Alternative Energy, GM, and "fooled again"

[samclem]

A few months ago we were discussing the need to get the US off of oil, that it was damaging to our national security, and that $4 per gallon gasoline would provide the incentive we need to finally build and buy small, fuel-efficient cars. That $120/bbl oil would spawn a large wind and solar industry.

Yet, here we are. Oil is about $70/bbl and gasoline costs less than $2.75/gal in many places. At this price, many alternative fuels (bio-diesel, ethanol, etc) are no longer economically competitive--R&D will likely grind to a stop if the situation continues.. GM is bleeding red ink, headed for possible bankruptcy, and putting a big bet on--a plug in electric car that cannot be sold at a a break-even price with oil at this level.

According to "New Energy Finance" (as given in today's WSJ) renewable energy stocks have dropped 45% in the last 3 months (compared to a 23% decline in the DJIA).

Sure, oil will go back up again, and the process will start over. Is that the right answer? Use the cheap oil while we can ("somebody's going to burn it--it might as well be the US getting the benefit") and develop alternatives once the oil price goes up and stays up.

Trek and/or others who were looking into alternative energy stocks--are you staying with them or getting out? Is this the time to buy--maybe a golden last-chance window to get into these before they zoom up for good?

Just an observation. Alt energy looked like a sure thing just a few months ago--now the risks are more readily apparent..

 

[ERD50]

I have not seen that "Gas Price" thread pop up in a while. It was very active for a time. Not such a big deal anymore.

As we've discussed before, since politicians don't have the guts to put a floor on the price of gas, people's will is going to ebb and flow with the price. The only thing that is sure to get everyone thinking long-term, is a long term awareness that gas will always be at least $4/gallon. Looks like that's not gonna happen, so we won't get the conservation/alternatives that we may have liked.

It really would be ironic if GM gets the Volt out just in time for no one to care. WHo knows, gas may be back up by then? But that is why alternatives don't get the funding that people think they should - there just is no assurance that there will be a payback. $4 gas at least set a target, but the bar has been lowered.

Along those lines, we've talked about what a bad deal ethanol is as an alternate fuel. My son is now working on a program to take some of the sugars that don't break down in the ethanol process, and finding ways to make other, more marketable sugars with that waste. It is good for him, in that it is providing a salary, but I wonder if making ethanol marginally more profitable is good/bad in the long run. I fear bad, but maybe some other good will come of it?

-ERD50

 

[Frugality_of_Apathy]

I'm glad for the dip in oil prices specifically because it will shut down R&D into energies that can only compete if oil is hobbled. When working with known chemistries and standard engineering increases in fuel efficiency are on the orders of 0.2% in 5 years. I don't want to be shoehorned into an alternate fuel with 80% the energy at $5/gallon just for the sake of not using oil. If the volt is hideously expensive and only a third the range of a normal car it is not a viable option. Research into batteries will continue as people always want longer lasting more powerful portable electronics. When batteries become efficient enough that they can compete with oil at $30/barrel then I will welcome it.

Cutting the funding to R&D for systems that even theoretically can never compete with oil that cheap is a good thing as it will divert the talented who want to research alternate energy to pursue different avenues which are not dead ends.

 

[virginia]

Maybe the amount of the "floor" price over the real price could be used to fund R&D.

You're right though. Congress would never commit to it.

 

[chinaco]

Hopefully the American car makers have learned their lesson. They need to trim the lines (too many models)... and push fuel efficiency. This is a temporary reprieve on oil prices.

The problem GM will have now is the recession.

 

[Zathras]

I think this last spike in oil has convinced auto companies and possibly some other industries that they can't afford NOT to go ahead with research into alternatives.
The companies have to be flexible enough to take advantage of changes in the marketplace. So next time there is a spike they can take advantage of it, rather than be killed by it.
I do think the amount of research done will be less than it would if oil were still $150.
But a large part of the low price of oil is the global economic crisis. Auto companies want to be ready when we come out of this crisis, and oil prices will rise as demand returns to normal levels (which will also happen as we come out of the crisis).

