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Commentary: Energy, The Ongoing Discussion

Posted By NAEP, Thursday, October 13, 2016

By: Neil Markee
Editor in Chief-Purchasing Link

Despite the contentious, maybe depressing, presidential campaign that has dominated the pages of both the New York Times (NYT) and the Wall Street Journal (WSJ) for months, issues related to the electrical power generation has found its way into print frequently.  Since our last posting, I clipped thirteen articles on that subject, which I thought should be of interest to college and university business leaders who are tracking climate change issues. Below, I have briefly reviewed five articles. If you are interested in the topic, you probably should read the entire articles, as they all provide much more detail.  

“The Messy Business of Clean Power” (NYT 7/14/16) is clearly all about money. David Gelles’ tale is about the tug-of-war between the desire to clean up the production of power and the need to cover costs and deliver the ROI demanded by investors at NRG, a company that is a major producer of energy on a national scale.  David Crane was NRG’s CEO, with previous experience in conventional sources of electrical energy and, according to the article, with enough interest and a record of action in clean energy to have become known as an environmentalist.  From what little we learn about him, he seemed to have close to ideal credentials for the job.

NRG owned some of the most advanced coal-burning plants in the industry, and solar-power plants as well. The modern conventional Segundo Energy Center on the ocean near Los Angeles is capable of serving the needs of something like 450,000 homes.  However, it was used only “occasionally,” when needed to back up large solar-farms in California.  The article suggests that Crane was happy with the mix, direction and pace but his stockholders were not, when the stock price fell 63 percent over a year and Crane was replaced by Mauricio Gutierrez, who also had previous experience with conventional power generation.

Interestingly, Gutierrez had been Crane’s Chief Operating Officer before replacing him. Promoting an executive, from within, who is committed to the goals of his ousted processor suggests that the board may not have been as unhappy with the goals as they were with the process and timetable.  Reportedly, Gutierrez has scaled back some of the projects and streamlined the transition and the stock price has responded by increasing 40 percent since he took over.  Maybe a clear message has been delivered.  Stockholders will support investment in cleaning up the environment so long as those who manage the process keep in mind the basic absolute need to deliver the ROI needed to support the corporation. As I read it, stockholders were in favor of aiding the national effort to reduce carbon in the atmosphere by doing their share, but not at Crane’s price and pace.  The message sent by firing the CEO and anointing his second in command was probably, “Slow down and think bottom line.”

“Creating Their Own Green Sources” (NYT 8/24/16) describes an effort to reduce power costs while enhancing what management probably sees as the bottom-line value in Apple’s reputation for using brain power to overcome challenges and lead the pack. The article discusses the effort by Apple to produce the power needed to run its operations, both industrial and retail.  Apple’s goal is to become a green utility whose major customer would be Apple. According to the article by Diane Cardwell, “The motives may be as much economic as they are environmental.  As a wholesaler, Apple could reduce the cost of its electricity load, which reached 831 million kilowatt-hours in the last fiscal year – enough to power 76,000 homes for a year. But like a growing number of corporations, Apple is intent on reducing carbon dioxide emissions from electricity production, one of the biggest sources of greenhouse gasses that contribute to global warming.”  

Apple has established a long-term contract with a commercial source of solar power, but was not prepared to disclose what it had agreed to pay for power.  However, Lisa Jackson, the former administrator of the Environmental Protection Agency and now Apple’s executive responsible for global environmental policy and social issues, had previously disclosed the cost was less than previous commercial rates and the company expected to, “…save hundreds of millions of dollars over the life of the contract.” Apparently, corporate generation of green power primarily for their own is growing in the U.S.  The article noted that production had doubled annually since 2013 and pointed to shareholder and customer pressure.  In practice, recorded amounts of solar power or other power from renewable sources is fed into the national grid at the point of generation, joining power generated by other means such as coal, oil and gas, and the amount is credited when power is drawn from the grid as needed.  The actual power withdrawn might have come from any source, but the company gets credit for the green power they contributed to the system.

Depending on a host of variables, their investment in green power may pay off in both dollars and corporate image.  The effort this could prove to be a very cost effective way to offset their inevitable negative impact on climate change. Clearly, Apple is responding to shareholder/customer pressure. 

“Big Oil Changes Its Focus” (WSJ 9/14/16) is an account of how large, well-managed oil companies are adjusting to deal with changing market-conditions long-term. They have found themselves with a glut of natural gas, an obviously useful product, and are working to find ways to profitably service the pent-up demand, immediate or potential.

Sarah Kent’s article focuses on the economics of Liquid Natural Gas (LNG). ”Natural gas now accounts for about half of the production of most of the world’s biggest oil companies and is expected to dominate new output in coming years.”  The major oil companies are focused on finding new power generation markets for LNG in third-world companies and seeking to become a more important player in the transportation area at sea and ashore. They seem more than willing to invest in infrastructure to provide the opportunity. If they are successful, and developing countries increase their natural gas consumption and their standards of living, many would see that as a good outcome

As ever, there may be a down side. More industrial activity and a rising standard of living in developing countries fueled by a shift to natural gas might net more carbon emissions globally, even as it replaces energy sources that are less efficient. But there is no mention of the net positive or negative outcome resulting from a substantial increase in the consumption of natural gas.

