Guest Post by Willis Eschenbach
Sounds like a scam, huh? But it’s real. Let me explain how people (no, not you or me, don’t be foolish) can make a guaranteed 29% return on their investment. However, to make it clear, I’ll need to take a short digression. I ran across a National Geographic article on where the world gets its electricity. Here are their figures:
Figure 1. World electricity production by fuel type. Renewables (defined by AGW activists as solar-, geothermal-, wind-, and biomass-generated electricity, but not hydroelectricity) are 2.7% of the total electricity use. Data from National Geographic
You can see why the AGW supporters’ heads are exploding as the Durban climate party approaches. It is obvious from the chart that years and years of subsidies and tax breaks and IPCC reports and various urgings by well-meaning but clueless pundits and billions in wasted taxpayer dollars have not succeeded in getting renewables up to even 3% of the total electricity generated. Less than 3%. It must drive them round the twist to contemplate their stunning lack of success at making water flow uphill.
Despite that history, you know how they say on those TV commercials, “But wait! There’s even more!”? In this case, it’s “But wait! There’s even less!”
The reason that its even less is that Figure 1 just shows electricity. It doesn’t show total energy consumed, which is a much larger number. Total global energy consumption is shown in Figure 2.
Figure 2. World energy consumption by source. “Renewables” are solar, geothermal, wind, and biomass. Note that the traditional use of firewood for cooking is not included. Data from the BP Statistical Review
So although renewables have (finally) gotten to 2.7% of the electricity production, they still only represent 1.3% of the global energy consumption. And this is with heaps of subsidies.
And I don’t mean just a bit of money to get them over the hump. Huge subsidies. Because of the total failure of renewables to penetrate the market, the AGW supporters are desperately throwing money at renewable technologies. The New York Times showed a graphic for one such power plant in California. Their graphic is reproduced below as Figure 3.
Figure 3. Federal and State Subsidies for the California Valley Solar Ranch.
Unfortunately, the Times didn’t really discuss the business implications of this chart, so let me remedy that omission.
First, how much money did the investors have to put in? Since the project will start earning money once the key is turned and the market is guaranteed, the investors only had to put up the total capital outlay of $1.6 billion. Less, of course, the generous government grant of nearly half a billion dollars. Total invested, therefore, is $1,170 million dollars.
On that money, the investors stand to make a net present value of $334 million dollars … which means that due to the screwing of the taxpayers and ratepayers, a few very wealthy investors are GUARANTEED A RETURN OF 29% ON THEIR INVESTMENT!!!
How is this fair in any sane universe? AGW supporters talk about the 1% having too much money, and here the same folks are shoveling the money into the one percenters’ pockets. The 1% weren’t rich enough already, so I have to foot the bill for them to get a GUARANTEED 29% RETURN on their investment?
Note also that a huge part of the money, some $462 million dollars, is coming from the California electricity ratepayers, including yours truly, through increased charges for electricity. This means that these solar scam artists are being allowed to sell their power at 50% ABOVE MARKET PRICES!!! Not just a little bit above market. Fifty percent above the market price! Where is the California Public Utilities Commission whose job is to protect the consumer? Oh, I see … the are the ones who agreed to the 50% above market rate hike … for shame.
Pardon my screaming, but this insanity angrifies my blood mightily. Ripping off both the consumer and the taxpayer to allow millionaires to make a guaranteed 29% return on a not-ready-for-market technology, and charging ratepayers 50% above market for the electricity? That is reprehensible and indefensible. In particular, the rate hikes hit the poor much harder than the wealthy, so we are billing the poor to line the pockets of the 1% … and all this in the name of enlightened carbon fears.
A few last numbers to consider. Without the layers and layers of subsidies, the investors would have had to put in $1.6 billion, and they would have suffered a loss of $1.1 billion dollars. The investors wouldn’t lose just a little, they’d lose their shirts, their pants and their ties … and seventy percent of the money they put in. That’s how far this technology is from being marketable. Not just a little ways short of profitability. A long, long, long ways from being marketable, more than a billion dollars short of making a profit.