 

[ERD50]

I'm glad for the dip in oil prices specifically because it will shut down R&D into energies that can only compete if oil is hobbled. When working with known chemistries and standard engineering increases in fuel efficiency are on the orders of 0.2% in 5 years. I don't want to be shoehorned into an alternate fuel with 80% the energy at $5/gallon just for the sake of not using oil. If the volt is hideously expensive and only a third the range of a normal car it is not a viable option. Research into batteries will continue as people always want longer lasting more powerful portable electronics. When batteries become efficient enough that they can compete with oil at $30/barrel then I will welcome it.

Cutting the funding to R&D for systems that even theoretically can never compete with oil that cheap is a good thing as it will divert the talented who want to research alternate energy to pursue different avenues which are not dead ends.

I can understand the view that we should just let the free market take care of it. That is always my first defense. But I think there is a case to be made in taking *some* steps for "the common good", with regards to our oil usage.

Pollution for one, being so dependent on foreign sources for a critical resource is not good, and the spikes in price up/down are difficult for the average citizen to deal with.

The first step I'd like to see is - eliminate any subsidies for the oil companies. That would add some free market incentives for alternatives. Plus, a gas tax does not need to be a hardship - the money can be returned to the taxpayers in the form of a higher standard deduction. Then the taxpayers can spend it as they see fit, and a higher gas price will encourage them to conserve gas, and keep more of that money available for other things.

Ironically, (and sadly), I think that many of the Americans that would cheer the "tax the oil companies" line, would also be against raising taxes on gasoline on the consumer. Yet, the two are exactly the same thing.

-ERD50

 

[ERD50]

....

If the volt is hideously expensive and only a third the range of a normal car it is not a viable option.

...

Just wanted to point out, the Chevy Volt has at least as much range as today's vehicles. The Volt is a series hybrid, it uses an engine to keep the batteries at ~ 30% charge once the initial "plug-in" charge is depleted ( after about 40 miles), and before you can get back to a plug. It can run on that engine as long as there is gas in the tank, and then you can fill it up, just like today's vehicles. GM is using the marketing term ( a good one IMO) "Extended Range Electric Vehicle", to differentiate it from current hybrids and from current EVs.

Given the current state-of-the-art and cost in batteries, it is the best of both worlds. An electric car for most of the trips we make each day, and gas powered for extended trips.

So, the Volt *is* a viable option... IF the price is right, and that will be determined by battery cost and relative electric/gas costs. Personally, I think it would be best if we drove all-electrics for our short trips, and had an easy, convenient, cost effective rental system so we could just drop off the EV and pick up a gas vehicle for a 50 mile trip. Maybe all pre-registered or something - just pop in, grab the keys from a lock box and drive off.

That way, we would not be buying the gas engine in that EREV that we only use 5% of the time, and dragging around its weight and maintenance costs. The quick-rental system is a better compromise for most users, IMO.

-ERD50

 

[FinanceDude]

GM is learning its lesson the hard way. Buying Chrysler only buys them time, if they don't change their BUSINESS MODEL, they will not survive.......

I am one of MILLIONS of customers the domestic car makers have lost. There are two Hondas in my garage for a reason, even though I went to Honda kicking and screaming all the way........ Until the domestic makers decide to make cars that are fun and reliable and good on gas, see ya......

 

[dex]

Trek and/or others who were looking into alternative energy stocks--are you staying with them or getting out? Is this the time to buy--maybe a golden last-chance window to get into these before they zoom up for good?

Just an observation. Alt energy looked like a sure thing just a few months ago--now the risks are more readily apparent..

For the general person; alternative energy stocks are not going to be hot sexy stocks (like technology was). A lot of competition until a few technologies gain acceptance and momentum. And as you point out their fortunes will rise and fall with the price of oil - unless oil was taxed up to a certain price or something similar.

With the Dems in the White House and Congress and low oil cost - new offshore drilling is dead.

 

[Gardnr]

I can understand the view that we should just let the free market take care of it. That is always my first defense. But I think there is a case to be made in taking *some* steps for "the common good", with regards to our oil usage.

Pollution for one, being so dependent on foreign sources for a critical resource is not good, and the spikes in price up/down are difficult for the average citizen to deal with.

The first step I'd like to see is - eliminate any subsidies for the oil companies. That would add some free market incentives for alternatives. Plus, a gas tax does not need to be a hardship - the money can be returned to the taxpayers in the form of a higher standard deduction. Then the taxpayers can spend it as they see fit, and a higher gas price will encourage them to conserve gas, and keep more of that money available for other things.

