The EIA (Energy Information Administration) data (see October 15 blog) clearly shows that the US is in the midst of an energy transition. It may not be exactly the one needed to mitigate climate change – but we’re certainly on our way there through some fortunate, market driven, intermediaries. In this case, the transition has mostly been from heavy reliance on coal to a dominant use of natural gas. Parallel to this transition we see a more welcome, not yet market driven, transition away from fossil fuels. Considering that the estimated lifetime of a power plant is about 40 years, we still have many coal power plants to retire, but we at least have time to do so. Such is the nature of a transition. However I don’t expect such a transition to be particularly smooth, consisting of regular replacement of fossil energy sources with less polluting ones. I expect it to be a stuttering transition that requires our full collective ingenuity. Let me try to describe here some of this stuttering.
Recently, the British government did the “right thing.” They announced changes in energy regulations (New York Times – 11/24/2012) that are intended to encourage use of alternative energy sources and nuclear energy while at the same time ensuring that enough power will be supplied to satisfy future energy needs. As reported, the changes increase the levies on consumers and business to help support electricity generation, based on low carbon sources to a total of £9.8 billion by 2020 from the present £2.35 billion. This is, by any other name, a carbon tax that is being collected on top of the Cap and Trade policy that they already share with the rest of the European Union, but with a specification of how the money is intended to be used. This should add about 2% to an average electrical bill. The British government is concerned that the European Union (EU) will raise objections because the EU is against any government support of mature technology (in this case – nuclear).
Direct solar energy, such as photovoltaic and photothermal, don’t show up in the American electricity production in Figure 1. Its share, while still too small to register, is growing fast. Figure 2 shows changes in cost per kWh (kilowatt hour) from 2005 with projections to 2031. The Figure also shows the projected intersection with projected average electricity cost around 2020. Figure 3 shows a major consequence of the price decrease: the global increase in solar cell production over the last 12 years. However, Figure 4, taken from the same source as Figure 3, shows the global distribution of the production effort in 2010. Close to half of the production has originated in the People’s Republic of China.
This distribution and price structure has major consequences.
Solyndra, a California-based solar panel manufacturer, declared bankruptcy in August 2011 after having received $528 million in federal loan guarantee (Story in NYT – 11/30/2012). The loan guarantee was part of the 2009 stimulus package, designed in part to help create jobs in new, non-carbon-based, energy industries. It became one of the loudest focal points of the 2012 presidential elections and subject to congressional investigations that focused on the hazards of the government picking winners and losers in the alternative energy industries. The main reason for the bankruptcy was the sharp drop in price – partially created by the lower cost of Chinese cells, which flooded the market with considerable help from the Chinese government. Solyndra and the American taxpayers were not the only casualties. Figure 5 shows the stock price of one of the better-known American solar cell companies – First Solar. Those who bought the stock at around $50 in February, for example, didn’t do so well – for the same reasons that Solyndra went bankrupt.
Did the Chinese do better? As it turns out, China’s manufacturing capacity in photovoltaics and wind turbines soared even faster than the world’s demand did, creating a large over-supply and a consequent price drop. Great for a global energy transition, but not so great for the manufacturers, their employees and the State and the banks that helped to finance them (New York Times 10/5 20012). In the current situation, many of the manufacturers end up loosing $1 for every $3 they sell. The lower costs are still considerably higher per-energy unit when compared to the energy generated by the plentiful coal in China – thus contributing to a global energy transition, but not necessarily to a transition in China.
The dynamics of replacing coal with wind power (another form of solar energy that does show up in Figure 1) went through similar setbacks to those I have explored for photovoltaics. Since the numbers here were greater (and the manufacturers were located in more competitive states for the presidential election), the US has decided to impose 30% duties on Chinese turbines – thus increasing their price and most likely slowing the transition.
Since, to quote Governor Romney, Climate Change is being referred to as Global Warming and not American Warming, price competition in energy sources designed to remedy the situation should be welcomed as important contributions to a solution and not developed primarily as a job creation activity. The same holds for the aspiration, expressed by both parties, for energy independence.