Until the power grid beefs up infrastructure in the midwest where nobody lives, the wind and solar power generated there will be inaccessible for most Americans.
Until the power grid beefs up infrastructure in the midwest where nobody lives, the wind and solar power generated there will be inaccessible for most Americans.
When the public thinks of how you can “solarfy” your home and create renewable energy from our most reliable resource, the sun, people usually correlate household solar generation with standard photovoltaic (PV) panels. Small PV systems of less than 500kW are usually installed on residential or commercial rooftops. This type of solar generating systems takes solar radiation onto the PV panels, typically on a south facing rooftop, and converts the solar energy directly into electricity that is sent directly to the electrical grid. The lesser known available solar generating systems are solar water heater (SWH) systems that receives the sun’s heat on flat plate collectors or evacuated absorber tubes. These collection elements are either filled with water or a liquid transfer medium that absorbs the solar energy to pass onto water inside a solar hot water tank that stores the solar heated water until the residential customers can use the hot water. This is unlike PV systems which cannot efficiently store the energy and wait until when customers arrive home from work at the end of an arbitrary business day. Solar water heaters will absorb the solar energy distributed during the day, when the sun is available, and allows for hot showers, dish washing, heated pools, and clothes washing when people arrive home from work and late into the night.
On January 21, 2010, the CPUC approved $305.8 million program to incentivize the rapid expansion and installation of these solar water heaters for customers of PG&E, SCE, and SDG&E. Starting May 1, homes and businesses will be able to install solar water heater systems and receive an instant rebate under the CSI – Thermal program that will couple with ongoing production based incentives in the program until available funds in the program get exhausted. These California state incentives add onto the federal 30% incentive tax credits that have been available for renewable energy systems bound to expire in 2016. With all the talk about new local incentive programs, existing federal programs, and understanding the benefit of a SWH system, the average customer can be in uncharted educational territory when it comes down to making a reasonable and economical decision to implement a SWH system. From a reasonable point of view, it makes complete sense to install a SWH system because the displacement of therms, via natural gas generation, with solar thermal generation. Lessening our dependence on natural gas reduces our country’s dependence on conventional fossil fuels and reduces our yearly CO2 emissions. I hope I can assist in California utility customers understand the economic benefit so they do not go blindly into a new investment.
What is the incentive?
Simply, the CSI – Thermal program for natural gas displacement units are simply stated as:
|Step||Incentive for Average Residential Solar Water Heating System||Incentive per
The 4 tiers represent levels that the program will decrease as more SWH systems are installed and as the program budget gets exhausted. $50 million, $45 million, $45 million, and $40 million are the various funding ceilings for each of the four steps so assuming that systems will cost the same today compared to sometime later in the program, it makes the most economical sense to get the $1,500 up front incentive and start at the highest incentive level per therm displaced. Even though this program runs for 8 years until December 31, 2017 or until the program budget is exhausted, be aware that people will more likely rush to get the highest upfront incentives. So even though the entire program will not end anytime soon, the first tier will run out at a faster rate that the lower ones.
Regardless of the upfront incentive, someone deciding to make a major investment in one of these SWH systems has to make sure if it is a good investment for their financial and gas usage lifestyle. So let’s look at an arbitrary case:
Average residential system cost (this is going to very +/- 15% depending on the size of your house): ~$6500
Note: this active closed loop cost is taken from the Itron evaluation on page 15
CSI-Thermal Upfront Incentive: $1500
30% Investment Tax Credit: $1500 (taken from $6500 system cost – $1500 CSI-Thermal Incentive)
Average Yearly Natural Gas Displacement: 117 therms
1st year Savings: 117 therms x $12.82/therm displaced = $1499.94
Capital cost after year 1: $6500-$1500-$150-$1499.94 = $2006.06
– Remember while the CPUC staff assumes that the average residential SWH system will displace 117 therms per year, a generation statistic that will vary depending on where you reside. Systems installed in San Diego, San Ramon, Bakersfield, and Blythe will vary considerably and further analysis should be consulted with your certified installer. The CPUC should also be coming out with a simple generation calculator before the program is formally initiated on May 1.
– System cost will also vary depending on the complexity of the SWH system and the type of system. For example, whether you decide on a passive or active SWH system is best for your residence, the associated cost will fluctuate as well. I recommend to get at least two bids from qualified and experienced installers to ensure that the system meets the “lowest cost, best fit” match for your needs.
