An End to Fossil Fuel Subsidies?

Simon writes each week on international issues relating to energy policy.

Among the most recent grand ideas to emerge in the pre-Copenhagen scrum is this from the US administration. President Obama has thrown his backing behind a plan to ban all government subsidies of fossil fuels, everywhere in the world.

It is a plan with considerable merit. New forms of electricity generation are constantly called on to prove themselves economically - a difficult enough task without their fossil fuel competition receiving both implicit and explicit subsidies in many countries.

However, fossil fuel subsidies are used to achieve a variety of policy objectives, and their removal will leave governments having to work out how to replace them. In the developing world, especially oil-producing countries, though they distort consumption patterns, they can be a more effective way of transferring wealth to the population. After all, in nations bedeviled by corruption, the choice is often not between cheap fuel and other government services, but between cheap fuel and embezzlement. In non-producing LDCs, subsidized fuel is not a perk for the very poorest, but can facilitate simple entrepreneurial activity - being able to run a tractor to improve land's productivity or have a generator so a factory no longer depends on unreliable municipal electrical utilities.

In the developed world, meanwhile, programs such as the Low Income Home Energy Assistance Program (LIHEAP) in the US or Britain's Winter Fuel Allowance program, fuel subsidies are a standard form of redistribution to the poor or elderly. Abandoning these programs risks leaving vulnerable communities bearing the brunt of switching to more efficient energy production.

Meanwhile, the tax breaks, competition protection and generous regulatory environments that western governments offer for a variety of industries, including oil and gas exploration and drilling, electricity generation and utilities could all come under pressure from the new agreement.

I think the idea is a good one - removing government subsidies for big business and polluting fuels is a necessary step towards leveling the marketplace for energy production and nurturing the next generation of energy solutions. However, as with almost all the big ideas in energy these days, the political obstacles are going to be large, with influential industry and citizen groups both being affected. Having resolved the question of what to do, it'll be interesting to see how to make it happen.

You have a nice day too, Mr. Friedman

I've been mulling over an Op-Ed by well-known economist Thomas Friedman for the past few days. To summarize, Mr. Friedman visits Applied Materials' Silicon Valley headquarters and bemoans the fact that all of their solar panel production facilities are located abroad (in Germany, Taiwan, Spain, Italy, Abu Dhabi, India, and China, to be precise) and therefore the U.S. is doomed to become an importer of solar panels from China, thus repeating the vicious cycle of being beholden to another area of the world for our energy needs for decades to come. Well, there it is. Global competitiveness: doomed. National security: doomed.

Fear not. As you may have gleaned from my tone, I don't entirely agree with Mr. Friedman's assessment of the situation and here's why:

One of his major points is that the solar industry needs clear and stable policy signals and he references Germany's feed-in tariff system as a way to do that. I completely agree but Mr. Friedman is putting his cart (solar PV) before his horse (the electricity grid). Any major policy effort to increase significantly the amount of variable electricity generation feeding into the grid will first require an overhaul of how the grid operates and interacts with external power sources. This needs to happen first. Even more challenging will be your average Joe Megawatt who wants to sell his excess power back to the grid: this isn't The Gap, people, returning electricity isn't free. It takes extra modifications and operational planning. If all of this isn't optimized then feeding in Mr. Friedman's "zero variable cost" renewable energy could cost more in terms of dollars and emissions than the "do nothing alternative."

Another problem I have with the article is his singular focus on solar PV and sometimes wind. He states, "The world is on track to add another 2.5 billion people by 2050, and many will be aspiring to live American-like, high-energy lifestyles. In such a world, renewable energy — where the variable cost of your fuel, sun or wind, is zero — will be in huge demand." Not true. Energy will be in high demand, and most people won't be thinking about whether it came from a solar panel or a nuclear power plant. So let's not lose focus on the big picture and all the other options (carbon capture, nuclear power, geothermal, hydro) out there for providing low-carbon reliable, baseload electricity. And let's not forget that many of these low-emissions alternatives to solar panels are being developed and built right here in the USofA.

