy storage systems might justifiably lead us to that conclusion. But that is not where I land on this issue.

With regards to claims that the popular media and literally thousands of “green energy” and environmental web sites publish overblown and hysterically inaccurate claims of alternative energy success, I say “guilty as charged”. I myself have identified many such claims and, unlike the film, I provide data that proves they are inaccurate or, at best misleading. Examples would be exaggerations about the impact of wind energy generation in Denmark , statements that confuse “nameplate”capacity with actual production of electricity and praise for the success of the German Energiewende.

Transitioning to a sustainable energy environment will be hard work. Really hard work. And we will need every Dollar, Pound, Euro, Yen and Yuan to be applied in the most effective way possible to have any hope of achieving this goal in the next hundred years.

In 2016 Bill Gates announced the creation of the Breakthrough Energy Coalition with a great deal of fanfare and optimism. He declared that there were many different paths that might lead to sustainability.

Three years later, having focused his very considerable intellect and support resources on the problem he had become much less optimistic. In a video posted in November, 2018 the interviewer made the following comment;

“a lot of people are very optimistic as you know with wind and solar, the renewables cost coming down, the batteries cost coming down – you think that’s enough?”.

Gates’ response: “That’s so disappointing!” He went on to explain just how far we are from workable solutions. Orders of magnitude. The entire interview is definitely worth watching.

My concern has always been and continues to be that commentary that blames governments for not just getting on with the deployment of readily available and effective “green” technologies misses the point entirely. There are no readily available and effective “green” technologies that can replace the combustion of fossil fuels in our steel plants, electricity generating stations and automobiles. There are solutions. Some of them are even readily available. But they are not effective in terms of the long game.

Is widespread deployment of solar and wind technology going to reduce the real time consumption of fossil fuels to generate electricity? Yes – considerably. No argument there.

Considering all of the fossil fuel inputs to manufacture, transport, and install those technologies is there a net reduction in greenhouse gas emissions? Much more difficult to assess but I believe that there is a significant net benefit.

Will the deployment of these technologies allow us to fully retire all fossil fuel based electricity generation? No chance. Not now. Not anytime in the next 3-4 decades.

As noted by the film and in most discussions about the intermittency of renewable energy sources the availability of incredibly cheap, reliable, and massively scalable energy storage systems is the key. If we had storage most of the other problems go away. Unfortunately there are no such systems available.

To provide a sense of what is required using current NREL estimates the cost to provide battery storage to replace the nighttime output from a relatively small 180 MB electricity generation plant would be on the order of a billion dollars. And that doesn’t include the cost of the solar or wind inputs required to charge those batteries.

Having said that I for one believe that we can develop energy storage systems that will meet the criteria of incredibly cheap, reliable, and massively scalable. But it will take a dedicated, generously funded and globally coordinated effort to do so – the clock is ticking.

The second theme of the movie calls into question the motivations of the environmental movement in general and specific organizations such as the Sierra Club or the 350 Organization. I do not agree with those criticisms.

Those organizations may exaggerate the value of the solutions they promote but they do not exaggerate the dangers of continuing with “Business as Usual”. Having identified technologies such as solar and wind that they believe can help us transition to a sustainable society it only makes sense that they be aligned with business interests that are implementing those technologies. The fact that those same business interests profit from the promotional and educational activities of organizations like the Sierra Club does not diminish the value of those activities. The fact that those same business interests may donate to environmental groups does not, in and of itself, corrupt those groups.

From what I have seen, the people working for environmental groups, whether as paid staff or on a volunteer basis, are motivated by a love of this planet and by fears regarding the environmental legacy we will leave for future generations. They may have too much optimism about the progress we are making and they may not appreciate all of the challenges that have to be overcome but I believe their intentions are good and their work is commendable.

Michael Moore and producer Jeff Gibbs are not distancing themselves from the environmental movement or specific “green” organizations. In a response to criticisms of the movie Michael states that he continues to have “huge admiration for all our fellow environmentalists” and states that “its only your friends that can tell you when you’re messing up.” That response is also very worthwhile watching in its entirety.

With regards to the third theme of the movie I would agree that conspicuous consumption is a big part of the sustainability problem but I do not agree that discussions about restricting population growth make any sense at all. Many if not most environmentalists and environmentally focused organizations understand the importance of and promote the traditional three “R’s”. Reduce, Re-use, Recycle. And everyone accepts that the first “R” is the best “R”.

There are many initiatives at every level of society, both in developed and developing countries that are aimed at making progress on the three “R’s”. Do we still have too many dollar stores where inexpensive products are purchased in many cases only to be thrown away within a relatively short period of time? Absolutely yes! Do we allow the cheap price of goods from far off sources blind us to the negative environmental impacts of transporting consumer goods half way around the planet? Yes we do. But are we making progress on developing new recycling techniques, reducing packaging, banning single use plastics and in many other areas? Yes we are.

I hope that conversations triggered by “Planet of the Humans” will end up making people somewhat more cautious with regards to the solar and wind technologies that are currently the only “green” technologies really getting much attention. I hope they will come to the conclusion that other more consistent technologies such as geothermal and hydro-kinetics and geoexchange need a closer look. Most importantly I hope that those conversations lead to a clear understanding of the need for a much more effective global effort to develop innovative energy storage solutions. If any of those things happen then the film will have served a useful purpose in my opinion.

For my thoughts on how to transition to a truly sustainable energy environment you can check out my Sustainable Energy Manifesto.