– Incentive caps. Be aware that the extraordinary production incentives for displacement of natural gas does not qualify for the entire life of your system. Instead (see page 48)
Soon a formal handbook will be released to see the more complete details of the CSI Thermal program. My biggest question has to do with the displacement of therms and scenarios where the monthly production based incentive for displacing therms is larger than the actual total monthly gas bill. Will PG&E, SDG&E, or SCE give you an ongoing credit applicable for future months? I doubt it but we’ll find out for sure when the handbook is released. If your monthly bill is $21 and your usage is 23 therms while displacing 4 therms via a SWH system (at a step 1 rate of $12.82/therm displaced), you should receive a production based incentive for ~$51. There are two scenarios that could happen:
a) The gas company zeros out your gas part of your bill
b) The gas company zeros out your gas part of the bill AND gives you a credit for $30 toward future billing statements
Option B would be amazingly generous and I can imagine the utilities and CPUC would make sure that customers would not get those kind of ongoing residual benefits.
The next analysis of the CSI – Thermal program (after the handbook is released) will go more into the typical payback of one of these SWH systems.
Layoffs, job cuts, and downsizing are all common terms in the employment industry as of late, and it seems as if no sector is immune during the recession that we are experiencing. General Motors announced recently 47,000 worldwide job cuts, the state of California is starting the offloading of 20,000 government employees, and even upcoming Hayward based solar startup OptiSolar (who procured a 550MW thin film PV agreement with PG&E) recently laid off half of its 600 man staff. In the meantime, places like Mesa, Arizona are dealing with not just unemployment that is pegged to hit upwards of 8.8% but also being labeled as the third highest rate of foreclosure filings in the country. The ongoing sour employment news combined with further uncertainty is a vicious combination.
To the rescue though is an attempt by the Obama administration to fix some problems in the US economy and the unveiling of the 787 billion dollar stimulus package. The total package includes 80 billion dollars geared toward the renewable energy industry. Not all of it will go toward creating renewable jobs but will be spread out through creating a better electricity grid and transmission network, weatherizing homes and government buildings, energy R&D, and programs to promote renewable energy to lessen our dependence on fossil fuels. The numbers are fuzzy of how many renewable jobs actually will be create, but White House economist numbers have said that as high as 3.5 million jobs would be created or saved by the end of 2010. From another perspective, economics professor Robert Polin at the University of Massachusetts said that 1.7 million jobs would be created through the green investments of the stimulus package.
What does all this mean? Nobody really knows with certainty but it should signal that times are changing for some American workers and how they transition themselves into a new era that will require retraining and different skillset that what was required in the last decade or two. Of course not everyone is going to get a green renewable job but for those millions of Americans looking for work or for Americans looking to take a gamble in transitioning into a growing field, this stimulus package does provide some of those tools. It would be advantageous for manufacturing workers to learn how to install photovoltaic rooftop installations, for housing and insurance workers to add value into local or state permitting of renewable energy, and for engineers to learn the trades of monocrystalline photovoltaics and biomass instead of focusing in CDMA and Java programming. Maybe this boost to the green industry will also translate to addition of retail jobs at the mall to sell solar chargers for phones/laptops and allow construction workers to build utility scale renewable power projects in the next 7 years while the 30% investment tax credit for renewable projects will be around. Do your due diligence on what local renewable companies are hiring, search through online job sites, brush up on the lingo of the sector, and good luck finding green jobs!!!
Companies of all kinds in the solar industry are eyeing the upcoming vote for the investment tax credit (ITC) extension which would extend the 30% tax credit for solar developments and projects for 8 more years through 2016. If the ITC is not renewed, the credit would decrease to 10% and many planned photovoltaic and solar thermal projects would be suspended or terminated. One of note is the huge 280MW parabolic trough solar thermal plant in Arizona by Spanish solar company Abengoa. Fred Morse, Abengoa´s US senior advisor, has already confirmed that Abengoa will not build the solar thermal plant on the proposed 3 acre site in Gila Bend, Arizona if the ITC is not extended. This would be a major hit to the advancement of rewnewable energy advancement in the US, and many solar companies claim they will simply take their projects into other parts of the world where tax incentives are more favorable to the solar industry.
Look for solar stocks to fluctuate a lot up until this vote. Since the tax credit expires at the end of the year, the longer the ITC renewal is delayed, the less likely something will get done. Solar stocks will rocket up if the ITC is renewed and they will drop like a rock if it is not renewed. Looking long term though into 2009, there is still a chance that the ITC will get renewed in some form after we have a new president in the US, and the government starts to realize that the US will not be a leader in solar technology if the tax credit is not renewed. With energy prices being high, the US should make sure they are at the forefront of renewable energy; solar seems to have much less of a tarnished imagine compared to its sister renewable source, ethanol.
I heard on Marketplace that 70% of plastics are made from domestic natural gas and not petreoluem imports. This made me wonder how dependent we really are on oil imports. According to the Transportation Energy Data Book, 68.3% of the United States petroluem consumption is used for Transportation in 2007 with imports accounting for 58.2% of total consumption. If we cut our oil consumption for transportation by half, we can be less reliant on foreign imports. It is solely our transportation system that makes the United States dependent on foreign oil. Although transportation also includes all the diesel vehicles (big rigs) used to ship goods around the country. One should always go back to the numbers and look at the facts to be imformed about what is and what isn’t true. Blind assumptions that we are dependent on foreign oil for plastics is false.
