Over Labor Day I took my wife to Las Vegas for her birthday to see the Cirque du Soliel show “O”, the Hoover dam and experience Vegas. She’d never been before. And it is a milestone birthday. We had a nice trip. The “O” show is all it is said to be. Another spectacular event! The hoover dam is an amazing 80 year old structure, designed to hold water for Arizona, California and Nevada, as well as make some power. Of course all three have long outgrown the reservoir. And the level drops each year to where it is 300 feet below its height less than 15 years back. A colossal feat of engineering that led to huge development in the arid west. The nearby Boulder City was created to build the dam. Las Vegas would not exist without its water. Water in the desert! The Anasazi’s would be amazed.
Power costs are stable. Gas prices decreased markedly in 2014 Oil futures are low compared to 2013 and earlier. . Production is constant. Low energy likely is fueling an economic expansion. Gas economy in vehicles is at an all-time high. Fuel efficiency lowers GHGs and cuts oil imports. America is less reliant on foreign oil. We have more money in our pockets. Utility power costs and vehicle costs are lower. Generator operations are lower. Life is great. Or is it?
Well, that depends on who you talk to. Politicians in states with in oil and gas based economies are scrambling to deal with large deficits in their budgets. The railroads are not happy over the Keystone pipeline vote. Green energy manufacturer are unhappy. Environmentalists are unhappy. Heck even the Koch brothers are probably not completely happy
The first issue is methane gas. Pipelines and fracking operations lose about 6% of the gas. A Washington Post article estimates 8 million metric tons of methane is lost each year. That is where we are trying to capture and transport it. The Bakken fields lack pipelines for gas, so much if it may be flared. The amount of fracking will continue (Florida Power and Light has said it will get into the business – but outside of Florida), so more exploration will likely lead to more methane escaping. Why do we care? Methane is 22 to 80 times the greenhouse gas that carbon dioxide it (depending on who you talk to). It accounts for 9% of GHG emission in the US – a third of that from the oil and gas industry. That gas is concentrated in the western US which makes them ripe for regulation.
Enter cap and trade. The cap and trade “industry” has been opposed by the oil and gas industry for years. However there are a number of groups –from Indian tribes to NextEra Energy are posed to benefit from cap and trade (C&T) rules. They have reduced their carbon footprint enough that they can sell carbon credits. It is doubtful that this Congress with pass C&T legislation, but much of the regulatory focus could be shifted if C&T was in place. C&T could accelerate green energy efforts.
Green energy folks want continued subsides or policies that encourage increased green power supplies, improve technology and reduce prices – all at the same time. Rolling out a major change in the energy picture is a huge investment that will not gain traction without policies to encourage it At least for now, green energy creates more jobs per KW-hr than conventional oil and gas, primarily in research and development and product manufacturing. Sewing up the patents would portend positively for America in the 21st century, much as sewing up the car, gas engine, and nuclear patents did for the 20th century. He who owns the technology should benefit. Unfortunately that isn’t the Koch brothers who are unhappy with green energy but are happy that lower oil prices might decrease the competition in the future when oil prices inevitably rise. But America would be better off in a non-oil based economy in 50 years if we developed an energy policy to address these issues with a long-term view.
However, that would take a lot of business and political leadership to overcome some of those who do not want change. These are people who have more money than the Concord coach makers who could not fight the technology change to automobiles in the early 20th century. It also takes a vision of what America should look like in 50 years. We might be short on those visionaries. And how will utilities be a part of it.
Musing – Sierra magazine reported that 90 companies are responsible for 72 percent of the greenhouse gas emissions in the world,. Among the top 10 are Chevron, ExxonMobil, BP, Shell and ConocoPhillips (1,2, 4, 6 and 9 respectively).
So what does this mean for water and sewer utilities. First, we’d love to stay out of the fray. Water and sewer utilities recognize that they are the “peak” power supply for electric utilities. The means to expand power supplies is made difficult by the rules for capital recovery for power utilities that penalizes peak and redundant power supply construction. It must be used and useful to qualify for a return. Hence NextEra builds inexpensive, small increment renewable wind systems to be made whole and encourages residents to reduce demands so they do not need to build more large scale capacity. That works as long as access to renewables or increases in efficiency are available. The use of federal subsidies encourages the used of new technology but without the subsidies, expect the construction to slow.
