Archive for the 'energy' Category

Great news re gas

It was good to read a really uplifting EIA report : Golden Rules for a Golden Age of Gas.

In this period of economic gloom it was great see that we have a real and new engine for growth ready on our door step. It is gas, gas from shale, coalbeds and other unconventional sources.

Yes, I know, it is still a fossil fuel. But let us agree that gas is so much better than coal. We would not have had the increase in CO2 emissions in Europe had it not been for the fact that gas is too expensive relative to coal. All the discussion about taxing coal would not have been necessary and Europe would have seen real effects of all its efforts to generate sustainable energy and increase energy efficiency.

Fracking (the method used to extract shale gas) can be detrimental to the environment. So let us find ways to ensure that those effects are minimized. The Golden Rules as established by the EIA are the following:

Measure, disclose and engage
Watch where you drill
Isolate wells and prevent leaks
Treat water responsibly
Eliminate venting, minimise flaring and other emissions
Be ready to think big
Ensure a consistently high level of environmental performance

The Economist came out in support of these Golden Rules. It stated But the risks from shale gas can be managed. Properly concreted well-shafts do not leak; regurgitants can be collected and made safe; preventing gas venting and flaring would limit methane emissions to acceptable levels; and the risk of tremors, which commonly occur as a result of conventional oil-and-gas activities, can be contained by careful monitoring.

As to the 6th rule Be Ready Think Big. I liked the fact that this rules suggest to stimulate economies of scale in order to be able to develop an infrastructure that minimizes its impact on the envoironment.

Let us embrace the opportunities shale gas is offering. Use it to reduce coal based Green House Gas emissions and let us build an economy build on wind, water, solar AND gas. If we than also invest in Carbon Capture and Storage the dream of a carbon neutral economy might become true.

Felix Gruijters

Taxing Coal is not the solution for the environment

Summary 

  1. Taxing the coal used to produce power will encourage the use of biomass and the use of gas. This is good for the environment.
  2.  Taxing coal (any energy tax for that matter) however increases the costs of energy for industry and will make the business case for new investment in Europe less attractive. Industry might leave Europe or go under. This carbon leakage has been a slow but gradual process the past 20 years.
  3.  Industry leaving Europe or stopping production is good for the environment in the short run but not in the long run as an economic slowdown will also slow down innovation. 
  4. A better way for the Dutch government and Europe would be to opt for a tax on the carbon footprint of a product. Taxing the carbon footprint would give producers with a low carbon footprint an immediate advantage and would be a much stronger incentive to change than any level of a coal tax. This will be better for the environment. 

Taxing coal in The Netherlands. 

The Dutch minority government supported by several parties in parliament has announced it will increase the tax on coal used for power generation from 1 January 2013. The increase is effected by scrapping the tax exemption based on which power generators currently do not pay a € 13,73 per ton levy for coal used to generate power. This new measure (part of the austerity package as published on the 25th of May) will increase the costs of each MWh of power with approximately € 3 or 4,5%. 

More Biomass Co-firing. 

The measure will encourage the use of biomass in coal fired power stations. A move to biomass co-firing was already under way but we might well assume that this will make the use of biomass more attractive.

 More Gas powered generation. 

The measure should also encourage the use of gas powered generation. The merit order (i.e. the order in which power stations are put on line) depends on the spark spread (the difference between the price of the material burned to produce the electricity (gas, coal, biomass) and the price of the electricity produced.

 Lower CO2 emissions. 

Both effects (the use of more biomass and the use of gas) will reduce CO2 emissions. Gas has a 50% lower CO2 content than coal. The reduction of CO2 by co-firing biomass depends on the extent to which biomass can replace coal. Currently Dutch coal power generators currently use up to 25-30% biomass. The general expectation is that a replacement with up to 40% is within reach. 40% co-firing of biomass will mean that the coal fired installations will be as efficient as gas powered installations.

The New EU’s Emissions Trading Scheme (ETS). 

Assuming the ETS will be continued and that the European Council will agree on the such an allocation of emission rights that the prices will be at Swiss (€ 25 per ton) or Australian levels (€ 18 per ton) the new ETS will strengthen the move towards biomass and gas. 

The effects of higher energy costs on industry.

 European producers of aluminium, copper, steel, fertilisers, paper, cotton, certain plastics and chemicals will be able to receive financial support for their higher electricity bill after the introduction of the new ETS. The main aim of this subsidy is to avoid energy intensive industry moving outside Europe (or not coming toEurope). This is obviously only a temporary stop-gap. The financial support will be temporary, it will be partial and it relies on political whims. It will therefore not encourage investment and only delay divestment.

 The subsidy in other words will only cost the European tax payer money, will not stop or reduce pollution and only delay the gradual de-industriliasation of Europe.

