In the State of Hockey Part 2 - Solar wins the face off. Could be tipping point for solar!

Solar won the face off.  The Public Utilities Commission (PUC) made a decision on March 27, 2014, directing Xcel Energy to negotiate a power purchase agreement with Geronimo Energy to build $250 million in solar arrays.  The vote was 4-0.  They also directed Xcel to negotiate agreements for one or more of three natural gas-fired generators listed in my previous blog and again below.  So the PUC went with both.  They recognized the need for more Summer Net Dependable Capacity that would not be interruptible (natural gas) and encourage the continued build out solar.  With the shutting down of the 2 coal-fired generators at Black Dog, Xcel will reduce its overall carbon emissions footprint - a big win for Minnesota.  This is shaping up to be a tipping point for solar in Minnesota.

Solar
The proposal is to install sun tracking solar panels at 20 locations around Minnesota and near substations for quick and easy connection.  Locating near or adjacent to substations will significantly reduce the line loss of electricity (an excellent idea).  The solar arrays will vary in size from 2 to 10 megawatts.  The total number of megawatts from photovoltaic solar panels will be 100 megawatts.

Coal
Xcel will shut down two coal-fired units at the Black Dog generating station in Burnsville, MN between 2017 and 2019.

Natural gas
Calpine Corp.: expand an existing natural-gas fired power plant with a second combined-cycle turbine rate at 290 megawatts,
Invenergy Thermal Development: expand an existing facility with a 179-megawatt natural gas-fired turbine,
Xcel Energy: expand/add an existing facility with a 215-megawatt natural gas-fired turbine, and
Great River Energy: sell excess its capacity to Xcel.

So, the table below will change by reducing the coal Summer Net Dependable Capacity and increasing both the natural gas and solar Summer Net Dependable Capacity.  As mentioned above, it will reduce Xcel's carbon footprint.


Here is a table of Xcel Energy's 2013 owned generating plants.

				Summer Net Dependable Capacity
Type	Plants	Units		Megawatts		%/Total
Coal	13	27		7,597.00		45.3%
Natural gas	27	69		6,758.00		40.3%
Nuclear	2	3		1,594.00		9.5%
Hydro	26	79		377.00		2.2%
Diesel/Oil	2	14		383.00		2.3%
Refuse-derived fuel	3	6		52.00		0.3%
Wind	3	238		42.00		0.3%
Solar	4	4		0.01		0.0%
Total	77	440		16,785.00		100.1%
Note: Net generating capcity is 327 MW for Xcel Energy owned wind energy facilities.
Summer net dependable capacity is determined to be lower because wind generation is
an intermittment resource and is only available when ambient wind conditions exist.

As mentioned above, the tipping point for solar has arrived.  As mentioned in my previous blog, I would like to see support at the residential level.  

CO2 Injection - Good, Wastewater Injection - Bad

In the recently published April 2014 National Geographic, the main article was “Can Coal Ever Be Clean?”  The article described use and abuse of coal in the U.S. and elsewhere.  One of the “clean” discussions was sequestering carbon dioxide underground in “porous rock formations.”  Believe it or not, the DOE has spent more than $6.5 billion over the last three decades researching and testing the technology.  That is another story for another day.  As an example of CO2 sequestration, they sited Statoil, a Norwegian oil and gas company, who produces gas from the Sleipner gas field in the North Sea.  According to the National Geographic, for the past 17 years the company has been injecting about a million tons of CO2 per year into a brine-saturated sandstone layer half a mile below the seabed.  That formation has so much room that all of that CO2 has not increased its internal pressure, and there has been no sign of quakes or leaks.

Switching to a Bloomberg article today, they reported that several U.S. states are banding together to combat the mounting risks of earthquakes tied to the disposal of wastewater from hydraulic fracturing for natural gas.

So what does CO2 sequestration from coal have to do with disposal of wastewater from hydraulic fracturing for natural gas?  Both rely on drilling holes into the ground with the same equipment.  Both rely on injecting a substance under pressure – one water and the other gas.  Drilling for natural gas relies on drilling a horizontal hole through impervious, impermeable shale and fracturing it to create porosity and permeability.  Sequestration of CO2 from the combustion of coal relies on horizontal porous and permeable sandstone formations for storage.  So, both rely on vertical and horizontal pathways to move either a liquid or a gas.

