GreenTech Opportunities - Wednesday, July 28, 2010
China Becomes World's Biggest Energy Consumer
“Powered by years of rapid economic growth, China is now the world's biggest energy consumer, knocking the U.S. off a perch it held for more than a century, according to new data from the International Energy Agency.
China devoured a total of 2,252 million tons of oil equivalent last year, or about 4% more than the U.S., which burned through 2,170 million tons of oil equivalent. The oil-equivalent metric represents all forms of energy consumed, including crude oil, nuclear, coal, natural gas and renewable sources such as hydropower.
The U.S. is still by far the biggest energy consumer per capita.”
GreenTech Opinion:
Three points need to be made about this milestone:
1)The U.S. is still the world’s number one consumer of oil, where it makes up 40% of total energy use. In China, coal absolutely trumps oil as the number one source of energy, with coal covering almost 80% of its energy needs (oil in China represents just under 20% of total energy use).
2)This leads to the related point: the reason for China’s massive coal consumption lies in the simple fact that the country has taken on the role as the world’s manufacturing centre. A full 33% of China’s energy requirements are taken up by the manufacturing of products for the consumers of the developed world, in Europe and North America. As Gregor Macdonald states: “China’s coal consumption is merely our own power consumption, offshored.”
3)Finally, China is responding to this by investing more in renewable energy development than any other country in the world in 2009. One of the companies we cover is involved in this development. If you’d like to learn more about this company, please contact us.
Is it Energy's Turn Now - A blog about Energy and the Environment
“With the overhaul of financial regulation nearing completion, some Democrats are hoping that Congress can turn to the next big legislative challenge – energy and climate change. There is no consensus yet what such legislation should include, but there is strong determination on the part of the White House and Democratic leaders in Congress to try to move something – anything – before Congress leaves town in August.”
“President Obama hoped to give the matter a boost this week by calling a bipartisan group of senators to the White House for a pep talk, but he canceled at the last minute to deal with a crisis in his military leadership in Afghanistan. The president is now planning to host the energy meeting on Tuesday.”
“The House, as usual, is one step ahead of the Senate, having already passed a major climate change bill including a broad cap and trade program designed to reduce emissions of heat-trapping gases last spring.”
GreenTech Opinion: We mentioned the slow progress of a Senate Climate and Energy Bill in our April issue. Although events have conspired to slow the Bill’s process even further in the meantime, signs have emerged this past week that we may yet see some positive movement by the summer’s end. We’ll end with a quote from Senator Kerry, “we’re determined to bring a bill to the floor of the Senate that we think is reasonable, makes sense, and that will help Americans be able to grab a hold of the future and not leave it to China and India and Brazil and other countries that are moving much faster than we are.” Here’s hoping…
Major Poll finds Strong Public Support for Global Warming Action
“The latest Wall Street Journal-NBC Poll found overwhelming support for comprehensive clean energy legislation that includes carbon pollution reductions. It also registered that cleaning up the BP oil disaster and energy reform is the number two priority of Americans. Finally, it registered another drop in support for the expansion of offshore oil drilling.”
GreenTech Opinion:
As Jon Stewart’s Daily Show so hilariously pointed out a few weeks ago, 8 presidents since Nixon have vowed to reduce the U.S. addiction to oil. Not one of the 8 presidents succeeded. One wonders if the Gulf of Mexico disaster is finally galvanising U.S. public opinion to the point where the political will becomes strong enough to affect real change. The latest polls show that the public support may finally be there.
Lawrence Roulston is interviewed on Business News Network's Commodities Report about the announcement from Environment Minister Jim Prentice that Canada will begin
phasing out its coal fired power generation.
The world's largest solar trade fair kicked off in Munich this Monday
with a day-long conference centered around developments in key markets,
namely Germany, Italy, France, the U.K. (whose place on this list is
questionable), the U.S., and perhaps most interestingly, India.
A new study finds optimism and expansion in commercial energy efficiency across the globe.