Finally, the total subsidies for this plant were $1,430 million dollars. So this single “successful” green project will cost the consumer three times what Solyndra cost. And in return … we get energy priced at 50% above the market. Thanks, Energy Department, glad to know you have my back.
You can see why I’m screaming … the inmates have taken over the asylum. Steven Chu, the Secretary of Energy, says we need more successful green projects in order to survive the depression … me, I fear we won’t survive Secretary Chu.
I know we won’t survive if we follow Chu’s brilliant plan for ‘successful green projects’ that do nothing but line the pockets of the 1% with billions in subsidies. That path is the poster child for the concept “unsustainable”, and Secretary Chu is the poster child for the brilliant idiot. He is undoubtedly a genius in his scientific field, but whoever unlocked his ivory tower and let him loose on the business world has some serious explaining to do.
Here is the problem with Energy Secretary Chu. His failures are bad enough. But his successes are lethal.
w.
Good stuff Willis.
Any technology that requires life-of-project subsidies is fundamentally uneconomic, and I would argue, fundamentally anti-environmental.
Here is a paper we published nine years ago when Canada was about to adopt the nonsensical Kyoto Protocol..
Please note our final point, on energy:
“The ultimate agenda of pro-Kyoto advocates is to eliminate fossil fuels, but this would result in a catastrophic shortfall in global energy supply – the wasteful, inefficient energy solutions proposed by Kyoto advocates simply cannot replace fossil fuels.”
Reviewing all our points, I would suggest that our predictive track record is infinitely better than that of the IPCC and the global warming movement.
But then, every dire prediction the “global warmists” have made has failed to materialize.
I submit that most reasonable people will ultimately accept our first point:
“Climate science does not support the theory of catastrophic human-made global warming – the alleged warming crisis does not exist.”
Some of our other predictions did not fully materialize in Canada, because our country did not adopt all the lunacies of the Kyoto Protocol, but those countries that did so, particularly the UK and Western Europe, have experienced all these downsides of global warming mania,
So where do we go from here?
I wrote in 2003 that Earth would be entering a natural global cooling cycle by about 2020-2030. Global warming has now been absent for about a decade, so we’ll see. Based on more recent data, global cooling could commence sooner. Maybe it already has.
In 2008, I discovered that the (annualized) rate of change of CO2 with time, or dCO2/dt, occurs at about the same time as changes in temperature, and CO2 inflections LAG temperature inflections by about 9 months. I recorded this observation at http://icecap.us/images/uploads/CO2vsTMacRae.pdf
You may recall Willis that my finding was first condemned as “false correlation”, but was later accepted as valid. Then, the observed phenomenon was dismissed as a “feedback”, with no evidence provided to support that claim – essentially, a religious argument that said “We KNOW CO2 causes global warming, so it MUST BE a feedback”. I think that within a decade or two we will agree that changes in CO2 are primarily a result of global temperature change, not a cause thereof. There may or may not be a significant humanmade component to the current increase in atmospheric CO2 – it could be largely natural, or partly humanmade – we don’t’ even know that with any certainty.
Best regards to all. and Happy Thanksgiving to all our American friends.
– Allan
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http://www.apegga.com/members/Publications/peggs/Web11_02/kyoto_pt.htm
Kyoto has many fatal flaws, any one of which should cause this treaty to be scrapped.
Climate science does not support the theory of catastrophic human-made global warming – the alleged warming crisis does not exist.
Kyoto focuses primarily on reducing CO2, a relatively harmless gas, and does nothing to control real air pollution like NOx, SO2, and particulates, or serious pollutants in water and soil.
Kyoto wastes enormous resources that are urgently needed to solve real environmental and social problems that exist today. For example, the money spent on Kyoto in one year would provide clean drinking water and sanitation for all the people of the developing world in perpetuity.
Kyoto will destroy hundreds of thousands of jobs and damage the Canadian economy – the U.S., Canada’s biggest trading partner, will not ratify Kyoto, and developing countries are exempt.
Kyoto will actually hurt the global environment – it will cause energy-intensive industries to move to exempted developing countries that do not control even the worst forms of pollution.
Kyoto’s CO2 credit trading scheme punishes the most energy efficient countries and rewards the most wasteful. Due to the strange rules of Kyoto, Canada will pay the former Soviet Union billions of dollars per year for CO2 credits.