So, how is it that in the coal sequestration case, it is good to pipe CO2 under pressure back into the porous rock formations and it is bad to pipe water under pressure back into the porous rock formations?  Both require the testing of internal pressure as a guide for how much can be pumped back into the earth.  Clearly water is denser than CO2 and less compressible than gas.  But the big difference between the two is that CO2 gas expands upon release and will skyrocket to the surface if there is an earthquake that penetrates the porous sandstone formation.  The concentration of the escaping CO2 will likely kill all kinds of life on its release.

The National Geographic interviewed geophysicists Mark Zoback and Steven Gorelick of Stanford University.  Both argued that at sites where the rock is brittle and faulted – most sites in their view – the injection of carbon dioxide might trigger small earthquakes that, even if otherwise harmless, might crack the overlying shale and allow CO2 to leak.  Zoback and Gorelick consider carbon storage “an extremely expensive and risky strategy.”

Bloomberg reported (in the same article as above mentioned) that according to the U.S. Geological Survey, pumping fracking wastewater underground has been linked to six-fold jump in earthquake in the central U.S. from 2000 to 2011.

Source: EPA - Overview of Greenhouse Gases

The Bloomberg article reported that regulators from Kansas, Texas, Oklahoma and Ohio met for the first time this month to exchange information on the man-made earthquakes and help stated toughen their standards.  That is all fine as long as the same standards are applied to CO2 sequestration.  With natural gas representing 20% of the fuel source for electric power and coal representing 46% of the fuel source for electric power (data from the U.S. Energy Information Administration), we need to be careful not to put the electric power utilities into a corner.   The chart to the left depicts the US Carbon Emissions, by source.

While I am an advocate of solar and other renewables, uranium, coal, and oil are the most energy dense materials in the world and therefore the most efficient.  See the below first chart - uranium is literally off the chart.  

That would be why they were developed first.  We need them until something better can be developed.  Coal usage is on the decrease for reasons mentioned above, in addition to more efficient homes, more efficient appliances, the introduction of LED light bulbs (FYI, lighting represents 66% of the average U.S. household consumption of electricity), etc.  Along with that decrease in coal use, CO2 emissions are down significantly since 2004.  The chart shows a decrease of over 10% in 7 years.

Source: EPA - Overview of Greenhouse Gases

The U.S. has not had a coherent energy policy in years.  Let's set one up and then decide how to proceed.

In the State of Hockey - Solar Faces Off With Natural Gas

Solar will face off with natural gas for additional power generation in Minnesota.  The Public Utilities Commission (PUC) is scheduled to make a decision on March 27, 2014.  In a  nutshell, Xcel Energy Inc., who serves 1.2 million customers, will be put to the test of whether its customers will be better off with $250 million in solar arrays or by adding natural gas electrical generators to one or more existing power plants.  

Here are the options:
Calpine Corp.: expand an existing natural-gas fired power plant with a second combined-cycle turbine rate at 290 megawatts,
Invenergy Thermal Development: expand an existing facility with a 179-megawatt natural gas-fired turbine,
Xcel Energy: expand/add an existing facility with a 215-megawatt natural gas-fired turbine,
Geronimo Energy: build up to 100 megawatts of solar generation using photovoltaic panels on up to 20 sites next to substations, or lastly,
Great River Energy: sell excess its capacity to Xcel.

The first question to be asked is, do we need more power generation to meet demand?  The follow up question should be does Great River Energy have enough excess power to sell?  The third question to be asked is, does that excess power meet the growth needs that Xcel and PUC envision?  The fourth question to be asked is, what function is the PUC permitted to play?  The fifth question to be asked is, what will it cost the taxpayer?

Here is a table of Xcel Energy's 2013 owned generating plants.

				Summer Net Dependable Capacity
Type	Plants	Units		Megawatts		%/Total
Coal	13	27		7,597.00		45.3%
Natural gas	27	69		6,758.00		40.3%
Nuclear	2	3		1,594.00		9.5%
Hydro	26	79		377.00		2.2%
Diesel/Oil	2	14		383.00		2.3%
Refuse-derived fuel	3	6		52.00		0.3%
Wind	3	238		42.00		0.3%
Solar	4	4		0.01		0.0%
Total	77	440		16,785.00		100.1%
Note: Net generating capcity is 327 MW for Xcel Energy owned wind energy facilities.
Summer net dependable capacity is determined to be lower because wind generation is
an intermittment resource and is only available when ambient wind conditions exist.

