Monday, March 26, 2007

Electricity Generation By Source

In an earlier post, I noted that about 40% of CO2 emissions is from electric power generation. I also provided some interesting graphs comparing electric power generation from the U.S. with China, India, and the OECD.

In this post, I will provide detailed graphs comparing electricity generation in the U.S. with a few key countries. I was motivated by a friend's question regarding how other countries are addressing their energy and environmental problems. In particular, are there countries who are using substantial amounts of energy from alternative sources, as part of a diverse energy portfolio?

Rather than selecting the "benchmark" countries based on their CO2 emissions per capita, I picked countries based on anecdotes I have heard in the past. Hopefully these are graphs you can use in your (slide) presentations. The bar graphs measure the amount of electricity (as measured by the % of total Gigawatts) from a particular energy source (horizontal axis). Data is from the International Energy Agency:

(To enlarge a particular image, click on it.)
The above graph compares the U.S. with three, somewhat arbitrarily chosen, European & Asian countries:
  • Germany is reputed to be the largest market for Solar PV products.
  • Denmark has a reputation for being energy efficient and for using a lot of Wind Energy.
  • France made a conscious decision in the early 1970s to support Nuclear Energy.
  • China & India are the world's largest countries and fastest-growing economies.
  • Japan is the second largest economy in the world, and has a reputation for being the among the most energy efficient countries.
The graph shows that between Nuclear and Hydro energy, France generates 90% of all its electricity. In a previous post, I already noted that China and India rely heavily on coal. There is talk of China and India relying less on coal, and in the case of India, more on Nuclear Energy. Given their current level of dependence on Coal, it remains to be seen how quickly China and India can diversify their energy portfolios. While Japan uses only 27% Coal, compared to the U.S. it relies more on Nuclear (26%), Natural Gas (23%), and Hydroelectric (10%) power.

In the graph below, we "zoom in" to highlight "alternative" sources of electricity. Note that "Other" includes Wind Energy:

Denmark generated 16% from (Wind and) "Other" sources. From the above graph, it is clear that, in terms of their use of alternative energy, Germany and Denmark are way ahead of the U.S., France and the three Asian countries. Besides (Wind and) Other sources, Denmark generates substantially more electricity from Biomass and Waste than the other countries. I was definitely expecting Japan to show stronger dependence on alternative energy sources, than the U.S.

By "zooming in" further, we see that Germany did generate a large amount of electricity from Solar PV/Thermal compared to the other countries:

Even in Germany, Solar Energy accounted for less than one-tenth of one percent of total electricity generation. While Germany is a large market for Solar PV, the U.S. is a larger market for promising Solar Thermal technologies. Given that Japan is another large market for Solar PV products, I have questions about the accuracy of the data for Japan.

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Monday, March 19, 2007

U.S. Clean Energy Investments

In a previous post, I estimated Big Oil's investments in Renewable Energy, and concluded that total investments are still a small percentage of overall profits. Fortunately, the U.S. Venture Capital community is starting to invest Billions into Clean Energy. Before we dive into the numbers, a note about terminology: I've been noticing the use of the term "Clean" over "Green". Clean Tech is a term used to describe energy efficient and environmentally friendly technologies. VC's prefer it over Green Tech, since for whatever reason, they feel Green implies "... greater interest in the environment than in profit."

First we look at the annual survey of VC investments, from Nth Power and Clean Edge. In the graph below, we compare total VC investments (left axis), with total Clean Energy investments (right axis):

(To enlarge an image, click on it.) Total VC investments was still off 75%, from the high of $103B in 2000 -- last year's total was $25.5B. After a slow decline from 2000 to 2005, Clean Energy investing took off in 2006, growing 164% from 2005 ($917M) to 2006 ($2.4B). While total VC investments are still significantly lower compared to the levels seen during the dotcom era, Clean Energy is grabbing an increasing share of total VC investments:

From a mere 1.3% in 2000, Clean Energy accounted for close to 10% of total VC investments 2006! In terms of geographic breakdowns, I have seen estimates which suggest that 26% of all Clean Energy VC investments in North America go to California based companies. What technologies are VC's investing in? The graph below looks at investment levels for a few sectors -- note that for Wind Energy, the estimate I found was for North America:

Energy Intelligence refers to investments in energy efficiency and grid infrastructure technologies. $813M was invested in Biofuels, representing 34% of total Clean Energy investments. The large amount that went into Biofuels (ethanol, biodiesel), leads one to wonder whether there is a bubble in that sector. Exploding valuations would be a clear sign of a bubble. According to CleanEdge, overall, valuations are growing modestly: from a median valuation of $6.5M in 2005, to $8M in 2006.

Federal Investments
How do the VC bets line up against the Bush administration's Advanced Energy Initiative (AEI)? The goal of the AEI is to lessen America's dependence on fossil fuels. To uncover the AEI's priorities, I used budget reports from the DOE's Office Energy Efficiency and Renewable Energy (EERE). In the graph below, we look at the 2006 appropriations and 2007-2008 budget requests for some of EERE's larger programs:

Rising budget requests reveals the types of research the DOE will focus on over the 2007-2008 budget years. Biomass & Biorefinery includes research into biofuels, infrastructure, collection and other industrial processes. The growth in Solar Energy funding is primarily in the area of photovoltaics, which includes semiconductor materials research, and initiatives to promote the widespread deployment of solar PV systems. Hydrogen Technology focuses on technologies designed to lead to the commercial viability of hydrogen and fuel cell systems. Finally Building Technologies refers to techniques and technologies designed to make commercial and residential buildings more efficient and affordable. Declining levels of funding for Weatherization are planned for the same time period. Weatherization is the program which " ... develops, promotes and accelerates the adoption of energy efficiency, renewable energy and oil displacement technologies and practices by a wide range of stakeholders."

The amount of VC investments in Biofuels stands in contrast to the more balanced Federal budget requests, reflecting the private sector's belief that Biofuels is close to being commercially viable. In a previous post, I gave a brief introduction to some of the challenges facing ethanol in the U.S. Ethanol powerhouse Brazil needed twenty years before ethanol started gaining traction. While the U.S. will probably get to the same point in less time, it does face challenges. Besides the need to use feedstocks other than corn, the U.S. will need to overcome distribution and infrastructure problems to make Biofuels readily available.

Was 2006 an aberration, or will the amount of VC investments in Clean Energy increase in 2007? Based on recent media coverage, 2007 looks to be another banner year for Clean Energy investments. While valuations grew modestly, the rapid rise in VC funding for Biofuels does raise some red flags. Hopefully, we will see better portfolio diversification and less emphasis on Biofuels over the next year.

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Monday, March 12, 2007

Conservation: Red States, Blue States, and the Golden State

A friend of mine based overseas recently sent me an email:
I love the Red States/Blue States trend graph of electricity consumption that you have referenced a few times. Any idea what led to California diverging so dramatically starting in the 1970s? From the graph, it appears that the other states can benefit from adopting some of the policies that proved successful in the Golden State.
My friend was referring to one of my favorite graphs, courtesy of The Economist, which illustrates the potential energy savings still available if we replicate some of California's policies across the country:

(To enlarge an image, click on it.) Amidst the tremendous interest in renewables, the importance of conservation and end-use efficiency frequently falls by the wayside. In a recent study by the Electric Power Research Institute (EPRI), end-use efficiency is projected to play a role comparable to renewables, in helping reduce CO2 emissions from electric power generation (, subscription required). EPRI is the research arm of the Electric Utilities. The graph below is their recent model of how CO2 emissions can be reduced to 1990 levels, by 2030:

Although these are numbers from the Electric Utilities, there is no doubt that end-use efficiency and conservation will be important pieces of any serious plan to reduce emissions. As we will see below, then California Governor Jerry Brown realized how a few simple initiatives designed to promote end-use efficiency, could dramatically halt the upward trend in per capita electricity consumption.

