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Andrew MacKillop: The Dangerously Unrealistic Windpower Boom

Of one thing we can be sure: current energy-and-climate policies are unrealistic and must be abandoned, reviewed or reformed.

Europe’s windpower industry was, until 2010 when China edged into No 1 slot as the world’s leader by annual production and new installations, the world’s undisputed windpower champion. Using GWEC data for early 2011 Europe has about 44 percent of the world’s total windpower capacity (which is about 195 GW), but its output in 2010 only covered about 9 percent of EU27 electricity consumption.

Far ahead of solar power by energy production, installed capacity and total power output, the wind energy industry continues to be seen by official eyes as a future major employer. In the USA, president Obama continues to claim the green and low carbon energy sector, led by windpower could generate “5 million jobs by about 2020”, but the tide or the wind has turned for windpower.

In Europe, which has the world’s biggest share of windpower with the windfarms of some countries like Denmark, Spain and Germany able to produce around 25 percent of national power demand at certain times, and at ultimate peak more than 30 percent, wind energy only employs about 105 000 people in direct manufacture and installation, and between 150 000 and 180 000 persons in secondary, related and “spinoff” categories. This can be compared with about 2.3 million European employed by the car industry and another 10 million in related and secondary industries.

The problem is simple for the windpower industry: even the present level of employment is not sustainable and depends on subsidies, underlining that raising the part of wind electricity in total annual consumption (percent share in the energy mix) will be very expensive.

Industry analysts and wind energy company executives say job growth is hampered by uncertainty on energy policy of the US, European and other countries, including China and India. In the US case, Obama’s delayed and almost certainly failed attempt at passing a climate bill including mandatory European-style CO2 emissions trading and CRCs (carbon reduction commitments) to make fossil fuels more expensive and renewable energy more competitive, is one major uncertainty. Obama’s stimulus bill, including aid for wind and solar power, spared the wind and solar industries’ steep job losses in 2010, but the likelihood of this generous aid being repeated is low, and declining.

The 2010 stimulus spending, part of Obama’s general $ 787 billion economic stimulus package contained an estimated $ 16 – $ 20 billion for “clean energy”, of which about $ 7.5 billion went to windpower. This saved about 40 000 factory, installation and maintenance jobs in the wind industry, according to the American Wind Energy Association. The AWEA however also said these job savings only offset the same amount of jobs lost by the US wind energy industry in 2010, for reasons including technology change to bigger turbines, increasing saturation of most productive windfarm sites, slowing demand growth for US electricity, rising Chinese and Indian competition and uncertain financing.

Directly linked with government budget deficit trimming action, as well as the industrial, technology, commercial competition and financial factors raising job losses in the wind industry, Europe’s wind industry has since 2009 begun to face hard times.

With decreased government subsidies and support, Vestas, the Danish company that supplies 20 per cent of the global wind turbine market, cut 1 900 jobs in Denmark and closed its UK blade manufacturing and research plant, employing about 600 people on the Isle of Wight. Major German and Spanish wind energy companies, since 2009, have also begun to cut jobs. By late 2010, Spain’s largest windpower company, Gamesa, facing the same mix of factors hostile to continued growth of windpower spending and a free fall in its earnings and share value over 12 months, was forced into massive layoffs and production cutbacks in Spain and a strategy of alliance-making and market sharing with Chinese and Indian windpower giants.

These, too, have however also started backtracking – or restructuring, redeploying and refocusing their business models, expectations and financial strategies in a context where government support is now less automatic. This is symbolized by the March 2010 comment by Miao Wei, China’s vice minister of Industry and Information Technology, who described the majority of Chinese windfarm projects as “vanity tech” facing serious sustainability issues due to rapid mill ageing and industrial wear and tear in increasingly harsh and unsuited sites. For the wind industry in most countries, today, the hope is that “beyond about 2015” things might get better.

THE FUTURE IS NOW

The global windpower boom that we can place at about 2005-2010, and its smaller copycat version solar photovoltaic power boom were with hindsight close-linked and dependent on the 2004-2008 debt-driven global economic boom. All signs indicate the boom is over.

In the 2004-2008 good times however, competing energy prices for oil, coal, uranium and natural gas could only go one way: up. The handy rationale of global warming crisis was either fortuitously, or deliberately created and launched at the same time, powering enormous growth in speculative financing of “green energy”. Since 2009, and more intensely 2010 we find that the mix of win-win factors making wind and solar powers the natural focus of go-go investment house financing packages, broker dealing and hedge fund asset plays has almost completely collapsed. Putting the pieces back together will be very difficult.

