Lies, Investment, Government Spending, and Portugal

Broken Wind Turbine Strategy

Broken Wind Turbine Strategy

Original Image It is my belief that as a non commercial educational posting this constitutes “fair use” of the image.

In an earlier posting, I’d pointed out that ‘economic stimulus’ via government spending and mandates tended to avoid profit making investment and cause consumption; and that would be sub-optimal allocation of money. That Keynes was perhaps incomplete in that we needed to have more profitable investment, not just more velocity of money via consumption or loss making “investment”.

https://chiefio.wordpress.com/2010/06/25/was-keynes-incomplete/

It looks to me like Portugal is doing a stellar job of illustrating that point, but the Lame Stream Media are playing it up with a lot of “happy talk” spin.

Ecotretas Catches The NYT in a Whopper, IMHO

In this posting:

http://ecotretas.blogspot.com/2010/08/portugal-new-york-times.html

He finds that the NYT is hyping as a great leap forward in green investing the increased renewables production in Portugal. Yet the truth is that it is driven by more rainfall making more hydro electric (not some investment gains). Further, the power produced by Portugal from wind at peak and ‘exported’ is coming at the same time everyone else has wind power to dump, so they are dumping it for free.

The New York Times also comments on the fact that Portugal has become a net power exporter. That has in fact occurred, but at a high cost! Portugal has been exporting this energy when the wind is stronger, with it occurring when wind is also strong in Spain. A lot of this exported energy was exported at zero cost, which means Portugal is offering energy to other countries, while consumers/taxpayers are paying almost 93.74 euros per MWh for wind energy feed-in tariffs. According to my calculations, these exports have cost the country 50M euros, only in the first trimester of 2010. Indeed, if no wind energy existed, Portugal would have benefited 216M euros in the same first trimester.

The original has links to supporting information and much more of interest. It’s a good, quick read; so hit the link and be amazed. One of my favorite bits is the chart of growth of renewables over time where the “real” chart has a wobbling downward trend while the “corrected” one is rising with acceleration. Must be a government statistic…

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics - Trading - and Money, World Economics and tagged , . Bookmark the permalink.

7 Responses to Lies, Investment, Government Spending, and Portugal

  1. Luís says:

    while consumers/taxpayers are paying almost 93.74 euros per MWh for wind energy feed-in tariffs

    The FIT for wind is 0.0075 €/Kwh, not what the gentleman says. If wind electricity is exported then it is paid for by Spain, even it is zero. I guess someone needs to explain how exporting some good or service is costlier to the exporter….

    To frame your post you should first ask how much will it cost to generate a kwh of electricity from gas or coal 10 years from now.

  2. E.M.Smith says:

    @Luis: It would be nice to have a citation for the Feed In Tariff either for your number or theirs. I have no independent knowledge of it, so I’m left to assume folks are not just making up their numbers. Ditto the notion that if Portugal is selling electricity via a feed-in at zero then the FIT is paid by Spain… Or maybe I didn’t understand that point correctly. Why would Spain have to pay the FIT of Portugal?

    Exporting a good or service at ZERO price means you are paying all the costs to create it, then getting ZERO return, net having a negative of whatever the cost was. So lets say I have a wind turbine that takes $3000 of maintenance per year and I give away the electricity it makes. I’m still going to spend $3000 for maintenance. I’m losing money… I’d be better off shutting down the wind turbine and avoiding the need to replace bearings, brushes, lube, etc. If I have a power management facility with 5 headcount, I’d be better off shutting down and telling them to take a vacation.

    For gas and coal, 10 years from now it will be almost exactly what is is today in real terms. (no idea what governments will due to bugger their currencies, so we’re talking ‘inflation adjusted’ costs here. You’d need to do that for any comparison anyway). Coal plants last 50 years (sometimes more) and natural gas turbines have relatively low cost facilities based on jet turbines. Turbine costs have been stable to dropping per kWhr for the last decades. Natural Gas is in severe glut and will stay so for some time (new tech for ‘tight shales and a LOT of shales still to develop, so it will take decades to finish that and remove the price pressure.) Coal is a 400 year supply, so 10 years is just not significant. The price per ton is so low, it’s the capital cost that dominates the generation cost anyway.

    So you are looking at dirt cheap coal (literally) and nearly so natural gas generation for at least 20 to 30 years.

    One Caveat: Governments can screw up these economic truths by applying all sorts of stupid and broken rules. It’s quite possible for, say, the EU to put a $1000 / ton tax on coal and make it horridly expensive. That is not the real cost of making electricity from coal, though, and does not actually justify wind as an alternative. In real terms, it’s just a wind subsidy of a particularly inefficient sort.

