Turn this ship around

She don’t corner so good, does she?

On Friday, January 13th, the cruise ship Costa Concordia struck a rock and capsized off the shores of Italy, at the tragic cost of 16 lives. A modern cruise ship is an impressive technological accomplishment. It takes huge numbers of tourists on voyages to beautiful parts of the world and makes a lot of money in doing so. But it doesn’t turn on a dime.

The large oil companies are similar. Since their rise to economic prominence in the late nineteenth century, they have accomplished some amazing feats of engineering. In 1862 the Shaw Gusher of Oil Springs, Ontario produced a flow of 3,000 barrels of oil per day from a reservoir only 60 metres (200 feet) below the surface. Today, oil is extracted in the harsh arctic conditions of the Beaufort Sea and Sakhalin Island, and using offshore structures such as Shell Oil’s Perdido platform which operates in a water depth of 2,438 metres (7999 feet) in the Gulf of Mexico.

But for all its mastery of modern technology, the oil industry cannot escape two facts. The first is that oil supplies are finite and shrinking – we are using up petroleum faster than we can discover more (see peak oil). The second is that the burning of fossil fuels is causing global climate change – an ecological catastrophe which could endanger the survival of most species, including our own.

The writing is on the wall. Sooner or later, the oil will run out. Though their stock may be trading at all-time highs (except for that of BP, which has foundered since the Deepwater Horizon disaster), in the long run, every oil company is doomed.

The various players in the industry have a stark choice: Reinvent or die.

What of the second option? Why not stick to the core business, ride the oil wave into the ground, extract every last drop of petroleum from every last reservoir, and then close up shop?

Companies are made up of people, and people facing oblivion are immune to logic. They are well aware of the proud history of the edifice their forefathers built. The idea that such a legacy could disintegrate on their own watch is unbearable. As the end nears, and the field narrows following a long string of mergers and acquisitions, the surviving players will create an exit strategy rather than letting their respective ships sink. They will not go gentle into that good night.

Reinvention can be done. IBM did it in the 1990s, recognizing that its future as a blue chip, Fortune 500 player depended on letting go of its self-image as a hardware company and embracing a new future as a services company. As of this writing, its stock is trading at a ten-year high.

The trouble with reinvention is that it isn’t always easy to see the next wave. It’s even harder to know whether the next wave is one that you’re equipped to ride. If you don’t have anything to offer, your best course of action is to hand as much cash as possible back to shareholders, and let them invest it as they see fit while you explore retirement options.

In the global market for energy, the next wave is clear. There are only two ways forward in the post-oil era. The first is nuclear energy. The second is renewable energy such as wind, solar, biomass, hydroelectric (including wave and tidal energy), and geothermal. This is not a dichotomy – both forms of energy can and will coexist, it’s just a question of how much of each. My money is not on nuclear, but I’ll save that for a future post.

The oil companies that choose reinvention can pick either nuclear or renewables. Nuclear is a non-starter – the oil business has nothing to offer other than capital, and as I mentioned above, it is more economically efficient to distribute that capital back to shareholders through dividends and share buy-backs. As for renewable energy, oil companies don’t appear to offer any synergy at first glance. BP got it wrong by investing in solar, as I wrote in last month’s post The Law of Conservation of Bad Ideas.  Wind, waves, and biomass look similarly alien to the petroleum business. Does this mean that there are no opportunities left, and that big oil will go the same way as the Costa Concordia?

Perhaps not.

One of the core competencies of the oil sector is drilling deep wells into the Earth’s crust. Another is the use of hydraulic fracturing, or “fracking”, to free natural gas from shale rock. The know-how associated with these technologies happens to be directly applicable to one of the most promising renewable energy options – geothermal.

Geothermal energy, through the technology of ground source heat pumps, has been gaining popularity for heating and cooling of buildings.  These systems simply use the mass of the earth as a heat source or sink. However, geothermal energy can also be extracted directly from the planet’s hot interior to generate electricity, through technologies such as flash steam, dry steam, or binary cycle plants.