"While energy management is important in every country, some emerging
economies outstripped Europe and the U.S. when it came to how high they
ranked.
Existing legislation understandably ranked very differently by
country in terms of influence. It was most important for Europeans,
coming in as the third most important reason for energy efficiency, as
Europe leads in energy and climate legislation.
Comparatively, legislation ranked seventh in the U.S and Canada, eighth in China and fifth in India.
About two-thirds of global respondents expect energy prices to creep up in 2010.
Of those who thought energy prices were increasing, most thought they would increase by about 9 percent.
Most decision-makers thought energy or carbon legislation is likely within the next two years.
Chinese and Indian business leaders are the most likely to expect
legislation, with 97 and 95 percent respectively saying it was at least
somewhat likely, compared with 75 percent of those in the U.S.
About 40 percent of respondents globally think climate change
legislation will be at least a slightly greater risk than opportunity.
China, followed by Europe, championed a dose of optimism, with 22
and 19 percent respectively saying that legislation was at least more
of an opportunity than a risk.
No surprise, building efficiency is the top priority for those
looking to shrink their carbon footprint, with 34 percent saying energy
efficiency was their top strategy.
The second most popular method to reduce emissions was onsite
renewable energy, yet 18 percent of respondents said there was no
prioritization amongst different energy efficient strategies.
China and India are leading in putting money where their mouths
are, with nearly all of the respondents from the two countries saying
they have planned operating expenditures for energy efficiency
investments, compared to 73 percent in the U.S.
Companies are largely considering renewable technologies, with
solar electric topping the choices at 50 percent of respondents
considering incorporating it into existing or new construction. Solar
thermal was just behind at 42 percent, followed by wind at 26 percent.
And what to expect moving forward? As energy costs are expected to
climb, corporate leaders think that PV and lighting technologies will
see the most improvement in performance-to-price, with smart building
technologies and electric vehicles coming in third and fourth."
Wholesale Distributed Generation Will Deliver California’s Clean Energy Future
“WDG [wholesale distributed generation] delivers the most cost-effective renewable energy for California ratepayers. A CPUC [California Public Utility Commission] study that is being revised to reflect the current pricing of solar is expected to show that WDG is a better deal for ratepayers than the large central station projects that require transmission build-outs and suffer the inefficiencies of transporting energy over long distances. Hence, WDG is California's best hope for achieving its renewable energy goals cost-effectively and in a timely fashion. In addition, WDG can begin delivering tremendous economic dividends for California in the form of immediate job creation and increased tax revenue.”
“Since mid-2009, four WDG FITs have been implemented in North America: in Gainesville, Florida, the Province of Ontario, the state of Vermont, and the Sacramento Municipal Utility District (SMUD). These four FIT markets are either deploying renewables far faster than any other region in North America or are staged to do so soon.”
Peter Cox: Green Energy Finding Its Legs Source: Brian Sylvester and Karen Roche of The Energy Report 05/25/2010
"Green"
energy is clearly here for the long haul. People everywhere are
demanding new forms of clean energy, while governments decide how to
deliver it and companies seek ways to satisfy the need. The Energy Report talked with GreenTech Opportunities
Analyst Peter Cox about recent developments in the nascent sector and
the investment opportunities they're creating. Cox offers his exclusive
take on what's ahead and how to jump on what's coming down the pike.
The Energy Report: The April issue of your newsletter, GreenTech Opportunities,
says that while the broader markets have rebounded, the green energy
sector's performance over the past year has been muted. What are some
signs that renewable energy is now a legitimate investment sector?
Peter Cox:
One, wind is now the number one source of new electricity-generation
installations in both Europe and the U.S. and has been for the last
year or two. That's including coal, natural gas and so on. The second
is that wind energy is now so cheap that residential customers in
Germany and Texas are receiving rebates on their utility bills because
such a large proportion of their power is coming from wind.