Ironically, (and sadly), I think that many of the Americans that would cheer the "tax the oil companies" line, would also be against raising taxes on gasoline on the consumer. Yet, the two are exactly the same thing.

-ERD50

Very well said ERD50 (saved me the time of some typing )

I definitely agree with a tax that would put a floor under gas prices to keep the economic gradient steep enough to keep alternative energy development viable. Then let the market work from there without government picking particular technologies. Along the lines of what Thomas Friedman has been advocating for years.

Surely we can educate people to understand that they'd be receiving most/all/or more back in the tax deduction. But as I write that I realize that many just won't understand and will therefore make it difficult politically. Let's face it, many, many people just can't seem to comprehend the basics of taxes: exemptions, standard deduction, credits, etc.

 

[ERD50]

Surely we can educate people to understand that they'd be receiving most/all/or more back in the tax deduction. But as I write that I realize that many just won't understand and will therefore make it difficult politically. Let's face it, many, many people just can't seem to comprehend the basics of taxes: exemptions, standard deduction, credits, etc.

Yes, very true.

What I would really like to see in a leader, is someone who can explain this in plain terms to the people, so they can understand what we must actually do for the long term good.

That is *not* a partisan statement, and I won't go any further to avoid this becoming a SoapBox thread. But the reality is, we need to educate the public so that our leaders can get support for the right strategies. This is a tough problem, the solutions are going to create some hardships along the way. But, if it is done reasonably well, I'm pretty certain the long-term-good will far outweigh any short-term-hardships.

Stable, but marginally higher gas prices would be similar to what the big companies do - they contract their fuel. It does not make it cheaper (on average), but it does make it something you can budget and plan for. I think the Average Joe would benefit from that.


-ERD50

 

[Frugality_of_Apathy]

Ah so the volt is a hybrid. Chevy always called it an electric vehical with a "range extender."

That really doesn't make it an alternative fueled vehicle anymore than buying a motorcycle instead of an SUV is using an alternative fuel. While I'm sure it gets 40 miles of battery right out of the box not using the radio, heater , or A/C, I'm doubtfull if it will get 20 miles after a year of daily commuting.

I would not be investing in electic cars for a few more years.

 

[al_bundy]

bio diesel and ethanol are a joke, i've read you would need to farm the entire area of the US to hope to produce as much energy as you can get from oil. and they aren't exactly clean either. you need a lot of chemicals to grow the corn and other plants on a scale we would need and this would be damaging to the soil and the water.

oil is cheap, oil will be around for hundreds of years to come. the US has enough oil within our borders to last us hundreds of years. canada has more oil than the middle east. our oil based technology will improve to be even more efficient.

solar, wind and other alternatives are nice but won't be the primary source of energy for a long time. A lot of stores are buying solar to augment the electricity they buy during peak hours which costs a lot more than other times. saves them a lot of money. GE and other companies are pouring tens of billions of $$$ every year into research

 

[ERD50]

Ah so the volt is a hybrid. Chevy always called it an electric vehical with a "range extender."

That really doesn't make it an alternative fueled vehicle anymore than buying a motorcycle instead of an SUV is using an alternative fuel. While I'm sure it gets 40 miles of battery right out of the box not using the radio, heater , or A/C, I'm doubtfull if it will get 20 miles after a year of daily commuting.

Electric Vehicle with Range Extender is an accurate and reasonable description.

A large % of daily drives are 40 miles or less. So the Volt would run on "plug power" most of the time, for the intended market. So, if it gets most of its power from the plug, which at least has the potential to be an alternate fuel. Plus, electric motors are more efficient than an ICE, so there is at least the potential for an EV or EREV to use less fuel overall than a trad auto. Progress is progress. You are falling into that "the enemy of the Good is the Perfect" trap.

We will see when the production vehicles arrive, but I see no reason to doubt the numbers. There have been electric vehicles on the road for a while, they live up to the claims - they are just too expensive and/or too small to be anything but a niche market. But their batteries don't drop by 50% in the first year, nor do the batteries in hybrids. I think your fears are unwarranted.

I would not be investing in electic cars for a few more years.

Neither will I. They simply are not practical/affordable for me at this time. They probably won't be in a 'few more' years either. Again, it will depend on the price of gas, electricity, and progress in batteries. If those don't hit a sweet spot, we may be a decade away from seeing any significant EV or EREV market.

