Renewable heat and the cost of capital

So to make the ‘renewable energy’ target, Ireland will go hell for leather after wind power, aiming for 40% wind penetration by 2020. For transport, the target is a couple of hundred thousand commuters whizzing around in all-electric cars. And now, here’s the solution to the heat element: start digging that hole in your back garden – we’re all going geo-thermal and it will only cost you €12,000, even if that’s just for the hardware.

Hasn’t anyone ever mentioned to these policy makers that there’s more than one way to skin a cat? That a multifaceted approach to honouring our international obligations might be a lot cheaper for both consumers and taxpayers (who ultimately must cough up for the subsidies required to turn these ‘green’ pipe dreams into reality) and much more effective in the long run? From a policy-makers perspective surely it would make more sense to spread the burden of realising the targets across a wide range of readily available technologies rather than placing all your eggs in one so- called ‘green’ basket after another, and in the process risking policy failure on all three fronts?

By the way, Richard, your ‘friend’ was a conman!

Richard,

My concern is not about the overall target, it’s about how the government are planning to achieve it across the three main areas of electricity generation, transport and heat. In each area, what’s being promoted is one ‘big idea’. I’m aware of the number of SEAI initiatives that exist to support various heat technologies, from woodchip boilers to solar panels to home insulation schemes, but I’m not sure that any of these preferred solutions are working out all that well. Are they?

Natural gas is available to about 60% of homes, as far as I remember. It’s the remaining 40% that must opt for alternative home heating technologies. Treacy Hogan may have been exaggerating the Minister’s enthusiaism for the geo=thermal solution, but it’s enough to set alarm bells ringing.

I think that the high buy-in cost is not necessarily an obstacle in and of itself. Interest rate fluctuations are pretty abstract to most consumers, but the risk of fluctuations in fuel costs or personal financial circumstances are both well understood and more likely to occur. So I think at least some people will be willing to pay a premium to gain amnesty from heating costs.

Certainty is worth a small premium in my book. Paying less for fossil fuels won’t be much fun if short term problems leave you sitting in the cold.

From what I have heard, the electrical bills from geothermal are massive. Heard this from both owners and electricians.
Had a chance to do it in 2008 but chose not too.

What you save in fuel you use in extra electricity?

@Brian

while we at it why not go back to toiling in the fields, or living in caves

sure we could start killing people, those pesky things have a huge carbon footprint

Ah the Greens, gonna love em

I would also advise caution to anyone interested in measuring their appliances standby current. It can be quite dangerous if you are not careful and are not sure what you are doing. You need to have the multimeter in series with the appliances, for which I made myself a little adapter.

You also need to take care not to damage the measurement circuitry of your multimeter if its for low currents. It might not be advisable to switch on an appliance while having the multimeter connected, the larger current could damage sensitive components.

Is it not simply the case that the price of emissions must be sufficiently high and accompanied by a long term commitment that it will increase or, at least, not decline (or the volume cap is sufficiently tight to generate a similar price path) to encourage the appropiate changes in behaviour and to incentivise research, investment and development of technologies and services for which consumers will pay?

Since the price (or the volume cap) is an output of the political process – and, even worse, requires international co-ordination, economics goes out of the window and we are left with centrally-determined targets allocated to sectors in a top-down manner, accompanied by a plethora of instruments and liberally fertilised by subsidies that encourage the most egregious rent-seeking behaviour.

The final consumer pays for it all and there is a vanishingly small probability that the outcome will meet any criterion of economic efficiency.

As the frequently pilloried, but quite wise, Prime Minister of Luxembourg, Jean-Claude Juncker, is reported to have said: “We all know what to do, but we don’t how we’ll be re-elected if we do it.” Minister Ryan doesn’t seem to be worried about this; he probably reckons he’ll get his one shot at Green glory and is more than happy to load unnecessary costs on Irish consumers and the economy.

@ Paul Hunt

You do realize that the heat sector isn’t covered by emissions trading, right?

Or maybe your point is that it should be? So we should have a policeman on everyone’s chimney weighing the carbon?

And you do realise that this is a response to a legally binding EU directive and nothing to do with Minister Ryan? Or maybe you have another bright idea for reducing the cost of compliance that the Minister hasn’t thought of?

Maybe we should install CCS facility on everyone’s chimney as per your suggestion on the last thread when asked to provide workable alternatives?

Apologies if this appears twice.

@Pongo
There’s no need for such drama or hyperbole. A lot of very simple changes can be made without disrupting our lifestyle.