 A lasting solution. 

A better way for the Dutch government and Europe would be to opt for a tax on the carbon footprint of a product. Taxing the carbon footprint would give producers with a low carbon footprint an immediate advantage and would be a much stronger incentive to change than any level of a coal tax. This will be better for the environment. 

Imagine production in Greece being powered by solar energy. Low labour costs (as Greece is trying to regain competitiveness) and low CO2 emissions will give their products a real advantage on the European market.

On the other hand, products from polluting factories is the US or China will be at a disadvantage as their high carbon footprint will mean higher prices in the European shops. 

It is now possible to determine the carbon footprint for each products on the supermarket shelves. The British Standard Institute has developed the standard for measuring and Walmart in the US and Casino inFrance already have their products labeled with the exact carbon footprint related to the product.

Felix Gruijters

The Leadership required for Sustainability.

The leadership required to change a company to embrace Sustainability.

CSR gives a competitive advantage

For most companies Sustainability should have seized to be a marketing tool. There is sufficient proof that companies with a strong emphasis on CSR (of which sustainability is an important aspect) out perform their peers. This makes sustainability (and the other aspects of CSR) a strategic tool to improve the company.

CSR means fundamentally changing the DNA

It is also clear to most companies that sustainability should be more than window dressing. A company that does not fundamentally incorporate sustainability into its product and services will not convince consumers and find that its efforts do not bring the returns it feels it deserves.

 

  • First of all it should be clear that the company cannot continue doing what it has been doing in a different way. Taking sustainability serious means that companies have to look at the way they do their business in every aspect of that business. The cars driven by its sales people, the number of flights taken by senior management, the energy use of its offices, the extend to which it adheres to the cradle to cradle principle and the complete carbon footprint of its products and services.
  • Secondly companies should realise that sustainability is a long process. Management cannot implement a quick top down programme, sustainability has to be incorporated in the DNA of the organisation in a determined and if necessary prolonged move.

Strong modern leadership is required

Embracing sustainability however is not an easy task. It requires fundamentally changing the company and therefore requires strong leadership. This leadership is different from traditional leadership.

5 leadership practices are relevant

1. Use the momentum
2. Change selectively
3. Encourage experiments
4. Create openness and frankness
5. Crowd-source ideas

1. The leader should use the momentum of the current economic slowdown to install the need for fundamental change. He should create an urgency to change what and how work is done and who does it. This is a delicate task as too much pressure can cause panic and inertia, whereas too little pressure will lead to a return to old ways.

2. The leader should only change those things and move those people that prevent the required change; not everything has to be changed.

3. The leader should encourage experiments. The vision does not have to be produced as a Grand Design by the senior management, it has to be the consequence of much trial and error.

4. The leader should encourage a culture of openness and frankness. In many companies the status quo is protected by higher management preventing any sound of discontend or change to surface at the top floor.

5. The leader should mobilize everyone withing the organisation using for instance the newly developed crowd sourcing methods.

Felix Gruijters

The future of energy companies

The future of energy companies

Two forces shaping the energy world will both lead to bigger companies running lost of small assets.

Two forces are pulling at the energy companies.
1. The race to the bottom
2. The rise of the prosumer

To survive in the race to the bottom energy producers will be involved in a continuing consolidation in the energy market. On the other hand the energy production landscape is becoming more and more fragmented by decentral generation.
The two forces will come together in the IT infrastructure of the main producers. This IT infrastructure will link decentral production and storage with intermittent renewable energy and the remaining fossil fuel based production.

1.  The Race to the Bottom

The producers of power are in a race to the bottom, who will be selling their MWh against the lowest margin. In this race to the last euro above cost price the necessity to merge with other energy companies will be strong. This consolidation of market power in a few major players has slowed down recently for various reasons.

  • E.on and RWE are trying to divest some of their assets to cover for the losses incurred as a consequence of the “Energywende”
  • Vattenfall is selling of some of its assets to free up capital to invest in renewable energy and to pay for the take over of Nuon

It is not likely that this slow down means that the trend will be reversed.

  • Gazprom and ENI/Distrigas recently entered the Dutch end-user-market increasing the level of competition, reducing margins even further and probably re-affirming the need for further consolidation.

The race to the bottom will lead to the creation of a small number of very big energy producers.

2.  The rise of the Prosumer

The urge to reduce the speed at which the average global temperature is rising (without being able to stop this rise) has meant  that governments have spend inordinate amounts of money on the encouragement of renewable energy.Renewable energy in the shape of wind and power have as a clear disadvantage that they are intermittent and require a back up by other energy production assets or energy storage. This obviously does not apply to (well managed) geothermal heat pumps. The move to intermittent renewables  has encouraged the research into and the development of smart grids.