TER: How is wind energy faring in relation to other energy sources?
PC:
Wind is the one renewable energy source that, currently, is competing
directly with coal and natural gas for electricity from new power
installations. Wind and natural gas combined accounted for about 80% of
new capacity added to the U.S. electrical grid.
TER: Does that mean the best opportunities for investing in renewable energy are in wind?
PC:
The problem with wind energy in the U.S. now is that you have a tax
credit, which is renewed every couple of years, but developers aren't
able to plan three, four or five years in advance because they don't
know if that 1.5 cent-per-kilowatt-hour tax credit is going to be
renewed. If you look at U.S. wind installations in the last few years,
there are these huge booms and then these crazy busts where you're
installing 4,000 megawatts (MW) at one point and less than 500MW a few
quarters later. The U.S. government lacks a long-term policy supporting
wind energy in terms of small direct subsidies and integrating wind
into the grid. Due to the current confusion, U.S. wind power
installations for 2010 look to be less than the 10,000 MW installed
last year.
TER: If the "green" energy sector needs subsidies to exist, how viable is it?
PC:
Let's start with a bit of history. The first treasury secretary of the
U.S., Alexander Hamilton, wrote about the importance of supporting
nascent industries. That holds true today. These new sources of energy
are competing with energy sources that have been around for 120 years.
These are economically and politically entrenched industries. The
traditional energy sources still receive large subsidies. According to
the White House's Office of Management and Budget, the U.S. could save
up to $36 billion between now and 2020 by reducing subsidies to oil and
gas. Between 2002 and 2008, the U.S. coal industry received about $17
billion in subsidies. Wind, solar and geothermal are not competing on a
level playing field. As long as you have the traditional sources of
energy receiving vast subsidies, it's difficult to make the point that
wind, solar and geothermal shouldn't receive subsidies as well.
TER: Tell us about some changes in the renewable energy sector during the last few decades.
PC:
In the last 30 years, thanks to support in Europe and a huge buildout
of these technologies, we've seen costs drop dramatically. In the early
1980s, wind cost about $0.30 per kilowatt hour. With good location and
current technology, we can now get to about $0.07 per kilowatt hour.
Solar power in the early 1980s cost $2 to $3 per kilowatt hour. In
parts of Arizona, California and the sunniest parts of Spain, solar
from photovoltaics (PV) can now cost $0.18 per kilowatt hour. The drop
in costs is only going to continue as far as we can see. And those
figures are unsubsidized—that is the pure cost of that electricity. I
think that is a very strong argument to become interested in these
industries because they are already at the point, or very close to the
point, of being competitive with traditional sources of energy. To put
those figures in perspective, residential electricity rates in
California average $0.16–$0.18 per kilowatt hour. Average electricity
rates in Europe are even higher, in the $0.20–$0.25 range.
TER: With subsidies, could renewable energy be even cheaper than existing sources?
PC:
Yes, perhaps in the longer term. We're already at the point where wind
is cheaper than coal and natural gas, as consumers in Germany and Texas
are finding out thanks to their rebates. In the early to middle part of
this decade, we will see solar become very competitive in a significant
portion of the U.S. grid. The same goes for Europe.
TER: Is that due to advances in technology?
PC:
The efficiency of solar cells has gone up 1% or 0.5% each year. Real
world efficiencies for the highest-quality mono-crystalline solar PV
modules are now around 18.5%. The price of the polysilicon—the main
ingredient in most solar PV panels—went from about $350 per kilogram
(kg) in 2008 to about $50/kg last year. There's a huge oversupply of
polysilicon. And manufacturing advances have continued.
TER: Your newsletter said that Chinese solar panel manufacturers are even looking to build plants in the U.S. and Ontario.
