New demands for global energy

Peter Garforth encourages plant managers to keep asking questions about alternative energy.

By Peter Garforth

Investment decisions in energy efficiency, alternative energy supply and new energy-saving production technologies, along with necessary management changes, are always multidimensional and complex. There will always be a balance between the market priorities of the business and the risks and operating benefits that come from more rational energy use. Given this complexity, it’s critical that business and technical leadership be reasonably current with the scale of the changes taking place in the energy field. Failure to stay abreast inevitably results in wasteful investments or missed opportunities.

In some cases, changes are coming dramatically faster than many believe. In others, they’re slower than sound bites and news headlines would have us think. Lack of awareness of fast-moving changes implies decisions based on yesterday’s outdated assumptions, leaving the company open to competitive threats. Acting impulsively on the “latest and greatest” technology on the assumption that it’s mature enough opens the company to operational risks and unknown costs.

Take the example of solar power, a technology almost universally viewed as expensive and impractical, but with future potential. It tends to be used by companies more as a badge of greenness than as a key part of an energy strategy. This isn’t entirely unrealistic and was certainly the case a few years ago. Will this be the case a decade from now, well inside the timeframe of many business decisions? Exploring the scale might change the thinking.

By 2030, non-OECD energy needs will more than double to more than 10 billion tons of oil equivalent.

In 2010, the United States installed about 500 MW of solar photovoltaic systems, doubling the total capacity. Prices dropped by 20% to about $5/W. In the same year, Europe’s installations totaled 14,000 MW, again doubling total regional capacity in a single year with at least another 70,000 MW planned by 2020. China installed 900 MW with 18,000 MW planned by 2015. Installed costs in Germany are about 20% less than in the United States and costs are even lower in China. At what point will solar generation be a viable option to avoid summer peaks and carbon risks for a company? Maybe never, but with these rates of market change it would be deeply unwise not to ask the question.

Staying with the renewable electricity theme, wind generation is painting a similar picture. In 2010, the United States put 5 GW on the ground, bringing the total to about 40 GW. Even at a 50% yield, that is equivalent to installing two nuclear reactors in a single year. Europe’s current total is 84 GW with 9 GW installed in 2010. Europe’s total wind generation will triple by 2020, a target that might soon be even higher following the German and Italian decisions to shut down their nuclear reactors. China and India have installed 17 GW and 2 GW, respectively. Installed costs are approaching $2/W, with generating costs well under $0.10/kWh. Individual turbines with a nominal 20 MW capacity are in development, and we only can guess their effect on the market. At what point will it be a viable option to invest in wind to avoid carbon risk and add to supply diversity? Maybe never, but with these rates of market change it would be deeply unwise not to ask.

Similar acceleration in cost and deployment is under way for solar concentrating power, biomass heat and power generation. Battery technology, driven by the changing demands of transportation, quickly redefines the cost curve of power storage. One Michigan plant alone is expected to be making 200,000 lithium ion battery packs by 2012 with plans to grow dramatically within a decade. At what point will this change the way we think about peak management and even powering lighting and information technology with DC power? Again, maybe never, but that shouldn’t stop us from asking the question.

On a recent project, we looked at the energy use for commercial buildings from current practice through becoming fully compliant to U.S. best practices. Energy use for current practice was more than double that of best practices, and we see codes and practices changing rapidly to reflect this reality. Knowing the potential cost savings of using best practice construction and operation methods, at what point does energy performance of commercial buildings become a condition of purchase or rental of a property?

Global energy demand and the pressure this puts on society and policy are other rapidly moving targets. These deserve closer scrutiny, and a future column will circle back to that. The realignment of the world’s energy use alone should give us pause for thought. The energy used by the OECD and non-OECD countries today is about equal at 5 billion tons of oil equivalent. By 2030, non-OECD energy needs will more than double to more than 10 billion tons of oil equivalent, while the traditionally industrialized world will grow less than 10% in total. When you combine this shifting demand, the current and inevitable policy changes resulting from a crisis like Dai-ichi, and a host of other uncertainties, the future is far from clear. At what point does active risk management become a part of the company’s energy plan? Again maybe never, but asking the question makes sense.

Do we appreciate the scale of change? Are we asking the right energy questions?

Peter Garforth is principal of Garforth International LLC, Toledo, Ohio. He can be reached at peter@garforthint.com.

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