Category Archives: Opinion

Electric Cars Are City Cars? Not In U.S.

May 14, 2015Ampera, BMW, Electric Cars, i3, Opinion, VauxhallTrevor Larkum

Electric Cars Are City Cars? Not In U.S.: They’re Suburb Cars Here

Automotive journalists who write about electric cars hear the phrase “city car” a lot.

As in, “Battery-electric cars are perfect city cars, but [fill in different powertrain] is required for other uses.”

There’s just one problem: No one in the U.S. has ever turned to their better half and said, “Honey, let’s go buy a city car.”

A recent blog post by electric-car advocate and restauranteur Tom Moloughney points out that, in fact, electric cars are largely used in the suburbs here in the U.S.

His article expands on comments to trade journal Automotive News by BMW’s U.S. CEO, Ludwig Willisch, that the company’s BMW i3 battery-electric car has not caught on in the “big urban centers in the Northeast,”

Instead, BMW sells the largest numbers of i3s in areas of California, Texas, and southern Florida.

2014 BMW i3 REx vs Chevrolet Volt comparison (Image: D Noland/T Moloughney) — 2014 BMW i3 REx vs Chevrolet Volt (Vauxhall Ampera) comparison (Image: D Noland/T Moloughney)

(Willisch also then suggests that Northeasterners aren’t particularly concerned about the environment and sustainability–conflating desire for electric cars with solely environmental concerns, while overlooking the practical challenges of owning and recharging them in city centers.)

Moloughney notes that dense urban centers–like those of Boston, Manhattan, and San Francisco–are some of the most challenging places to own any car, let alone a plug-in electric car that requires a charging station.

The BMW i3 Moloughney drives was originally developed as the “Megacity Car,” intended for use in future cities of 15 million or more people that are even more densely packed than today.

But his arguments underscore a unique challenge to selling electric cars with ranges of 62 to 100 miles to U.S. drivers: We don’t buy “city cars.” We just buy cars.

In Western Europe, where local, regional, and long-distance mass transit is common, clean, punctual, and a regular part of travel patterns, a much smaller car for short local trips can make sense.

That was the idea behind the 8-foot-8-inch-long Smart ForTwo (which has been completely redesigned for the first time since the late 1990s for the 2016 model year).

You see Smarts all over Amsterdam, London, Paris, and Rome, sometimes parked end-in at the curb.

In the U.S., not so much. They’re no cheaper than larger subcompact cars, so they’re almost entirely restricted to those same dense urban centers where minimal length is a huge advantage for street parking, but recharging is scarce and expensive.

In fact, very small cars of any kind have largely been a sales flop in this country. Toyota’s Smart competitor, the Scion iQ “3+1-seat” minicar, has now been pulled off sale.

Moloughney’s post is worth reading because it underscores the challenges facing all automakers as their executives grapple with the very real challenges of understanding who buys electric cars, how they use them, and what specific challenges they face in making them practical.

Upcoming longer-range battery electric cars–including the 2017 Chevrolet Bolt, for which 200 miles of range has been promised, and the second-generation Nissan Leaf–may make electric cars more broadly palatable to buyers for whom a range of less than 100 miles is a dealbreaker.

But for North American marketing, we’d suggest that automakers simply eradicate the phrase “city car” from their lexicon.

Thus far, electric cars are largely bought by relatively affluent suburban buyers for whom off-street charging at their homes is possible.

Urban dwellers, meanwhile, are starting to participate in car-sharing programs that eliminate the need for them to pay for and store a vehicle they may not use for commuting.

And until there are far more publicly-available plug-in vehicle charging stations–and most likely the far faster DC quick-charging stations–the city centers of Boston, San Francisco, and so forth will remain a far more challenging place to own electric cars.

In other words: No. More. City. Cars. Please.

Source: Green Car Reports

Cheap oil vs wind and solar: fight for future of energy

May 8, 2015Energy and Climate Change, Oil, Opinion, Solar PowerTrevor Larkum

In a major new report, global investment bank Citigroup has defined the current battle between cheap oil, and renewables like wind and solar, to be so fundamental it will define the future of energy.

But it says that while the slump in oil and associated gas prices may provide some road-humps for wind and solar, renewables will win out because of basic economics, as well as energy security and environment issues. And, Citigroup says, because renewables are the cheapest way to substitute coal-fired power.

Oil is the single largest source of primary energy globally, and the seismic shifts in the oil market can send shockwaves through the world’s energy markets.

Citigroup says that two common statements have dominated recent dialogue: 1) that cheap oil will deal a serious blow to renewables, and 2) because oil and renewables rarely compete in the power sector, the impact will be minor.

