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Obama Realitygate And The Green Energy Dream

Politics / US Politics Sep 18, 2011 - 09:35 AM GMT

By: Andrew_McKillop


Best Financial Markets Analysis ArticleThe rightly named Solargate scandal, going right up to Obama's White House, involving the Solyndra asset bubble and collapse (’s-big-green-scandal-that-won’t-go-away/) underlines yet again that green energy miracles are not cheap, but even worse they are unreal.

The basic reasons - apart from resource, technology and industrial factors - feature the lose-lose mixture of political false hopes and incompetence, economic unreality and corporate greed that has dogged green energy since the mid-decade, when it suddenly became a political plaything.

What drove, or still drives the green energy boom-bust cycle ? At the start of its short and curious history, we had the global warming scare, the desire for energy security through home grown supplies, reduced environment impact, job creation and new business models, all bundled together under the by-line of "sustainable green energy". What we have today, only a short time later, is a set of unattainable and totally uneconomic goals and outline targets for green energy, especially in the US and Europe, while other Kyoto Treaty signatories like Canada, Japan and South Korea play with more easily talked-around and fudged "flexible methods" for cutting their CO2 output by emissions trading, developing green energy, conserving energy, carbon reduction commitments, and developing green energy in non-treaty third countries, especially African countries and Indonesia, to import low carbon fuels, inevitably at oil-indexed prices.

When the impossible size of current goals and their financial costs becomes better known they will have to be scrapped, in a coming process of getting a handle on reality in energy-and-climate affairs.

By 2005-2007, driven by ever rising oil prices and the global warming scare, the political leaders of the OECD's biggest oil importing countries, especially the USA, France and Germany, with rapidly declining oil exporter UK also joining the party, rushed to proclaim ever bigger and more unrealistic green energy goals. These ranged from producing electricity and heat from solar energy and wind energy, to producing oil-saving biofuels, and recovering energy from wastes. They also passed laws to achieve these goals, including forced emissions trading in Europe, and handed over huge amounts of public cash to new energy industrialists and the cohort of banks, investor funds, brokers and dealers that rode the green energy boom.

Through the typical and programmed, predictable and constant mix of greed and incompetence that also produced the debt and deficit crises, they ensured the green energy boom turned to bust. The goose is cooked and the chickens are coming home to roost - without a biogas reactor in sight !

In 2005-2007 however, things looked good for the boom. Although the staunchest imaginable defender of vibrant free market capitalism, at the microphone, George W Bush had no problems turning the handle of the Federal government cash machine for corporate and finance sector freeloaders. The result was the USA's Energy Independence & Security Act (EISA) which became law in December 2007.  Among its many provisions the EISA mandated the nationwide annual production and use of 36 billion gallons (US gallons of 3.78 litres each) of biofuels by the period 2017-2022.

Called the RFS or renewable fuels standard, the EISA included an “advanced biofuel subset", beginning in 2009, which mandated certain percentage levels of cellulosic biofuels, biomass-based diesel, and other nonconventional biofuels in national motor fuels, for fast-track introduction. This looked nice on paper, sounded good at the microphone and even nicer to corporate sharks and investment bank "players", but raising the fuel alcohol content of gasoline beyond about 10 - 12 percent needs big changes to car engines - which costs money, but George W Bush and Barack Obama wanted more.

Depending on how the RFS was interpreted, by 2017 the US would have had to produce and use as much as 4.25 million barrels a day (1 barrel = 159 litres) of biofuels, saving about 3 million barrels a day (Mbd) of petroleum from current US oil imports, of around 12.5 Mbd. The unreality of this goal is easy to understand: by about 2017 the USA would have been producing as much as 65 percent of its current motor gasoline fuel needs, from biofuels, substituting around 22 percent of its current total oil imports. To get there, this would have needed both "first generation" type biofuels, mainly fuel alcohol from maize and soybean oil biodiesel, and massive quantities of "second generation" cellulosic or wood based, grass and straw based, and genetically-modified "fuel crop" based biofuels.

Reality dealt a hard smack to this fantasy. Under any scenario, the RFS plan or programme will never be achieved: any attempt at doing so would be so uneconomic, and gulp such massive crop resources, agricultural land resources and irrigation water resources, that it would be disastrous for US agriculture and food prices. Totally new, unproven and as yet not existing biotech and industrial processing would also be needed. As a result, the RFS has been scaled back and might be abandoned - but nice media, and Barack Obama make a point of not talking about it.

The US EISA was very surely the glowing icon and role model for copycat laws passed in Europe and brought together as the EU's December 2008 20-20-20 plan. This was transposed or transferred into the laws of the EU's 27 member states, and mandates that 20 percent of all energy used in Europe would be renewable sourced by 2020, although it only set a 10 percent substitution goal for EU motor fuels with biofuels. This would have needed about 1 Mbd of biofuels produced in Europe - or imported - by 2020, saving about 0.75 Mbd of petroleum fuels. Even today, less than 3 years later, this 10 percent goal has had to be abandoned, with deliberately low profile leakage of the new and suspiciously exact EU goal of 5.6 percent now set for 2020. The reasons were exactly the same as the US de facto abandonment of  RFS goals: the impact on food prices would have been too extreme.

