America is waking up to the fact that we face a global energy crisis, and it isn’t just oil. This reality is further complicated by the inescapable fact of global warming. Both must be addressed as we consider future energy policies. It’s important to have an accurate understanding of the emerging energy market that WindFuels will be a part of and to understand what energy sources might compete with wind to power the RFTS plant. Moreover, because WindFuels is a long-term, big-picture development effort, it’s appropriate to devote a little space here to other concepts that have recently been advocated by others as possibly having the potential to make a contribution to addressing the energy and climate challenges.

The presentation WindFuels-alternatives presents some real numbers and hard challenges faced by the alternatives to conventional oil. More details and supportive materials are included in the sections that focus individually on the key economic issues in these alternatives (see the links in the column on the right). The best reference on the environmental impacts of the various alternatives is the recent review by Mark Jacobson of Stanford. Below, we summarize some of the key economic issues for competitive renewables.

We recognize that our presentations won’t make us many friends among the advocates of the alternatives that aren’t working economically. We’re sorry. That’s not our intent. The facts are simple. We are looking at a once-in-a-lifetime energy challenge. This challenge will not be solved by ignoring the economic realities. Global annual investments in alternatives from 2007 through 2010 were more than the investments in the dotcom bubble. However, the “anything renewable goes” bubble has burst.

The only “alternatives” that are making a significant contribution to our energy needs today are hydro, nuclear, wood burning, natural gas liquids (NGL), liquefied natural gas (LNG), tar sands, wind, and gas to liquids (GTL). The same will be true in 2015. Of these, only hydro, nuclear, wood burning, and wind are low carbon. Tar sands are extremely high carbon.

The various fossil-based Fischer-Tropsch and conventional synfuel processes are all environmentally much more harmful and more expensive than their advocates wish to admit. Currently, they release about twice the CO₂ of conventional oil. Even with on-site CO₂ sequestration, their use still contributes essentially as much greenhouse gases (GHGs) as petroleum-based fuels; and without on-site sequestration, they are environmentally disastrous.

The Bakken Formation – the massive rock formation underlying western North Dakota and eastern Montana – does contain an enormous amount of oil, as has been well known since the early 1970s. However, most of it will not be economical to produce. The US Geological Survey has recently estimated that a total of 3.6 Bbbl could technically be produced from these states over the next half century. That is about 15% of what the world currently uses in one year.

Price Trends for Oil and Agricultural Commodities Above: Oil price, Dec, 2008 through April, 2011 Below: Agricultural commodities since 2002

Production from the Bakken has increased rapidly since 2000 and reached 350,000 b/day by the end of 2010 – from hundreds of wells. More than a hundred major wells are currently being drilled, and production could triple over the coming decade before leveling off and then declining. However, this “tight, semi-conventional” oil field will have no real impact on the global picture.

Shale oil will not make a significant difference for at least the next three decades. . (The principal source in the Bakken formation is not oil shale, but rather dolomite between layers of oil shale.) Oil production from the Shell In-situ Conversion Process (ICP) will be about 2,000 to 20,000 bbl per well over its lifetime. For comparison, conventional oil wells often produce 10,000 times as much per well over their lifetimes. Moreover, the heater technology in ICP wells makes them much more expensive than conventional wells. Supplying half of the oil we import in the US from shale would require drilling wells at the rate of 50,000 per year for the next 40 years (while Greenland melts) – or using ATP, a process that is more expensive and environmentally far worse than the tar-sands oil.

Biofuels will never make a very significant contribution to transportation fuels. In 2010, their gross contribution was about 4% of the energy in transportation fuels globally, but their net contribution was only about 1%. A study by the World Bank concluded that biofuels alone have contributed 75% to the increase in the cost of food. The agricultural runoff from biofuels is also a major factor in the explosion in the number of dead zones in the oceans and their area has been increasing annually by an area the size of Texas. There will not be enough low cost cellulosic feedstocks available within 5 years for cellulosic ethanol to make a significant contribution. The cellulosic feedstocks will be mostly consumed by burning for home heating, as it is much more efficient. There will also be an increase in co-firing of biomass in electrical power generation. Cellulosic ethanol will reduce the amount of bio-carbon sequestered in soils and forest floors.