It says neither is strictly true. Citigroup believes the fall in the oil price is terminal – it says the days of triple figure oil prices are over – meaning the end to some high-risk, high-polluting oil ventures in marginal regions such as the Arctic, tar sands and deepwater.

On the other hand, the long-term outlook for renewables remains bright. “Fundamental factors – increasing economic competitiveness, energy security, and environmental goals – all remain potent forces driving ever more rapid adoption of renewable energy globally.”

Wind and solar costs have fallen dramatically, and these cost declines should continue. On an unsubsidised basis, wind farms are getting built at costs below $40/MWh in some regions. Recent solar auctions in the Middle East have produced prices below $60/MWh.

“The straightforward answer to whether cheap oil threatens renewables is no – at first glance, oil poses few direct threats to renewables.”

Oil competes directly against renewables in only about 5 per cent of the market – those places where oil is used in generation – particularly the Middle East (Saudi Arabia uses oil for 55 per cent of its electricity needs, and the Middle east as a whole 36 per cent), and in the Caribbean (Jamaica 91 per cent).

But, as we noted in this report about low solar costs, and the assessment by the National Bank of Abu Dhabi, oil can no longer compete with solar and wind in electricity economics.

“Even with greatly reduced oil prices in the $50-60/bbl range, more mature renewables like wind and solar have little trouble competing with new oil-fired generation in the Middle East,” Citigroup writes.

Long-Awaited ‘Jump’ In Global Warming Now Appears ‘Imminent’

May 8, 2015Energy and Climate Change, OpinionTrevor Larkum

We may be witnessing the start of the long-awaited jump in global temperatures.

There is “a vast and growing body of research,” as Climate Central explained in February. “Humanity is about to experience a historically unprecedented spike in temperatures.”

A March study, “Near-term acceleration in the rate of temperature change,” makes clear that an actual acceleration in the rate of global warming is imminent — with Arctic warming rising a stunning 1°F per decade by the 2020s.

Scientists note that some 90 percent of global heating goes into the oceans — and ocean warming has accelerated in recent years. Leading climatologist Kevin Trenberth of the National Center for Atmospheric Research explained here in 2013 that “a global temperature increase occurs in the latter stages of an El Niño event, as heat comes out of the ocean and warms the atmosphere.”

No significant change in temperature trend from 1998 (Image: NASA)

In March, NOAA announced the arrival of an El Niño, a multi-month weather pattern “characterized by unusually warm ocean temperatures in the Equatorial Pacific.”

How much of a temperature jump should we expect? Last month, Trenberth explained to Living on Earth:

Trenberth says it could mean a rise of two- or three-tenths-of-a-degree Celsius, or up to half a degree Fahrenheit. The change could occur “relatively abruptly,” but then stick around for five or 10 years.

I interviewed Trenberth this week, and he told me that he thinks “a jump is imminent.” When I asked whether he considers that “likely,” he answered, “I am going to say yes. Somewhat cautiously because this is sticking my neck out.”

Trenberth explained that it’s significant the Pacific Decadal Oscillation (PDO) “seems to have gone strongly positive” because that is “perhaps the best single indicator to me that a jump is imminent.” During a PDO, he explains, “the distribution of heat in the oceans changes along with some ocean currents.”

Here’s Why an Electric Car Could Be the Best First Car

May 8, 2015Electric Cars, OpinionTrevor Larkum

Across the country, thousands of high school students will be completing their sophomore year of high school. Many of them are about to turn 16. Many of them want a car. Many of them have activities like after-school sports, community service, SAT test prep, chess club, and possibly even a job. Many of them have parents who have become tired of driving their kids everywhere and want to spend some time towards their own pursuits. Many of those parents are worried about the costs and responsibility of their kids having a car. Many of those parents are afraid at the places their children could go without their knowledge with a car.

Well, parents of America, I have a solution: Lease an electric vehicle for your teenage son or daughter. Most parents will either hand their kids down a car or buy them something brand-new. Usually, the new car is a Honda Civic, Toyota Corolla, Hyundai Elantra, anything from Scion, and so on. Something safe, fuel-efficient, reasonably priced and something to take to college. A hand-me-down vehicle could be an old truck, old minivan, a 10+ year old car which gets very good fuel mileage, or maybe an old Volvo. But you have to pay for gas, insurance, maintenance (which gets seriously expensive on Volvos), as well as car payments if you buy a new car.