Kyoto will be ineffective – even assuming the overstated pro-Kyoto science is correct, Kyoto will reduce projected warming insignificantly, and it would take as many as 40 such treaties to stop alleged global warming.
The ultimate agenda of pro-Kyoto advocates is to eliminate fossil fuels, but this would result in a catastrophic shortfall in global energy supply – the wasteful, inefficient energy solutions proposed by Kyoto advocates simply cannot replace fossil fuels.
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Richard Holle says:
November 19, 2011 at 8:19 pm
GW says:
November 19, 2011 at 1:43 pm
Anthony and Willis,
Have you run the numbers to see at what price point it becomes cost effective to run your own portable 5 or 10 kw generator on gasoline or nat gas or diesel ?
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Reply; I have a small 4Kw gasoline generator for back up use when storms take out the REA power. With a 5 gal tank it will run 11 hours with an intermittent load running from about 20% to 80% of maximum capacity. My bill says I pay about $.12/Kwh when on line so the back even point would be when the price of gasoline drops to $1.05 a gallon. No other costs included in the calculations.
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Gentlemen,
Please note that in North America, natural gas now costs about 1/3 to 1/4 as much as crude oil on an energy-equivalent basis. So simplistically, if your above numbers are correct, and capital costs are not too great, generating your own electricity, heat and hot water by burning natural gas could be highly economic.
A fundamental question is how long will this energy-cost imbalance between oil and natural gas exist?
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Allan MacRae says:
November 19, 2011 at 11:43 pm
Allan, that’s quite interesting. The same BP Statistical Review cited below Figure 2 says that 1000 cubic feet of natural gas is the energy equivalent of 0.18 barrels of oil.
The EIA puts the residential price of natural gas at $16 in August. Combing these two gives a natural gas price of $16 / 0.18 = $88 per barrel of oil equivalent. Since oil right now is about $100 per barrel, these are not too different.
However, the EIA (op. cit.) also says that the industrial price for natural gas is only about $5,10 per 1000 cubic feet, or an $5.10 / 0.18 = $28 for the amount of energy in a barrel of oil. This puts it right in the 1/3 to 1/4 range you specified above.
Curious.
In any case, if I could get natural gas at industrial prices it would be worth it … but likely, being a residence, I’ll be charged residential prices.
w.
PS—Your point about cogeneration, particularly in colder climates, is an area we haven’t touched on but which is important.
>>Alan says: November 18, 2011 at 4:13 pm
>>Isn’t hydro renewable?? Greenies only seem interested in
>>wind for some reason.
There are vast swathes of the world, like the UK, where hydro simply does not work. Either the hills are too low, or there are too many people living in the valleys.
.
Willis, I think your proposed treatment is like this. Take the total invested until the project starts to return cash. That is the investment. Then take the NPV at some discount rate, what we don’t know. The NPV is considered to be the return on the investment.
But it isn’t. The NPV is unrelated to the investment. The NPV is the result of all the cash flows in and out for whatever reason. So marketing expenses will be in there – that is cash out. Depreciation will not be in there, its not cash out, what will be in there will be forecast cash out to buy or replace capital assets. Purchases of parts, supplies all that stuff will be in there.
In any capital project, cash is going in and out all the time, and the NPV is the result of discounting all those cash flows. Capital and investment is only part of it.
You might be able to say in pure cash terms, the capital requirement to get started to steady state is X, then when you are running it your profit is y per year, so (not accounting for interest) you will get back a return of Z% a year on your capital once the thing is running.
But its not a very useful way to think about it. The best way to think about it is the actual NPV that is being generated. Read Brealey and Myers. Its more complicated in practice and simpler in theory than people usually think.
What you really should not do is take the NPV and divide it into some investment number, that doesn’t tell us much of anything.
I agree with most of the piece by the way – this is just a technical point. The fact is that the subsidies are nonsense. No question about that.
Gentlemen:
One standard, 42-gallon barrel of crude oil contains 5,848,000 btu.
Natural gas is selling this morning on Nymex for $3.32/MM btu.