PC:
Part of that is because you have states and Canadian provinces with
solar PV support programs that require a certain portion of solar PV
panels to be manufactured in the U.S. More and more solar companies are
looking at previous manufacturing hubs like Michigan to retool
factories for these new forms of energy. At the same time, Linamar Corporation (TSX:LNR),
an auto parts manufacturer in Canada, sees a $4 billion annual market
for manufacturing wind turbine components and replacement parts. It's
already being done in Europe because of the huge market that's been
established there. The U.S. wind industry installed about 10,000 MW of
new generating capacity last year. When it comes to solar and
geothermal, the growth is there but their overall contribution to
energy supply isn't huge. However, four gigawatts (4 GW) of solar PV
were installed in Germany in 2009. As this growth continues,
traditional manufacturing hubs may well see new companies refurbishing
old factories.
TER: You talked before about
subsidies for renewable energy, which was a significant part of
President Obama's election platform. What's the likelihood that the
energy bill gets passed?
PC: Obama has said,
just like he did with the healthcare bill, that this is one of the key
points of his mandate. I believe in some form or another it will get
passed. How will it affect the green sector? There will be some form of
a cap-and-trade program initiated. This will put a price on the carbon
dioxide (C02) emitted by coal and natural gas energy utilities,
allowing renewable energy developers a certain confidence when it comes
to selling energy from a wind farm or solar farm to PG&E (Pacific
Gas and Electric Co.) or SCE (Southern California Edison) or any of the
other large utilities.
TER: How will consumers benefit?
PC:
The energy bill in the U.S. would ensure that two-thirds of
carbon-credit revenue would go back into the pocket of the consumer.
Coal and natural gas would become somewhat more expensive as users
start paying for the C02 that they emit with municipal utilities and so
on. However, as wind will likely play the largest role in new
renewable-electricity installations across the country, there is a good
chance that consumers in other parts of the U.S. will enjoy the same
rebates as their fellow citizens in Texas.
TER: Give us an overview of how this cap-and-trade system would work.
PC:
The U.S. already has a functional cap-and-trade system in the Regional
Greenhouse Gas Initiative (RGGI)—North America's first and only
functional cap-and-trade program. It starts with the utilities. They
get a carbon emissions cap placed on their power plants. If you go
above this limit, you have to buy some extra credits on this trading
platform. If, through energy efficiency advances or if, for example,
you shut down a coal power plant and move your production over to
something renewable, then you can actually sell these credits. That is,
if you are under your annual cap.
TER: The energy bill would essentially take the RGGI model and make it national?
PC:
Yes, but there would probably be some changes. The RGGI has an open
auction so the companies compete with themselves at the beginning when
the credits are given out, so the value of those CO2 credits is higher.
In Europe, the credits are just handed out to the power plant operators
(in the form of gifts). It undermines the program. We have yet to find
out exactly what form the national program would take. The
most-effective approach would mirror what you have in the RGGI.
TER:
Wouldn't that form of auctioning credits allow larger, more-profitable
carbon polluters to buy the credits at the expense of smaller,
potentially more efficient but not as profitable, companies? Wouldn't
you see some companies going out of business because they have no
carbon tax credits?
PC: The first part of the
program would be to put a cap on the level of emissions per operator.
If those efficient small companies are already below their cap, they'll
have an advantage because they can sell those CO2 credits. It is
certainly a complicated process to determine which companies and which
power plant operators get what cap; some utilities, such as SMUD in
Sacramento, have already worked very hard over the past decade to
improve its operations. It is hoped that this will be taken into
account when the caps are implemented.
TER: What body quantifies the emissions?
PC:
In the case of the RGGI, the various state governments have a role in
measuring and quantifying who is emitting what. To get more specific
about it, the RGGI CO2 Allowance Tracking System (RGGI COATS) is the
platform that records and tracks data for each state's C02 Budget
Trading Program. Then they determine a limit. It's not an easy process.
There is certainly a lot of thought that goes into setting cap limits
on emissions.
TER: How can investors make money on a cap-and-trade system?
PC: The company currently responsible for the RGGI auction program is World Energy Solutions, Inc. (NASDAQ:XWES; TSX:XWE).