Perhaps the most attractive aspect of geothermal plants is that they provide a  constant flow of power. As such, their power generation profile is very much like nuclear plants, and hence they present a credible competitor and alternative to nuclear power. Wind, solar, and even to some extent hydroelectric cannot provide so-called “base load” power without development of energy storage technologies. Geothermal is free of this limitation. The Geysers, a complex of 22 geothermal power plants in California, has provided the state with base load power since 1960.

Geothermal energy is most readily harvested along the fault lines where tectonic plates rub together and produce such geological features as geysers, hot springs, and volcanoes (not to mention earthquakes).  People living in these areas can console themselves that their dangerous environment also offers a plentiful source of energy. Geothermal plants provide over 10,000 MW of electricity worldwide.

Not everyone lives near a fault line. However, even far from tectonically active areas, the Earth’s crust still gets 1°C warmer for every 45 metres of depth (1°F per 70 feet). Deep drilling and fracking can be used to extend the regions that can be served by geothermal energy.

Fracking has its critics. It has been blamed for groundwater contamination, release of greenhouse gases, and even tremors. However, the most serious of these issues only occur when fracking in a fossil fuel reservoir. Take oil and natural gas out of the equation, and you remove most of the environmental issues associated with the technology. You also, as it happens, remove one of the primary motivations of environmentalists for resisting the technology – that it extends and expands the available reserves of fossil fuels, prolonging their impact on global climate. Fracking for geothermal energy production will never provoke the same ire as fracking for oil and natural gas extraction.

The petroleum industry has produced many impressive accomplishments over the last 150 years. Long after the oil is gone, that technology and expertise will still be needed. The sooner the oil companies start taking advantage of that, the sooner they can move beyond their past, turn their ship around, and chart a future for all of us.


One giant leap


Will that be one jump, or two?

I find hiking exhilarating. I love hearing the sound of the wind in the treetops, the birds calling to one another, the crunch of dry leaves and twigs underfoot. I love picking my way through some rugged ground, solving the puzzle of footholds and jumbled rock. I love coming to a clearing, and seeing a magnificent vista open up before me.

Most of the trails I hike are in well-managed conservation areas. Where there are watercourses – brooks, streams, even swampy areas – there are boardwalks and bridges to make passage easier. But sometimes you come to a stream and discover that the bridge has rotted out or washed away. You can’t tell how deep the water is. If you want to get across, you have to commit to one big leap. A double hop is not an option.

We are hiking a path from the old world of electricity generation to the new. In the old world, a small number of massive facilities consumed finite resources to produce power. On the way, they produced such nasty by-products as greenhouse gases (which cause global climate change), sulphides (which lead to acid rain), and nuclear waste (which remains deadly for thousands of years). In the new world, a vast number of tiny facilities will produce clean power from inexhaustible sources like sun and wind. Our hike is taking us from centralized to distributed, from finite to renewable, from brown to green.

Market pressures are already moving us along the trail. The fossil fuel supply is dwindling, forcing prices inexorably upwards.  Short-term shocks like a revolution in Libya or an embargo against Iran are enough to drive the entire global economy into recession. Wind and solar, once niche players used only where grid power was unobtainable, become cheaper with each deployment. As prices drop, the size of the market increases. Eventually the cost of new renewable energy facilities will be lower than the alternatives.

However, we cannot wait that long. The evidence is clear – our climate is changing, and human use of fossil fuels is the cause. The consensus is that long before market forces drive fossil fuels into oblivion, runaway climate change will have had catastrophic and irreversible effects. We cannot wait for the market. We must act now. We need to use government policy to speed up our hiking pace.

We need it even more because of the intertwined, complex technological systems that await us in the post-carbon era. As I mentioned last week, we will need to be able to generate power from renewable sources, store it for when the sun isn’t shining and the wind isn’t blowing, replace our internal combustion-based vehicle fleet with electric vehicles, and build a mosaic of tiny, intelligent, interconnected electricity grids to support it all.

That’s a pretty tall order.

Let’s take a look at energy sources first. Let’s say we have a coal-fired generating station. You might think we can just knock it down and build a wind farm in its place. However, it isn’t that simple.

The coal-fired plant probably isn’t conveniently located in an area with strong and steady winds. So the wind farm must go where the wind is. However, that is typically an isolated location with no nearby high voltage transmission lines. So now you have to upgrade the grid infrastructure to accommodate the wind farm output.

