Wednesday, September 02, 2009

The Politics of Energy #18 - There is a Green Wind Blowing

(Photo: Denmark, RLW)
By Richard L. Wottrich, Managing Director, International, Dresner Parters

There is a powerful wind emanating out of Washington, D.C. It foretells that much of President Obama's success will depend on the creation of new "green" jobs in alternative energy and conservation. President Obama has recently appointed Van Jones as a special adviser on green jobs to the White House Council on Environmental Quality. Jones has a background in activism, promoting green jobs to lift people out of poverty. Many of these green jobs are assumed to be coming in wind power. What are the prospects for wind power in America?

Relative Size of Wind Power Production
Wind power in the United States reached 29.4 MW of installed capacity in the second quarter of 2009. In 2008, the U.S. surpassed Germany in installed wind power capacity, followed by Spain. (The world leader in percentage of utilized wind power is Denmark at 19 percent of stationary electricity production.) Including projects installed through the end of 2008, wind power accounted for just 1.26 percent of U.S. electricity last year. Worldwide average wind power production contributes 1.5 percent. Wind power project installations are growing in excess of 25 percent per year in the U.S.

Coal still accounts for 50 percent of U.S. electricity production and natural gas accounts for 23 percent. All renewable energy sources combined account for just 2.5 percent of U.S. electricity production. The sheer scale of energy requirements in America ensure that these relative ratios will change very slowly for years to come.

Slow Project Funding
The American Recovery and Reinvestment Act (ARRA) of 2009, signed by the president on February 17, includes a budget of $32.8 billion for clean energy, $26.9 billion for energy efficiency initiatives, and $18.9 billion for green transportation. Of this $78.6 billion, little has been allocated to date. For example, in August, the U.S. Department of Energy chose 25 cost-sharing alternative-fuel projects to receive a total of $300 million from ARRA, amounting to .0038 percent of proposed funding. Then, the first hurdle is the slow drip, drip of federal funding for wind power projects. The second hurdle is the politics behind the selection process.

Global Stimulus Spending
ICICI Bank recently projected that total infrastructure stimulus spending committed by governments worldwide during this recession will top $35 trillion over the next ten years! This astounding amount puts in perspective funds that the U.S. government plans on spending on wind power projects, as many other nations, including China and India, will be approaching, matching or exceeding our spending. Hence, our relative advantage in direct federal subsidies is perhaps less than one might infer from the headlines.

Wind Power in China
With 20 percent of the world’s population, China now consumes 10 percent of the world’s energy. This would suggest that just to come up to the international average, China will need to double its energy consumption. Indeed, China is opening one coal fired power plant a week as this article comes to print.

China is the fourth largest producer of wind power in the world. The Chinese government is planning to have 150 gW of installed wind power capacity by 2020, of which 30 gW will come from offshore wind farms. Installed wind power capacity should reach 35 gW by the end of 2011, of which 5 gW will come from offshore wind farms, says China Daily (government-owned Xinhau News Agency). China had more than 12 gW in installed capacity as of the end of 2008. China plans to build seven of the world’s largest wind farms with a minimum capacity of 10 gW, each by 2020 in Inner Mongolia, Xinjiang, Gansu and Jiangsu provinces. China is on the move and it is moving faster than the U.S.

Global Wind Power Equipment Manufacturing
Many wind power components are manufactured in other countries. This capacity is increasing rapidly in China, which has natural pricing, financing and governmental advantages in comparison to U.S. companies. China has its own $675 billion stimulus spending program, which they are allocating at a faster pace than in the U.S. Furthermore, the government-controlled banking system has been loaning huge amounts to Chinese companies, with total loans nearly equaling its GDP through the second quarter of 2009.

However, recent U.S. political emphasis is leading a shift toward domestic wind power manufacturing. Many turbine manufacturing leaders have opened U.S. facilities; of the top 10 global manufacturers in 2007, Vestas, GE Energy, Gamesa, Suzlon, Siemens, Acciona, and Nordex have an American manufacturing presence.