By the way, I stress the leasing part since some teenagers tend to move far away from their parents for college. Some of these campuses might not be car-friendly either, especially for undergraduate students. In cases like those, buying an electric vehicle probably won’t be the best option, since you might not want an extra car in the driveway that nobody is using.

Now, many of you might think it’s a bad idea to for a teenager to have a new electric car. It might be easy for them to sneak out of the house, for instance. Or it could be easy for them to sneak back into the house when it’s past curfew. It might be too expensive because you’re getting them a new car. You might believe on principle that a teenager shouldn’t have access to a new car. You might receive some criticism from your friends, neighbors, and coworkers for getting a teenager a new car. You also believe that range anxiety might not be the best thing for a teenager to handle.

However I, a 24-year-old car enthusiast whose first car was a MkV Volkswagen Jetta 2.0T (in hindsight, it shouldn’t have been), think an electric vehicle is an excellent starter car for a teenager. In that vein, I’ve come up with three reasons about why getting a teenager an electric car is a viable option.

There’s actually a radius to where they can travel.

Most electric cars on the market have a range of 80 to 100 miles on a full charge. That isn’t very far, especially when traveling round-trip to the city from the suburbs. Now, as a parent, there might be range anxiety and you would hate your child to run out of battery in the middle of a busy road. But considering most electric vehicles have a range of at least 70 miles on a full charge, that’s more than enough range for a teenager’s typical day. Other than the usual drive to school and back, there’s still range for going to the mall, traveling to a friend’s house for a project, going to where they do community service, or drive to an after-school job.

For most parents, it minimizes the chances that their children will take unexpected “detours,” unless that particular destination has a quick charging station present. Some parents will complain that the “silence” of an electric vehicle will permit the kids to sneak out of the house, but unless their destination is within 15 miles round-trip, they may have some trouble getting to that full charge for the following morning. That range will also teach them responsibility when it comes to planning trips, since how they travel depends on whether they’ve charged it or not. At most, school will be 25 miles away (I actually know people who travel that far to get to high school), so the car has to be charged every night. (And in some states, electric vehicles get to travel in the HOV lane, so no more driving the school carpool!) It’ll be a bad day if he or she forgot to plug in the car. In addition, when going to activities that fall outside the daily routine, they’ll have to plan their trips and check whether there are places to charge nearby.

The costs of ownership are reasonable.

Thankfully, there won’t be an extra car to add to the gasoline costs for the month. If the electric car is replacing a vehicle that could barely achieve 20 miles per gallon, leasing an electric vehicle could be more cost effective than handing down an old pickup. For example, the FIAT 500e, though available in California and Oregon only, has an advertised lease rate of $139 a month for 36 months with $1,999 down including the first lease payment and a 36,000 mile limit. Even a base model Nissan Leaf, which is more widely available, has a lease rate of $199 a month for 36 months with $2,399 due at signing including the first lease payment with a 36,000 mile limit. Without including taxes, insurance, maintenance and charging cost, that’s around $10,000 for three years of ownership of a car with a warranty and one that you can give back (with a $395 disposition fee).

Also, money is saved from all that gas you or your high school student doesn’t have to buy. Going on fueleconomy.gov, for most electric vehicles it costs under $1 to travel 25 miles. While the average 2015 vehicles gets 24 miles per gallon, on average, gas varies between $2 and $3.50, the $3+ mark being achieved thanks to California and Hawaii. The website estimates that most EV operators will spend between $500 and $600 on “fuel cost” for 15,000 miles per year.

Additionally, insurance costs tend to be less for an electric vehicle compared to a similarly priced gas vehicle. One study showed that on average driver’s saved $200 per year on insurance when they switched to electric. Considering how much a family’s car insurance shoots up when a teenage driver is added, the reduction in annual insurance premiums will be welcomed. Overall, if it comes to less than $5,000 a year to have your teenager driving, getting an electric vehicle might be a good car.

Electric vehicles are safe.

No, I’m not thinking of the Tesla Model S and its exceptional crash test rating when I wrote the above. Electric vehicles like the Spark EV and Focus Electric are Top Safety Picks by the Insurance Institute of Highway Safety. The Leaf and 500e, which will undoubtedly be considered, don’t achieve that distinction due to their “Poor” rating in the small overlap front crash test. (But from 2013-2014 the Leaf was a Top Safety Pick before inclusion of the front overlap crash test.) However, electric vehicles are just as safe as normal new vehicles that are popular with teenagers such as the Toyota Corolla, Hyundai Accent, Chevrolet Sonic, Audi A4, and the Scion xD or xB.