As can be seen by the above note on wind, a similar note is warranted for solar.  The 100 megawatts of Geronimo Energy PV solar panels would have to be calculated on the summer net dependable capacity.  That would result in a much smaller output than the nameplate.  

As the PUC are taxpayer funded and I am the tax payer, I know how I would lean on this issue and decision.  If there is excess power to be sold by Great River Energy and no capital expenditures are required, I would lean toward that solution.  Because it is already sunken costs, it would be the least expensive to the Xcel customer for dependable summer capacity.  Should Great River Energy's excess capacity be readily absorbed, then additional power generation capacity would have to be funded and constructed.  Then the decision tree analysis would point to the best bang for the buck project that meets Minnesota demand growth.

I think that as solar PV panels move towards grid parity - I am hearing that it is achievable in the next 24 months, it would work best at the residential level versus at the Xcel level.  We need Xcel to provide dependable and reliable energy, not intermittent.  The PUC should let Xcel make the optimal decision for the rate payer, but help guide policy and make it easy for residential customers to move into PV solar through tax breaks, some sort of subsidy (though at grid parity that becomes moot), or providing assistance with finding the most cost beneficial systems and installation.  

Russia Turns the Price of NatGas Up

In my last blog, I finished by saying that I thought that Russia would use its natural gas leverage on Ukraine.  That is being born out.  Russia has used natural gas leverage on Ukraine twice - 2006 and 2009.  According to NYT today, Russia is now asking approximately $500 per 1,000 cubic meters of gas, which is about one-third higher than what Gazprom charges clients elsewhere.  This is just the beginning of economic pressure on Ukraine.  

Why Crimea Is First and Ukraine Potentially Second

Russia, Putin, Crimea, Ukraine, oil and gas.  The secession of Crimea from Ukraine is potentially a two-step process - Crimea and then Ukraine.  With Russia's Black Sea navy now safely ensconced in the only Russian warm water port, Sevastopol, they may look to the east at the remainder of Ukraine.  Why? Natural gas pipelines and economic/energy leverage.  The below map, World Energy Atlas 2004, shows the number of natural gas pipelines traversing through the country (on the right side of the map) along with gas fields (red blobs) and oil fields (green blobs).  

The number of gas pipelines and gas fields are numerous.  The northern set of pipelines run through Kiev and continue to Delina, Ukraine.  The central set of pipelines run from Kursk to Ivano-Frankovsk, Ukraine, just south of Delina, Ukraine. The southern set of pipelines run north of Crimea to Tiraspol, Moldova.  There is a large set of pipelines that run through Belarus and then bifurcates.  The northern bifurcation, Yamal Europe, goes from Minsk to just north of Warsaw.  The southern bifurcation, Northern Lights, leaves Minsk and heads south towards Delina, Ukraine.  There it meets up with the Brotherhood pipeline from Kiev.  As the pipelines exit Delina and surroundings, they continue on to Slovak Republic, Czech Republic and into Germany.

The Nord Stream pipelines, the newest gas pipelines, are not shown on the map, but would be roughly the red line at the top of the map and left of the fold.  It is an offshore natural gas pipeline from Vyborg in Russia to Greifswald in Germany.  The first line was inaugurated on November 8, 2011 and the second was inaugurated on October 8, 2012.  They are 1,222 kilometers in length with the capacity of 27.5 billion cubic meters (970 billion cubic feet).  Gas from Greifswald, then moves throughout Europe, through a network of pipelines  that split off these major arteries.  Together, these pipelines provide the dominant supply of natural gas to Germany and then Europe.

Germany is especially vulnerable because of their nuclear power changes after the Fukushima Daiichi nuclear accident in March 2011.  There was a quick German political decision to phase out its nuclear fleet by 2022, starting with the immediate closure of the eight oldest nuclear plants, representing 8.4 gigawatts of capacity or roughly half of their nuclear production (or 10% of electrical output).  Part of their energy plan is to phase-out subsidies for domestic production of hard coal and to decommission all hard coal mines by 2018, with substantial volumes of coal-fired capacity likely to be decommissioned.  Coal-fired electrical generation accounts for 45% of the total.  However, they are currently constructing several large new coal-fired power plants, representing one of the biggest investment waves into domestic coal capacities since the post-war reconstruction, according to the IEA.  However, the slack between the shutting down of the nuclear power electrical generators and the commencement of the new coal-fired electrical generators, will be made up with natural gas.  