Then there’s the whole proactive-reactive thing. Electrons are electrons, but a wind farm supplies them very differently. The thermal power plant is dispatchable – when demand is high, you throw a switch and start it up; when demand is low, you shut it down.

The wind farm is at the mercy of air movements. When the wind blows, you take the power. When it dies, so does the electricity. The wind doesn’t adjust itself depending on whether power use is at its peak or its nadir. A wind farm will merrily churn out electricity even if nobody needs it, or the turbines may be stock-still on a windless midsummer day when all the A/C is running flat out.

You need a way to store up the energy produced during low demand periods, and retrieve it when demand outstrips supply. Once you have that nut cracked, you have a complete solution. But that whole chain of problems and solutions adds up to significant cost and complexity. It’s also a long way beyond the utility’s comfort zone.

The alternative is to abandon the idea of having one big power plant. Instead, you spread your generation capacity as far and as wide as possible. After all, the wind may not be blowing in my town, but it is somewhere else. This means that in wind power generation (and also in solar), bigger is not better. Concentrating generation capacity in one location does not manage the risk. It is far more effective to spread the wind turbines out across the landscape, ensuring that one small mass of still air doesn’t rob you of a big chunk of generation capacity.

As an added bonus, the grid likely won’t need upgrading. Since a single turbine produces a lot less electricity than an entire wind farm, it won’t overtax the wires. Much of the power generated will be used up in the local area anyway.

Centralized renewable energy only gets you halfway across the stream. As a policy maker, it’s not enough to encourage renewable energy. You need incentives for distributed renewable energy.

One policy instrument used extensively in the United States is the Renewable Portfolio Standard (RPS). This mandates that a certain percentage of power must come from renewable sources by a specified date. The problem is, the RPS has a built-in bias toward large-scale installations like wind farms and solar farms. If I can meet my RPS obligations by building a few big facilities, it’s a much simpler undertaking. However, it is storing up trouble for the reasons described above. It also means that once the RPS is met, there is nothing to maintain the local market for renewable energy products and services, and the industry will crumble.

A better alternative is the Feed-In Tariff (FIT).  This type of incentive allows policy-makers to decide on the shape of their renewable energy sector. For example, the FIT can encourage small-scale rooftop solar installations and stand-alone wind turbines by offering a higher rate than the one applicable to big solar and wind farms. This is a much more market-friendly option, as it encourages the efficient allocation of capital and provides a more organic environment for the local renewable sector to grow. It also means that the FIT rates can track the declining cost of the various technologies.

This is by far the better way to get across the stream in a single leap.

Will that be one jump, or two?

The Bear, the Volt, and the Saint Bernard

The bears have it figured out.

Their diet consists of berries, shoots, grasses, honey, squirrels, salmon, and the odd unfortunate hiker. Though these foods are plentiful in the warmer months, they become scarce to non-existent in winter. But bears don’t starve when the snow falls. In late summer and fall they gorge themselves, storing up reserves of fat, and then settle down in a convenient den to sleep away the lean wintertime.

Like bear food, renewable energy sources such as wind and solar are not available all the time. Sometimes the wind does not blow. Sometimes the sun does not shine. Like bears, we can adjust our electricity consumption to match when it is available, but only up to a point. We need to power our hospitals, public transit, roadway lighting, and innumerable other non-negotiables.

For now, this isn’t a problem. Wind and solar are merely the garnish on the edge of our collective energy plate. The mainstays of our energy diet are hydroelectric dams, nuclear reactors, and thermal plants which produce electricity by burning fossil fuels.

However, this is a passing state of affairs. Most significant sources of hydropower have already been tapped. Nuclear is prone to massive construction cost overruns and rare but catastrophic accidents, and carries a near-perpetual liability of radioactive waste storage. Fossil fuels – coal, oil and natural gas – grow more expensive and scarce, and will inevitably price themselves out of the market. More troubling is the local acid rain and global climate change that they cause.

Sooner or later, all of our energy will have to be renewable. If we are to avoid massive collapse of world ecosystems under the weight of runaway global warming, it had best be sooner rather than later. But before that can happen, we will have to smooth over the difference between the pattern of generation and the pattern of consumption. That means finding methods to store energy on a huge scale.