Compare that to a 10+ year-old hand-me-down Accord, Maxima, or Jeep, which probably don’t come close to 2015 safety standards. Moreover, when the speed question comes up, most electric vehicles have a difficult time staying above 80 miles per hour, and even then, staying at those speeds quickly depletes the battery. As a result, there’s an incentive to stay at reasonable speeds. Leasing an electric vehicle means you won’t take a big hit if the car is totaled, too. Most lease agreements should have gap insurance (and seriously, ensure you have the gap coverage when leasing the car) for making up the difference in value that the insurance company will pay out.

So there you have it. The answers to most of your concerns of giving a car to your teenager. They’ll probably stay within 50 miles of the house or face being stranded. After all, most teenagers don’t have to drive over 100 miles a day over 90% of the time. They’ll learn responsibility in planning their trips. It could be the most cost effective solution at a cost of under $5,000 a year. And most importantly for parents, they’ll be safe if they get into an accident. And while the only detriment is that they could sneak out of the house, you know they won’t get far. Sometimes range anxiety helps.

Source: The Truth About Cars

5 Reasons For Choosing An Electric Car

May 8, 2015Electric Cars, Opinion, Renault, ZOETrevor Larkum

Renault ZOE owner Séverin Groisne authored a post that appeared on the Renault-Nissan blog. The brief article focuses on exactly what the title states:

Five Reasons To Choose An EV

And here are those 5 reasons, along with a brief intro from Groisne:

When it comes to electric cars, it’s very difficult to find balanced advice… You have the idealists on the one hand, and the very sceptical people on the other. I’m going to try to be objective in demonstrating to you that driving electric can be just plain ‘normal’. So here are five good reasons why you should take a closer look at the electric option:

1/ NO MORE VISITS TO GAS STATIONS!
Petrol stations are so glamorous… Not! So no more nasty smells and greasy pump handles… plus you get to recharge your car at home at a modest cost.

2/ 70% OF DAILY DRIVES IN FRANCE ARE UNDER 50 KM
So even if a full tank lets you cover the length of France in a conventionally-powered car if the desire suddenly grips you, the ‘limited’ range of an electric vehicle is sufficient MOST OF THE TIME. Just remember to plug your car in just like you remember to recharge your phone.

3/ THE WORLD OF SILENCE
A quiet car encourages cool, smooth driving. You’ll find yourself less aggressive, especially on city streets. And you don’t need to turn up the radio volume anymore!

4/ MINIMAL SERVICING
Other than changing the interior air filter and checking things like tyres and brakes for wear, there’s nothing to do. No oil changes, no cam belt, no spark plugs… These things do count in terms of overall cost of ownership.

5/ THESE DAYS, THEY LOOK GOOD TOO
The days of characterless, unappealing electric cars are gone. My little ZOE is great to look at and even my kids are proud of it 😉

Source: Inside EVs

Earth Will Cross the Climate Danger Threshold by 2036

May 6, 2015Energy and Climate Change, OpinionTrevor Larkum

The rate of global temperature rise mayhave hit a plateau, but a climate crisis still looms in the near future

“Temperatures have been flat for 15 years—nobody can properly explain it,” the Wall Street Journal says. “Global warming ‘pause’ may last for 20 more years, and Arctic sea ice has already started to recover,” the Daily Mail says. Such reassuring claims about climate abound in the popular media, but they are misleading at best. Global warming continues unabated, and it remains an urgent problem.

The misunderstanding stems from data showing that during the past decade there was a slowing in the rate at which the earth’s average surface temperature had been increasing. The event is commonly referred to as “the pause,” but that is a misnomer: temperatures still rose, just not as fast as during the prior decade. The important question is, What does the short-term slowdown portend for how the world may warm in the future?

The Intergovernmental Panel on Climate Change (IPCC) is charged with answering such questions. In response to the data, the IPCC in its September 2013 report lowered one aspect of its prediction for future warming. Its forecasts, released every five to seven years, drive climate policy worldwide, so even the small change raised debate over how fast the planet is warming and how much time we have to stop it. The IPCC has not yet weighed in on the impacts of the warming or how to mitigate it, which it will do in reports that were due this March and April. Yet I have done some calculations that I think can answer those questions now: If the world keeps burning fossil fuels at the current rate, it will cross a threshold into environmental ruin by 2036. The “faux pause” could buy the planet a few extra years beyond that date to reduce greenhouse gas emissions and avoid the crossover—but only a few.