To come up with policies to encourage efficiency, a first step is to understand where we use the most energy. In order to approximate how a "typical" American household consumes energy, I turn to two goverment surveys (from 2001 and 2004). The Annual Buildings Energy Databook (from the DOE) has statistics on commercial and residential energy consumption, from all energy sources, including electricity, natural gas, fuel oil, etc.

Lighting (12%) is easy to address, and most countries have active programs in place. Compact Fluorescent Light Bulbs (CFL) use 2/3 less energy than a typical incandescent. The main concern with CFL's is that they contain a small amount of mercury. The Natural Resources Defense Council advises consumers that the amount of mercury in CFL's is less than the mercury needed to produce the additional electricity needed to power the equivalent incandescent.

In 2001, the Energy Information Administration (also from the DOE), released the results of a survey of residential electricity consumption:

Readers interested in regional averages can find them here. Using the 2001 survey, kitchen appliances accounted for over a quarter of household electricity consumption.

Refigerators and freezers consumed 64% of electricity attributed to Kitchen Appliances, or roughly 17% of total electricity consumption.

While solar panels may cost a homeowner $15K to $30K, switching over to the most efficient appliances costs less than $5K -- a more realistic sum for most families. Imagine if large numbers of households make this switch. In the 1970s policy-makers in California recognized the importance of electric appliances:
... In 1976, then-Gov. Jerry Brown was looking for a way to make good on his pledge to stop the construction of the proposed one-gigawatt Sundesert nuclear plant in Southern California. The answer turned out to be refrigerators - more-efficient refrigerators. Brown learned in a meeting with Rosenfeld that California's refrigerators were using the equivalent of five Sundesert plants. So the state adopted stringent appliance standards - before the federal government did - and staved off construction of the Sundesert plant. The change in California's refrigerators has saved energy equal to all the hydroelectric power produced nationwide, Rosenfeld said.
The U.S. eventually adopted national refrigeration standards, which are " ... saving more than 130,000 megawatts of electrical generating capacity".

California officials discovered that with the right public awareness campaigns, households will embrace conservation. What if the utility companies themselves are rewarded for promoting conservation?
Next, California adopted an innovative approach to utility regulation called decoupling so utilities' profits were no longer linked to simply increasing sales. California remains the only state to have adopted decoupling, though proposals are pending in seven states.
Decoupling effectively removes any disincentives, on the part of the utilities, to promote conservation:
... Here's how it works: Every few years, state regulators determine how much revenue utilities need to cover certain authorized costs. They then set electricity rates at a level that allows utilities to recover these costs, based on a forecast of sales. If actual sales are above or below this forecast, then revenues are "trued up." Over-collections are given back to consumers in the form of reduced rates, and under-collections are eliminated with modest rate increases (typically pennies a month for the average household). In 1982 California became the first state to adopt decoupling. The utility companies liked it, because it helped stabilize their financial health.
During the same period, policy makers realized the need for a comprehensive package of measures to encourage energy efficient buildings. In 1977, California introduced Title 24 (California Building Code), which mandated energy efficiency measures in all new construction:
Rosenfeld formed a group at LBL to create a computer program that modeled the energy performance of buildings. If you built, say, a 3,000-square-foot house in the mountains near Lake Tahoe and put in a big north-facing picture window, how much energy would it take to heat the house in January? What if the picture window faced south -- how much would that lower the heating bills? Now, plop the same house down in the Mojave Desert town of Barstow, California. What changes would you make to minimize the need for air-conditioning? Rosenfeld's program provided much more accurate answers, and was far more user-friendly, than a previous attempt at the same kind of modeling software.