Smart grids enable the existence of various (small) production units. These small production units have benefits:

  • Users of energy do not want to be reliant on fossil fuel and its current high and volatile prices. De-central production is not necessarily cheaper but it reduces exposure to the volatility of prices (the costs are more predictable).
  • Users of energy are worried about future government regulation making the use of fossil fuels very expensive. A move away from fossil fuel reduces that exposure.
  • Clients of producers (or the clients of these clients) demand a reduction of CO2 emissions related to the product they are purchasing. As long as energy producers have a substantial portion of their generation capacity in fossil fuels it will look better if a company actually produces some of its own energy in an environmentally friendly way.
  • Small is beautiful in the eyes of the consumer. (In case in point why support for major windfarms is not as big as one might expect)


The rise of the prosumer will reduce the market share (in terms of MWh produced) of the big energy producers

The trend towards bigger companies and a lot of smaller production units however does all come together in the IT systems of the major energy companies.

Energy companies will be the IT interface

The main role for energy producers in this decentralised world will be the provider of the IT interface linking all the small de-central production units and the energy storing units with the consumers and the major production facilities such as the major wind farms and the remaining fossil fuel (gas) powered generation units.

To be able to fulfill this role the energy companies will require size so as to be able to respond to fluctuations in demand and supply.

This means that the two forces shaping the energy world will both lead to bigger companies running lost of small assets.

Smart grids and the changing role of utilities

Much of the focus when discussing smart grids has been on hard-ware, such as  heat pumps and energy storage opportunities offered by electric cars. It has struck me that not sufficient importance is given to the IT infrastructure and the operational intelligence required to actually run a smart grid.

Smart use of smart grids

Energy utilities are in an ideal situation to take a leading role in the development of smart grids as long as they remain agnostic about the elements that form part of the smart grid. The moment energy companies try and start dominating the heat pump and energy storage market they will be focussing on the wrong thing.

The money is in the smart use of the smart data supplied by the smart meters of the smart grid.

It will enable the energy company as a spider in the web to determine when to use what asset and optimise its revenue.

The money is in the data

This means that energy companies should be focussing on the collection and interpretation of data. Data has become  a most valuable asset judging by the valuation of Facebook and the same applies to energy companies.

Privacy objection are temporary

Collection and use of data has privacy implications. These privacy implications stopped the rapid introduction of smart metering in The Netherlands, It is however my impression that the majority of internet users are gradually coming to terms with the benefits of the web knowing what our preferences are. It would not surprise me if people actually start liking the fact that automatic marketing systems create offers for them in line with their preferences; and even if we do not like it, data collection about us appears to have its own unstoppable momentum.

Smarts grids means lower costs

The collection of data by energy companies has definite advantages to consumers because it will lower their energy bill.

It will lower their energy bill because:

  1. the smart use of energy will reduce the amount of overcapacity that energy companies now have to  maintain and
  2. it will lower their energy bill if they can respond to the pricing incentives that a good smart grid system can send to the clients connected to it.

Lower costs by moving the demand curve

Currently energy prices are set by energy companies using their cost efficient power generators first and their least efficient  reacting to more or less fixed in-elastic demand.

The price is determined by the least efficient generator.

The moment demand becomes more flexible energy companies will see their revenues drop as consumers will take less energy when they try and increase prices. It will no longer be the most inefficiency/expensive power generator determining the price.

The price will be determined by  the flexibility of the consumers fixing .

How to make money out of lower costs

Unable to set the price energy producers will see their income reduced, to make up for some of  this loss they can position themselves at the heart of the smart grid and make money as a result of that position.

  1. By enabling consumers to get the best price out of the market some of that benefit will stay with them.
  2. By optimizing the use of the various hardware parts of the grid. Energy companies will be paid for that service and,
  3. By supplying energy to the grid (using their efficient wind parks and gas powered generation capacity)
  4. By reducing its own costs as a smart grid will enable an energy producer to reduce its overcapacity.

Smart grids, in other words, offer energy companies an excellent opportunity,

 

Will the environment survive the economic downturn?

Will the environment survive the economic downturn?

Saving PV film producer Heliantos

The past weeks the news from the renewable front has not been good. Today the first ray of sunshine in a while was that Vattenfall might have found a buyer for its solar film factory, Heliantos. It would be great news if true, giving Heliantos and its new owner a chance to continue building on the knowledge and expertise that Nuon/Vattemfall have invested in so heavily over the past 8 or so years.

A call to revive the Green Agenda

An article in the Financial Times of the 7th of May brings together some of the news items of the past weeks. Lord Smith to call for a green agenda revival.