Even so, at least 15 Chinese companies are commercially producing wind turbines and several dozen more are producing components. Leading Chinese wind power companies are Xinjiang Goldwind Co., Dalian Heavy Machinery, Zhejiang Yunda Co., Shenyang Industry University (Shenxin Co.), Dongfang Electric Group and Sinovel Wind Co. While wind power growth prospects in the U.S. are promising, it would be unwise to underestimate the impact of Chinese wind power component manufacturers on domestic U.S. manufacturers once Chinese domestic demand is satisfied.

Smart Grid Technologies
A smart electricity grid is simply an upgrade of existing power grids, which generally "broadcast" power from a few central power generators to a large number of users, utilizing digital technology to specifically route power when and where it is required within a wide range of conditions. American electrical grids are overloaded, antiquated and fragmented. Any attempt to integrate large volumes of solar and wind generated electricity into the national grid must address this issue.

Prospects for expansion in renewable energy depend heavily upon the development of smarter grids, because most renewable energy sources are intermittent in nature. Any power infrastructure using a significant portion of intermittent renewable energy resources must be able to reduce electrical demand by "load shedding" when alternative energy sources suddenly or gradually diminish. This also infers that traditional energy producers require “negative” pricing incentives (variable taxation rates) to decrease electrical production when alternative energy sources are flowing.

To integrate disparate energy sources into a smart grid, dependable coal and natural gas sources must be coordinated with intermittent solar and wind sources. In a perfectly elastic smart grid, electricity prices should be allowed to spike exactly when the desired alternative energy sources are not present. Consumers will then, in theory, decrease consumption. However, this means that prices are unpredictable and literally vary with the weather, from the smart grid’s perspective. This is a smart grid vision fraught with political danger, as politicians likely will not sit idly by as their constituents see wildly vacillating electric rates.

Energy Storage
The solution for wildly spiking electricity prices in a smart grid is energy storage. However, it is very expensive to store electricity. Any parent who has run through dozens of batteries for his children’s toys understands this.

Grid energy storage allows energy producers to route excess electricity production over the transmission grid to temporary electricity storage sites. These sites become energy producers when electricity demand increases.

Advances in energy storage are essential if alternative energy sources are to increase dramatically, as intermittent energy sources cannot store energy. Solar thermal, molten salt storage, compressed air storage, hydroelectric energy storage, ice storage, and liquid nitrogen are among scores of technologies in development in this field.

It is a fact that Japanese companies lead the way in energy storage technology, including Japan Wind Development Energy Co., Ltd. Japanese car battery leaders (which can be adapted to wind power storage solutions) include Motor Corp. (TM), Honda Motor Co. (HMC), Nissan Motor Co. (NSANY) and GS Yuasa Corp. (GYUAF).

U.S. manufacturers will have to form joint ventures, license technologies and accelerate research and development to achieve in-country green jobs in energy storage.

The Future of Wind Power
Globally, alternative energy sources account for a small percentage of our energy needs. However, government tax incentives and direct subsidies are influencing a shift of resources into these industries, creating the potential for accelerating year-on-year increases in alternative energy capacity, and the resultant falling electricity prices associated with greater scale.

In the U.S., massive federal spending will likely achieve the same results, but it would be unwise to assume that the same manufacturing advantages that have facilitated explosive growth in China, India and elsewhere will not apply to the wind power industry. As direct competition in wind power components gains traction and scale, U.S. manufacturers will have to be very nimble and adroit to survive.

Oil, coal and natural gas will continue to be the dominate energy sources globally, and in the U.S., for the balance of this century. An increase of alternative energy sources for electricity in the U.S. to 10 percent of usage would represent a huge shift in resources and create many jobs along the way. However, at this point in time, such a shift is years away, as are the myriad green jobs that we assume will be created in the process.

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