One of the hot topics in renewable energy is "distributed generation." If every home and business would install some solar panels or small wind turbines to generate their own electricity, then any excess electricity could be sold back to the grid. Build enough small solar photovoltaic systems and windmills, the theory goes, and we won't have to build as many coal-fired power plants.
Those who support this concept make analogies to the internet, where the computing power and brainpower of numerous individuals and their personal computers can be harnessed via distributed computing and wikis and social networks into something really big and powerful.
Will the same concept work with “distributed generation” of electricity?
Not exactly.
Asa an energy efficiency measure, putting solar panels and wind turbines on individual facilities is a very good idea. It will reduce the need for that facility to draw power from the grid. But for large scale production of electricity and selling back to the grid, distributed generation does not provide the quality control and economies of scale necessary for the efficient generation and distribution of electricity. Let’s look at those two issues:
Power Quality. The internet works by allowing everyone to post whatever information they want, without any initial filter on quality. That won't work on the electric grid.
An efficient power distribution system requires that power quality (voltage, harmonics, etc.) be maintained at all times. That is difficult enough to accomplish with highly variable generation sources such as wind and solar. Every time the wind dies down or clouds start to cover the solar panels in one geographic area, the grid would have to find power elsewhere to maintain adequate voltage levels. That is a very difficult and complicated task when you are dealing with large wind and solar farms. It is even more difficult when the wind and solar power is being supplied by thousands, or tens of thousands, or hundreds of thousands of different sources, each with its own variations in power quality.
Economies of Scale. Building small windmills and solar photovoltaic arrays is not very cost efficient. The number of workers required per megawatt -- and the gasoline they will use going from one site to another -- makes this a very inefficient process. And what about maintenance? Can we really afford a renewable energy system that requires maintenance crews to take care of generation capacity that is located at hundreds or thousands of different locations?
Does that mean our electric power systems will continue to be centralized? Yes, but only on the generation side. On the storage side, distributed networks may offer an excellent solution to the problem of matching generation with demand.
The biggest inefficiency in our current electric power system is caused by the need to build excess generation capacity to meet peak demand. Many electric utilities have generators that are used less than 40% of the time. They exist solely to provide extra power when it is needed -- like from 7 am to 7 pm when every office building has its lights, computers, fax machines and HVAC systems turned on. And on that very hot August day when everyone turns on their incredibly inefficient window air-conditioning units at the same time.
Power companies must build enough generating capacity to handle the highest possible peak demand for electricity. When we operate substantially below peak capacity (like, almost every night of the year), that peak capacity goes wasted.
The real problem is not generation, but storage. If we could use that generating capacity at night and store the electricity for the next day, then we would have a truly efficient system.
Fran Lamparello, my good friend and business partner, sees the future of energy storage by looking at the past. Fran has spent his entire working life in different aspects of the energy industry, from designing building controls systems to running a home heating oil distribution business. He envisions a time in the near future when the electric utilities will address energy storage the same way the home heating oil industry did. At the customer's home or business.
By putting storage tanks at each customer's home or business, the oil companies turned their customers into a "distributed storage" network. It was a very efficient system. The distributor could buy home heating fuel during the off season when prices were low, and then store it until the winter. The distributor did not have to pay for storage of large fuel inventories because it could store that inventory at the customer's home or business. Properly sized, an oil tank at the home or business also reduced the number of trips that had to be made to deliver fuel to the customer.
Fran and I predict that you will see the same type of distributed storage system with electricity. As the efficiency and cost of fuel cells and other storage mechanisms for electricity improve, you will see utilities offering to put that storage mechanism on site at the customer's location. It may be in the form of electric cars as Tom Friedman predicts in his book "Hot, Flat, and Crowded," or it may be in the form of fuel cells.
The real value of the internet model for electricity is not “distributed generation.” It is “distributed storage.” Do not put a solar panel on every roof. Put a hydrogen fuel cell in every backyard or basement! Or an electric car in every garage!
John Howley
Manila, Philippines
Tuesday, August 18, 2009
Wednesday, August 12, 2009
Free Cooling?
A data center that requires no air-conditioning?
Google has figured out a way to do it. And it is so simple. Locate your data center in a place like Belgium where you can use outside air as “free cooling.”
The concept of “free cooling” – bringing in outside air to cool the inside of a building -- is not new. Building managers in the US and elsewhere have been doing it for decades. By controlling dampers to balance the mix of inside and outside air, building managers can use the “free” outside air to better control temperature, humidity, and air pressure inside buildings without spending money on electricity.