In the UK as in other countries (for Germany the subsidies for solar were cut on the 23rd of Februray 2012) the government is cutting back on subsidies for renewable power. Austerity bites everywhere and thus also into the subsidies for renewables. This makes logical sense as there is no strong political reason why renewables should be excluded from the cut backs.

The Greens are being overshadowed by left and right wing populists

There is still strong supporters for green politics in Europe; in the quoted article Lord Smith refers to the success some of the green parties have had in UK by-elections, and he could have quoted the strong performance of the Greens is Schleswik Holstein, but this support is substantially smaller than the main voter’s sentiment, which is against reform and change and in support of maintaining existing welfare support and job security. In the Netherlands the no-change/anti reform parties (the SP on the left and the PVV on the right) are predicted to get a third of the seats in parliament. Their no change mantra could well lead to inertia in politics.

A lack of funds due to the economic slowdown and policies paralised by populist movements in or outside government do not bode well for the renewables industry and the environment.

The price for CO2 emission rights

It will be very interesting to see what the European Parliament and the European Council will decide in June on the CO2 emission rights. Will they again be over generous when allocating emission rights or will they “set a side” some rights, creating a true market for CO2 emission rights? It is telling that currently CO2 emission rights in the EU (@ less than €7 per ton) are cheaper than in Australia (@ 23 Australian dollars per ton). The UK has been leading the way with their carbon floor price.

It is obvious that a EU carbon tax could lead to carbon leakage. This is a very gradual process, it does not happen overnight. But a carbon tax will influence investment decisions and those decisions will not be in favour of investment in the EU. The compensation and opt outs offered by Chancellor Osbourne will not stop the leakage, it will only give international firms higher profits before the decide to invest in the US or Asia.

Introduce the CARBON FOOTPRINT TAX

The only way out of the inertia, providing the development of the green economy a much needed boost is the introduction of a carbon footprint tax. This is not a carbon tax on energy producers or other major users of fossil fuels. It is a tax on the carbon used developing, producing, transporting an selling a product or service.

It is a fact that we can measure the carbon footprint of a product, from raw material to shop shelve. Let us take these measurements and use them to base a tax on. Products with a high carbon footprint will be taxed higher, giving producers an incentive to compete on carbon footprint. Suddenly the incentive would be to preserve forests, reduce the use of fossil fuel, invest in the bio based economy.

Better still for all the politicians looking for a way out: the carbon tax will provide much needed revenue and, for Lord Smith, it will revive the green agenda.

Felix Gruijters

Sustainability, investment, supermarkets and summer festivals

Private investment instead of bank loans

 An interesting article today (7 May 2012)  in The Financial Times. It is interesting to see that a rather negative trend in cleantec was given a very positive spin in this article. It is a fact that banks are somewhat reluctant to lend, at the same time venture capital is recovering from various bloodied noses suffered in the economic slowdown. This is a real problem for new clean development technologies requiring (fresh) capital and could put a break on the continuing development of a sustainable society.

The positive spin put on this development is the fact that if banks do not lend and venture capital does not want to participate, the opportunities are available to private investors. Research done by the FT indicates that these private investors are very interested in sustainable and cleantec opportunities and could make up some of the shortfall. This is good news and fits in with a trend we see elswhere. Smaller scale initiatives (in size and value) are taking the lead.

 Sustainability and Supermarkets

 The interest of private investors sits well with cleantec and sustainability. Much of the drive towards sustainability is driven bottom up. Despit the recession the environment remains high on the worry list of consumers. As a result big supermarket chains as Walmart, Casino, Tesco and Albert Heijn have a clear focus on reducing their impact on the environment. The reason transport companies are now also looking at ways of reducing their carbon footprint is forced on them by these supermarkets. That in turn is the reason that energy companies (and I work for one) are developing electric charging possibilities for trucks. Currently trucks, when stopping overnight, have a diesel working to keep the refrigerated goods at the required low temperature. This polluting and noisy habit could soon be a thing of the past thanks to the demand from consumers, translated by the shops they frequent.

 Sustainability and Festivals

 The same should (and hopefully will) apply to the organisers of summer festivals. Many summer (and spring) festivals work with diesel generation. A diesel generator has an efficiency of approximately 30%. I recently made the calculation for a summer theater festival in The Netherlands. During the summer months they produced with their diesel generators 320 ton of CO2. Using electricity this could be reduced to zero if renewable sources were used or it could be halved if we use just “normal fossil based” electricity from the Dutch power generators. Despite the fact that diesel costs are nearly 4,5 times as high as the cost of electricity the move away from generators is slow and is only gradually increasing momentum.

 This is a missed opportunity, it is time that visitors to summer festivals, despite their young age, look further than just the need to consume, to be seen and to see the hottest acts and create some pressure on the organizers and promote the use of power during festivals.

Felix Gruijters


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