Based in Boston, World Energy runs the RGGI auctions and the platform
for trading—and it's the only North American company that already has
the system set up and the experience to run both the auction and
trading programs.
TER: How does WES make money?
PC:
They get a percentage of each auction. Three percent of each auction
goes to them because they provide the platform for the government and
the power plant operators.
TER: What are some other companies that you're following?
PC: One of the companies we're following is Catch the Wind, Ltd. (TSX.V:CTW.S).
It is based in the U.S. and has a specific technology called "The
Vindicator," which is able to measure the wind 200–300 yards out in
front of the turbine. This allows the turbine to change its alignment
to the wind and gain about 10% extra generation, because it is ready
for the wind that's going to hit it rather than reacting after the
fact. Other wind measurement devices are placed behind the turbine or
behind the blades, so the turbine is always adjusting to what's already
happened rather than to what is going to happen. The technology is
based on that used in the military. It is currently being tested, but
it has been proven in certain locations in Nebraska and Canada.
TER: Is this game-changing technology?
PC:
It has the potential to make wind power in slightly less-favorable
locations more competitive with current electricity prices, as well as
providing all wind farm operators with increased revenues. There are
certainly locations around the world where wind still isn't competitive
because the wind isn't quite as strong or it's farther away from the
grid. This technology would allow these locations to become more
favorable for wind farm development. For current operators, it would
allow 10% extra annual gains on electricity generation. For anyone
operating in the utility sector, with its very tight margins, this is a
significant advantage.
TER: Which offers the most investment upside at this point—solar, geothermal or wind?
PC:
I see wind and solar as the most promising, both in the sheer technical
potential of both industries and the tremendous advances made in just
the last few years. I think geothermal definitely has its place and
will play a larger role. It is limited by the locations that are
available to developers. You can't just place a geothermal plant in any
location and hope you're going to get the required energy. You have to
find certain areas like Nevada or Iceland that have the geological
potential of generating energy. So I continue to see wind and solar as
the two main players on renewable energy's world stage.
TER: Are there any specific advances in either wind- or solar-power generation?
PC:
There's going to be more development in the solar thermal side, or the
concentrated solar power side, which is what you're seeing in Arizona
and California. This involves heating up a liquid (such as molten
salt), generating steam at 600⁰ to 700⁰ Celsius and, just like in a
natural gas or coal thermal power plant, you would generate
electricity. Plants are already operating in California and Spain, but
this is probably going to be one of the fastest-growing sectors in the
next few years.
TER: What are some renewable energy trends going on right now?
PC:
Some utilities are investigating various storage solutions, as they see
solar and wind power becoming larger parts of their installed capacity.
But is it going to be various batteries? Is it going to be capacitors?
Is it going to be compressed air or pumped hydro? A few examples of
this exist in Germany, such as the Waldeck plant.
TER: So, is this a case of determining the industry standard?
PC:
It's partly that. It's also about whether the storage technology
provides power for 15 minutes or more than 15 hours. Certain storage
technologies will be more effective in providing really short-term
power boosts, whereas others will be able to provide power over a
longer period. It's a question of what's going to be required. How are
those technologies going to work together? It's truly in the research
and development phase. For instance, UCSD (University of California in
San Diego) is just now closing contracts on new energy storage
technologies. It wants to replace diesel generators that are outside
the labs and install new energy storage capability.
TER:
Natural gas is considered a viable clean-energy alternative. We produce
substantial amounts here in North America. Given the well-publicized
glut of natural gas, is there an investment opportunity in this sector
right now?
PC: I would raise some questions
about that glut. There are reports from oil and gas analysts saying
these claims of natural gas reserves from shale gas will not turn out
to be what people are expecting. When we look at what's happened in the
Barnett Shale in Texas, which is the oldest shale gas development in
the U.S., companies were claiming these wells would last for 30–40
years. What we're seeing is more like seven to eight years. The
depletion rate is much faster and much higher than what we've seen in
traditional natural gas wells.