I have measured the power drawn from many of my appliances in standby (the ones I could anyway), which obviously ignores lighting, heating and refrigeration, and also excluding mobile phone chargers (which I forgot to measure when I had a low current multimeter at home). The total current drawn during standby was approx 338 mA. For a mains voltage of 240 V power consumed is Power = Voltage*Current. Since the current drawn by the electronics will be out of phase with the voltage (time delday), the actual power drawn will be lower by a factor called the power factor. As far as I know it is required to be 0.9 for most domestic appliances, but I could be wrong. So the final power output is 0.338 A * 240 * 0.9 = 73 W.
This is a conservative estimate based on my summer lifestyle (small apartment, 2 occupants, not that many electrical appliances) which is certainly less than a typical family would use.
In 2006 there were 1,462,29 households, so the total power consumed by devices in standby is ~ 107 MW.
http://www.cso.ie/quicktables/GetQuickTables.aspx?FileName=CNA29.asp&TableName=Private+Households+by+size&StatisticalProduct=DB_CN

This doesn’t inclued commercial buildings, offices, factories, warehouses etc where there will be a lot more devices in standby (especially computers), which I would expect to have a much larger power consumption. However, since I have no information on them I can’t/won’t give an estimate, which could be very wrong and misleading.

To give an idea of the scale of the 107 MW, the largest wind farm in Ireland is the Meentycat wind farm near Ballybofey in Co Donegal which produces 72 MW
http://www.mottmac.ie/profiles/meentycat/
Of course the total wind production is much larger than this (see Eirgrid for the hourly produced power), but each wind farm takes a lot of time and money to construct. So you can see why something as simple as making sure all the devices are switched off rather than in standby is important.

The biggest culprits are poorly designed circuitry, such as having the on/off switch on the low voltage side of the internal power supply instead of in the mains input circuit, and cheap transformers that produce a lot of Joule heating. For circuits like that the only way to stop them drawing power is to unplug them from the wall. With better designs, energy demand can be decreased, meaning we can minimise our energy production, and the investment required to meet the carbon footprint targets, along with not interfering with out lifestyles.

And no I’m not a green, as far as I’m concerned there are two green movements or idealogies if you want to call them that. The first is a rational approach following scientific evidence, with realistic approaches to our engergy budget and global warming. The second is the emotional based one promulgated by more vocal people such as some of the greens. I have no interest in their ‘natural’ or ‘nature’ arguments either, and the cherry picking of data to suit one agenda. Data is data is data.

I agree with @Physicist_with_no_green_agenda that we need to do the sums, just as David Mackay has for the UK.. Our esteemed Green banker-friends could commission a similar study for RoI and have something useful to show for their term in government.

@Richard

As with most renewables, for geothermal energy, the fuel comes for free, but the capital does not. Compared to fossil fuels, the price risk is gone, but the interest rate risk is higher.

Can you show us how the interest rate risk is higher than the fuel price risk?

Interest rate risk is easily hedged by opting for a fixed interest loan. Consumers may find it harder to fix the price of oil or gas for the next 20 years. NYMEX oil options are only quoted for the next 8 years and you would have to hedge your euro/dollar exposure to guarantee a price. Even then you’d face the risk of increased carbon taxes.

We had two oil shocks in the ’70s where oil was unavailable to consumers at any price. How would one hedge that risk?

Domestic geothermal systems, of which there are approx 10k in Ireland are already grant aided by the ‘Greener homes scheme’. I think this news item refers to proposed legislation to allow for commercial exploration and licensing of commercial geothermal projects.

@Pongo: Physicist-with-no-green-agenda has dealt with one aspect of energy usage in a clear, understandable and comprehensive manner. No further comment by me is necessary, at this time!

B Peter

@Richard

Can you show us how the interest rate risk is higher than the fuel price risk?

@Physicist_with_no_green_agenda,

Many thanks for your contribution. It is like a breath of fresh air. We need science, economics and politics to co-ordinate effectively – each respecting the others’ disciplines and constraints – if we are tackle this huge planetary challenge.

@Eamon Keane,

Thank you. It was just me being dense. However, you do highlight a significant issue – also picked up by other commenters. CO2 is not the only GHG, but it probably is the most pervasive and significant contributor to the problem – though on a kg for kg basis it is less damaging than most of the others. Therefore, as we all know, the levels of CO2 emissions are directly related to the combustion of hydrocarbons (mainly coal, oil and gas). These are finite, exhaustible resources. Various estimates exist, many hotly contested, but the current ‘conventional wisdom’ suggests reserve production ratios (R/Ps) are approx. 200, 40 and 60 years respectively.

Both the theory and evidence indictate that the prices of these fuels will increase secularly in real terms and in an inverse relation to the R/P. Of course, increasing prices will provide an incentive to research and invest in technology that will exercise an upward pressure on the R/Ps, but there is an ultimate limit. And increasing prices will encourage increases in energy efficiency and reduction is energy intensity.

And it is important to distinguish this underlying upward pressure on hyrdrocarbon prices from price volatility and price jumps caused by (mainly) exogenous factors. Price volatility and price jumps are often used by Green campaigners to scare people into switching from hyrdrocarbons. Price volatility (once it isn’t caused by the exercise or abuse of market power) allows market participants to develop and trade instruments that manage price and volume risk. This makes it all the more important to develop genuinely competitive global markets in coal, oil and gas.