Therefore, natural gas is selling at wholesale in the U.S. for the equivalent of $19.48 per barrel oil.
The guaranteed heat rate for a GE, combined-cycle-gas-turbine (CCGT) plant is 5,690 btu/Kwh.
Therefore, the fuel cost for CCGT at the quoted Nymex price is 1.9-cents per Kwh.
The capital cost of CCGT is $550 per installed Kw.
The capacity factor of CCGT is 92%.
The above information should be the starting point for evaluating ANY competing form of electric power generation, because CCGT is, hands down, the cheapest commercial form of new electric power generation in the U.S. today (not appropriate for in-home installation). The astronomical capital cost of solar when capacity factor is included leaves the technology beyond rational consideration.
Claude Harvey,
It’s nice to see a Global Enterprise doing something right 🙂
Mike Hebb says:
November 18, 2011 at 4:00 pm
I think the pie chart is missing a major piece by not including natural renewables . A lot of homes in South America, India, China, Africa and Asia use wood, yak dung, or other animal dung dried or as methane for cooking and heating. This would make the wind/solar/geothermal even smaller proportionately. If the biomass piece included these options it would be a lot bigger and they’re all renewable.
I think that my Housing Association would have something to say if I kept a Yak and burnt its dung 🙂
But it would also save on the grass cutting.
Re:Robert of Ottawa says:
November 20, 2011 at 5:33 am
“Claude Harvey,
It’s nice to see a Global Enterprise doing something right :-)”
Yes it is. I have no vested interest in “Global Enterprise”. I just quoted their machine figures because I happened to have them at hand. In the case of CCGT, the heart of the thing is a booming-big, aero-derivitive gas turbine and GE is huge in that business.
Willis:
So to date I’ve passed up my chance to be a solar magnate at the people’s expense … doesn’t seem right.
Hmm. Did I read above that you use REA power? Us city slickers might have an opinion about that…. : > )
The complete failure of windmills:
http://blogs.dailymail.com/donsurber/archives/46519#more-46519
I think everyone will agree with your logic. However, the question can boil down to: What side of the equation does one want to be – “the good deal for him” or the “bad deal for everyone else”. I have never enjoyed being “everybody else”. GK
A bit off topic here, but I hope Dave Springer is still around?
Henry@Dave Springer
You remember that thing we discussed some time ago?
You said that the oceans only gives up 20% of its solar heating which would explain matters with the CO2.
I did some checking and testing on this. It did not work out as you predicted.
I think you are wrong.
In the case of the leaf chart here:
http://wattsupwiththat.com/2011/03/24/the-earths-biosphere-is-booming-data-suggests-that-co2-is-the-cause-part-2/
I am finding an extraordinary correlation between warming in the red areas and actual cooling in the blue areas. In other words, if you pick a blue area, you will find mean temperatures declining,
if you pick a red area you will mean temperatures rising.
So, seeing that the overall chart shows more red (the earth is blooming) it explains the extra warming noted of the past decades. It is more vegetation that traps more heat.
I was struck by the cost of replacing all the energy generating equipment in the world by installations like California Valley Solar Farm, which turns out to be $101.9T, $19.4T just for the US. That’s on a US GDP of about $15T, and a world GDP of about $75T.
That number assumes an equivalence of solar and conventional power, which we know is not true. After paying to make it equivalent, the numbers are going to be a lot higher. The last time that there was that kind of expenditure, it was WWII, and the US spent $228B on a GDP that was between $100B and $200B. Do you suppose there is the same sort of commitment now? Among true believers, undoubtedly, but among the rest of us? Polls certainly don’t say so.
There is no plan to overhaul the way we get energy, and for good reason. If people at large saw and understood those numbers, they would rebel in no uncertain terms. But without a plan, installations like that are going to end up as expensive white elephants in the not very distant future. It goes without saying that, as much as politics will allow, the taxpayer is going to end up holding the bag. How many of those do we really want?
Claude Harvey says:
November 20, 2011 at 4:49 am
That’s the bottom line that folks just don’t seem to get.
w.
juanslayton says:
November 20, 2011 at 6:52 am
I don’t think the local area was originally wired by the REA, but I suppose it’s possible. I know that wiring a place now out here is hideously expensive if you have to put in the poles and all.
w.
