Likes Alter energy

ReNew Economy has an article on a recent report from UBS on the outlook for power utilities - UBS: Utilities face “perfect storm” from renewables, storage.

A new report from leading utilities analysts at investment bank UBS suggests that energy utilities in Europe, north America and Australia are facing a “perfect storm” from the falling costs of renewables, energy efficiency and falling demand, and may not be able to sustain their business models.

The report – entitled “Can utilities survive in their current form?” – is the latest in a series of assessments, reviews and analysis that point to the severe disruption to the centralized generation model, and the demand and supply dynamics that have governed the industry for the past few decades. To briefly summarise the UBS response to its own question, the answer is No.

UBS says the biggest impact on the current utility model will occur in developed markets, where renewables in general and distributed solar in particular will take more of an already depleted “demand pie.”

This, says UBS, will cause profits to fall and could force utilities, particularly generators, to look at greater exposure to renewables and distributed generation, and to other downstream services. It comes to a similar conclusion on this as the CSIRO Future Grid forum, and echoes some of the strategic decisions currently being mooted German energy giants RWE and E.ON.

“We expect the renewables onslaught to continue and that the going will only get tougher for conventional generators,” the UBS analysts write. “We believe the will need to examine and change their traditional business models to survive the renewables era.”

These new business models could include a greater focus on rooftop solar, energy efficiency, and consumer offerings that combined solar, storage, and electric vehicle infrastructure, as well as energy-efficient appliances.

The Business Spectator has an article on French plans to wind down nuclear power in favour of renewables - French carbon tax, feed-in tariff reform and CCS on horizon.

Germany’s neighbour France is also looking to shake up how it supports renewables as the country begins its “energy transition” away from nuclear.

France will introduce a carbon tax and a law to cap nuclear-power capacity as part of a new energy bill next year to boost renewable generation, President Francois Hollande told an environment conference last week. Hollande has vowed to reduce reliance on nuclear to half of total output by about 2025 while also keeping down consumers’ bills.

Among other things, the energy law in 2014 will define how renewables are financed. Hollande said last week that the above-market guaranteed prices currently paid to green energy producers “can lead to a waste of public funds, profit-taking and speculative behaviour.” Bloomberg New Energy Finance expects the shift in renewable support may move towards a greater use of tenders to keep costs low.

Advance Project Finance - Structuring Risk

Building the model:

- assumptions;
- construction;
- insurance;
- taxes;
- depreciation;
- financings;
- income statements;
- balance sheets;
- cash flow;
- retained earnings;
- equity returns;
- coverage ratios and
- present values.
- off-taker purchase;
- capital recovery;
- unit prices;
- market fundamentals;
- DCF;
- NPV;
- WACC;
- CAPM; and
- IRR.

- due diligence of analyzing the projects ability to support interest rates and gearing;
- downside, base, and upside cases;
- use the model to price and negotiate the deal.

PROJECT FINANCE TRANSACTION AGREEMENTS

• Engineering, Procurement and Construction (EPC) Contract: - between the Project Company & the Engineering Firm.
• Operations and Maintenance (O & M) Agreement: - between the Operations Contractor and the Project Company, obligates the Operator to operate and maintain the project.
• Shareholders Agreement: - governs the business relationship of the equity partners
• Inter-creditor Agreement: - an agreement between lenders or class of lenders that describes the rights and obligations in the event of default.
• Supply Agreement: - agreement between the supplier of a critical key input and the Project Company (e.g. agreement between a coal supplier and a power station)
• Purchase Agreement: - agreement between the major user of the project output and the Project Company (e.g. agreement between a metropolitan council and a power station)

Project start ups with USP and IP either as SPVs of a bigger concern or with strategic partners bringing project management skills

The NYT reports on the continuing search for commercial production of cellulosic ethanol - Milestone Claimed in Creating Fuel From Waste.

After months of frustrating delays, a chemical company announced Wednesday that it had produced commercial quantities of ethanol from wood waste and other nonfood vegetative matter, a long-sought goal that, if it can be expanded economically, has major implications for providing vehicle fuel and limiting greenhouse gas emissions.

The company, INEOS Bio, a subsidiary of the European oil and chemical company INEOS, said it had produced the fuel at its $130 million Indian River BioEnergy Center in Vero Beach, Fla., which it had hoped to open by the end of last year. The company said it was the first commercial-scale production of ethanol from cellulosic feedstock, but it did not say how much it had produced. Shipments will begin in August, the company said.