Actually, all of us have done this at one time or another. Like on a Fall day when the sun hitting our windows makes it a little too warm inside, even though the air outside is cool. Instead of turning on the air-conditioning, we just open the window a little. Same concept. “Free” cooling.
All Google has done is take this very basic principle of facility energy management and apply it to complex data centers by adding a dash of information technology and off-shoring. The equipment in data centers generate a lot of heat. By locating them in a cooler climate and carefully managing the amount of cool fresh air coming into the building, Google can control the temperature without needing electricity to generate air-conditioning.
Belgium does have a few days per year (maybe about 7) when the outside air temperature is not cold enough to cool a data center. Google will monitor the weather and outside temperatures. If it gets too warm in Belgium, Google will simply shut down some equipment there (which will reduce the amount of heat being generated inside the data center) and shift some of the work load to other data centers around the world until the weather in Belgium returns to normal.
Now, in complex buildings like data centers, the cooling is not entirely "free." First, you need a building management system to monitor operating conditions inside the building and external data such as weather. Then you need to use the brainpower of facilities engineers to manage the system. But that little bit of data analysis and brainpower leads to tremendous reductions in both energy costs and carbon emissions.
Pretty good results for essentially opening windows.
John Howley
Manila, Philippines
Google has figured out a way to do it. And it is so simple. Locate your data center in a place like Belgium where you can use outside air as “free cooling.”
The concept of “free cooling” – bringing in outside air to cool the inside of a building -- is not new. Building managers in the US and elsewhere have been doing it for decades. By controlling dampers to balance the mix of inside and outside air, building managers can use the “free” outside air to better control temperature, humidity, and air pressure inside buildings without spending money on electricity.
Actually, all of us have done this at one time or another. Like on a Fall day when the sun hitting our windows makes it a little too warm inside, even though the air outside is cool. Instead of turning on the air-conditioning, we just open the window a little. Same concept. “Free” cooling.
All Google has done is take this very basic principle of facility energy management and apply it to complex data centers by adding a dash of information technology and off-shoring. The equipment in data centers generate a lot of heat. By locating them in a cooler climate and carefully managing the amount of cool fresh air coming into the building, Google can control the temperature without needing electricity to generate air-conditioning.
Belgium does have a few days per year (maybe about 7) when the outside air temperature is not cold enough to cool a data center. Google will monitor the weather and outside temperatures. If it gets too warm in Belgium, Google will simply shut down some equipment there (which will reduce the amount of heat being generated inside the data center) and shift some of the work load to other data centers around the world until the weather in Belgium returns to normal.
Now, in complex buildings like data centers, the cooling is not entirely "free." First, you need a building management system to monitor operating conditions inside the building and external data such as weather. Then you need to use the brainpower of facilities engineers to manage the system. But that little bit of data analysis and brainpower leads to tremendous reductions in both energy costs and carbon emissions.
Pretty good results for essentially opening windows.
John Howley
Manila, Philippines
Monday, August 10, 2009
US and China Forge a New Path on Climate Change
Last week the US and China signed a Memorandum of Understanding agreeing to cooperate on climate change. Some have criticized the document as nothing more than an “agreement to agree” that failed to address the contentious issue of firm targets for carbon emissions reductions.
This criticism misses the point.
To begin, consider how far the US-China relationship has come in such a very short time.
In April 2001, just months after the Bush Administration took office, the US sent a military plane near Hainan Island in China. China responded by forcing down the plane and detaining the 24 American crew members for 10 days until the US apologized.
The message then was clear: Do not mess with us.
In stark contrast, China began its relationship with the Obama Administration by sending 150 senior Chinese officials to Washington to discuss the global economy and climate change. Before leaving Washington, they signed an agreement to cooperate on renewable energy, smart grid technologies, electric vehicles, carbon capture and sequestration, joint research and development, clean air and water, and protection of natural resources.
A very different but equally clear message: We want to work with you on climate change.
Consider also the importance of a US-China consensus on: (a) the existence of a climate change problem, and (b) the need to address it.
Many in the Bush Administration – including Vice President Cheney – did not believe that we had a problem or that we needed to do anything about it. The official position on climate change was that America should not sign any agreements until China and other developing nations agreed to firm targets to reduce their greenhouse gas emissions.
China responded by arguing that they should not consider firm targets until the US and other developed nations first agreed to firm targets to remediate their much longer history of carbon emissions.
As Wu Changhua of The Climate Group in Beijing has noted, very little progress was possible when the US and China each “used the other as an excuse for inaction.” The agreement last week is meaningful because it signals an intent by both sides to find ways to work together. That is the essential first step towards any progress.