Yesterday, crude oil prices hit $145 per barrel for August delivery, and current spot prices are not far behind. According to the AAA fuel-gauge report, the national average price for a gallon of regular unleaded is now $4.10 – and this is actually a steal.
For every 100 barrels of crude oil a U.S. refinery purchases, about 47 barrels of gasoline are produced. Gasoline is delivered from oil refineries through pipelines to a distribution chain serving about 167,500 retail gasoline stations in the United States.
In 2007, for every gallon of regular grade gas we bought at the pump, approximately 53% of the price covered the cost of crude oil, 15% went to state and federal taxes, 10% paid for distribution and marketing, and only 17% actually went to refineries.
In July 2007, the inflation-adjusted average crude oil price was also only $68 per barrel. At that time, the average price for a gallon of regular was $2.95.
Scaling to today’s prices, for every gallon of regular gas we now buy at the pump, approximately 81% of the price we pay covers the cost of crude oil, 10% goes to taxes, 6% pays for distribution and marketing, and refineries are now losing money for every gallon of gas they sell.
Realistically, there is up to a 3-month delay between the time a refinery purchases a barrel of crude oil and then sells it at the pump. But even going by April’s average crude oil price of 104.31 per barrel, refineries are still facing significantly smaller profit margins.
This means that even if the price of crude oil does not continue to rise, gas prices will still be ramping up for at least another 3 months, and will stay high until refineries are able to reclaim some profits. Pump gas – get it while it’s cheap!
Today, the Senate Judiciary Committee called a meeting with executives from the biggest oil companies – Exxon Mobil (XOM), ConocoPhilips (COP), Shell (RDSA.L), Chevron (CVX), and BP America (BP) – demanding to know why gas prices are so high. Most of the executives cited the laws of supply and demand. As long as people continue to consume oil faster than it is being produced and bought in the US, prices will continue to rise.
Furthermore, oil prices set a new record above $134 today when the Energy Department’s Energy Information Administration reported that crude inventories fell by more than 5 million barrels last week, even though analysts had expected a modest increase.
The five largest US and British oil companies together only account for 11% of worldwide output. The bulk of the world’s current and future production comes from the Middle East, and possibly recent discoveries such as those in Brazil. The American oil companies are not dictating the price of oil; the global market is. It just happens to be their turn to profit.
Global Supply and Demand
China is the world’s second-biggest oil consumer after the U.S., and is the world’s fastest-growing oil consumer. However, whether or not China is really consuming all the oil it is buying and producing is anyone’s guess. China does not report consumption, thus analysts guess this number from production, trade, and inventory data that may not have been accurately reported.
In terms of supply, the 13 nations in OPEC are unreliable in their output reports and may be producing above their quotas in hopes of being allowed bigger quotas.
Because worldwide supply and demand numbers are so vague, much of oil price direction is controlled by speculation. Every time the Energy Department reports a drop in crude inventory, the oil market rallies, driving crude oil prices up to a new record. In a very disproportionate way, oil prices are still following the laws of supply and demand.
According to Larry Chorn, chief economist of the energy information unit of The McGraw-Hill Companies , even the most expensive wells in the world today can produce oil for $70 to $80 a barrel, which includes the cost of finding and developing the oil fields and a 12-15% profit margin. However, the big oil companies (outside of OPEC) are already producing oil at their maximum rate.
Two decades ago, when oil prices were low and profit margins were slim, big oil companies merged, cut capital spending, and sold off thousands of wells. These large companies seemed to still be stuck in this mindset even as oil prices rose in the last few years, and until recently were hoarding their profits instead of increasing spending to invest in new exploration and drilling.
It can take over a decade to bring a new oil field online, and the big oil companies are behind. Last year, oil production from the top five oil companies fell 3%. As long as supply and demand numbers remain unknowns, the market will have to rely on speculators to bring oil prices back down. This will likely only happen if local inventories increase. With Big Oil output steadily falling, smaller companies will need to step up to account for the deficit. Last year, the publicly traded energy companies excluding the big five increased their oil production by 16%.
To put numbers in perspective, crude oil imports have averaged 9.86 million barrels a day this year. US crude oil production has averaged 5.10 million barrels a day. Average crude oil consumption in the US has been 20.69 million barrels a day. 
While the big oil companies will continue to enjoy inflated profits for some time, the true winners in the next few monhts will be the smaller companies that have invested heavily in production and are just beginning to ramp up their output.
Some of my favorite small oil companies include:
W&T Offshore, Inc. (WTI)
Occidental Petroleum Corporation (OXY)
Anadarko Petroleum Corporation (APC)
Noble Energy, Inc. (NBL)