What are we going to do, build a massive rechargeable battery?

No. But we are going to build a whole bunch of little ones.

Some of these rechargeable batteries won’t be so little. Pumped storage, like the 400MW facility proposed in Marmora, Ontario, uses cheap off-peak electricity (picture wind turbines spinning madly on blustery nights) to pump water into an elevated reservoir. Then, when rates are high, the water is allowed to flow back down into a lower reservoir, turning turbines and generating – well, re-generating – electricity.

The other rechargeable batteries are actually the solution to two problems. Nearly every mode of transportation – be it the plane, the train, or the automobile – relies on combustion of fossil fuels. But like fossil fuels, the internal combustion engine’s days are numbered. The transition to post-gasoline transportation began in 1997, with the advent of Toyota’s hybrid gas-electric Prius, and continues today with the plug-in hybrid Chevy Volt and its brethren.

Eventually internal combustion engines will go the way of the electric typewriter, electric cars will reign supreme, and a sizeable rechargeable battery will be parked in every driveway. These will charge up at night, when both electricity demand and electricity rates are low. When the sun rides high, and electricity rates do likewise, and the car is just sitting in a parking lot anyway, some of that stored energy will be fed back into the grid. And the owner will get credit for it.

That brings us to the third column holding up the temple of the new energy economy.

The price we pay for electricity is like a fixed-rate mortgage. We know exactly how much our payment will be each month. It’s predictable. It’s easy to understand. And, in the long run, it’s also a lot more costly than a variable-rate mortgage.

Our electricity prices are fixed through government regulation. The electricity utility has to deal with a spot price that moves all over the place in response to the laws of supply and demand. However, we as consumers never see that. We are insulated from the harsh reality of fluctuating electricity costs. We are protected. And, just like with a fixed-rate mortgage, that protection comes at a cost.

Early in the previous decade, various jurisdictions flirted with the idea of removing this protection. Let the price that consumers pay reflect the cost to the utility, and people will make sensible economic decisions about such things as when to run their air conditioner, dishwasher, and clothes dryer. Ultimately that should drive costs down, right?

The problem was that it was a case of too much, too soon. Consumers were not used to adjusting their electricity usage to reflect the spot price, and they were not given time to adapt. Their appliances did not offer automation to make this adaptation any easier. And the mechanism to supply price information to customers was also flawed.

Our electricity grid is like a Saint Bernard – big, dumb, and not agile in the slightest. It can cope with a small number of high-output generating stations, but not with a huge number of tiny ones. It is ill-equipped to power a panoply of high-tech devices that react badly to random voltage fluctuations – fluctuations that were inconsequential at the time that the grid was designed and built, when people were only plugging in such comparatively insensitive devices as electric lights and toasters. It can figure out how much electricity each customer uses, but not – at least until recently – when that electricity was consumed. And it cannot cope with the meter running backwards, which is what will happen when rooftop solar panels and electric car batteries are feeding power back into a needy grid.

The technology now exists to match up supply and demand in real-time. It allows for appliances to become smarter about when they start up and shut down, avoiding peak usage periods. It allows for electricity to be generated everywhere, instead of solely in massive centralized plants. It allows metering of electricity being fed in as well as being drawn out. And it allows one part of the grid to isolate itself from another during a fault, preventing massive cascading system failures like the Northeast blackout of 2003. These technologies are referred to collectively as the smart microgrid.

Renewable energy, electric vehicles, and the smart microgrid are the three key technologies that will deliver us from the dead-end energy world of today into the living, breathing, and clean energy world of tomorrow. But technology is only part of the solution. Next week I’ll discuss the people and political side.

What if Durban doesn’t matter?

The end is near...or not

If you’re like me, you care about the future of the planet and believe we need to do everything we can to protect it. If you’re even more like me, you were both dismayed and ashamed by what our leaders failed to do in Durban last month – failed to recognize that our unrestrained carbon emissions from the burning of fossil fuels have put the planet on an express train to catastrophe, failed to recognize that fairness and short-term economic growth do not matter in the face of disaster, and failed to pull out all the stops to reach a new agreement on greenhouse gas emissions. And, if you very much like me, and happen to be Canadian, you’re disgusted by the fact that our leaders added insult to injury by choosing that decisive moment to withdraw from the Kyoto Protocol.

