2011 in Energy: The Year of...

At the start of 2011, I thought the hallmark of the year's energy events and trends might involve regulation, with the White House seeking to implement measures that couldn't garner enough support in Congress to become laws. But for every major new regulation issued, such as last week's release of the new Mercury and Air Toxics Standards for power plants, others were delayed or deferred, including the EPA's effort to regulate greenhouse gases under the Clean Air Act and the agency's proposed ozone standard. Outside of the utilities and other industry groups directly affected by these rules, it seems likely that 2011 will instead be remembered for big, unpredictable events like the Fukushima nuclear accident and the Solyndra bankruptcy scandal, along with several major trends that reached critical mass this year. Anyone attempting to pick the energy story of the year is spoiled for choice.

In my search for a catchy title for this year's final posting, I toyed with "The Year of Solyndra", "The Year of Shale", "The Year of Fukushima", "The Year of Exports", and various other combinations of the energy buzzwords that percolated into our consciousness this year. In some ways, they'd all be apt choices. Here's a quick rundown on why they might merit that kind of recognition, with links to previous postings providing more details on each:

• If 2011 is the year of Solyndra, it's not because of the possibility that the government's $535 million loan to the firm was the result of political influence (cue Major Renault), or even that the Department of Energy is unlikely to recover more than pennies on the dollar in the firm's bankruptcy. Instead, it's because Solyndra highlighted the much broader and deeper problems of a global solar industry that, despite continued demand growth that other industries would kill for, now faces overcapacity and the fallout from the winding down of unsustainable government support. Germany's Solar Millennium is just the latest victim of this trend. Along with BP's exit from the solar business after 40 years, it provides a further reminder that renewable energy firms must succeed not just as technology providers, but as businesses that can earn consistent profits and continue to attract investors.



• Shale gas was hardly new to the scene in 2011; it has been expanding rapidly for several years and now accounts for up to a third of US natural gas production. However, the controversy surrounding drilling techniques like hydraulic fracturing that make its exploitation possible became much more widespread this year, while some scientists raised questions about its contribution to greenhouse gas emissions. Shale gas has the potential to transform nearly every aspect of our energy economy, and probably sooner than renewable energy sources could. That has some folks nervous, while others are eager for shale gas to displace coal from electricity generation, compete with oil in transportation, and revive the domestic petrochemical industry. I suspect we'll see all of those to some extent, provided we don't regulate shale out of the running.



• The aftermath of Fukushima could prove equally transformational, though it remains to be seen whether the ultimate result is safer nuclear power or a global retreat from one of our largest sources of low-emission energy. All but 8 of Japan's 54 nuclear power plants are currently idle, and that nation must shortly decide whether it will eventually restart those units that weren't critically damaged, or shut down the rest and attempt to run its manufacturing-intense economy on a combination of renewables and much larger imports of fossil fuels. The German government's post-Fukushima decision to phase out nuclear energy entirely could provide an even quicker test of the same proposition.



• Another major shift that has been in the news recently involves exports. Although the US has long exported coal and various petroleum products, we could shortly become a bigger, more consistent exporter of many fuels, including liquefied natural gas (LNG), gasoline and diesel. As the reaction in a CBS news segment last week demonstrated, the US public doesn't know quite what to make of this, yet. Becoming a major energy exporter while still importing a net 9 million barrels per day of crude oil is very different than the picture of isolated self-sufficiency that four decades of "energy independence"rhetoric has evoked. We shouldn't be surprised that energy can provide a boost, and not just a drain on our trade balance. This topic requires more public discussion and education, before we see serious proposals to ban such exports--proposals that would make no more sense than banning exports of corn, tractors, or aircraft in an attempt to keep their US prices low.



• It's also tempting to call this the Year of Oil Price Confusion. The news media gradually woke up to the huge gap that had developed between global oil prices and the oil price that Americans tend to watch most closely, the one for West Texas Intermediate crude. Yet despite numerous stories on the storage and pipeline crunch and supply glut at Cushing, Oklahoma, few reporters and networks seemed able to follow through by breaking their old habit of treating the NYMEX WTI price and its gyrations as if it were still the best indicator of the overall oil market. Fortunately, the problem is in the process of being resolved, as pipelines are reversed and more tankage built.



• Finally, there was the administration's non-decision on the Keystone XL pipeline. Observers can read much into this, including the growing influence of citizen activists mobilized via social media. However, if it does nothing else, the Keystone controversy should put to rest the superficial fallacy that anything that improves greenhouse gas emissions is automatically good for energy security, instead of requiring difficult trade-offs. In that context, the prospect that the administration might ultimately turn down the permit for Keystone would be easier to stomach if the net greenhouse gas savings involved amounted to more than a paltry 0.3% of annual US emissions, based on the emissions from incremental oil sands production the pipeline might facilitate, compared to those from the conventional imported oil it would displace.