    Last I looked coal electricity was running about 5 cents / kWhr and gas was about 8 cents / kWhr but with the recent price collapse of nat gas it, too, might be down near a nickel. Nuclear was about 3 or 4 cents. That was a decade or so back, and a lot of government intervention ago, so no telling how that real cost is now reflected in a Real Cost + Sovereign Risk Premium final rate today. I suspect that with a bit of googling you could get a more accurate answer. FWIW, wind was about 10 cents and headed to 8 then with 5 as the eventual target.

    Diesel:

    One sidebar note. About a decade ago (maybe a bit longer) when I was doing all this; I investigated getting a Diesel Generator. (This was when we had Gov. Greyout Davis and the idiotic California rate system that demanded no long term contracts and buying all power ‘at spot’. As Dennis Miller put it: Buying power at mini-bar prices.) Honda made a nice 12 kw one that was just a bit large for my needs. Did the price / cost analysis on it. The odd thing was that it made power for about the $-per-gallon/10 per kWhr. So with fuel at $1.80/gallon it would make power for $0.18 /kWhr. At the time our base rate was 14 cents, so this was not worth it; but with the PUC being stupid we were looking at 22 “Real Soon Now”. (before I had to buy my own Diesel genset, we tossed Greyout Davis and let PG&E go back to getting long term contracts and killed off the “mini-bar” as Enron collapsed. They had figured out how this was a really stupid way to BUY power, so they sold it to us instead…)

    Now, with Diesel running $3, it would be 30 cents/kWhr. So you can use that metric to figure out just how dumb any given power provider might be. If it cost more than 1/10 the price of a gallon of Diesel / kWhr, then it’s pretty darned dumb as all of Nuke, Coal, and Nat. Gas are way cheaper.

    Oh, and realize that these cost basis numbers may have nothing to do with what you pay on your bill. That particular work of fiction has a load of things added to it via government mandate and / or monopoly inefficiencies. The rate plan is a political creation of the PUC and void of cost information.

    FWIW: Giant Wind in places with very consistent wind like Texas Plains and Kansas has the potential to get to about a nickel / kW-hr (though I’ll still be paying about 15 cents if it ever gets here… as the PUC will want to ‘discourage me’ from using power…) while solar is headed toward the nickel too, but from a higher starting point though with a steeper decent line. Eventually they will be cost competitive. Though the “dispatch” ability of them will be a BIG issue to overcome.

    Doesn’t do me much good to have cheap solar in August at noon if I need heating at midnight in December… Works great for the US Desert Southwest A/C demand (our max peak) but not so well for the North East winter heating peak…

    And that was the key point of the article. Having power when you don’t needed is a net COST. And as we saw in England last winter, not having power because the wind does not blow during very cold snaps is kind of dim too… So the cost per kW-hr is a nice number to know; but WHEN you get power is critical. All of nuke, coal, nat gas, and Diesel have near 100% availability and dispatchability. Solar and wind more like 30% if you are lucky.

  3. Chuckles says:

    Most schemes see the wind power producers piad a handsome premium/subsidy for their pristine recycled electrons, while any cross border sales are at the ruling market spot price, which will usually be a fraction of that.

    Portugal has some potential with it’s combined wind/hydro, since they control both, and can balance the supplies. If they’re selling excess, either the control systems are not very good, or there is very little juice being used at the time.

    Denmark is not so lucky, as the hydro ‘smoothing’ is owned by Norway and Sweden, and any excess wind power they produce is sold at the ruling spot price, which since last year, can go strongly negative….Pay them to take the juice, while you’re paying the source a hefty premium. Good business model that.
    Denmark is also hit because most of their thermal base-load stations are combined power and heat systems. So they cannot be throttled back when the wind is blowing, since there are the heating contracts to be honoured. The wind power is then simply dumped to Norway or Sweden.

    I’d also look very askance at that nickel/kWh for wind power E.M., not by my cig-box calcs.

  4. E.M.Smith says:

    @chuckles: 2 things on the ‘wind nickel’:

    1) I DID say it was aspirational ;-0 in that it’s a goal…

    2) It was a while ago and with inflation that ‘nickel then’ is probably more like approaching a dime now. The number was being provided by a wind industry participant so was probably ‘soft’ to begin with (and who knows what assumptions went into the calculation).

    So basically I wouldn’t make a business plan based on it… but it’s a reasonable statement about what the wind industry saw as attainable with some more economies of scale and some improved methods of construction.

    Yeah, that whole ‘dispatch-able’ issue is a major thorn for wind and solar. Major feature for natural gas turbines. They started as peaking plant. Only after the turbines got so efficient and gas dropped so low on new supplies did they start being used for longer duration generation. (The GE turbine in particular. It was originally designed for intercontinental flights on jumbo jets. Runs for long hours without breakdown or repair and has fifty something percent efficiency even before any CHP heat recovery).