A Sensitive Debate

The dramatic nature of global warming captured world attention in 2001, when the IPCC published a graph that my co-authors and I devised, which became known as the “hockey stick.” The shaft of the stick, horizontal and sloping gently downward from left to right, indicated only modest changes in Northern Hemisphere temperature for almost 1,000 years—as far back as our data went. The upturned blade of the stick, at the right, indicated an abrupt and unprecedented rise since the mid-1800s. The graph became a lightning rod in the climate change debate, and I, as a result, reluctantly became a public figure. In its September 2013 report, the IPCC extended the stick back in time, concluding that the recent warming was likely unprecedented for at least 1,400 years.

Although the earth has experienced exceptional warming over the past century, to estimate how much more will occur we need to know how temperature will respond to the ongoing human-caused rise in atmospheric greenhouse gases, primarily carbon dioxide. Scientists call this responsiveness “equilibrium climate sensitivity” (ECS). ECS is a common measure of the heating effect of greenhouse gases. It represents the warming at the earth’s surface that is expected after the concentration of CO2 in the atmosphere doubles and the climate subsequently stabilizes (reaches equilibrium).

The preindustrial level of CO2 was about 280 parts per million (ppm), so double is roughly 560 ppm. Scientists expect this doubling to occur later this century if nations continue to burn fossil fuels as they do now—the “business as usual” scenario—instead of curtailing fossil-fuel use. The more sensitive the atmosphere is to a rise in CO2, the higher the ECS, and the faster the temperature will rise. ECS is shorthand for the amount of warming expected, given a particular fossil-fuel emissions scenario.

It is difficult to determine an exact value of ECS because warming is affected by feedback mechanisms, including clouds, ice and other factors. Different modeling groups come to different conclusions on what the precise effects of these feedbacks may be. Clouds could be the most significant. They can have both a cooling effect, by blocking out incoming sunlight, and a warming effect, by absorbing some of the heat energy that the earth sends out toward space. Which of these effects dominates depends on the type, distribution and altitude of the clouds—difficult for climate models to predict. Other feedback factors relate to how much water vapor there will be in a warmer atmosphere and how fast sea ice and continental ice sheets will melt.

Because the nature of these feedback factors is uncertain, the IPCC provides a range for ECS, rather than a single number. In the September report—the IPCC’s fifth major assessment—the panel settled on a range of 1.5 to 4.5 degrees Celsius (roughly three to eight degrees Fahrenheit). The IPCC had lowered the bottom end of the range, down from the two degrees C it had set in its Fourth Assessment Report, issued in 2007. The IPCC based the lowered bound on one narrow line of evidence: the slowing of surface warming during the past decade—yes, the faux pause.

Many climate scientists—myself included—think that a single decade is too brief to accurately measure global warming and that the IPCC was unduly influenced by this one, short-term number. Furthermore, other explanations for the speed bump do not contradict the preponderance of evidence that suggests that temperatures will continue to rise. For example, the accumulated effect of volcanic eruptions during the past decade, including the Icelandic volcano with the impossible name, Eyjafjallajökull, may have had a greater cooling effect on the earth’s surface than has been accounted for in most climate model simulations. There was also a slight but measurable decrease in the sun’s output that was not taken into account in the IPCC’s simulations.

Natural variability in the amount of heat the oceans absorb may have played a role. In the latter half of the decade, La Niña conditions persisted in the eastern and central tropical Pacific, keeping global surface temperatures about 0.1 degree C colder than average—a small effect compared with long-term global warming but a substantial one over a decade. Finally, one recent study suggests that incomplete sampling of Arctic temperatures led to underestimation of how much the globe actually warmed.

None of these plausible explanations would imply that climate is less sensitive to greenhouse gases. Other measurements also do not support the IPCC’s revised lower bound of 1.5 degrees C. When all the forms of evidence are combined, they point to a most likely value for ECS that is close to three degrees C. And as it turns out, the climate models the IPCC actually used in its Fifth Assessment Report imply an even higher value of 3.2 degrees C. The IPCC’s lower bound for ECS, in other words, probably does not have much significance for future world climate—and neither does the faux pause.

For argument’s sake, however, let us take the pause at face value. What would it mean if the actual ECS were half a degree lower than previously thought? Would it change the risks presented by business-as-usual fossil-fuel burning? How quickly would the earth cross the critical threshold?

Tesla Navigation Update Echoes Better Place System Of 3 Years Ago

April 24, 2015Electric Cars, Model S, Opinion, TeslaTrevor Larkum

It was another typically hyperbolic statement from Tesla Motors CEO Elon Musk.

A simple tweet on a Sunday afternoon claimed that Tesla was “About to end range anxiety … via [over-the-air] software update. Affects entire Model S fleet.”