It was a busy year for energy, and if my short list of top stories missed something crucial, please let me know. 2012 promises to be just as interesting, with a Presidential election, in which energy issues could feature prominently, added to the mix. In the meantime, I'd like to wish my readers in the UK and Commonwealth a happy Boxing Day, and to all a Happy New Year.

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Deploying Extra Power for Japan

Just over two weeks after the earthquake near Sendai in northeastern Japan, which I'm increasingly seeing referred to as the "Great Tohoku Earthquake", the impact of the resulting disruption to various supply chains is being felt around the world. From car factories in Europe that rely on Japanese electronic components to producers of flat-panel displays and solar cells, several industries are feeling the pinch. This appears to be due more to the reduction in Japan's electricity-generation capacity than from actual damage to factories in the zone most affected by the disaster. With more power plants than just the troubled Fukushima Daiichi nuclear complex affected, the scale and potential duration of electricity shortages could result in a significant increase in the demand for smaller-scale generation, both conventional and renewable.

As reported in today's Wall St. Journal, the electricity shortfall resulting from the quake and tsunami is severe and affects both consumers and businesses. The Japanese government is exploring a number of emergency measures to mitigate the problem, including increasing electricity prices, instituting Daylight Savings Time, and calling on customers to conserve power. At the same time, the government appears to understand that Japan's scope for large-scale energy-efficiency improvements is limited. With an energy intensity in BTUs per dollar of GDP already 37% lower than that of the US, only the UK among large developed countries is more efficient. Efficiency and conservation will be helpful, but they can't cover the massive shortfall Japan faces now.

One of the most detailed analyses of the impact of the quake and tsunami on Japan's electricity sector that I've seen so far suggests that as much as 15,000 MW of generating capacity in the Tokyo/Tohoku region is offline and likely to remain so for durations ranging from a few months to several years--or permanently, in the case of most of the reactors at Fukushima Daiichi. This is something like 20% of the pre-quake generating capacity of the two main utilities serving the region, not counting the pumped-hydro storage capacity used for meeting peak demand. As a result, that part of Japan is experiencing an electricity deficit that will likely grow as the summer peak demand months approach, and that could persist even after the least-damaged facilities return to service. Nor can surplus power from southern Japan provide much assistance, because the northern and southern systems are relatively isolated from each other, with limited interconnections, and run on different frequencies--60 cycles for the south and 50 cycles for the north. Back-up and distributed generation appears to be the only real alternative to a protracted economic slowdown caused by insufficient electricity for Japan's businesses and industries.

We've seen this pattern before, if from different and less-catastrophic causes. In the early 1990s the Philippine grid was chronically unreliable, and many businesses bought or leased diesel generators to fill the gap, including barge-mounted units that could be brought in quickly and moved around coastlines and rivers as demand shifted. More recently, diesel demand in China increased substantially in the lead-up to the 2008 Summer Olympics, as the central government idled large, dirty power plants in order to reduce air pollution, and a number of factories chose to generate their own power, rather than shutting down.

For Japanese factories and other businesses facing the same dilemma, cost is unlikely to be the major factor in deciding whether or not to become more energy self-sufficient. Factory managers can often justify paying a lot more for power if their only other option is to slow production or shut down. They have several choices available, including some renewable power options, and I expect to see a surge in solar power installations. However, that's probably a better medium-term rather than short-term option, not just because the entire world didn't install enough solar panels last year to make up for the lost output of the Japanese nuclear plants, but because while solar can help with supply, it can't provide the reliability that is crucial right now. That makes diesel generation the leading contender to backstop Japan's idled power plants in the short term.

I can't speak to the availability of diesel generators, although I can easily envision suppliers and leasing agents scrambling to meet frantic Japanese orders. However, if enough generators are available to cover even 3,000 MW of the shortfall, running just half the time, they would require around 65,000 barrels per day of incremental diesel fuel, or roughly the entire diesel output of a medium-sized refinery. Whether that represented an increase in overall Japanese diesel consumption requiring additional imports would depend on the extent of the other economic consequences of the Tohoku disaster, and on when Japan's refineries return to normal operations.

So the use of diesel generators to make up for damaged or otherwise unavailable generating capacity in Japan could provide another modest boost to global oil demand, which already appears to have exceeded the record level set prior to the recession and financial crisis. And since much of that increased demand is for diesel, rather than gasoline, the impact of Japanese generation needs could affect diesel prices disproportionally. As a result, consumers around the world could see diesel prices rise, as the ripples from the events in Japan spread.

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Fewer Choices Post-Fukushima?

Even before the resolution of the crisis at the Fukushima Daiichi reactor complex--a crisis that has diverted media attention from the much larger humanitarian crisis caused by last Friday's tsunami--its consequences for nuclear energy policy are rippling across the globe. It is extraordinarily premature to form conclusions about these events, although that didn't stop many from arriving at similarly hasty and under-informed conclusions in the case of last spring's Deepwater Horizon accident. Pervasive instant analysis promotes knee-jerk responses. If the nuclear renaissance that had already been slowed by the recession and financial crisis was struck a fatal blow last week, what could that mean for our energy choices in the years ahead?

