Saturday, March 01, 2008

Alternative Energy—Our Only Alternative—Part II

With increasing recognition and acceptance that the threat of global warming is real, the subject of alternative (renewable, clean) energy sources has become a hot topic (excuse the pun). On February 10 th, the Sunday edition of The New York Times ran an editorial titled “Clean Power or Dirty Coal?” The Times editorial wrote, “…the failure — by both the Bush administration and Congress — to encourage alternative sources of power is distressing. Bowing to veto threats from the White House, Congress stripped from an otherwise admirable energy bill two important provisions on alternative fuels. One would have required states to generate an increasing share of their power from renewable sources like wind and solar. The other would have rolled back about $12 billion in wholly unnecessary tax breaks for the oil industry and used the proceeds to develop cleaner fuels and new energy technologies.” Does this make sense to you? This action merely sustains the failed policies of the past thirty years and emphasizes our “leaders’” (if you can call them that) lack of courage to act forcibly to solve our energy problem. It also exacerbates the dangers of global warming.

Ironically, on January 25 th, two weeks before the Times article ran, Part I of this series, published in last month’s issue, was submitted for publication. The last paragraph in the article read as follows: “Another detrimental factor resulting from the cheap price of coal is the current competitive relative cost disadvantage of alternative energy sources, despite the potential opportunities they might provide in reducing our reliance on foreign energy supplies, and their ability to help reduce undesirable emissions”. In addition, the article emphasized the failure to solve the problem by every presidential administration and every Congress over a thirty-year period.

Coal vs. Alternative Energy— The Paradox

Both the Times and Viewpointe articles underlined the fact that the use of coal to generate electricity is about one-third the cost of any other fuel, leading to its role in providing over 50 percent of the nation’s electricity. This relatively cheap price is indeed detrimental to the significant potential benefits of higher priced alternative energy sources (especially without subsidized government incentives) creating a huge obstacle in solving the problem of global warming. The U.S. Energy Information Administration projects that electricity demand will grow by 41% by 2030 — others predict a rise of 60%. Unless we can develop additional power plant capacity to fill that need, the economic and human consequences will be severe. Electricity blackouts could become the norm unless additional power plants are constructed. How do we balance relatively low cost coal-initiated electricity against the environmental degradation as well as the devastating impact on global warming caused by coal? Before we address that question, why is coal considered the “dirty fuel”?

The Union of Concerned Scientists concludes that one typical coal plant in one year produces the following emissions:
  • 3,700,000 tons of carbon dioxide, the primary cause of global warming.

  • 10,000 tons of sulfur dioxide, the leading cause of acid rain

  • 10,200 tons of nitrogen oxide, leading to the formation of ozone.

  • Plus several hundred tons of carbon monoxide, mercury, arsenic and lead.

A chemistry degree is not necessary to recognize that these are nasty emissions. The full impact of these numbers cannot be fully appreciated until it is realized that there are about 600 coal-fired plants currently operating in the United States. However that’s just a drop in the coal bucket compared to the fact (according to Wikipedia) that “the worldwide total of coal-fired plants [number] 50,000 and rising.” China alone is completing at least one coal plant a week and India is not far behind. Multiply the above emission numbers by 50,000 and the fast growing concerns about coal’s impact on global warming is understandable.

The Good News

Most surprisingly however, a sudden and drastic shift is roiling the electric utility industry. The pendulum seems to be swinging against the traditional coal-fired generating plant. There are several reasons. First, government officials, business leaders, banks and other lending institutions, scientists, and the general populace have awakened to the dangers imposed by carbon dioxide emissions, and its dramatic impact on global warming. As a result, it is assumed that in the very near future either a carbon tax or a cap-and-trade system will be imposed on carbon dioxide emissions adversely affecting the profitability of coal-fired plants. Several of our largest banking institutions have advised the utilities that they will not provide loans for coal-fired plant construction until legislation on this issue is passed. In a recent article, the Los Angeles Times summed up the situation, “…urgent questions are emerging about a fuel once thought to be the most reliable of all. Utilities are confronting rising costs and a lack of transportation routes from coal to generators, opposition from state regulators and environmental groups and uncertainty over climate change policies in Washington.”

As a result of huge demand, especially from China, the price of coal has doubled over the last year and continues to escalate. A number of utilities that were planning to build new coal plants have changed plans, moving to natural gas instead. All this has caused the utilities to cancel construction plans for 50 new coal fired plants in the last year, including five in Florida. Scrambling to replace the lost power, utilities are turning to natural gas plants, however, natural gas is more expensive than coal, creating electricity bills some 10% to 40% higher. On the other hand, natural gas plants are some 25% cheaper to build, and they emit the least amount of greenhouse gas of all fossil fuels. Natural gas, like oil, is not a renewable source of energy — its price is also escalating, and it too will peak at some time but there is no general agreement as to when.

Since there is a strong probability that some form of carbon payment will be required of the emitters of carbon dioxide, as well as increasing prices of coal and natural gas, what effect will that have on our energy choices, especially as it relates to alternative energy? That reminds me of the old joke about Morris who has had a bowl of chicken soup for lunch every day in the same restaurant, and has been waited upon by the same waiter for many years. This particular day, Izzy the waiter serves the bowl of soup but is soon called back by Morris who says to him, “Izzy, taste the soup.” Izzy looks dumbfounded, replying, “Morris this is the same soup I’ve served you every day for years. What’s wrong with the soup?” Morris repeats, “Izzy, taste the soup.” Izzy, annoyed now says, “Morris, the same cook made this soup from the same recipe he’s used all these years, there can’t be anything wrong with the soup.” Morris, without blinking an eye but a bit more demanding, once again says, “Izzy, taste the soup.” Izzy, now resigned says, “Okay, I’ll taste the soup. Where’s the spoon?” Morris says, “Aha!!!

An Alternative Energy Primer To Come

If the missing spoon is the Aha! of the chicken soup story, than Alternative (Renewable) Energy has been the missing ingredient when considering the full subject of energy sources. It is missing in the sense that while it has received lip service, there has been no real concerted effort by our federal government over past years — by neither presidents nor Congress — to actively and vigorously promote alternative energy. What has happened to the type of government intervention and encouragement that created the innovative Manhattan Project and the Space Program? These efforts were driven by monumental needs (none more so than global warming) that were met by actions predicated on scientific facts uncontaminated by vote seeking politicians influenced by lobbyists, as was the case in the ill advised legislatively mandated corn based ethanol program.

For the moment, with relatively little in the way of government incentives, it seems we are destined to learn whether a capitalist based free market will overcome government’s failure by developing a robust group of alternative energy sources in time to thwart an accelerating threat of global warming, and the plethora of negatives relating to existing fossil fuel sources.
The next few issues will address the pros and cons of the various alternative sources of energy such as Biomass, Hydroelectric, Nuclear, Fusion, Wind Power, Solar Power, Geothermal, and Hydrogen. Many have great potential, and some actually offer interesting investment opportunities. For example, the #1 (non-small) performing stock in 2007 was a solar company that increased in price over 800%. That subject might keep you interested.


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