As usual, the media erupted with wild speculation about what Musk could do to “end range anxiety” in cars the company had sold more than two years ago.

But when the actual announcement came, it seemed to disappoint a number of people: route planning and an alerting system didn’t sound so exciting.

So why do I think there is much more to this announcement than do other commentators?

A truth universally acknowledged by electric-car owners is that people who’ve never lived with a plug-in vehicle don’t really understand how they work in real life.

Range anxiety is largely a mythical bogeyman. I view it as something that petrolheads tell other petrolheads to keep the cult of liquid fuel alive.

Electric-car owners know the range capabilities of their cars. They drive on regular routes, day in and day out, using similar amounts of electricity, and they know what their cars can and can’t do.

Planning an out-of-the-ordinary trip, however, requires some help. Especially one that hasn’t been made before and when the overall trip, including return, is close to or beyond the car’s range.

What Musk actually announced on Thursday sounds quite similar to what failed battery-switching startup Better Place delivered several years ago in Israel (and Denmark).

In fact, I predicted as much last week.

Musk spoke about two integrated systems, “Range Assurance” and “Trip Planner,” that would work together.

Back in 2012 when I picked up my Better Place Renault Fluence ZE, I had capabilities remarkably similar to those Tesla announced.

Whenever my battery dropped below 12 percent, I would get a phone call from an actual person. He or she would ask if I knew where I was going – and would, if necessary, remotely re-route me to a charge spot or battery-switching station.

I filmed a video of the trip planning feature, including the system working out a 220-mile route from Tel Aviv to Eilat involving multiple battery switches along the way. Effortlessly.

Both of these features also took into account the real-time status of the infrastructure.

Better Place was aware of the status of everything in their network–switch stations, Level 2 charging stations, and cars–and if a switch station wasn’t working, drivers would be alerted and re-routed.

The Shale Debt Redux

April 24, 2015Energy and Climate Change, Oil, OpinionTrevor Larkum

Shale debt, falling prices and slack demand has tight oil producers in trouble. And yet, there is still burgeoning production. Why? Well, we’ve seen this before. It’s the shale debt redux.

Operators did it a few years ago in natural gas and prices have yet to recover. Unfortunately cheap money in the form of debt can mean poor investment choices for businesses and for investors. But it can also lead to an aberrant market because operators deep in debt won’t curtail production even though it is glutted. Debt coupons simply have to be met.

The shale revolution has always been funded by massive debt. Operators who were drilling for gas back in 2009-2011 used debt extensively. And just like now, they overproduced. By 2011, supply exceeded demand by four times. Then prices tanked. It is curious that so few asked the questions: why did they produce so heavily and glut the market; and why did they continue to produce into a glutted market? The answer is really quite simple. Many couldn’t afford to pull back production to help stabilize prices. Had they done so, they would not have been able to meet their debt payments. So they kept pumping…and pumping…and pumping.

And now they’ve done it again.

When interest rates are kept artificially low for extended periods of time, investors and businesses begin to take risks. They invest in stocks and high yield bonds, or they issue debt to get more money. In a normal functioning market such investments might not have been considered because reasonable returns would be available in more conservative areas. Some analysts argue that low interest rates encourage bubbles because investors begin chasing the most hyped sectors thinking they will get a better return. And nothing has been more hyped than shales. Low interest rates did indeed create the perfect environment for taking on heavy debt loads by companies and increasing the appetite on the part of investors for junk debt. Neither scenario, however, is ideal. Both can put you behind the eight ball very quickly.

Much of the debt issued by shale operators has been high yield or what is commonly referred to as junk. According to the Wall Street Journal:

“Junk bonds have financed the U.S. shale boom, and now the sharp drop in oil prices could lead to a massive wave of defaults on that high-yield debt.”

JP Morgan Chase estimates that as much as 40% of this junk debt may be defaulted on by shale companies in the next two years if prices stay below $65/bbl. Yeah, you read that right…40%! Prices are currently trading around $45/bbl and operators are still pumping huge amounts of crude into the market so a $20/bbl price rise would seem unlikely.

This picture is complicated enormously by the overwhelming need for cash by shale operators. Energy was the fastest growing sector of junk debt in 2014 and is the largest chunk of the high yield market. Energy junk debt rose from about 14% at YE 2013 to 19% by YE 2014. Prices began tanking, however, in 2014 driving up the yields on these bonds to nosebleed heights. Some big investors took a risk in early 2015 and started buying up this distressed paper. Unfortunately, the markets turned against them again and losses are mounting. According to Oil Price:

“The high-yield debt market is being overrun by the energy industry. High-yield energy debt has swelled from just $65.6 billion in 2007 up to $201 billion today. That is a result of shaky drillers turning to debt markets more and more to stay afloat, as well as once-stable companies getting downgraded into junk territory. Yields on junk energy debt have hit 7.44 percent over government bonds, more than double the rate from June 2014.”