-ERD50

 

[travelover]

I think it would be smart of OPEC to lower prices whenever the US starts to seriously think of developing energy independence. It has worked for over 30 years. And knowing how short our collective memories are, $2 gas would quickly bankrupt any serious challenge from alternative energy sources.

 

[dex]

The first step I'd like to see is - eliminate any subsidies for the oil companies.
-ERD50

I've searched and I can not find what these subsidies are. A lot of search results have the term in them.

Do you have a site that outlines what they are?

This is not to question your point. Just to understand what they are.

There is something below but not much - it doesn't provide a list of all the subsidies.
http://www.factcheck.org/askfactcheck/what_kind_of_tax_breaks_does_the.html
Thanks

 

[al_bundy]

it wasn't that long ago that an average PC cost $2500 and a nice one cost close to $5000. around 2000 is when the first sub $1000 PC really hit the market.

wouldn't be surprised if we are getting to this point soon with solar and other alternative energy technologies. wouldn't be surprised if within say 10 years we'll have mini solar cells on cell phones to charge the battery.

the goal is not to replace 100% of oil or LNG with alternative, but if you can gain around 1% of energy usage into the alternative every year than oil will keep on dropping in price along with alternative energy.

 

[al_bundy]

I've searched and I can not find what these subsidies are. A lot of search results have the term in them.

Do you have a site that outlines what they are?

This is not to question your point. Just to understand what they are.
Thanks

say you lease some land fron Uncle Sam with a lot of oil. to get the oil and natural gas you first have to explore to find the exact places where it is. on 100,000 acres you will need to build multiple wells and each one has to be profitable.

it takes 10 years from lease to pumping oil mostly due to legal problems of enviromental impact studies and lawsuits from enviro-crazies. all of this is factored into the cost of each well.

if you have a spot that won't make it profitable to build a well than you need tax breaks from the government to get that oil or no one is going to touch it.

then you have things like cost of capital in these decisions. if it's going to cost you 7% for long term bonds to build a well than you need to be sure the return is close to 15% to take the risk for that well. the tax breaks lower the cost of capital enabling energy companies to go to places that otherwise may not be profitable or too risky due to current interest rates

 

[dex]

say you lease some land fron Uncle Sam with a lot of oil. to get the oil and natural gas you first have to explore to find the exact places where it is. on 100,000 acres you will need to build multiple wells and each one has to be profitable.

it takes 10 years from lease to pumping oil mostly due to legal problems of enviromental impact studies and lawsuits from enviro-crazies. all of this is factored into the cost of each well.

if you have a spot that won't make it profitable to build a well than you need tax breaks from the government to get that oil or no one is going to touch it.

then you have things like cost of capital in these decisions. if it's going to cost you 7% for long term bonds to build a well than you need to be sure the return is close to 15% to take the risk for that well. the tax breaks lower the cost of capital enabling energy companies to go to places that otherwise may not be profitable or too risky due to current interest rates

OK - I got that example - isn't the net affect to the consumer more oil available (lowers price) and lower cost of borrowing (ultimately lower price to the consumer?)

In college I was taught that corporations are pass through entities - They take in revenue (sales) pay out cost of goods sold, salaries, taxes and profits.
So it you increase taxes -they are incorporated into the price (sales), collected and paid to the government. It is simpler to see with a sales tax (a regressive tax) but not with corporate taxes.
Wouldn't these subsidies work the same way (reducing the cost of goods sold)?

Also, if the USA imports less oil doesn't that help the balance of trade numbers.

This sound like a complicated issue and I don't have the info on what the subsidies are.

Their profit margin isn't that out of line:

Exxon's Profits: Measuring a Record Windfall - US News and World Report
The oil industry urges people to look beyond its profits to its profit margin: about 7.6 percent of revenues late last year. That's not much higher than the 5.8 percent profit margin for all U.S. manufacturing, and if you exclude the financially troubled auto industry from that analysis, the oil industry actually appears less profitable than most manufacturers, which were earning 9.2 cents on every dollar of sales.

 

[ERD50]

I've searched and I can not find what these subsidies are. A lot of search results have the term in them.

Do you have a site that outlines what they are?

This is not to question your point. Just to understand what they are.