By 2009, in a study by Bloomberg’s New Energy Finance division and the Frankfurt School of Management on the outlook for world financing of renewable energy, the findings were already negative for the sector, simply because speculative short-term based financing, and massive government subsidieswere the de facto bases of the wind-and-solar boom. The study found that in at least two-thirds of all cases, project owners of renewable energy installations and assets, or close-related infrastructure providers such as cabling and power metering companies, the reaction to financial hardship or a cut in subsidies will be simple: sell out. The result of this is an inevitable collapse of the quickly built, upturned value pyramid and very sure and certain layoffs for any employees on the ground or in the factories and offices of companies that fed off the speculative boom.

The claimed stable and secure, green and sustainable, low environment impact energy future was in fact a simple boom-bust speculative financial bubble that fell apart when impacted by real world economics. In an incredible mismatch with reality, the “sustainable energy vision” still occasionally surfaces in speeches by Obama, and by other political leaders still officially committed to green energy, mostly in Europe, but today the shutters are falling on “soft energy asset plays”. The reasons for this, while they especially include a cutback in government subsidies and reduced interest by financial sector asset “engineers” facing other and much more serious challenges, also include a host of real world economic, industrial and technology factors, which were and still are in play.

In the real world economy and linked to another speculative bubble – the electric car boom, or hoped for boom – we have in fact the worst possible combination for any rational hope that wind and solar electricity can economically cover large slices of national power demand. When or if electric cars even took a few percent of car fleet numbers in developed countries, and in China or India, national electric power capacity needs at peak charging times for electric cars (evenings, weekends) would simply explode. Meeting this new capacity demand with alternate energy such as windpower would be technically and industrial impossible, and the cost would be simply open-ended. Understanding this reality is of course resisted, by those who profit from illusion, but any serious growth of electric car fleets can only further weaken the already shaky policy goal of raising the role of windpower, solar electricity in the energy mix.

DOES GREEN ENERGY FIT THE ENERGY MIX ?

What is clear with the fossil energy sources is they easily scalable, and provide constant and predictable supply, with logistic, infrastructure and control systems that are easily amortized – both in cash and energy cost. This is not the case with nearly all renewable energy sources and systems, outside geothermal power and ocean thermal power, both of which are very high cost and very localized, if technologically attractive. Historical study of windpower in Europe and other regions shows this problem clearly: the equivalent of today’s energy storage as pumped water, heated water, flywheels, batteries, pressurized air, chemical state change or other methods was simple – grains were milled and lumber was sawn when the wind blew, and the finished value added products were stored.

When we face the problem of storing megawatthours or gigawatthours of electricity, and recovering that electrical energy very fast and with minimum loss, then rapidly putting it back into necessarily “smart” grids we can easily describe what is needed. But building it and operating it can only be vastly expensive. The lowest possible estimates for “smartening” US power grids enough to handle about 25 percent of national electricity supply from windpower and solar energy are around $ 800 billion spread over 10 to 15 years for the works needed under a major national infrastructure development programme, given priority funding, manpower and resource support.

To be sure, how we define “smart’ grids helps to confuse the understanding of the massive scientific and technical, as well as industrial and financial challenge. One definition is power grids able to operate demand control and supply cutoffs through constantly variable tariffs, reaching extreme highs at “bad” moments, when wind supply is low or zero and solar electricity is unavailable. Even this level of “smartening” needing sophisticated metering, communication and control systems would be very costly to install nationwide. When or if peak electricity demands were further raised, if or when electric car fleets were ramped up to even 5 percent or 10 percent of national fleets, the costs and technology challenges would literally explode.

One so-called solution is already mapped for speculative financial players invading this new asset domain: battery swap stations linked by IT communications. The inevitable result of this ever seeing the light of day would be that each electric car would generate a need for two or even three full-sized batteries, typically costing $ 10 000 each, further raising the massive costs of this so-called solution.

At the next level up in grid “smartening”, moving from demand control only to electric power systems incorporating very large scale electricity storage, no reliable cost and building time estimates can be given, The reason is starkly simple: the technological and financial challenge is massive.

At present the only practical – and expensive – large scale electricity storage method is pumped water, usually needing massive civil engineering works to create reservoirs and water channels. Taking account of evaporation losses from the exposed water surface and power conversion losses, only about 75 percent of the electrical energy used to pump the water into elevated reservoirs can be recuperated. This is however currently the only cost-effective way to store large amounts of electrical energy on an operating basis, and in Europe almost all the easier and lower cost sites are already exploited.

The basic technological (or mechanical) problem is easy to understand. With 1 ton of water penned at the top of a 100 meter drop, the potential energy is about 0.27 kWh, of which about 75 percent can be recovered. The value of this quarter-kilowatthour is usually far below 1.5 US cents for bulk electricity supply in large scale day-traded power markets, as in the USA and Europe. To be sure, very large pumped storage systems exist (the world’s biggest, in China, being about 2.7 GW capacity), but these are prestige high-cost infrastructure projects and their large scale power storage is only relative. All pumped storage systems currently existing are only for electric power system balancing – not for large and constant supply.