Although I want to focus mainly on the potential consequences in the US, what has already transpired in Germany provides a cautionary tale. As reported Tuesday, seven nuclear power plants of similar vintage and/or design to the damaged quartet at Fukushima are being shut down, at least temporarily, as the German government reassesses its decision to extend the operating life of the country's 17 power reactors. Germany hasn't been comfortable with its nukes for some time, though I find it remarkable that 70% of the population is apparently concerned that an accident that required an epic earthquake and a tsunami to trigger could happen there, too. (The next time someone lectures you about German practicality, this would be a fine counter-example to trot out.) However odd that reaction might seem to me and others with an engineering/hard science bent, it's a reminder that nuclear risks are viewed differently than many others, perhaps because radiation is invisible and insidious in its effects. Even if the reactors are finally cooled down with no further incidents and no injuries beyond the plant personnel, who have taken great risks for the public good, we will tend to focus on how much worse the outcome could have been.

Yet shutting down those nuclear plants in Germany is not without consequences, either, as noted by the Breakthrough Institute. Germany's greenhouse gas emissions will inevitably increase, because the country is already adding renewable generation as fast as it can and must make up any shortfall from fossil fuels. After committing an estimated €120 billion ($167 billion) for solar power through 2011, based on the 20 years of feed-in tariff support existing installations will receive, Germany still gets just 2% of its annual generation from solar, compared to around 24% from nuclear. That's mainly because Germany is such an unsuitable location for solar.

What about the US? Nuclear power supplied almost 20% of the electricity generated here in 2010, compared to 45% for coal, nearly 24% for natural gas, 10% for all renewables, and less than 1% from oil. Any notion of replacing the contribution of nuclear power in the longer term would require careful consideration of the energy sources that might fill the gap--based on scale and growth potential--and what it would mean for efforts to cut greenhouse gas emissions by reducing the generation of electricity from coal, which accounted for 81% of the emissions from the electricity sector and 26% of all US emissions in 2009. As for replacing nuclear power in the short run, that's simply out of the question, unless we want to bring on a recession that would make 2009 look like a boom year.

It's not that it's impossible to imagine a US energy mix without nuclear. After all, that's what we had on a much smaller scale prior to the 1960s. We certainly have enough coal and natural gas to take up any slack, although I don't think that would be quite the desired solution of those who would be most eager for an end to nuclear power. For that matter, a combination of geothermal power and concentrated solar power (CSP), the former baseload and the latter at least dispatchable, could also fill the gap, although a geothermal build-out on that scale would provoke concerns about "induced seismicity", while CSP would be largely a regional solution or require lots of very long-distance, high voltage power lines that present massive NIMBY issues of their own. Wind power, which until last year was growing at around 40% annually, could provide 20% or more of the generating mix by 2030, but it can't substitute for nuclear's central role without far more cheap power storage than we can reasonably expect to have available by then. And while solar has great potential, especially as its cost falls, it's no better suited to delivering reliable 24/7 power than is wind, and it is starting from an even smaller level than wind's 2.3% of generation last year.

The likeliest replacement for nuclear power in the US would thus be a combination of sources similar to our current non-nuclear mix, comprised of about 55% coal, 30% gas and 15% renewables, with some help from efficiency. On the basis of the average emissions from these sources, making up for the loss of the 807 billion kilowatt-hours generated by nuclear last year would increase US greenhouse gas emissions by around 580 million tons of CO2-equivalent per year, or 10% of net US emissions in 2009. That would hardly be conducive to meeting our Copenhagen pledge to reduce emissions by 17% by 2020, but then in a non-nuclear world most such pledges would have to be considered null and void.

Barring a worst-case outcome in Japan, I don't expect a groundswell in the US if favor of abandoning nuclear power--not even for the 35 reactors of generally similar design to the ones at Fukushima. Despite that, the emissions figures I calculated above remain relevant. Without a concerted effort to build new power reactors in the next two decades, the US will be on a sure path to de-nuclearization, as 41 of the existing plants would reach the end of their lives and operating licenses--many after a full 60 years of operations--by the mid-2030s. That process could accelerate significantly if the facilities that are awaiting license extensions now face much tougher scrutiny and are turned down in significant numbers. In that case we could lose up to 10,000 MW of nuclear capacity by the end of this decade, generating roughly the same annual output as our entire current wind power capacity. There are some who are already working to make that happen, either openly or more subtly. In that context the story on MSNBC yesterday listing US nuclear reactors in order of earthquake risk was either a public service or fear-mongering, depending on your perspective.

Whether we back away from nuclear power all at once, as Germany seems poised to consider doing, or one plant at a time, the result would be much the same: increased emissions, costlier and less reliable power, at least in the near-to-medium term, and more strain on infrastructure. I still think we'll choose to include nuclear in our evolving future energy mix, particularly given the significant improvements in the technology since the Fukushima reactors were built, along with the development of new, smaller-scale nuclear power options. Yet I have to admit my confidence in that result has been shaken by the reaction to the events in Japan.

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