The process begins with wastes — wood and vegetative matter for now, municipal garbage later — and cooks it into a gas of carbon monoxide and hydrogen. Bacteria eat the gas and excrete alcohol, which is then distilled. Successful production would eliminate some of the “food versus fuel” debate in the manufacturing of ethanol, which comes from corn. “Biomass gasification has not been done like this before, nor has the fermentation,” said Peter Williams, chief executive of INEOS Bio.

The plant, which uses methane gas from a nearby landfill, has faced a variety of problems. One was getting the methane, which is a greenhouse gas if released unburned, to the plant’s boilers. (The plan is to eventually run the plant on garbage that now goes to landfills.) Another problem was its reliance on the electrical grid.

The plant usually generates more power than it needs — selling the surplus to the local utility — and is supposed to be able to operate independently. But when thunderstorms knocked out the power grid, the plant unexpectedly shut down and it took weeks to get it running again, said Mark Niederschulte, the chief operating officer of INEOS Bio. “We’ve had some painful do/undo loops,” he said.

The plant has produced “truckloads” of ethanol, said Mr. Williams, but still has work to do to improve its yield. Mr. Niederschulte said, “Now we want to produce more ethanol from a ton of wood, rather than just making ethanol from a ton of wood.”

ReNew Economy has a pair of articles looking at the benefits provided by solar power during the recent heatwave in southern Australia - Solar saved southern states from new and costly demand peaks.

Victoria and South Australia have just finished a week which put the highest stress on the electricity grid since a similar heatwave occurred on 28th-30th January 2009. Despite the population of Victoria and South Australia increasing at least 7%2 since then, the electricity demand supplied by the grid during the heat wave was just lower than the peak usage reached on the 29th of Jan 2009.

Electricity demand from the grid in the recent heatwave peaked on Wednesday. There were initially warnings of potential load shedding1 from the grid operator after the usually baseload Loy Yang A3 brown coal unit and one of the Torrens Island gas units tripped offline on Tuesday. However, demand came in slightly lower than forecast and apart from some minor local transmission outages, demand was fully supplied. ...

If no solar had been installed, Victoria would have set a new demand record of 10,675MW at 1:55pm today 17th-Jan-2014, higher than the metered demand of 10,572MW used at 12:35pm on the 29th-Jan-2009. South Australia would have set a new demand record of 3,549MW at 4:30pm yesterday 16th-Jan-2014, higher than the metered demand of 3,441MW set 4:25pm on the 29th-Jan-2009. Solar reduced the maximum combined VIC & SA demand by 448MW.

Asking what happens when the sun doesn’t shine and the wind doesn’t blow ignores the spare capacity built into the grid to handle record demand days like yesterday and today. For the majority of the year, spare generation capacity can backup variations in solar or sudden failures at fossil fuel plants. Record demands, where there is little spare capacity, are caused by hot conditions and strong sunlight. Solar is now a critical component of the generation fleet that reliably supplies our power.

An the second from Giles Parkinson - Solar puts heat on big generators as demand peaks subside.

There seems no doubt that solar is playing a key role in moderating demand and stress on the grid.

It’s interesting to note that the differences between the peaks of previous years – such as in 2009 when there was little solar – correspond with the amount of solar that has been installed (notwithstanding the need to add in population and air-con growth, offset by more energy efficient appliances and less manufacturing).

On Wednesday, for instance, the interval peaks were 10,110 MW in Victoria and 3,108MW in SA. The corresponding numbers on January 29, 2009, were 10,446 MW and 3,270 MW. According to the APVI’s Live Solar website, the PV contribution at the peak times was around 220 MW in each state. Some suggest that without solar, Victoria would have hit record demand from the grid on Thursday – and prices to boot.

In WA, the peak in electricity demand has fallen well short of previous years, despite the record-breaking streak of temperatures, rising population and growing use of air conditioning.

In 2011 and 2012, peak demand peaked at more than 4,000GW. In the past week, it made it only as high as 3,733. How much solar does WA have on its rooftops? About 340MW.

This has had an impact on peak pricing events. In 2009, the average spot price between 8am and 4pm was over $6,000/MWh. The average price – despite a few peaks – in the latest period has been about one tenth of that.

On Thursday, the volume weighted pool prices between 08.00 and 16.00 yesterday were $299/MWh in Victoria and $377/MWh in South Australia, despite the huge levels of demand. The reaching of super peaks of $12,000/MWh or more in Victoria occurred mostly when Loy Yang A – the biggest brown coal generator – had one of its four units off-line for urgent repairs .