Both coal-to-liquids and synfuels from tar sands release 40-80% more CO₂ than conventional oil. Neither will be able to be produced with full on-site CO₂ sequestration for under $180/bbl after 2018. Tar sands could be supplying 10% of the global oil market by 2020. GTL and CTL combined may be contributing 2% by then.

Boone Pickens is right to be enthusiastic about wind, but natural gas (NG) is not a convenient automotive transportation fuel. It’s true that one very small (4%) component of NG, propane, has been fine thus far, but propane is going to become expensive over the next decade, as we explain in our LNG discussion. Methane in transportation is only a little better than hydrogen which has not proven to be helpful at all. LNG may be a good option for large trucks and heavy equipment in fleets that stay close to re-fueling stations, but that is a rather limited application.

Even though estimates of the available gas resource in the U.S. have increased about 35% over the past four years, NG is still a very limited resource compared to wind. We might have enough natural gas to supply 18% of our total domestic energy needs for the rest of this century. Our domestic wind resource can supply at least eight times our current total energy needs forever. There’s no comparison.

It is useful to note that most of the alternatives listed here (exceptGeo-Thermal/Concentrate Solar Power (Geo-CSP) hybrid and WindFuels) have been actively investigated for at least four decades. Several of these (micro-algae, fusion, and SBSP) are unlikely to ever make a significant contribution to our energy needs. A fatal flaw that plagues fusion, SBSP, breeders, and now even conventional fission is that tens of billions of dollars are required just to perform experiments to help refine some projections. For the US, China, Russia, Canada, the U.K., Australia, and Northern Europe, wind and WindFuels will ultimately be king. For some other countries, we’re most optimistic about wave energy, Geo-CSP hybrids, and next-generation nuclear fission.

Global Photovoltaic (PV) energy output will grow rapidly (~30% annually) for the next 3 to 4 years; but by the end of 2012, PV will still be generating only 60 TWhrs of energy annually, or 0.3% of total electricity. (World-wide total installed electrical generating capacity in 2005 was almost 3900 GW, or 3.9 TW, and it produced about 17,350 TWhrs of energy.) Growth in PV will likely slow dramatically after 2012, as capital investments have recently fallen.

There has been a lot of hype recently from the PV advocates about “grid parity” and “cheaper than coal”, but the facts are very different from the hype. Many of those with vested interests have defined “grid parity” as getting PV cell manufacturing costs per peak watt down to the cost of a coal power plant – or about $1.8/W_PE. Unfortunately, there are three major problems with this criterion, since it is the lifetime energy cost that matters most:

1. "Clean coal" and nuclear power plants operate around the clock, so they produce more than 5 times as much energy each day as solar PV of the same peak power rating. (Their capacity factors are more than 5 times higher than that of PV.)

2. The total costs of the PV power plant are 2.5 to 4 times the “cell manufacturing costs” reported by the manufacturers. (The larger plant-cost factors are seen for those reporting lower cell manufacturing costs.)

3. The PV manufacturers are often not yet providing lifetime data on their recent, lower-cost (and lower efficiency) thin-film cells. Some have degraded quite rapidly, and few are likely to still be above 70% performance after 25 years. “Clean-coal” and nuclear power plants, on the other hand, will usually operate near their initial rating for 60 years.

The energy costs from Concentrated Solar Power (CSP), PV, wind, geothermal, nuclear fission, thermonuclear fusion, and SBSP depend as much on capacity factor (F, the ratio of mean to peak power, averaged over the year), Operating & Maintenance (O&M) costs, interest rates, and lifetimes as they do on initial total system cost per peak watt (C_PE).

The costs listed below are recent, mean data. Levelized Cost of Energy (LCOE) were calculated for two different discounts rates, 5% and 10%, ignoring subsidies and inflation. The values for fusion are extrapolations for 2045 from the expectations for ITER and DEMO through 2035, and the energy cost assumes order-of-magnitude greater reactor lifetime than currently expected for DEMO in 2035. The other data are for 2010.

