Finding the True Cost of Coal and Oil - The Feed-In Tariff

When it comes to renewable energy, the U.S. is a follower, not a leader. Our solar markets lag behind Germany, Japan, and other countries. We're addicted to cheap energy, primarily because the free market’s invisible hand is not just invisible, it’s also sometimes blind. Sometimes the cheapest option isn’t really the cheapest, which is especially true with polluting forms of energy such as coal and oil. They contain hidden costs, such as damage to the environment as well as dependence on unreliable foreign governments. These are the classic 'externality' case studies from Economics 101. And the classic solution to the classic externality case is that government steps in and 'moves the supply curve' over to reflect the true costs of the supply.

While many states in the U.S. have implemented net metering (which would allow customers to get refunds for providing their own clean energy), the Federal government just missed the chance to do more to encourage utility-scale renewable energy by failing to extend the tax credit for solar energy, which expires at the end of 2008. Meanwhile, European and other governments have been taking gigantic steps forward by implementing feed-in tariffs. A feed-in tariff essentially means that you get paid more than the going rate of electricity for each kWh of clean energy that you (or a utility-scale renewable plant) feed in to the grid.

Germany is the leader, having begun feed-in tariffs in the 90s. In Spain, the generator of solar or wind energy gets paid 5x the base rate of fossil-generated electricity for up to 25 years, after which the rate drops by 20% for the life of the system. And in Ontario Canada, the utility is obligated to pay 42 Canadian cents per kWh for solar electricity, roughly four times the price of retail electricity rates. And Italy has just passed feed-in tariff legislation that should spur huge market growth there for solar and other renewables.

So why hasn’t the U.S. government implemented feed-in tariffs? The answer may be lack of political will, or it may be the sheer strength of the Coal and Oil lobbies. Another reason may be that we rarely look to our government to solve our problems. Here in the U.S. we often bristle when someone suggests that government should solve our problems instead of the free market. We're too independent.

But in this case we may be wrong… I would argue that government action is needed. To demonstrate the point, what if instead of the government stepping in we brought in the lawyers (after all, what could be more American than that?)?

Imagine plaintiff attorneys across the U.S. banding together for the largest class-action lawsuit in history. Forget Big Tobacco, I’m talking about a multi-trillion dollar suit against Big Oil and Big Coal for global warming, and Big Oil for funding terrorism (I know, a bit sensationalist, but then again this is a lawsuit we’re talking about). Think about the trillions of dollars of damage that have been done to resources we all share, such as the earth, such as the air and the water, such as our lungs and our health. If we factored the price of that settlement into the price of oil and coal, maybe the gallon of gas would cost $10 or more, and the kWh of energy from coal would cost $0.40, not ten cents. Then our free market would wake up and build solar, wind, and even nuclear power plants by the hundreds. Then we’d ditch our 15 MPG SUVs and demand and buy the electric cars and plug-in hybrids by the millions.

But this is, for now, just a fun case study. A sturdy feed-in tariff enacted by the federal government, or by states individually, could accomplish the same results as that class-action lawsuit and help us avoid the future hidden costs of coal and oil.

Solar: V-shaped Christmas Gift

One of my goals in this blog is to avoid, as much as possible, the pitfall of overhyping every purported advance to come along in the alternative energy space. The reason this is a pitfall is that critics can then claim, "oh, that's really not going to change the game... a 10% improvement does nothing when you need to reduce the cost of solar by 67% to make it competitive with coal," and they promptly shift their focus elsewhere.

But I want to point out an article today as a good example of what I see as an overall trend in the alt energy space. In this article, researchers at Stanford claim that a relatively simple step, creating v-shaped PV cells, could increase efficiency of the cells by up to 50%. I find simple advancements like this fascinating not because they offer The Answer by themselves, but because the answer is going to come from a bundle of simple advancements such as this one. There may be ten different areas (shape of the cell, placement, mirrors, new cell technology such as CIGS, etc.) where incremental improvements will be made. Even if you only achieve 10% improvements in ten different areas, the cumulative effect can be massive, and in ten or twenty years we could see a world where people scoff at coal as being too expensive, never mind too dirty.

So without placing too much hope in any one of these advances, it's still great to see them happen.