The European Union is looking to phase out renewable power subsidies by 2017, which may have fairly significant consequences for the European renewable market. The Koch brothers and the Tea Party operatives they fund through many organizations like the Institute for Energy Research, Americans for Prosperity and the Heritage Foundation, are fighting federal tax credits for wind, while backing tax credits for oil and gas. Why do the Koch brothers keep showing up? Because as we noted in a prior blog – they stand to lose profits if the US depends less on oil and gas IT si a problem with big money interests using that money for self preservation as opposed to progression of technology and ideas.
Think what would have happened 100 years ago if big money was allowed to control progress. And I have just the perfect scenario pitting two sides of my family. My mother’s great uncle made Concord coaches. As long as horse drawn carriages and coaches were the primary transportation options, they made money. OF course many cities and towns found that they spend much of their tax money cleaning up after the horses, one of the all-time yuckiest jobs. Tons of horse poop was cleaned up nightly on the streets on many cities. Images are available on line. Of course there was also the stench, disease, vectors, etc associated with all that poop.
Then came Henry Ford. My Dad’s side of the family were Detroiters. They got jobs in the Ford factories, and made money from services to autoworkers as well. The cities loved having cars – less poop. In fact Henry’s cars worked so well, that very quickly cities didn’t have to pick up poop. And the stench and disease decreased. Of course back then, my mothers’ family did not have the same means to buy influence to prevent Henry Ford from producing cars. My uncle went broke, but America and my father’s family in Detroit, benefitted greatly as a result of the new technology. I think we all benefitted from the automobile. Thankfully the coachmakers didn’t have money.
Using politics and influence to resist new technology seems unAmerican. Using subsidies to encourage is seems far more beneficial to society as long as those subsidies actually benefit society. Subsidies have long been a means for governments to alter consumer and corporate behavior and encourage new technologies. Subsidies for recycling steel, aluminum, glass, paper and other materials remained in place until the technology was cost effective to compete with new materials. Now recovered steel is cheaper than new steel materials. The subsidies had their effect. The same is true with aluminum and glass. Subsidies in the form of grants encouraged water and sewer utilities to upgrade treatment and install pipes to serve new customers. Now those are low interest loans because most of the cost effective connections have been made. It benefitted society.
Subsides have been used for years in the US and Europe to encourage renewable power use. The result is a reduction in renewable costs as more people invested in the technology. Greater supply means lower costs (economy of scale, and, theory of economic supply and demand), and subsides are designed to reduce purchase prices sooner than the market might otherwise. Otherwise most of these industries never get off the ground because they cannot get to cost effective production levels. Stay tuned.
Water limitations are a problem in many areas of the US and the world. Without water, the efficiency of power plants diminishes as the folks in Washington and California have found out when converting to air cooling their facilities. Losses can be 30% of output which makes that investment in upgrading to 40% efficiency, drop back to 30. Not a good investment, unless you have no option. In water limited places in the world, cooling water will limit the ability to use water-intensive coal, nuclear and oil facilities.
Nuclear power has been argued as a green option, but it is green only with respect to carbon production. Nuclear needs copious amount of water to cool the reactor. An while it remains an ongoing option, many are wary after the Japanese experience. There are 6 licenses in the US for nuclear facilities that expire by 2020, and 27 more by 2030. That means over a third of facilities are at their useful life. Creating second generation nuclear plants is a major, challenge at a financial and political level. For the most part China, Russia and India are leading the way with the US a distant 5th in proposed next generation reactors. We just don’t see a lot of nuclear reactors on the US horizon. Why? Renewable and gas.
The power generation picture has changed significantly in 10 years with respect to large increases in wind and gas. Renewables have increased from 2.4 to 6.5% of the market in 10 years (to 266 TWh). Wind has been the largest growth area (to 167 TWh) despite ongoing environmental issues associated with migratory birds, minimum wind speeds, and lobbying against wind projects (like Bill Koch did in Cape Cod) or the tax incentives used for renewables (like the Koch brothers continue to do along with Tea Party members in Texas). Wind energy costs have dropped by 40% in 10 years and today the majority of wind energy components are built in the US as opposed to overseas. The subsidies have made this possible by limited private capital risk. Nolan County, Texas alone produced more wind than the state of California, despite the ongoing lobbying against it in Texas. Texas has the largest “wind” reserves in the US and many in the public see the need to take advantage of the high wind areas like Texas ($25 billion to date, $13 billion proposed), the Rocky Mountains and coastal areas that do not conflict with migratory birds routes, landscape views or property rights issues. The Blackfeet Nation in Montana has long known that wind is a valuable resource on the reservation. Overall the state of Montana has the second largest wind potential behind Texas. But like Texas there is conflict – in Montana from the fracking industry. Note that the upper Rocky Mountains is where NextEra installs many of its wind fields. California has also gotten into the wind market with projects proposed in the Mojave Desert, although eagle conflicts impact those permits. However, uncertainty about the ongoing tax break , caused by inaction in the House, caused new wind projects to drop 92%, with a loss of 30,000 jobs in one year which creates questions about wind power expansion in the near future.