TER: Does that mean you don't see an investment opportunity in natural gas?
PC:
When it comes to renewable energy developers in the U.S., their
contracts are tied to the electricity price that comes from natural gas
power plants. One of the companies we're following, Magma Energy Corp. (TSX:MXY),
has seen its stock price drop, because natural gas has plummeted. The
price of natural gas is down 35%–40% in just the last year. The same
goes for wind energy developers in the U.S. Those developers that
already have power contracts in place for functioning wind farms have
seen the same in their stock prices. They've all been dragged down by
the price of natural gas. I don't feel that's going to be a long-term
situation. I think that might actually change during the summer. As the
price of natural gas starts to go back up, we'll see the same response
in some of these renewable energy developers.
TER: Does that mean you like Magma?
PC:
Yes, I do. They're now exploring possibilities in Chile. Chile has
recently come out with a policy that favors the development of
renewable energy—solar, wind and geothermal. Magma is exploring in a
country that favors developing new sources of energy. And CEO Ross
Beaty has an excellent track record of building companies. We see Magma
as a company that should provide investors with significant returns. I
think the stock has just been beaten down because of the natural gas
price; but I don't see that continuing for much longer. That combined
with new exploration in Nevada and Chile should provide investors with
some good opportunities.
PC:
We haven't looked at the installation sector yet. I think Acro has a
relatively good position in California, but they're not a Top 10 when
it comes to installers—most of which are the utilities. I think the
solar installation business will be very interesting, as more and more
states begin to introduce solar PV programs, whether it's California,
New Jersey or others. The ability of individual homeowners to put a
solar PV panel on their roof is rather limited. California has the
California Solar Initiative, which aims to install about 1,700 million
megawatts by 2016. This support program enables residential homeowners
and commercial businesses to install solar PV on their roofs by
providing a subsidy toward the installation.
The past decade has
seen tremendous growth in certain renewable energy technologies, with
both solar and wind experiencing average annual installation rates
around the world in the 30%-plus range. We're confident that as costs
continue to decline, these installation rates will continue. In
addition, we're following the emerging electricity-storage sector
closely and are looking to introduce a few of the leading storage
companies in the future. We're well aware of the challenges the clean
energy sector faces but remain confident that the coming decade will
present investors with impressive opportunities. This sector truly
deserves the attention of investors.
TER: This has been great, Peter. Thanks so much for talking with us today.
Peter Cox, analyst at GreenTech Opportunities,
brings a great deal of hands-on experience in the industry as well as
an international perspective. Upon graduating from the University of
British Columbia, Peter moved to Germany to pursue a career in that
country's emerging sustainable energy industry. During this time, he
completed an MBA in Energy and Environmental Management from the
University of Twente in the Netherlands. Following his degree, he
remained with the local energy company (Stadtwerke Hannover in Germany)
to continue development of a biogas project, which is now in production
based in part on Peter's thesis research. His work in Germany included
experience in other aspects of green energy, such as Europe's most
energy-efficient building standard, the Passiv Haus, and work on solar
photovoltaic projects.
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DISCLOSURE:
1) Brian Sylvester and Karen Roche of The Gold Report
conducted this interview. They personally and/or their families own
shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Energy Report or The Gold Report: Acro Energy.
3)
Peter Cox: I personally and/or my family own shares of the following
companies mentioned in this interview: World Energy Solutions, Catch
the Wind and Magma Energy. I personally and/or my family are paid by
the following companies: None.
"Green"
energy is clearly here for the long haul. People everywhere are
demanding new forms of clean energy, while governments decide how to
deliver it and companies seek ways to satisfy the need. The Energy Report talked with GreenTech Opportunities
Analyst Peter Cox about recent developments in the nascent sector and
the investment opportunities they're creating. Cox offers his exclusive
take on what's ahead and how to jump on what's coming down the pike.
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