    So if I’m an electricity provider, I can build one of these generating plants and have a highly efficient generator with nearly 100% dispatch flexibility and very low capital cost (and using what is presently an incredibly cheap fuel, about 1/2 the price of oil). OR I can build a very large wind field with lots of land use and raptor kill issues, lots of weather driven exterior maintenance (paint if nothing else) and where I get a dispatch PROBLEM instead of a dispatch SOLUTION. Then tell me 1/2 the time I will have capacity that I can’t even give away… Pretty easy decision.

    So we again have an operational decision about how to operate a business being made by government. (Either via direct mandate of % renewables or via subsidy distorting the markets) A “socialism light” behaviour. And with predictable results… Sub-par performance. Waste of resources. Unexpected negative outcomes (like raptor kill) getting swept under the carpet since now the ‘watchdog’ aspect of government is compromised by it being part of the advocacy group. Stagnation of competition and innovation as folks face a government hurdle to get into business. Etc.

    FWIW, I’ve seen that ‘stagnation’ aspect personally. Take fuels. California tried to have a methanol option back in the 1980’s or so. I wanted to buy one of the cars. Went to the now defunct Dodge dealer where they were selling flex fuel cars that used any of gasoline, ethanol, methanol. Then went to the gas station. Yeah, you could buy methanol. Buy only via a special California State issued ‘credit card’ – cash not allowed – and only with all your fuel purchases being tracked by the state. I just walked away from the whole idea…

    And anyone thinking of coming out with a new fuel knew they would have to fight CARB and their advocacy position for the competition. A load of innovative ideas hit the floor with a major crash – tinkle. (Dimethyl-ether for one).

    The whole idea eventually imploded as the typical person would not put up with that kind of crap. Only some government agencies bought the cars / trucks. At one time all of Ford, GM, Dodge / Chrysler, VW and a few others were offering flex fuel cars for all three fuels. All gone now. “Flex” has dropped back to just gasoline-ethanol mixes.

    Similarly we had the push into MTBE (Methyl tertiary butyl ether). Driven by government mandate. Took WAY too long after it was found to be getting into ground water to admit it was a problem. $Billions spent digging up all the fuel tanks of the state to replace them with new improved tanks. TWICE. Huge waste of money and effort. All due to a broken mandate followed up with a compromised ‘watch dog’ trying to defend it’s bad idea. (As soon as I’d seen it was a long chain ether I knew it would be stable to degradation, highly mobile in the water table, and hard to contain in the tank. Anyone with chemistry experience knows that about ethers.)

    Gasoline and Diesel are ‘bug food’ and bacteria just eat any spill. MTBE was a way to put natural gas into liquid form. They could have just as easily gone to methanol or simply stopped the process at butanol (that is a ‘drop in’ fuel for any gasoline car as is: http://butanol.com/ ) but some one decided that they wanted a heavy ether. (IIRC there was some favored company with patent rights and good lobbyists involved…) And with the inevitable results when you put a highly mobile chemically stable solvent into plastic tanks in the ground…

    I really wish the government would just totally exit all activities involved with fuels and energy. There are a whole lot of solutions out there and the markets could rapidly find the right ones. But at present it’s all locked up in government mandates, regulatory hurdles, and legal punishments.

    Wind is just one example.

  5. Chuckles says:

    E.M. Amen to all of that.
    The wind farm ops and maintenance ‘budgets’ are seldom ‘paint and forget’. There is a LOT of the hand-waving usually hidden in there. e.g. the exciter current for the generators. I’ve seen numbers like 20% of nameplate bandied about… – buy the juice at the best rate, and sell the result at the renewable rate…
    Some turbines also require motor drive when there is no wind to protect the shaft bearings, there’s the power for the hub rotor controls – feather, pitch, yaw etc etc etc.
    And yeah, stochastic sources i.e. wind are just what you want to add into the control systems. INteresting times indeed.

    Many years back when I was involved in such things they used to keep a couple of gas turbine plants and a pumped storage or two floating around on the grid just for the peaks and dips, and for a black-start if the SHTF on the whole system.

    The methane would probably do a lot better if they ran it through a GTP plant and made gasoline and diesel, but hey, that wouldn’t cause enough disruption.

  6. mrpkw says:

    OK !!!!
    I have a GREAT idea !!!

    Le’s use some of the leftover PORKULUS money (meant for ‘green Jobs”) and pay Canada and Mexico to build wind powered electrical systems. That way, when they have too much electricity that they can’t use, that can send it to America for FREE !!!!

  7. E.M.Smith says:

    Ooooh! I like it!

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