Generators and retailers use elaborate hedging policies to reduce their exposure to such fluctuations – which can be triggered as much by bidding tactics and other factors as much as weather – but the fact remains that a large revenue pool has been evaporated by the impact of solar.

In the same way that one third of the network costs are to cater for about 100 hours of peak demand a year, generators source a huge amount of their annual revenue from similar events. The problem for many coal generators is that they grew to rely on these peak pricing events to boost their revenue, and inflate their values. Solar eats into those revenues whenever they produce – because the output comes during the day-time period, when prices are normally higher.

The Register has an article on the controversy over the use of body scanners in US airports - TSA bars security guru from perv scanner testimony. I recently travelled through a few US airports and didnt really notice the scanners (the retina recording they do at customs was much more in-your-face to me) - however I did find the "security theatre" performed by the TSA way over the top - I think there were more people participating in the security pantomime at Bozeman airport, for example, than there were people traveling through the facility each day. As a job creation scheme it may have had some merit but a less productive one would be hard to imagine...

Security expert Bruce Schneier was been banned at the last minute from testifying in front of congress on the efficacy – or otherwise – of the US Transportation Security Administrations (TSA) much-maligned perv scanners.

Schneier is a long-time critic of the TSAs policies for screening travelers, and was formally invited to appear before the House Committee on Oversight and Government Reform and the Committee on Transportation and Infrastructure hearings. However, the TSA objected to his presence because he is currently involved in a legal case over the use of said scanners in US airports.

"I was looking forward to sitting next to a TSA person and challenging some of their statements. That would have been interesting," Schneier told The Register. "The request to appear came from the committee itself, because theyd been reading my stuff on this and thought it would be interesting."

Schneier, who is currently involved in an Economist debate on just this issue, has criticized the TSAs procedures as "security theater", designed to give the appearance of security without actually being effective. He has pointed out that the scanners are easily defeated, and that since people who do have items are merely forced to give them up and sent on their way, terrorists simply need to send enough people through the systems until one of them succeeds.

This isnt the first time the TSA has been less than willing to have itself subject to anything like the same scrutiny that aircraft passengers are routinely put through. Last year they ducked out of similar hearings at the last minute, apparently because they didnt want to sit next to representatives from the Electronic Privacy Information Center (EPIC).

The use of the perv scanners is highly controversial. The TSA has spent millions of dollars to buy them, and the industry hired ex–Homeland Security supremo Michael Chertoff as a lobbyist to push the technology. However, there have been numerous examples of people claiming to be able to beat the scanners, concerns about the health implications of scanning, and the so-called "homosexual" pat-downs introduced to encourage people to use them caused a national day of protest.

There are currently several ongoing legal cases against the scanners, including one recent case in which, it is claimed, attractive female subjects were being repeatedly ordered to use the devices. Personal airport searches have to be performed by a member of the same sex as the target, but no such rules are in place for operators of the scanners.

ZNet has a look at the Iraq oil law - Iraqi Oil: What is hidden inside the Oil Contracts from the 1st and 2nd Bid Rounds ? (via Energy Bulletin). I found the point that the international oil companies will get additional payments for *not* producing oil kind of interesting, given their long history of suppressing Iraqi oil production.

Over eleven months have passed since the signing of the oil contracts between the Federal Ministry of Oil in Baghdad and the International oil companies (IOCs) resulting from the first and second bid rounds. However, to this date none of these contracts have been publicly released or published in any foreign language. Amazingly, all the contracts are written in English and none of them have even been translated into Arabic by the oil ministry in Baghdad, for the Iraqi people or even their representatives in the Federal parliament in Baghdad to look at and to see how their future is going to be shaped.

I have now obtained access to some of the contracts. My sources have specified that I cannot publish them in full, but I can discuss several aspects of them, which I shall do here.

My analyses will not cover the consequences of these contracts for the future of the Iraqi oil and gas industries or the future relations between Iraq and OPEC and its effect on international oil prices, as I already have covered these important topics in my previous articles [Iraqi Oil: The influence of the 1st Bid Round on the Future of Iraqs National Oil and Gas industries and [Iraqi Oil: Are the 1st and 2nd Bid Rounds Part of A Wise Resource Development Strategy Or Could They Turn Out To Be Steps in the Wilderness? ]

... Conclusions

1. Articles 12 and 37 explain the reasons for the secrecy surrounding the 1st and 2nd bid round oil contracts and the lack of real transparency by the Federal Ministry in Baghdad. Not only have the contracts not been made public, but they have not even been translated into Arabic, which should make every Iraqi suspicious of the motives behind all the secrecy covering the contracts to this date.