Hi Willis,
Hope you are well.
I general agree with Claude Harvey’s comment at November 20, 2011 at 4:49 am.
Re your comment: “The same BP Statistical Review cited below Figure 2 says that 1000 cubic feet of natural gas is the energy equivalent of 0.18 barrels of oil.”
That is correct – in the North American energy industry, which commonly uses some English units, the oil:gas energy ratio is often referred to as ~6:1.
Conversion:
1000 cubic feet of pipeline-quality natural gas contains about 1 MMBtu (~1.05 GJ) of energy.
Natural gas is commonly selling on the Nymex at less than $4 per MMBtu (or per 1000Ft3 or per GJ) .
http://www.bloomberg.com/energy/
Oil is selling on the Nymex at almost $100 per barrel, so the wholesale price ratio is roughly 25:1 when energy equivalence is 6:1. Hence wholesale gas is now priced at less than 1/4 the energy-equivalent price of wholesale oil, on the Nymex. This is true in North America but generally not elsewhere in the world, where the shale gas revolution has not yet taken hold and gas is often priced at a factor much closer to energy-equivalence with oil.
I don’t understand the EIA residential gas price of $16/Mcf, which is almost 4 times the reported US wholesale price. It may be that your local gas distribution utilities are doing too well.
In Calgary, our fixed-rate price for residential gas is $6.59/GJ and that includes a very healthy profit for the local utility.
http://www.enmax.com/easymax/residential/questions/Current+Prices/Current+Prices.htm
Our fixed rate for residential electricity is 8 cents/kWh (and that includes a huge subsidy for mandatory-included, worthless wind power) .
Both rates are locked-in for 5 years.
As long as our electric utilities insist on forcing us “non-believers” to subsidize worthless wind and solar power, it makes increasing economic sense for North American residential and industrial consumers to seek off-grid alternatives, powered by natural gas.
Best regards, Allan
Does “biomass” on the first chart include animal dung?
Looks like the taxpayers are kicking-in about $1.4B for this one project. Why don’t we just kill it and give Secretary Chu the $334M he wants, let him cut checks to his buddies and we save over $1B.
If we can get them to come up with 1000 projects like this and kill them all we could save over $1,000,000,000,000 (one trillion dollars.)
Now that’s thinking like a true green politician.
I should be in charge of the “Super Committee” in Washington.
Willis, I was unable to get to the National Geographic data page (for your Figure 1).
Guide me there please. Thank you!
tokyoboy says:
November 20, 2011 at 6:55 pm
Not clear what the problem is. It works for me, I click on the link and wait. It’s an “interactive graphic”, takes a minute to load.
All the best,
w.
RE Claude Harvey: (November 19, 2011 at 11:28 am)
Ref: Green Support of Impractical Energy Projects
“However, at the precise moment we developed the technology to the point where profit-making geothermal plants were possible they turned on us like mad dogs.”
I am guessing that was when they saw you as threatening to clutter a beautiful natural landscape with ‘ugly’ concrete structures. I would expect the same kind of resistance to actually paving the Mojave Desert with solar cells.
I’m no financial expert, so you’ll have to forgive me for asking…
Isn’t this just an elaborate, government run, money laundering scheme to transfer tax/rate payer money to a group of investors without people knowing what’s going on?
John T says:
November 21, 2011 at 9:33 am
My vote is absolutely not. It certainly turned out that way, but I put that down to the usual greed that comes into play whenever the gov’t hands out money.
I don’t know about your government, but the tipoff that it’s not a US project is that I doubt greatly the US government could actually put together an “elaborate, government run, money laundering scheme” that actually works. It’s disqualified from being a government scheme by its very success.
w.
RE:John T: (November 21, 2011 at 9:33 am)
“Isn’t this just an elaborate, government run, money laundering scheme to transfer tax/rate payer money to a group of investors without people knowing what’s going on?”
It may have that effect, but I suspect this happens when those who believe that preservation of nature is a primary duty of all mankind wake up from a ‘Noble Dream’ to see that the real thing will have detrimental environmental consequences if it is exploited to any practical extent.