Price jumps – or the associated supply restrictions – (OPEC I & II, Russia v Ukraine, bubble prices in 2008) are more difficult to deal with, but the evidence shows that they are impossible to sustain and call forth the additional supplies that bring prices down. In addition, major exporting countries need the revenues and demand destruction is self-defeating.

The upshot of all this is that rising prices and falling R/Ps will encourage a global shift away from hydrocarbons. However, the international consensus, both scientific and political, is that this steady increase in decarbonisation won’t happen quickly enough or be of sufficient scale to impact on climate change. And the natural response of governments and politicians everywhere is to start imposing targets, devising a plethora of instruments, pandering to some interests while penalising others, micromanaging individual behaviour, bribing people with their own money, picking and advancing specific technologies and creating rents that may be captured by favoured market participants.

Some of the more enlightened – informed by rational policy advisers and the scientific and economic evidence – recognise that, just as increasing prices will generate decarbonisation over time, a bigger, sustained increase now will bring forward and accelerate this decarbonisation. And how this accelerated decarbonisation is achieved should be of now concern to governments; the principal concern should be that it is achieved efficienctly and at the least economic cost.

And so back to the heat pumps. An appropriate tax on all hydrocarbons outside of those covered by the EU ETS should provide all the incentive required. And to provide clarity and commitment, this should be accompanied by a clear statement from government that reducing CO2 emissions is the responsibility of all citizens and that the carbon price will be increased until there is evidence of an appropriate response.

Forgot to mention this:

Suddendebt.blogspot.com has a short piece on Portugal and the generation of electricity with re-usables- cites a New York Times article.

B Peter

The principles for building a modern house should be as follows—
1. to insulate the house to a high standard, say U value 0.1.
2. to build the house to a high standard of air tighteness.
3. to provide controlled ventilation, by means of a mechanical heat recovery unit.
If this is done, there is no need to fit an expensive method of heating the house, such as a so called geothermal system, which costs far more than 12,000 euro—–the compressor unit alone would not leave you with much change from 12,000, and it is warrantied for only three years.
The house will be heated by the activities inside the house—bodies, computors, lights, fridges etc.
If additional heat is required, simple and cheap electric heaters can be used, or a wood burning stove or built in Kachelofen [ a tiled enclosed type of stove used in Germany—most efficient ]
A geothermal heating system is not impervious to a rise in the price of fossil fuel—-typically, one third of the heat given out comes from electricity, which itself is produced from the burning of fossil fuel.
An increased use of wind turbines will not help much either—-they are built and installed by the use of large amounts of fossil fuel, put out electricity less than one third of the time, and are totally backed up by open cycle gas turbines, which themselves are quite inefficient and have a high Co2 output.
There is not going to be any magical solution to our upcoming energy problems.

Per Physicist-with-no-green-agenda, the cheapest way to reduce energy use might indeed be to schedule a visit by a technician armed with a decent meter to every house in the country, with a decent bonus credit on the bill for anyone who keeps their energy usage 20% below (on a yearly basis) an index usage total from the year ending the date the programme was announced. After a few years of this, the credit could be unwound as the habit of being frugal would be ingrained.

We have time-of-use meters in Ontario now but there is a lot of scepticism about their accuracy and allegations that meters not properly tested by regulatory authorities have been installed in homes.

@ Physicist_with_no_green_agenda. A great deal of info on all aspects of FF use is to be had over on theoildrum.com. I presumed from your comments that you were familiar with same, if not, it is the best technical source on internet.

I guess the ill-informed are in for a very unpleasant suprise when the truth about the declining availability of FFs (and all those FF derived products!) finally becomes popularly known.

B Peter

@Colin,

(1) The German government has recently issued its long-term energy strategy: http://www.bmu.de/files/pdfs/allgemein/application/pdf/entw_energiekonzept_kf_bf.pdf
There doesn’t seem to be an English version, but you can find plenty of commentary on the net.
(2) I tend to take studies by military think-tanks with a pinch of salt. Defence budgets in all western countries are coming under scrutiny and review. Eisenhower’s ‘military-industrial complex’ hasn’t gone away; it’s just mutated.
(3) Ireland’s energy future is, and will be, integrated in a single EU energy market. Considerable progress is being made to establish this market and the sooner it is established the more effective and efficient will be the response to the challenges you raise. Progress is good on the electricity front; much less so for gas. And there are major questions about the cost/benefits of full retail competition and the basis for securing investment in the specific, log-lived assets required, but I am confident the EU will muddle through in its usual fashion.

@ Colin: Some caution with all reports is always advised! Lot depends on the motives of authors. But the basic, unpalatable facts are starting to fall together.

Overblown reports? – Yes, in spots. ‘Pain’, (aka Regression in aggregate economic activity), on the way? Yes. New Tech to the rescue? Yes and no. Political response. Bury head in sand!

Advice: Buy a farm! At least you’ll have food to eat and if there is sufficient timber on the site, fuel to cook your food. Timescale: two/three decades might be a reasonable guess. Lots of interesting times in between!

Brian P

@Brian Woods

I forgot tone is lost in short messages online, and the previous post might appear snappy when I only meant to say thank you.