The Hydrogen Challenger

A couple days ago I was cruising the internet and stumbled across something interesting: the Hydrogen Challenger.

The Hydrogen Challenger is a tanker ship that has been refitted with wind turbines and an electrolyzer to make hydrogen. The ship cruises out to the open sea where the wind blows the hardest, anchors for awhile and fills up with hydrogen, then cruises back to port and unloads the hydrogen.

At first I thought this was a weird idea cooked up by someone with too much money, or maybe another Rainbow Warrior. But at a second glance, I think it may be an idea ahead of its time. Compared to the most similar alternative, offshore wind turbines, it has several advantages.

Higher wind speeds: The best wind resources on land are about 9 m/s. A mile or two offshore, where offshore wind turbines are located, the wind blows at about 13 m/s. The Hydrogen Challenger can go further from the coast than offshore turbines, where wind speeds approach 20 m/s. The power delivered from a wind turbine increases by the wind speed cubed, so the same turbine could deliver almost four times the power if its on the Hydrogen Challenger instead of stationed offshore.

Higher Capacity Factor: A wind turbine only generates electricity when the wind blows, and when people want to buy its electricity. A lot of times, turbines generate power when it isn’t needed, such as at night, so the power is wasted. The Hydrogen Challenger stores energy in hydrogen, so the generated power is never wasted.

Storage and Markets: Unlike electricity, hydrogen can be stored in large quantities and for long periods of time. Storing energy in hydrogen allows the generator to sell power only when and where the price is highest. This means that every kWh of hydrogen energy is much more valuable than a kWh of electricity.

Transmission: Although it seems impractical to retrofit barges with wind turbines, I bet it is cheaper than running undersea electric lines to offshore power turbines. Undersea electric lines are very expensive, ranging from $20,000 - $80,000 /MW-km. Sources say transmission costs are 10% - 20% of total cost for offshore wind farms.

I think the Hydrogen Challenger is a good idea that we’ll see more of in the future, but there are some problems that will need to be addressed:

Electrolyzer cost / efficiency: Electrolyzers are expensive and inefficient (~70%).

Storage: To generate as much power as possible, the barge should stay at sea generating power as much as possible and minimize unloading trips. A barge may not have enough volume to store the amounts of hydrogen generated.

Wind Speed: Curiously, no commercial wind turbines today can handle the 20 m/s winds hydrogen barges would see…most max at 13 m/s.

Shipwreck!: The top heavy barge can't capsize in a storm.

An interesting concept. What do you think…will we see fleets of pirate turbine-barges trolling the open seas in the future?

Innovative idea of the day: space-based solar energy

While the idea of capturing solar energy in space and transmitting it back to earth has been around for decades, it seems the idea is gaining traction in Japan as well as within the U.S. government (see the topic mentioned on the change.gov website here and the 2007 National Security Space Office report here).

There are a lot of potentially interesting hurdles to explore with respect to this extremely nascent technology, but I'd like to focus on the contrast between the Japanese and U.S. approaches to space-based solar for a minute.

First, notice the dollar (or yen) figures involved. The U.S. has spent $80 million over three decades studying the feasibility of space-based solar (SBS). Japan has committed the equivalent of $21 billion (over 260 times what the U.S. has spent) to develop and build a SBS station over the next three decades. So it seems likely that if SBS ever becomes reality, the U.S. will be an importer (and whether that's bad is another discussion on global competitiveness I can save for a later date).

Also, Japan has immediately brought its heavy hitters to bat for this technology, while the U.S. allocated a study to DoD's obscure (but nonetheless effective and important) National Security Space Office. In sum, the U.S. ought to get its proverbial toe out of the water and decide whether to dive in with Japan or go find another pool to play in when it comes to advanced renewable energy ideas.