There is something below but not much - it doesn't provide a list of all the subsidies.
FactCheck.org: What kind of tax breaks does the U.S. give to oil companies and to corporations that send jobs overseas?
Thanks

Good point Dex. I have to admit here, I am (dangerously) just repeating what I've heard so many times (!). However, I also don't recall the oil companies or anyone else standing up to deny the subsidies either, so I tend to think there it is a 'mostly true' area. I do recall googling this a while back, and I gave up before I found anything solid, which did surprise me too.

And ( careful here, I am trying not to touch on 'soap-boxy' areas), I was not referring to the cost of any activities of the of US govt in certain geo-political regions of the world that might be considered by some/many as a 'subsidy' to the oil industry (vague enough?). I'm talking about straight tax credits for exploration, etc. I'd like to have better data on this issue also - so please post if you find more.

it wasn't that long ago that an average PC cost $2500 and a nice one cost close to $5000. around 2000 is when the first sub $1000 PC really hit the market.

wouldn't be surprised if we are getting to this point soon with solar ...

I really don't think we will see anywhere near the same curve on Solar Energy. It really is quite different from a computer cost curve. Computer costs came down partly due to just being able to squeeze more transistors in the same space - it was all about finer processing capabilities. That is *not* the limiting factor with solar.

Solar cells now are roughly ( w/o looking it up), maybe 15-20% efficient? Researchers *might* know how to double that, but that's about it - you hit a limit of diminishing returns. You can't get better than 100%. And just as an example, going from 20% to 60% eff means you cut the wasted energy from 80% to 40%. You can't eliminate another 40% - you would be at 100% eff then, and you just can't get there.

Another way to say that is, at 20%, a 5x improvement is all that is even theoretically possible to improve. There is no more 'there', there. With CPUs, the early line widths were hundreds, maybe thousands of times larger than what is being done today. So, they had room for 100x or more improvements, with theoretical room to go yet.

Yes, they will learn how to cut costs, but just don't expect anything dramatic. And, to the extent that energy goes up - solar cells will go up. A big part of their cost is the energy to turn sand into a photo-voltaic silicon. It takes about two years in direct sun for the solar cell to 'work off' the energy it took to make it in the first place. That's what drives me nuts about (at the present time), using solar cells for a cell phone or iPod charger, or a solar cell on the roof of an electric car, and calling it 'green'. It may be convenient, but it ain't green. It is a waste of energy if that cell isn't put in the optimum spot for sunlight 365 days/year.

And don't let no one tell you no different Well, not w/o proof - and then let me know also.

-ERD50

 

[dex]

ERD50 - OK txs

 

[al_bundy]

OK - I got that example - isn't the net affect to the consumer more oil available (lowers price) and lower cost of borrowing (ultimately lower price to the consumer?)

In college I was taught that corporations are pass through entities - They take in revenue (sales) pay out cost of goods sold, salaries, taxes and profits.
So it you increase taxes -they are incorporated into the price (sales), collected and paid to the government. It is simpler to see with a sales tax (a regressive tax) but not with corporate taxes.
Wouldn't these subsidies work the same way (reducing the cost of goods sold)?

Also, if the USA imports less oil doesn't that help the balance of trade numbers.

This sound like a complicated issue and I don't have the info on what the subsidies are.

Their profit margin isn't that out of line:

Exxon's Profits: Measuring a Record Windfall - US News and World Report
The oil industry urges people to look beyond its profits to its profit margin: about 7.6 percent of revenues late last year. That's not much higher than the 5.8 percent profit margin for all U.S. manufacturing, and if you exclude the financially troubled auto industry from that analysis, the oil industry actually appears less profitable than most manufacturers, which were earning 9.2 cents on every dollar of sales.

it's true on a macro level, but in the end no one is going to build a well if they think they can't get enough oil with it to pay the cost of that well, interest and operating costs along with turning a profit and accounting for risk like oil prices being cut in half. you can hedge part of the price of oil, but not the other things. this is where the government comes in. income taxes run 30% to 40% of net income, so if you lower taxes you increase the profitablity of any potential oil well

same concept as why you can't get cable if you live in a rural area

 

[al_bundy]

Good point Dex. I have to admit here, I am (dangerously) just repeating what I've heard so many times (!). However, I also don't recall the oil companies or anyone else standing up to deny the subsidies either, so I tend to think there it is a 'mostly true' area. I do recall googling this a while back, and I gave up before I found anything solid, which did surprise me too.