At the smaller level, combined heat and power (CHP) generation is located at 4200 commercial and industrial facilities today. States are interested. The demand is expected to rise to 40 GW by 2020. Solar markets are often local. Some communities provide incentives for residents to put panels on the roofs. Germany did this and now 25% of their power comes from these solar projects. 2% of houses in Arizona have solar on their roofs. In Hawaii, solar power is half the cost of generated power. However local solar has run into the same issue as wind power – this time the Koch brothers-funded American Legislative Exchange Council has encouraged local power utilities in 21 states to challenge laws that permit solar installations of houses as reducing profitability of power investments by those utilities. Others, like FPL still fund such installations creating and interesting conflict in the market.
Gas has replaced coal as the dominant source, both because of less greenhouse gases and because of much higher efficiency in source-power ratios. California, Texas, Florida and New York, among the four largest power demanding states, have seen natural gas use increase significantly in the past 20 years, virtually all at the expense of coal. Fracking has been the primary reason for the expansion of gas. High quality gas can be recovered from areas through horizontal drilling, but only 3-5% of the gas in the foundation is actually removed from the initial frack. Then the returns diminish to about 10-15% of initial withdrawal within 1-3 years, and refracking must occur to increase production. 100% of the gas is unlikely to ever be achievable. Still gas reserves are likely to be producers for some time, although industry experts expect the peak of current fracking technology in 2025, much sooner than some would hope. Despite there being over 2.4 million miles of gas pipelines in the US, the biggest issue with frack gas is pipeline absence in the big fields in Pennsylvania, Ohio and North Dakota. Refineries are starting to crop up in the Midwest and Pennsylvania to address the gas needs – which may reduce the need for longer pipelines and reduce loss (currently 6%).
Fracking is also a boon to the oil industry and the ability to recovery oil from tar sands in Alberta has increased the potential supply. Like gas, the problem is pipelines, but the lack of pipelines is a boon to the railroad industry, particularly in the Bakken Fields in North Dakota where abundant rail is available via BNSF (hence Warren Buffett bought it). Tank car demands are up to meet the 400,000 tank car loads of crude oil transported in 2013. Demands are expected to climb as new generation tank cars are built to minimize risks of hauling crude oil and coal tar sand products. Tight oil recovery is expected to rise through 2019, while a slow decrease is expected thereafter based on current technology. But note the lack of pipelines create a problem in getting the gas from North Dakota to useful markets. It is estimated that $1 billion per year in gas is flared in the Bakken fields alone. Pipelines and rail are needed, but both are controversial
The pipeline solution is varied and many. North American Oil and Gas Pipelines magazine sees a high investment in pipelines by 2020, with decreasing investments through 2035 as gas recovery drops. XL pipeline has dominated smaller pipeline projects designed to bring tar sands oil to refineries in Texas and Louisiana, but there are other spurs and different pipes are planned for different purposes. The obstacles are many – political, environmental, economic through a host of forces that either benefit directly from the pipelines or that benefit from not having the pipelines (think railroads). Of course a couple of recent rail accidents have created more controversy there, but rail is the current solution for many of these remote fields.
In this blog we are going to talk about trends in the power industry and how they may affect utilities. One of the ongoing themes of this blog is that to be leaders in the field, we need to be cognizant of what others are doing and how those actions might affect utility operations. Power is a big cost for utilities – often 10-15% of the total operations costs where a lot of pumping is involved. In most communities, the utility system is among the largest consumers of power, which is why many utilities have load control agreements in place – power companies can off-load power demands by having the utilities go to onsite generators. Our community’s building account for 70% or more of local energy use.
The need for power is expanding, albeit at a lower rate that population growth in many communities. This is because new building construction measures tend to insulate better and install more energy efficient equipment. Power companies often will subsidize these improvements to reduce the need for more expensive plant expansions. Where expansions are needed, purchase/transfer agreements or renewables are often a convenient answer.