In the European case, and to some extent in the USA, the surrogate solution has been to expand targets for renewable electricity production, mostly from wind, to cover the unreality of biofuel targets, but as with the biofuels we find a host of other factors - mostly cost and time - that make the high ground energy substituting targets that were announced in fanfare through around 2005-2007 completely unattainable. Whether we are talking about windpower, solar power, biofuels or anything else - including CO2 emissions cuts - doing it and paying it is vastly different from talking about it.

For biofuels, not only the land resources do not exist for meeting the official production targets, but the scientific, technical, industrial and economic barriers are massive. Just one example is the need for completely isolated and independent or "stand alone" fuel transport, storage and forecourt supply systems, for alcohol fuels, when or if these are moved up to early touted goals of 85 percent in car fuel mixes (85 percent ethanol/15 percent petroleum). For this volume of biofuels, it is basically necessary to double fuel transport and distribution infrastructures, with dedicated biofuel trains and tankers, new and separate underground storage tanks at filling stations, and fuel drying systems because alcohol is very hygroscopic. For windpower, as we know in Europe today, the boom is turning to bust on issues and challenges concerning not only the siting and operation of windfarms offshore, but also the transport and metering of huge but intermittent blocks of power across a continent - needing fantastically expensive Smart Grids, or even more expensive Super Grids, taking 15 or 20 years to build, if the financing was available.

In every case we are confronted by huge and so-called "unanticipated" costs for each part of the green energy program - leading to the de facto abandonment or "refocusing" of goals and programmes, with inevitable and massive waste of resources and loss of credibility - and no sustained jobs or significant increase in energy security.

Plans and goals for US and European biofuels have had to be abandoned, diluted or pushed forward further in time - but business has to go on as usual. Solyndra is one typical result. For Europe, the biofuels goal was unrealistic even when it was first set: Europe already has stretched and over-intensively operated farming and food production resources, in a relatively small continent which has to feed 500 million people - while trying to export food. But Europe has plenty of wind, even if wintertime solar energy is more than somewhat low in Europe. So the windpower boom-bust was most intensively played out in Europe, while the USA created a biofuels boom-bust along with its solar and windpower boom-busts.

In both cases the end-of-boom was and is signalled by telltale signals. For European windpower we have hard-to-talkaround proof that cranking up windpower's role in the electricity supply mix, to more than about 25 percent and likely below that number - is a heroic challenge. As of early 2011, Europe boasts some 44 percent of the world's entire windfarm capacity of around 195 GW, but this only produced about 9 percent of actual end-use electricity in Europe. Amounts of wind electricity that are simply shed - that is thrown away - are relentlessly rising. Countries with the biggest installed wind capacity - Germany, Spain and Denmark - only need to be checked by a few criteria to find which way the wind is blowing for windpower. They have the highest priced electricity, the biggest subsidies for green electricity, and the biggest number of job losses and business failures in their now overcapacity industries producing mills and windpower-related products and services.

The subsidy game has had to stop, dramatically for Spain, with a near instant result of factory shutdowns and job losses. For Spain these start with the country's flagship windmill maker, Gamesa, owned by utility firm Iberdrola - which is trying, but not succeeding, to sell its entire green energy asset "portfolio" and exit the business.

Amazingly enough, despite Denmark's Vestas shuttering its UK blade making plant with the loss of 660 direct jobs (and about 1500 indirect jobs), leaving the UK with zero industrial capability in windfarms, the UK Tory government soldiers on with the totally unrealistic offshore windfarm plan cooked up by Gordon 'Climate Crisis' Brown. Supposed goals of this plan could extend as high as 35 GW of windmills, in offshore locations "by about 2035", with building, operating and maintenance costs that will be so extreme total costs could exceed GBP 100 billion, or 125 billion euro. The hoped for electricity generation price target is set at around 10 euro cents per kWh, far above brown energy prices, such as gas-fuelled power plants with full CO2 capture and sequestration (CCS), producing electricity from high-priced Russian, Norwegian and Algerian imported pipeline gas, and expensive imported LNG at below 5 euro cents per kWh. When European shale gas and coalseam gas resources are developed, the gas-based electricity cost number will almost certainly drop.