Battery Technology - Nanotech Breakthrough

Plug-in hybrids and electric cars are the future, period. Why the future is not here has a lot to do with people's skepticism regarding battery technology. You always hear about limited range, size, and safety concerns. I've been of the opinion, however, that battery technology is going to improve, and when it does the economics of an electric car are going to be undeniable (see my post on how the cost of gasoline will soon outstrip the cost of the car, if it doesn't already).

That's why today's Science Daily article on nanowire technology is so exciting. Researchers at Stanford, led by Yi Cui, have come up with a new structure for lithium ion batteries using silicon nanowires as opposed to carbon for the anode. This allows the battery to store up to 10 times the charge of existing Li-ion batteries, and the nano-structure prevents the degradation of the silicon.

This would represent a geometric improvement in the capabilities of batteries, a technology that's already quite close to making electric cars feasible. This kind of breakthrough is what's going to make the electric car a no-brainer. Obviously there's going to have to be testing done on a battery like this, but improvements like these leave me optimistic that the battery technology will improve, and the electric car will have its day. If I were a big auto manufacturer I'd invest a lot of money now to get a head start on this market.

The Energy Bill Passes - A Great Step in the Right Direction

Good news. The energy bill that included the biofuel mandate I talked about last week passed the House today, 314 to 100. This is an excellent step in the right direction, partially because of the biofuels, but also because it includes the first big boost in fuel economy in 32 years, from 25 MPG to 35 by 2020. Obviously, if your chief issue is the environment you're pretty happy about this.

But if your chief issue is the economy or homeland security, you should also be ecstatic. Here's why:
We use 9.2 million barrels of oil a day for transportation, which equals roughly 65 billion gallons of gas a year. If the average MPG is 25, that gas gets us 1.6 trillion miles. But with a MPG of 35, we can travel the same distance for only 47 billion gallons of gas, saving us $56 billion per year, not to mention the 374 billion pounds of CO2 we won't pump into the air each year.



So one way to think of this is as a $56 billion per year TAX CUT. That's a ton of money that the average Joe and Jane will cycle back into other goods in our economy, and not into the hands of governments that hate us.

NanoSolar Hits a Milestone

I blogged before about NanoSolar's exciting prospects, and today they announced that they've shipped their first product and received their first check of product revenue.

In their announcement they make the claim that they'll be able to produce at $0.99/watt, which is on the way to the $0.30 they predicted before. If you'll recall, my calculations used a more conservative $0.60 and showed that they were on track for utility-scale power generation competitive with coal. So their claim today of $0.99 is a big milestone.

Funny enough, you can buy one of their first commercial panels on eBay. It's up to $7,350 right now. If they could just get that much for each panel, that'd be a pretty profitable model...

The Biofuel Mandate - Offsetting 25-55% of the Oil We Use for Transportation

I haven't discussed biofuels yet, partially because I'm pretty clearly excited about electric and PHEV vehicles. But it would be a mistake to think that electric vehicles or plug-in hybrids are going to come in and gain the whole market right off the bat. Their introduction may certainly be encouraged by rising oil prices, but you could say the same thing about biofuels. So what about biofuels? What does the market look like?

Well, it looks pretty huge is what it looks like. This article discusses the pending legislation that would mandate the use of 36 billion gallons of ethanol motor fuel by 2022. 36 billion gallons at a few bucks a gallon could mean this is a $100 billion market. And since 21 billion of those gallons are supposed to come from advanced biofuels (e.g. switchgrass, cellulosic, and my favorite, algae) there's a very large market that's being invented right now. That's a space I'd bet on.

That article also claims that 36 billion gallons equals 15% of U.S. gasoline consumption. My calculations show that it's actually between 25% and 55%, depending on how many gallons you can get from a barrel of oil. I've seen 19.5 quoted a lot of places, which would mean that 36 B gallons a year replaces 5 million barrels of oil per day. Since we currently use 9.2 million barrels/day for vehicle transportation, that would mean we're replacing 55% of the oil we use for transportation.



But this article from the AP claims that our 9.2 million barrels of oil per day equals 388 million gallons. That's more like 42 gallons per barrel of oil, which means biofuels would replace 25% of the oil we use for transportation.



Either way, biofuels will be a big market, and will go a long way toward getting us off foreign oil. If electrics and PHEVs can meet them halfway, the future is looking good on the independence from foreign oil front, and pretty darn good on the greenhouse gas front.