The shale monster eats cash for breakfast, lunch and dinner. Desperate for cash, operators are now turning to equity issuance in addition to their mountains of shale debt to fund operations. Equity is the most expensive form of cash because it dilutes existing shareholders. Many, however, no longer have access to more debt having maxed out their ratios. So energy equity issuance has exploded in 2015 growing at the fastest clip in a decade. Approximately $8B in new equity was issued in the first quarter 2015 though prices continue to fall and shares are being hammered. Further, large investment banks have been left with rotting shale debt on their books that they can’t unload. A recent transaction saw these loans picked up at 65 cents on the dollar.

The shale debt redux is yet another indication that this business model has problems. The shale game cannot be kept going without continuous and breathtaking amounts of cash. Kepler Chevreux recently stated that US shale and Canadian oil sands account for about 18% of global production. They also account for approximately 50% of global CAPEX. So if shales and oil sands really are our energy panaceas, then hold on because prices are going through the roof for anything using crude or natural gas in the coming decades. Costs have simply gotten too high and there is no reason to think that they will abate.

So those non-OECD countries that are choosing to leapfrog hydrocarbons and spend their money on renewable infrastructure may certainly be on to something. With hydrocarbon costs skyrocketing, can the U.S. really afford to be dependent on oil and gas for decades to come? Because it sure would be nice to have energy without fuel costs.

Source: Energy Policy Forum

Goldilocks zone for oil prices is gone for good

April 24, 2015Energy and Climate Change, Oil, OpinionTrevor Larkum

Five years ago, I wrote an article for Reuters titled “Goldilocks and the Three Fuels.” In it, I discussed what I call the Goldilocks price zone for oil, natural gas and coal, a zone in which prices are “just right” — high enough to reward producers but low enough to entice consumers. Ever since the start of the fossil- fuel era, such a zone has existed. Sometimes price boundaries were transgressed on the upside, sometimes on the downside, but it was always possible to revert to the zone.

But now, the Goldilocks zone for oil has ceased to exist. This will have staggering consequences throughout the economy for the foreseeable future.

During the past decade, the Goldilocks zone for oil steadily migrated higher. As conventional crude reservoirs depleted and production rates leveled off, drillers had to spend proportionally more to develop the capacity to pump the next marginal barrel. Oil prices soared from $30 a barrel in 2005 to nearly $150 a barrel in 2008, collapsed during the economic crisis, then clawed their way back to roughly $100 a barrel, a price that was maintained through mid-2014. But the economy did not do well during this period. Despite massive bailouts, stimulus spending and low interest rates, the recovery following the 2008 crash was anemic.

However, at $100 a barrel, the oil price was high enough to incentivize fracking. Small, risk-friendly companies leased land and used expensive drilling techniques to free oil from rocks that geologists had previously described as too impermeable to bother with. This entailed a tenuous business model that required not only high oil prices but easy money as well, as low interest rates enabled producers to pile on enormous amounts of debt.

Oil production in the United States rose sharply as a result, and this eventually had an impact on prices. Since mid-2014, the oil price has declined by half, settling around the historic, inflation-adjusted mean price of $50 a barrel. Consumers are much happier than they were with oil at $100 a barrel, but producers are wilting. The American petroleum industry has seen more than 75,000 layoffs, the balance sheets of fracking companies are bleeding and drilling rigs are being idled by the score.

For consumers, experience suggests the acceptable oil-price zone is $40 to $60 a barrel in today’s dollars; higher than that, goods and services, particularly transportation, become more expensive than current spending patterns can handle. For producers, the acceptable zone is more like $80 to $120 a barrel; lower than that, upstream investments make little sense, so production will inevitably stall and decline — eventually making consumers even less happy.

You will have noticed that there is no overlap. An oil price of $70 a barrel would not be high enough to give the industry a rebound of confidence sufficient to inspire another massive round of investment. Clearly, consumers would be happier with $70-a-barrel oil than they were with $100-a-barrel oil, but if $70 isn’t a high enough price to incentivize production growth, then it’s not really in the Goldilocks zone.

According to the narrative emanating from most mainstream energy economists, oil production rates will soon slow, prices will rebound and everyone will be happy. That narrative misses the all-important news that Goldilocks is dead. There is no longer a price that everyone can live with. And that’s a recipe for price volatility.