2. Article 12 shows that the margin of profits which were agreed on officially with the IOCs contractors does not represent the only profit that the IOCs will receive from the Iraqi Ministry of Oil, as the Ministry of Oil will compensate the contractors for the quantity of oil that they do not produce, which will in itself represent a penalty on the Iraqi people, whilst the IOC will receive additional profits for doing nothing.

3. Article 37 is a very significant article in terms of setting up the economic future of the Iraqi people and their future sovereignty. Therefore it is not wise to leave these vital decisions in the hands of bureaucrats in the Ministry of Oil or, for that matter, in the hands of a very weak government, without allowing the Iraqi people to have their say on their future by ensuring that such laws can only turn into lawful contracts if they are at least passed by an elected parliament, as required by existing Law number 97 dated 1967 which is still in force, or by a public referendum.

4. There are some analysts who believe that the US oil companies lost out from the awarded contracts, since only two of them, Exxon Mobil and Occidental have been awarded contracts. In my judgment this was not the case, as today what we call the International Oil Companies are really no longer national oil companies operating in the international market, as was the case up to the 1970s. In todays market, what we call IOCs are in fact multinational oil companies (MOC), owned by the multinational financial institutions (mostly US), with share holders from around the globe, and not by one nations share holders. It is more likely today that the external size of operations and profits of theses companies comes from projects from all over the globe rather than from one nation, as shown by the cases of BP, Shell and most others including CNPC.

5. The contracts awarded in the 1st and 2nd bid rounds confirm that the US occupation of Iraq which started in 2003 did achieve some of its targets. In particular the occupation succeeded in ensuring that the future control of Iraqi oil stayed in the hands of the multinational oil companies and not in the hands of the Iraqi people and their legislative body.

The Oil Drum has a post looking at the paper from Leonardo Maugeri that prompted George Monbiots strange about face on peak oil - New Energy Report from Harvard Makes Unsupportable Assumptions.

As for US production, this is tied to increasing production from all the oil shales in the country, which will see spurts in growth similar to that seen in the Bakken and Eagle Ford.

I estimate that additional unrestricted production from shale/tight oil might reach 6.6 mbd by 2020, or an additional adjusted production of 4.1 mbd after considering risk factors (by comparison, U.S. shale/tight oil production was about 800,000 bd in December 2011). To these figures, I added an unrestricted additional production of 1 mbd from sources other than shale oil that I reduced by 40 percent considering risks, thus obtaining a 0.6 mbd in terms of additional adjusted production by 2020. In particular, I am more confident than others on the prospects of a faster-than-expected recovery of offshore drilling in the Gulf of Mexico after the Deepwater Horizon disaster in 2010.

As I noted in my review of the Citicorp report this optimism flies in the face of the views of the DMR in North Dakota – who ought to know, since they have the data. The report further seems a little confused on how horizontal wells work in these reservoirs. As Aramco has noted, one cannot keep drilling longer and longer holes and expect the well production to double with that increase in length. Because of the need to maintain differential pressures between the reservoir and the well, there are optimal lengths for any given formation. And as I have also noted, the report flies in the face of the data on field production from the deeper wells of the Gulf of Mexico.

It seems pertinent to close with the report’s list of assumptions on which the gain in oil production from the Bakken is based:

* A price of oil (WTI) equal to or greater than $ 70 per barrel through 2020

* A constant 200 drilling rigs per week;

* An estimated ultimate recovery rate of 10 percent per individual producing well (which in most cases has already been exceeded) and for the overall formation;

* An OOP calculated on the basis of less than half the mean figure of Price’s 1999 assessment (413 billion barrels of OOP, 100 billion of proven reserves, including Three Forks).

Consequently, I expect 300 billion barrels of OOP and 45 billion of proven oil reserves, including Three Forks;

* A combined average depletion rate for each producing well of 15 percent over the first five years, followed by a 7 percent depletion rate;

* A level of porosity and permeability of the Bakken/Three Forks formation derived from those experienced so far by oil companies engaged in the area.

Based on these assumptions, my simulation yields an additional unrestricted oil production from the Bakken and Three Forks plays of around 2.5 mbd by 2020, leading to a total unrestricted production of more than 3 mbd by 2020.

Enough, already! There are too many unrealistic assumptions to make this worth spending more time on. To illustrate but one of the critical points - this is the graph that I have shown in earlier posts of the decline rate of a typical well in the Bakken. You can clearly see that the decline rate is much steeper than 15% in the first five years.