While the Durban debacle was taking place, I was attending the CanSIA Solar Canada conference. The commuter train ride between Toronto and my home in Guelph gave me plenty of time to ponder. I was in a state of disbelief, shock, and shame. How could I tell my kids about this? What would they say?

I know what it is to look back at the previous generation with bitter resentment. The leaders they chose concluded that economic growth would continue forever, so why not borrow against that growth to make things better today? The result was an unsustainable collection of services that eventually had to be trimmed or cancelled, and a crushing burden of debt which my generation – and likely the generations to follow – will now have to repay.

I can bitch and complain that my parents borrowed in my name and without my permission. But if I do, I’m a complete hypocrite. My generation has topped the one that came before. A First Nations adage says, “We do not inherit the earth from our parents; we borrow it from our children.” With the Durban disappointment, we have failed our children beyond all imagination. We have bequeathed them a planet which will turn on them in a myriad of ways, be it increasingly capricious and violent weather, famine and starvation due to lower crop yields, some rivers running dry while others flood furiously, more violent civil and international conflicts over food and water and land, and ecosystems collapsing under the weight of runaway climate change.

Or have we?

Perhaps all is not gloom and doom. Perhaps hope still remains. Perhaps Durban doesn’t matter.

Our national leaders have adopted an ostrich mentality, but federal governments are not the only thing that matters in this world. I am an individual, and I can make change on behalf of myself and my family. My purchasing decisions can affect change in the corporations that supply me with goods and services. I vote and pay taxes in my city and my province; those two levels of government can take up the torch – or the solar-charged LED flashlight – where our federal government has thrown it down with such short-sighted cowardice.

Despite being otherwise allergic to anything green, Canada’s ruling Conservative Party renewed a program called EcoEnergy. This provides rebates to homeowners for improvements that enhance home energy efficiency. I’ve taken advantage of this program in my last two homes, reducing the cost of a new furnace, an on-demand water heater, insulation, windows, and exterior doors. These upgrades reduced the amount of energy my homes required for heating and cooling, and in turn reduced my electricity and natural gas bills.

Even without the government subsidies, these improvements make good economic sense. Anyone that owns a building has a built-in incentive to be green, and many property owners are taking advantage. This runs counter to the prevailing wisdom that people are only interested in being green when the economy is booming – when money is tight, it makes sense to save wherever possible.

Businesses have an additional green incentive that has nothing to do with global diplomacy. In businesses where competition is stiff and differentiation difficult, it can be advantageous to cater to the green-minded. This applies in the battle for talent just as it does in the battle for customers. Google, for example, has taken its informal motto – “Don’t be evil” – to a different level with its significant investments in renewable energy. These enhance its brand, giving Google a leg up over other Silicon Valley companies seeking to attract the best and the brightest.

Municipalities also have a role to play in fighting climate change. The City of Guelph was well-represented at Solar Canada – Mayor Karen Farbridge gave a plenary session address describing the city’s Community Energy Initiative, and CEI General Manager Rob Kerr served as a panelist in a breakout discussion. The CEI includes innovative ideas such as constructing two solar parks within the city limits, developing district energy and combined heat and power, as well as a grassroots program offering energy efficiency retrofits to homeowners at no charge. The objective is to consume less energy and emit less carbon in 25 years than the city does today, while growing its population by 40%.

Then there are states and provinces. Many US states have introduced a Renewable Portfolio Standard, which mandates that a certain percentage of energy produced in the state must be from renewable sources by a specified target date. In Canada, the provinces of Ontario and Nova Scotia have introduced Feed-In Tariff programs, to purchase electricity from renewable sources at a premium rate. This is encouraging investment in wind, solar, tidal, and biomass energy, all of which are helping to reduce our dependence on carbon-laden fossil fuels.

It would have been inspiring if the nations represented at Durban had come to a new agreement to limit carbon emissions, and we must all play our part to convince our elected representatives that they have made a huge mistake. However, it is possible that Durban is not the end of the world. Between individuals, corporations, municipalities, and states/provinces, many exciting things are happening to stave off climate change.

And, if the people lead, eventually the leaders will follow.