(We are aware that most of the above numbers are quite different from what can be found in the EIA AEO report published in the spring of 2009, but most of their LCOE calculations are based on very old capital costs and inaccurate lifetimes.)

The mean cost of industrial grid energy in Wyoming (the state with lowest grid power costs) in 2008 was about $40/MWhr. (For reference, gasoline at $3.60/gal is $100/MWhr.) From the above data, it is clear that only wind is achieving “grid parity” in the tough markets, and (however much we would wish it otherwise) PV is still a factor of six away from doing this. Of course, O&M costs for PV are much less than those for clean coal (especially as the cost of coal rises).

The above table also illustrates why we usually add the subscript “PE” (peak electrical) as a reminder after “W”. We think it’s important that the public understand that the “watts” reported by the PV industry are only worth one-fifth as much as the “watts” that have been historically reported by the power industry.

The costs of biofuels, including microalgae, are more difficult to project, as they depend more on the costs of fertilizers, farm labor, and diesel (all of which have a strong dependence on the price of oil) than on the ratio F/C_PE. Hence, they are not listed above. The capital costs of a cellulosic ethanol plant are greater than what is expected for a WindFuels plant (not including the energy source) of similar fuel output rate. Moreover, the input costs other than the energy for the WindFuels plant (waste CO₂ and water) are an order of magnitude lower than the feedstock costs will be for the cellulosic ethanol plant within six years. The energy input costs for WindFuels using off-peak wind energy will be very small for at least the next 15 years. In addition, the WindFuels plant produces a valuable byproduct (liquid oxygen, LOX), and it has no waste to deal with.

When corn is $8.40/bushel (as it may be by May 2013 – it was recently only a dollar shy of that), its cost alone will contribute $3/gal to the cost of corn ethanol. Plant capital and O&M costs will add another $1/gal.

If mid-grade cellulosic feedstocks are $300/ton in 2015 and the plant achieves 50% efficiency, the cost of the feedstock alone will be $4 per gallon of ethanol produced. Plant capital and O&M costs will add another $1.50/gal. Many cellulosic feedstocks were $20/ton when the push for cellulosic ethanol began in 2000. Some may still be under $150/ton in 2015, but not most – if there is a cellulosic-ethanol plant nearby. There will be explosive growth in the demand for wood (both raw logs and pellets) for co-firing and home heating over the next decade and beyond. These fuels can be transported long distances to the markets and easily distributed to the consumers. That is not true for switchgrass because of the low energy density of the bales.

Summary. No minor alternative source of fuel added to that from conventional oil can have much of an influence on the price of oil. Rather, the opposite happens. The price of conventional oil (plus carbon taxes) sets the price for any alternative that actually competes in the marketplace. Tthe price of conventional oil will continue to rise until there is sufficient global demand destruction or a substantial contribution from a cost-effective alternative.

We, like most Americans, have been impressed with Barak Obama – partly because he usually gets his facts right. Unfortunately, he has consistently gotten his facts wrong when it comes to what can realistically be expected in the growth rate of renewable energy. The notion that we can double clean energy production in 3 years, or even in 20 years, is poorly informed.

Global electrical energy production last year was 20,000 TWhrs. Of this,

15% was hydroelectric,
14% was nuclear,
1.0% was wind,
0.3% was geothermal,
0.08% was solar, and
0.00% was clean coal (with CO₂ sequestration).

Approximately 30% of global electricity today is clean. That percentage was similar 20 years ago, and we’ll be lucky if that percentage increases to 40% over the next 15 years.

The situation in transportation fuels looks much worse without quick and major investment in WindFuels. The carbon intensity of transportation fuels has been steadily worsening over the past decade, as tar sands and other high-carbon sources have grown from 1% to 5%. The net energy contribution of biofuels last year to liquid-fuel energy was about 1%; and when land-use changes are ignored (as it has been in all major studies by DOE), the contribution of biofuels to CO₂ emissions reduction was similar. If land-use changes are considered (as they must be), biofuels are probably leading to increased CO₂ emissions. This could be part of the reason the annual growth rate in global CO₂ emissions have increased from 1% to 3% over the past decade. The planet urgently needs a better transportation fuel than biofuels. WindFuels is the only viable alternative on the horizon.