We could play generous and say we believe the UK's megawind projects might be feasible, and similar projects could be achieved by Germany and France. Total spending needs to around 2025 would likely exceed 250 billion euro but with Danish and Spanish windpower, this could make it possible to imagine that around 25 percent of European electricity might be wind-based by that date. To be sure, this would be in the absence of any rapid growth in European all-electric car fleets, which would deal another deathblow to the dream, through driving peak power demands to extreme highs, as millions of drivers plug in their electric cars at 5 kW each. When or if about 15 million electric cars (about 7 percent of Europe's current car fleet) were plugged in, they would need more power than Europe's current total windfarm capacity - the biggest in the world at about 80 GW.

Assuming the electric car fantasy was first recognized as absurd, and abandoned, Europe's national mega-windfarms would still have have to be interconnected by a Super Grid, to enable huge blocks of power produced at different times, to be shunted around Europe and used, not shedded. This is a simple technical and basic necessity for "making windpower real" - but no such Super Grid exists. Why it does not exist is simple: it would likely cost several hundred billion euro and take 20 years to build - if the works started right now. 

The political-friendly and business-friendly subsitute for this is the Smart Grid, which also does not exist. Making sure that people think Super Grid, when corporate and political players talk Smart Grid, we have the critical difference. So-called "smart" grids can be cobbled up easier, and a little cheaper. They would basically only operate to choke off power demand at "bad" moments, when the wind is not blowing, by almost instantly driving up unit kWh prices to extreme highs and cutting off consumers. In other words load shedding plus profit gouging, explaining the very enthusiastic corporate and finance sector uptake for smart grid speculative ventures, like Better Place.

These smart grids would not need to be interconnected across Europe to anywhere near the same extent as a vast, and vastly expensive Super Grid able to transport huge amounts of power, but the "smart" metering and IT controls needed for the presently imaginary smart grids would most surely not come cheap: some estimates for developing a US Smart Grid go as high as $ 800 billion with 15 years of civil works. Nevertheless, the project could or might be feasible because it would basically be funded by driving up electricity prices by 50 percent or more relative to present tariffs.

The Smart-or-Super Grid story in fact includes a layer cake of other extreme challenges and impossible costs which we do not need to discuss here - except to say that storing huge amounts of electricity is even more technologically challenging and extreme high cost than either metering and charging users for it across millions of square kilometres on an almost basis and round the clock, or transporting huge amounts of it.

What is important is that like the banking, debt and finance crisis, real solutions do exist but they need determined political deciders, realistic targets, organized industrial production and transparent, reasonable financing. The green energy boom-bust started as a political plaything - and will either be abandoned, or made real by political action.

The basic pitch of political players advocating forced Energy Transition to green energy is that we have outright crisis conditions and challenges facing us: global warming and the threat of Arab Spring revolts cutting off oil export supplies or at least driving oil prices to extreme highs.

Their other favorite claim, that shifting to green energy "will produce millions of jobs" can however be dismissed immediately: European and US windpower, solar power and biofuels already show this is unrealistic, until and unless there is a huge "downblending" and raised labour intensity of the technologies and industrial processes used. Taking European windpower, today's approximate 105 000 direct employees in the wind industry, about 0.025 percent of Europe's 235 million economically active population, have produced some 44 percent of the world's entire capacity of windpower in a little more than 15 years.

But if we took green energy goals as necessary for climate stability and energy security, and urgent, they can only be achieved by national wartime-type programmes. On the global scene, and after there is real global or North-South consensus on goals and urgency, this will need multilateral programmes as used in the postwar period of around 1945-60, for major infrastructure, energy, housing and industrial projects and programmes.

Proclaiming massive goals, and setting laws to enforce them is totally unrealistic if the financing and industrial development for these programmes is casually thrown to free market sharks playing the 24/7 financial casino game, operating the same Ponzi schemes that give us the debt and deficit crises. The first alternatve is therefore political: if you say it - do it. Enabling green energy needs special financing, dedicated industrial development, and specific commercial structures and systems - that currently do not exist, making failure sure and certain.

The next alternative is to set realistic goals: present ones have been drowned with hype, and driven to extreme and unrealistic highs in only a few short years. Backtracking and refocusing of goals is important, right across the green and alternate energy space.

Another alternative is very simple: pure laisser faire. What we have today, in the green energy space or bubble, is the worst possible mixture of top-down political and policy goals, the excesses of speculative free market financing, and uncertain, inefficient and endlessly duplicated, undercapitalized industrial uptake and development. Removing government interference from green energy would of course produce a massive reality shock and domino collapse of Solyndra-type ventures, but this forced restructuring of an unrealistic industry is already under way, due to simple reality. Feasible and possible targets would necessarily shrink, as timelines for Energy Transition would naturally stretch.

Presently we have a lose-lose context for all players except financial, and for them and as ever, this is short term gain. Overall costs for achieving any specific level of green energy development are massively raised by this lose-lose context, which also results in a general loss of credibility for green energy and reinforced, de facto dependence on fossil energy. One thing is sure: the present outlook for green energy is not sustainable and can only change.

By Andrew McKillop


Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2011 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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