... The commission estimated that buildings constructed under Title 24 -- and, therefore, designed using the Rosenfeld/DOE program -- eventually ramped up to energy savings of $5 billion a year. Other states followed California's lead, and Rosenfeld guesses that DOE-2 is now used in the design of 15 percent to 20 percent of all new buildings in the United States. More than 40 countries, from the northern climes of Canada and Switzerland to the tropics of Singapore, Thailand, and Indonesia, have also adopted the program.
Later events, including deregulation, prompted California officials to revisit these energy policies. The power crisis in 2001 convinced policy-makers that conservation programs needed to be strengthened, resulting in $2B of approved investments in end-use efficiency.

California's per capita electricity consumption has remained flat since the 1970s, while the national average continues its upward trend. Congress needs to take the policies that have worked in California and mandate it across the country. While climate change has Al Gore, conservation needs a celebrity advocate. We need one of the leading presidential candidates to start talking to Art Rosenfeld on a regular basis!

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Monday, March 05, 2007

Renewables and Big Oil

With oil prices still at historic levels, expect 2007 to be another banner year for the major oil companies. Exxon-Mobil alone took in over $3.2B per month (or over $108M per day) in profits in 2006! With such large profits available in the fossil fuel business, are any of the majors seriously investing in renewables? They are, but the amount varies across companies. The majors see themselves as not holding any competitive advantage over others when it comes to renewables, and most of their shareholders prefer they concentrate on their core businesses.

We first look at the size of their 2006 profits, relative to their market capitalization:

(To enlarge a particular image, click on it.) One thing that jumps out is how large (in terms of market cap) Exxon-Mobil is compared to the other companies. While the French company Total S.A. underperformed (profit was low for its market cap), it still took in a healthy $16.4B in profits. In fact, except for Total S.A., all the other companies have p/e ratios much lower than the S&P 500.

How much of these profits do they invest in renewables? I found estimates for Exxon-Mobil & Royal Dutch Shell, and for BP and Chevron. While I found references to investments made by PetroChina and Total S.A., I was unable to find estimates for their annual spending.

Compared to their peers, BP and Chevron are investing a decent portion of their profits into renewable energy, while Exxon-Mobil is essentially not investing anything in renewables. Exxon-Mobil's strategy is to invest minimally, but be ready to jump in when the market for renewables mature -- their lack of investment in renewables, has definitely not hurt their stock price! Some environmentalists have accused oil companies, in particular BP, of greenwashing. While BP is likely doing some amount of greenwashing, IMHO, one has to compare BP to its peers to put their efforts in the proper context. Not that this criteria is sufficient, but clearly BP has gotten the message more that its competitors: in 2006, the size of Exxon-Mobil's investment in renewables was less than the retirement package of their outgoing CEO.

Here is another view of the size of investments using a bubble chart. In the graph below, the size of a "bubble" indicates the "relative" size of investments in renewables (i.e. relative to its peers).

The next-generation, disruptive, energy technologies will not come from oil companies enjoying record level profits. Progress will depend on more funding from the Federal Goverment. R&D funding needs to be accompanied, at least for the next few years, with incentives for consumers and manufacturers. As an example of the need for incentives, the U.S. has been the leader in solar energy research for years, yet the largest market for panels are Germany and Japan. Germany and Japan nurtured their markets for solar cells through incentives. Only recently have states and the federal goverment started to offer rebates and tax breaks to encourage adoption of solar technology.

While the states and the federal goverment funds basic R&D and incentives, innovation and the next generation energy companies will need to comes from private sector. Fortunately, segments of the private sector in the U.S. have recognized the huge market for renewables. Increasingly engineers and venture capitalists in Silicon Valley have been focusing on renewable energy. A recent panel discussion on Clean Technology during the State of the Valley conference, is an interesting introduction to how some people in the Valley are tackling the energy problem.

In a future post, I will discuss the importance of energy efficiency and conservation. Interestingly, one of the leading research groups in end-use efficiency happens to be located in the SF Bay area.

UPDATE: The SF Chronicle has an article on critics of a proposed, UC Berkeley based, Energy Biosciences Institute funded by BP.

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