But long-term we are seeing that the power industry is changing in other ways too. Already we see a migration away from coal for power generation. This was occurring before the new regulations were in place for carbon dioxide. Certain utility companies like NextEra, the largest wind and solar power generator in the US, and the parent of Florida Power and Light, have reduced greenhouse gas emissions from their plants by converting to other sources like combined heat and power (CHP), and increasing efficiency. The typical oil or coal power plant is 30-35% efficient, while the newer gas turbine systems are up to 45% efficient. That makes a big difference in costs as well as emissions when gas emissions are half the coal and oil emissions. NextEra is well placed for carbon trading, a concept some fight, but the US had been emission trading since the early 1990s, so carbon trading markets are already in place. The only thing needed is the regulations to put them into play. Buy that NextEra stock now and hope for carbon trading!
But NextEra is not the only likely winner under this carbon trading scenario. ExxonMobile is big into gas, Exelon is big in the nuclear power industry, Siemens and General Electric, which make wind and gas turbines, are also likely to see growth. All have poised themselves years ago as the impact of carbon dioxide becomes more apparent. Most of the industry executives acknowledge climate issues and recognize that people will expect the industry to do its part (the Koch brothers aside). Many power generators like ConEd and FPL are making changes as well, in advance of the regulatory requirements to do so. They see it as good business. They also see it as a means to make more power at a given facility (by increasing efficiency) while reducing water use. Water use can be a limiting factor, so we will discuss that in a couple days…
Let’s start with the basic premise of this conversation – fracking is here to stay! It doesn’t matter how many petitions you get in the mail, fracking is going to continue because the potential for gas production from fracking and the potential to fundamentally change our energy future, near or long-term, far outweighs the risk or economic and security disruptions from abandoning fracking efforts. It looks like there is a lot of trapped gas, even if the well exponentially decay production in the first three years, although many well can be recovered by refracking. It is an issue that residents and utilities need to accept. The question is really how to assess the risks to water supplies from fracking and what is what can we do about it?
There are a number of immediate regulatory issues that should be pursued, none of which Vikram Rao (2010) suggests are truly deal killers. They start with the disclosure of the fracking fluids, which for most legitimate companies that are fracking are relatively benign (and do not include diesel fuel). Baseline and ongoing monitoring of formations above the extraction zones, and especially in water production zones is needed. Research on water quality treatment solutions is needed because t may be impossible to completely eliminate escaping gas is needed. Requirements to improve and verify well construction and cementing of formation is needed in all states (they are not now) and recycling frack water and brine should be pursued to avoid impacts on streams and wastewater plants, which limits the loss of water due to fracking operation and the potential for contamination of surface water bodies. It will be important to push for these types of regulations in states like Ohio and West Virginia that need jobs and are likely places for fracking to occur, but they are also likely places where there will be political pushback that is afraid of discouraging job investments, but in reality this is unfounded. The gas is there, so the fracking will follow. The question is will the states implement needed regulations to protect the public.
More interesting will be the ancillary issues associated with gas and wet gas. A lot of by products come from wet gas, like polyethylene which can be used as stock for a host of plastics. “Crakers” are chemical processing plants that are needed to separate the methane and other products. Where will those facilities be located, is an issue. Right now they are on the Gulf coast, which does not help the Midwest. Do we really need to ship the gas to Louisiana for processing or do we locate facilities where the gas and byproducts are needed (in the Midwest)? The Midwest is a prime candidate for cracker location, which will create both jobs as well as potential exports. Also stripping the gas impurities like ethane, DEM and others needs to occur.
So what do utilities need to look at the potential impacts on their water supplies and monitor. If the states will not make the fracking industry do it, we need to. Finding a problem from fracking after the fact is not helpful. We need to look at potential competition for water supplies, which is in part why recycling frack water brine is needed. Eliminating highly salty brine from going to a treatment plant or a water supply are imperatives. Sharing solutions to help treat some of these wastes may be useful – something we can help the industry with is treating water.
We also need to look at the processing plants. We need to be looking at the impact of these facilities in light of water and sewer demands (and limitations). Wet gas facilities will require water as will plastics and chemical plants. Historically a lot of these facilities were in the Midwest and the research and skill sets may still be present. How can these industries can be merged into current water/sewer scenarios without adverse impacts. Communities will compete for these facilities, but good decisions may dictate that vying is not the best way to locate a plant.
But there is another impact to utilities and that affects green technologies. The cost of gas is low and looks like it will remain low in the near future. Low gas prices mean that renewable solutions like solar and wind will be less attractive, especially if federal subsidies disappear. Wind is the largest addition to the power generation profile in the last 5 years, while many oil facilities changed to gas. Cheap gas may frustrate efforts to create distributed power options at water and wastewater treatment plants throughout the country which can directly benefit utilities, not just where fracking occurs. So we need to be cognizant of these cost issues as well. And you thought the fracking discussion might not affect you….