For oil traders, price volatility may offer opportunities for profit. But for everyone else, it is treacherous. Price volatility only hints at the real extent of our peril: We have built an economic system overwhelmingly reliant on a nonrenewable, depleting resource. This is not a sustainable situation. Unless our dependency on oil somehow magically disappears, we are in for a wild ride on an unmapped road.

Source: Reuters

Rethink the Grid: Personal Power Stations

April 24, 2015Energy and Climate Change, Energy Storage, OpinionTrevor Larkum

Rethinking the grid is quickly emerging as one of the hottest topics. The concept of our own personal power stations can be seductive…and just might save us a whole lot of money too.

“Get big or get out!” Those were the famous, and controversial, words of Earl Butz, Secretary of Agriculture in the seventies. Considering the combination of renewable technology and battery storage, a new popular mantra may emerge: get small and be free.

Much ado about all things renewable together with the objections that technologies can never fully replace fossil fuel generation is popular among a certain set. Here in Texas, among arch conservatives, Solyndra lives on…and on…and on. But the truth is that Solyndra is ancient history. New technologies are ramping up and have been highly successful and may change the way we use the grid forever. Perhaps most interesting of all, however, is the way in which new ways to think about the grid and electricity are prompting entrepreneurs worldwide to rethink, remake and reuse. For instance, what if we all had the ability to transform our homes into micro personal power stations?

The grid is an interesting beast. It typically operates using several different power options together with some back up reserve. Oddly, it runs with virtually zero storage capacity because large amounts of electricity are difficult to store. So nobody really addressed that problem. Until now.

What if we decided to think outside our box and imagine that instead of myriad wires joining each of our houses, there were solar panels on the roof. These in turn pumped electricity into an array of batteries in our garages next to the work bench. Or into our EV which could also act as a storage vehicle. No pun intended.

Large scale storage is a problem because it is large scale. The needs of a utility are vastly different than the needs of an individual home. So tackling the problem of storage would seem to make the most sense if done on a small scale. GTM Research expects home battery storage to grow into a billion dollar a year money generator by 2018. That’s only three years away. Solar City, a large solar installer, is already offering battery storage for home use. They describe their system as:

“…a cost-effective, wall-mounted storage appliance that is small, powerful and covered by a long lasting full 10 year warranty.”

So our homes become a micro-grid. Having said all this, there will still be a need for large scale utility generation. Industrial users for instance would probably be better off using the grid system. This is where the larger scale storage solutions currently being tried and offered are coming into their own.

Electricity supply is never constant. It fluctuates throughout the day. To use renewable energy on a large scale, battery storage is needed. While lithium ion batteries have taken center stage, other less sexy technologies are being employed with success. If lithium ion batteries are the Tesla’s of the energy storage world, then flow batteries are the pick up trucks: hard working and reliable. Lead acid batteries too are gaining traction. All of these technologies perform different functions which are critical to grid reliability.

Navigant Research stated:

“Flow batteries have been shown to excel at long-duration energy storage applications and advanced lead-acid batteries have proven to be excellent performers in power-intensive applications.”

Further, these markets are expected to grow quickly. Navigant forecasts:

“…the annual revenue of cell sales for advanced batteries for utility-scale applications will grow from $221.8 million in 2014 to $17.8 billion in 2023.”

And equally interesting, Navigant projects:

“…the annual energy capacity of advanced batteries for utility-scale energy storage applications will grow from 412 megawatt-hours (MWh) in 2014 to more than 51,200 MWh in 2023, at a compound annual growth rate of 71 percent.”

Other aspects of storage are also being proactively addressed. One of the most common arguments heard is “what do we do with the spent automotive batteries”? Interestingly enough, BMW, and others, are working on that. Apparently an EV battery can have as much as 70% of its storage capacity still intact after its automotive life. So BMW has partnered up with Bosch and Vattenfall, a Swedish company, to repurpose used battery packs into grid storage. Home storage is also a possibility. So rethink, remake and reuse is really happening.

Another example of rethink is the recent announcement by Nissan that they have entered into a deal with Endesa, a Spanish utility behemoth. This arrangement would allow motorists to sell the unused power stored in their EV’s back to the grid. Such access to additional power could potentially provide extra stability for the utility and thereby the grid.

The grid doesn’t have to be run the way it has always been run. We can innovate. And innovation is precisely what is occurring. Perhaps the most important “rethink” of all is in our own heads as we learn to open our minds to using the grid in a whole new way.

Personal pizzas, personal computers, personal trainers…and now our own personal power stations.

Source: Energy Policy Forum