Posted by: bmeverett | February 13, 2010

Those Dumb Americans

Bob Herbert has an interesting op-ed piece in the February 13 New York Times entitled “Watching China Run.” Herbert hits a familiar note in the energy/environmental business – that the US is heading for economic ruin because the Chinese are outpacing us on “clean energy.” Herbert quotes his NYT colleague Keith Bradshear “about how the Chinese were sprinting past everybody else in the world, including the United States, in the race to develop clean energy. That we are allowing this to happen is beyond stupid.” This argument has a lot of gaping holes.

First, it’s unlikely that the world is on the verge of a transition to “clean energy sources”. The most recent International Energy Outlook from the US Energy Information Administration (EIA) projects growth in global electricity production from 20.6 trillion kilowatt hours (kWh) in 2010 to 31.8 trillion kWh in 2030, an increase of 11.2 trillion kWh. Where will this power come from? Wishful thinking (a la Mr. Herbert) says wind, solar and geothermal, the “clean energy” troika, will dominate the market.

Reality is different. The EIA expects natural gas to contribute about a quarter of the total growth in electricity production. Nuclear and hydroelectric are somewhat smaller contributors at 10% and 12% respectively. Wind power will account for 8% of the growth, a respectable but not overwhelming performance. Solar, where Chinese dominance supposedly threatens our economic survival, will contribute only 3% of the growth. Geothermal accounts for a whopping 0.3% of the growth.

What’s the big winner? King Coal, that notoriously dirty 19th century fuel, which is expected to account for about 45% of the growth.

If the US wants to position itself to participate in the real growth markets of the next 20 years, Mr. Herbert’s logic suggests that we invest in coal. And what is the world’s fastest growing coal market? China, of course. Over the last four years, China has built about 2 million kW of nuclear capacity and 13 million kW of wind power. Over that same period, however, they have built 193 million kW of coal-fired capacity, the equivalent of one large coal plant every week.

Why do solar and wind play such a small role in the global electric power business? Easy. They are too expensive, and their performance is poor. As we have often discussed in this Blog, both solar and wind power are intermittent. In other words, they generate power not when we need it, but when nature feels like providing it. As a result, for every megawatt of solar or wind capacity we install, we need a megawatt of fossil-fuel capacity in reserve just in case. Combine that deficiency with the very high capital cost of these technologies, and they are economic losers.

OK, so if solar and wind power are such poor choices, why have the Chinese invested so much in the capacity to manufacture solar and wind generating equipment? These are pretty smart people. What do they see that we don’t? The answer is that the US and European Governments are forcing these technologies into the market through heavy subsidies and mandates. These markets are small, but big enough to generate reasonable returns for a low-cost equipment manufacturer. If the US passed a law requiring every American to wear a jewel-encrusted purple shirt every Thursday, the Chinese could make some money by making those shirts cheaper than anyone else and selling them to American customers. That wouldn’t mean that selling jewel-encrusted purple shirts was the wave of the future or even a sensible idea.

In 1975, advertising executive Gary Dahl started a brief fad selling “pet rocks” offered as a more convenient alternative to animal pets. Lots of Americans found this a cute novelty, and Dahl became a millionaire. The trick is to get other people to buy the wind and solar equipment you manufacture, not to buy expensive stuff yourself.

My advice to Mr. Herbert is to do a little homework before he decides that the rest of us are stupid.


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