So what has that got to do with this map?  With nuclear cut back by 10% (total) and coal being cut back during the same time, but before the currently under-construction new coal-fired power plants can be commissioned, the country is just above the break-even of supply and demand.  Any changes to the natural gas supply, immediately impacts gas-fired electrical generation.  

Should Germany and the rest of the EU get too demanding about Russian sanctions, Russia could shut down the Nord Stream immediately followed by the pipelines flowing through Ukraine.  This would place Germany into an immediate natural gas shortage and impact electricity generation.  Shutting down those pipelines running through Ukraine would further impact Germany and Europe.  Would Russia do this?  Maybe.  They twice shut-down natural gas entering Ukraine in the past 10 years (in 2006 and 2009).  I am not saying that Russia will shut-down the gas pipelines, but should the Western World impose too great a sanction against Russia, then all bets are off. 

Battery development or arrested development?

If any of you have been watching some of the fuel cell stocks move, you might think that they just revolutionized the battery storage space.  Rightly, you would be asking what on earth is going on?  I put together a whiteboard diagram, you know, one of those dry marker white boards that you and your colleagues sit down to at a kumbaya retreat and team build.

I am an energy analyst and like to think “big picture.”  With the Obama administration and the EPA are clearly pointing towards a renewable energy path versus conventional energy one, I started laying out all of the energy sources that I could think about.  Once you put them down on the white board, you start connecting one to another as it relates to substitutions, production, consumption, alternatives, evolution, etc.  You also lay down the industries that would participate the most.  After a few days of laying down the ideas and allowing them to percolate, a clearer picture begins to emerge.

For me, this is neither a brilliant idea nor a novel one, the missing link to renewable energy was the battery.  Too many of the producer, consumer, evolutionary, and revolutionary data points were connecting to battery/energy storage.  When I looked at the equity universe for ideas, I started with the venture capitalists.  I thought that they would be invested in the latest and greatest of electrical storage technology.  There were some interesting ideas, but none investable for me.  As you know, venture capital is only available to the accredited investor and more than likely a very high-net worth accredited investor.

That roadblock led me back to those companies that are the current fuel cell “battery players.”  I have followed these companies as an energy and renewable energy analyst and portfolio manager and eventually sold them and dropped them from coverage, due to their inabilities to advance technologically.  After several quarterly conference calls of reduced earnings guidance, it was clear to me that these companies were “before their time.”

Here we are ten years later from their previous peaks and maybe it is their time. They are on a tear.  What sparked this run?  TESLA.  With Tesla moving from their small, multi-battery, battery (6,831 batteries to be exact) to a single large lithium ion battery, the company did not have enough test miles to understand the potential liabilities.  Their lithium ion battery caught fire from a collision.  Then came the NYT articles and potential calls for a recall of the car.  The Tesla stock imploded.  Elon Musk who also founded X.com (later Paypal), Zip2 and SpaceX, clearly would resolve this issue.  That got me thinking about the battery space.  When you look at solar, sure the cost per kwh is moving rapidly toward grid parity, but it only works when the sun shines, which is during most people’s work day.  Wind, which seems to be heading towards the setting sun mainly due to NIMBI, long transmissions lines (and significant line loss), and heavier than expected repair and maintenance costs, also needs storage.  Electric cars, in order from them to move forward, need better battery solutions.

But something may make it different this time for these battery stocks, while Musk presses for better lithium ion results or other battery solutions.  Let me turn to Hyundai.  They are introducing into the California market this spring, the Tucson Fuel Cell CUV.  Why California?  It has 8 of the 9 hydrogen stations in the US, so it makes sense to start there.  Initially, they will only be available on a lease basis.  Keep an eye on this vehicle (and their videos - Hyundai has a couple of cool videos on the vehicle and refueling stations) for it will tell us if these battery stocks usher in a new era.  While they are not suppliers to the Hyundai, they are fuel cell component manufacturers.   But buyers beware, hedge funds will be looking to short these stocks as hard and as fast as possible.  I like the battery space - it is the linchpin to solar, wind and electric vehicle growth and earth's renewal.