Large scale power storage with batteries, as we can guess, is a fantasy given the cost of power storage, as shown by electric car batteries able to store as little as 50 kWh (with a value of around $3 or 2.25 euro at bulk electricity prices) but costing more than $ 10 000 each. While the Internet is full of large scale and cheap battery power storage offers, the reality is these do not exist in the real world. The energy recovery rate (energy recovered relative to energy input) is usually below 75 percent, and the cost per kWh stored is simply fantastic.

DILUTING THE GREEN ENERGY FANTASY

We can easily summarize the implications of the “official policy vision” that we have today with energy-and-climate policies like the December 2008 European Union plan for at least 20 percent of European energy being renewable or low carbon by 2020, and follow-on policies aiming for 80 percent cuts in CO2 emissions by about 2035. If it was technically, industrially and financially possible to execute these policies, today’s national, regional and world energy supply and demand structures would have to be so massively changed that the term Energy Transition has a real meaning.

Unfortunately or otherwise, neither the funding nor the technology exists to meet these paper goals and they must be recognized for what they are: impossible to achieve. They need urgent root-and-branch review, reform and change. One immediate and rational action would be the stretching, further into the future, of current plans and goals with a linked cut in subsidies and spending.

Costing the vision of what we can call Emergency Energy Transition is the focus of dozens of studies and research programmes, but we can place the likely costs in a range starting at over one trillion dollars-per-year of investment, maintained for decades, to achieve the higher goals such as an 80 percent replacement of fossil fuels by 2035. This can be compared with total spending by the oil and gas industry: world total spending by this industry in recent years runs at around, or below $ 500 billion-a-year. World electric power spending on infrastructures, plant and transmission-distribution has recovered sharply since the 2009 recession, but only stands at an estimated $ 400 bn for 2011.

Taking only electricity, this accounts for around 35 – 40 percent of total end-use energy in developed countries and far below this outside the OECD, but is the major focus for renewable and alternate energy development because electricity is the major useful energy output from the most industrially advanced renewable energy technologies, starting with windpower. On energy-economic grounds, further raising the share of electricity in final energy consumption is a challenge, with cost and technology barriers rising as electricity’s share of end-use energy is forced upward.

Industry analysts forecast that electricity demand could grow at an average 3 percent a year in emerging countries in the next decade, but by less than 1 percent in the developed OECD. To be sure, this makes it somewhat easier to envisage renewable energy sources covering as much as 20 percent of total energy demand by 2020 in developed countries – but the outlook of very low demand growth for electricity will be turned on its head if the mooted shift to electric cars takes place. The choice would be stark and simple: either the share of green energy in the future energy mix has to fall, or the electric car boom has to be abandoned – or both.

This stark reality is very easy to show with simple back of the envelope figures. Taking the case of Europe’s current estimated 210 million car fleet, if we imagined (like Renault Nissan) that 5 percent could be replaced by electric cars each needing 5 kW charging power, power demand at peak times could grow by 50 GW. This 50 GW, if provided by nuclear power or offshore windfarm power (with a capital cost of around $ 7500 per kW) would need the spending of more than 200 billion euro or $ 375 billion. None of these vanity techs – offshore windpower, nuclear power and electric cars – comes cheap and above all this spending is unnecessary.

We are confronted by a massive credibility gap, papered over by heroic spending plans, of an all-green low carbon energy future being cobbled on the base of our real world brown energy present. This credibility gap cannot be hidden forever. The basic rationales supporting the all-green energy policy drive are no longer coherent, and many of them have seriously weakened even in the space of a few years. Energy resource and supply security issues that support green energy have in particular been weakened by the very large potentials of shale and coalseam gas production, which in Europe alone could have a resource base with an energy value above 150 billion barrels oil equivalent (EU27 oil consumption in 2010 was about 4.9 bn barrels).

Simply the “gas window” allows us to stretch the green energy future further ahead, and cut near term spending. While constantly advocated and promoted as a pillar of energy policy, both in the US and Europe, energy conservation and demand side management is only given on-and-off real world support and commitment, potential remains massive. Due to decades of massive energy R&D spending on nuclear power, and little or nothing on energy management, efficiency raising and unconventional energy the now rising amounts spent on “alternate energy” R&D can be realistically hoped to provide useful and economically effective results. Of one thing we can be sure: current energy-and-climate policies are unrealistic and must be abandoned, reviewed or reformed.

Andrew McKillop is a former in-house policy and programming expert, DG XVII Energy, European Commission