Growing Power of Managing Energy Demand”  (WSJ 9/14/16)  by  Bill Spindle is about matching the ups and downs of power demand with the ups and downs of power generation by actively managing production and  consumption.   Within limits, power output from traditional sources has been controllable enough to accommodate minor variations in demand and operators can bring on line or drop a turbine locally or elsewhere in the system to accommodate larger changes in demand.  But increased reliance on clean, green power generated by wind turbines or solar farms, has changed the game.  The operators involved can’t dial up more power if the wind drops or the sun is obscured.  They could, of course, switch to another wind or solar farm in another area, if one with enough reserve capacity were available.  Generally, wind and solar plants are less flexible than traditional sources of power. The goal of the company and industry featured in this article is to find ways to quickly reduce peak demand elsewhere to offset the spike increase they must accommodate.  They do this by contracting with many users, including home owners, to remotely reduce their power consumption briefly by shutting down equipment or by accepting reduced voltage. These partners in the effort are compensated by lower power costs. Technology has enabled the firms to manage the system much more effectively than in the past.  I haven’t heard or read much discussion of this within higher education but I’d be surprised if institutions, which can be major users of power in their area, have not considered participation to reduce power costs.

“Japan’s Shift to Renewable Energy Loses Spark” (WSJ  9/14/16) discusses the options available when nuclear power was swept off the table in Japan by an accident and how they opted to produce the power they must have when push came to shove.  Author Mayumi Negishi reminds us of the meltdown at the Fukushima Daiichi nuclear power plant five years ago, which shut down nearly all of the fifty nuclear plants that had provided roughly 30 percent of the country’s electrical power.  Nuclear now accounts for only 1 percent of the power generated.  You might reasonably think given the timing and the financial and technological resources available in Japan that clean low-emission power would be a major component in whatever was to succeed nuclear. That has not been the case.

Cost is, as always, one important factor and fossil fuels are plentiful and relatively cheap at the moment.  Safety is another.  The conventional technology involved is relatively mature and seen as reliable and safe options and they have long been the dominant sources of power in resource-poor Japan.

There are many suitable thermal sites in volcanically active Japan. But when a geothermal plant was proposed in one area, enough opposition was generated by concerns about safety to shelve the suggestion, until an exploratory well was agreed upon. When and if a project proves successful, the article estimates it would take a decade for the plant to become operational.    The construction of several other geothermal plants is under consideration.

Just about all large-scale, viable hydro sites have already been exploited in Japan, but not all, and that is a viable but limited new source.  Biomass production of fuels has been declared inefficient and harnessing wave and tidal energy is too costly, along with environmental concerns. A reduction in the subsidy provided to customers has result in a 25 percent reduction in new panels on homes in the last year or so. “Japanese companies now plan to increase the number of coal-burning stations in the country by almost 50% in the next twelve years, even as the U.S. and Europe shun the emission-heavy fuel.”

The bottom line seems to be that Japan must eventually return to nuclear power.  “Even with huge investments and strong commitments to renewable, a heavy reliance on nuclear power is the best way to ensure Japan’s energy security for the near future,” says Nobuo Tanaka, former executive director of the International Energy Agency and president of the Sasakawa Peace Foundation, “because it would reduce the countries reliance on fossil-fuel imports while renewable power sources are being developed.”  “Expanding renewable is important, but it needs to be twinned with a nuclear-power solution that is acceptable to the public,” he says.

A devastating accident forced Japan to find other sources to provide the 30 percent of their power previously generated by nuclear plants.   What has been their reaction?  According to the Federation of Electrical Power Companies of Japan quoted in the article, before 2011 Fukushima, 29.3 percent of the kilowatt hours generated in Japan came from natural gas. Currently it is 44.0 percent. Coal consumption went up from 25.0 percent to 31.6 percent. Oil, propane other gasses, hydroelectric solar, wind and other renewable stayed about the same and nuclear power decreased from 28.6 percent to 1.1 percent.

The U.S. is about as dependent on coal as Japan was on nuclear power  Other than gas, what viable options would be available to the  U.S. to provide the needed energy in the same five-year time frame as Japan, if on short notice we could not depend on coal-fired generation for more than 1 percent of our electrical power? 

I suspect many Americans take much the same view as the stockholders of the NRG Corporation.  They are interested in climate change and the scientific side of the discussion, but the level of their concern and their willingness to support the effort financially depends on how much is required, when, and their sense of urgency. Despite dire predictions, I don’t detect any pressing level of urgency in the U.S. or among the usual list of potential donor nations.   Self-interest, hopefully of the enlightened variety, will determine what is done and when. Scientific and economic are separate issues and I think they would be best served by separate spokespersons. Selling the scientific side of climate change is a relatively easy proposition when compared to selling the economic side.

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