And ( careful here, I am trying not to touch on 'soap-boxy' areas), I was not referring to the cost of any activities of the of US govt in certain geo-political regions of the world that might be considered by some/many as a 'subsidy' to the oil industry (vague enough?). I'm talking about straight tax credits for exploration, etc. I'd like to have better data on this issue also - so please post if you find more.



I really don't think we will see anywhere near the same curve on Solar Energy. It really is quite different from a computer cost curve. Computer costs came down partly due to just being able to squeeze more transistors in the same space - it was all about finer processing capabilities. That is *not* the limiting factor with solar.

Solar cells now are roughly ( w/o looking it up), maybe 15-20% efficient? Researchers *might* know how to double that, but that's about it - you hit a limit of diminishing returns. You can't get better than 100%. And just as an example, going from 20% to 60% eff means you cut the wasted energy from 80% to 40%. You can't eliminate another 40% - you would be at 100% eff then, and you just can't get there.

Another way to say that is, at 20%, a 5x improvement is all that is even theoretically possible to improve. There is no more 'there', there. With CPUs, the early line widths were hundreds, maybe thousands of times larger than what is being done today. So, they had room for 100x or more improvements, with theoretical room to go yet.

Yes, they will learn how to cut costs, but just don't expect anything dramatic. And, to the extent that energy goes up - solar cells will go up. A big part of their cost is the energy to turn sand into a photo-voltaic silicon. It takes about two years in direct sun for the solar cell to 'work off' the energy it took to make it in the first place. That's what drives me nuts about (at the present time), using solar cells for a cell phone or iPod charger, or a solar cell on the roof of an electric car, and calling it 'green'. It may be convenient, but it ain't green. It is a waste of energy if that cell isn't put in the optimum spot for sunlight 365 days/year.

And don't let no one tell you no different Well, not w/o proof - and then let me know also.

-ERD50

right now Intel is making chips with .45 nanometer circuits or close to doing it. i've been following the PC industry since the 1990's and i remember the days when everyone thought it would be impossible to break 1 nanometer. i remember the days when new chips from Intel would run close to $1000 just for the CPU and everyone thought it would always be this way.

what happened was people found new ways to manufacture these things that is more cost efficient and prices came down. same with LCD screens and pretty much everything that used to be very expensive but is now cheap. and we can always design better solar panels. back in 2000 - 2005 Intel and AMD were in the gigahertz race and Intel decided to make the P4 to run really fast. the performance was pretty bad because it was very inefficient but people thought it was faster. a team in Israel made up what is now the Centrino CPU on a shoestring budget and working as red haired step children. now no one cares what the GHz rating is on the CPU.

the current hybrid technology is almost 20 years old and only now is being widely depolyed. RSA kept the licensing fees on their patents very high until they expired a few years ago and now we have encyption everywhere. the core x86 technology was first developed in the late 1960's along with the core internet technology and we are still improving it

same thing will happen with alternative energy

 

[ERD50]

right now Intel is making chips with .45 nanometer circuits or close to doing it. i've been following the PC industry since the 1990's and i remember the days when everyone thought it would be impossible to break 1 nanometer. i remember the days when new chips from Intel would run close to $1000 just for the CPU and everyone thought it would always be this way.

This is probably true, but the key difference that I am trying to get across and that applies to solar cells (and fuel cells for that matter), is that in your example they *thought* that 1nm was a limit, or they *thought* chips would always cost $1000.

But 100% efficiency *is* a limit, not an opinion or prediction. You just cannot turn more than 100% of the sun's energy that hits a square meter of surface into any more energy than was there to begin with. And since solar cells are around 20% eff, there is an absolute limit of 5X in terms of eff improvements.

.... the core x86 technology was first developed in the late 1960's along with the core internet technology and we are still improving it

same thing will happen with alternative energy

Maybe some other cost cutting will help, but all I'm saying is don't expect changes on anywhere near the same scale as some other technologies. At 20% of the limit of eff set by the laws of physics, there just is not that much improvement to eek out. CPUs were not at those limits, they were at process limitations, or the physical limitations of the processes available at the time, but they were not about to break the absolute laws of physics.

-ERD50