Equally encouraging are the reasons why the US and China are beginning to work together:
1. A solid consensus in the US on the need for renewable energy. This consensus rests on beliefs that transcend partisan lines, including: (a) that US national security requires a shift away from dependence on foreign oil; (b) that we are leaving a legacy of significant environmental damage for generations in the not-so-distant future; and (c) that economic growth in the US depends on becoming a world leader in new, clean energy technologies.
2. A recognition in China that it must move quickly to prevent environmental disaster. In each of the past five years, China has built an average of 70 gigawatts of electric generating capacity – about the same amount as exists in all of France. Most of these plants have been dirty coal plants with obvious environmental impacts. Remember when China had to shut down factories before and during the Beijing Olympics to make sure the air quality would not kill the athletes? China knows that it cannot continue on this path.
Does this mean that the US and China will agree on firm targets for greenhouse gas emission reductions in Copenhagen later this year?
I hate to disappoint you. But I think the answer is "No."
The underlying message of the agreement signed in Washington last week is that the US and China are going to forge two paths to address climate change. Yes, they will still argue with one another over how much each country should reduce its carbon emissions and by when. But at the same time, they will pursue a second path of cooperation towards achievable solutions with or without an agreement on targets.
Those looking for simple solutions to climate change will be very disappointed by the absence of firm emission reduction targets in Copenhagen later this year. But what would you rather have? A Copenhagen Agreement on firm targets without any agreement on how to reach them? Or a Copenhagen Agreement on how to reduce greenhouse gas emissions without firm targets?
Whichever you prefer, get ready for the latter.
John Howley
Manila, Philippines
This criticism misses the point.
To begin, consider how far the US-China relationship has come in such a very short time.
In April 2001, just months after the Bush Administration took office, the US sent a military plane near Hainan Island in China. China responded by forcing down the plane and detaining the 24 American crew members for 10 days until the US apologized.
The message then was clear: Do not mess with us.
In stark contrast, China began its relationship with the Obama Administration by sending 150 senior Chinese officials to Washington to discuss the global economy and climate change. Before leaving Washington, they signed an agreement to cooperate on renewable energy, smart grid technologies, electric vehicles, carbon capture and sequestration, joint research and development, clean air and water, and protection of natural resources.
A very different but equally clear message: We want to work with you on climate change.
Consider also the importance of a US-China consensus on: (a) the existence of a climate change problem, and (b) the need to address it.
Many in the Bush Administration – including Vice President Cheney – did not believe that we had a problem or that we needed to do anything about it. The official position on climate change was that America should not sign any agreements until China and other developing nations agreed to firm targets to reduce their greenhouse gas emissions.
China responded by arguing that they should not consider firm targets until the US and other developed nations first agreed to firm targets to remediate their much longer history of carbon emissions.
As Wu Changhua of The Climate Group in Beijing has noted, very little progress was possible when the US and China each “used the other as an excuse for inaction.” The agreement last week is meaningful because it signals an intent by both sides to find ways to work together. That is the essential first step towards any progress.
Equally encouraging are the reasons why the US and China are beginning to work together:
1. A solid consensus in the US on the need for renewable energy. This consensus rests on beliefs that transcend partisan lines, including: (a) that US national security requires a shift away from dependence on foreign oil; (b) that we are leaving a legacy of significant environmental damage for generations in the not-so-distant future; and (c) that economic growth in the US depends on becoming a world leader in new, clean energy technologies.
2. A recognition in China that it must move quickly to prevent environmental disaster. In each of the past five years, China has built an average of 70 gigawatts of electric generating capacity – about the same amount as exists in all of France. Most of these plants have been dirty coal plants with obvious environmental impacts. Remember when China had to shut down factories before and during the Beijing Olympics to make sure the air quality would not kill the athletes? China knows that it cannot continue on this path.
Does this mean that the US and China will agree on firm targets for greenhouse gas emission reductions in Copenhagen later this year?
I hate to disappoint you. But I think the answer is "No."
The underlying message of the agreement signed in Washington last week is that the US and China are going to forge two paths to address climate change. Yes, they will still argue with one another over how much each country should reduce its carbon emissions and by when. But at the same time, they will pursue a second path of cooperation towards achievable solutions with or without an agreement on targets.
Those looking for simple solutions to climate change will be very disappointed by the absence of firm emission reduction targets in Copenhagen later this year. But what would you rather have? A Copenhagen Agreement on firm targets without any agreement on how to reach them? Or a Copenhagen Agreement on how to reduce greenhouse gas emissions without firm targets?
Whichever you prefer, get ready for the latter.
John Howley
Manila, Philippines
Thursday, July 30, 2009
Big Savings from Unusual Places
One of the wonders of sustainable energy is how some off-beat, even odd inventions can have very significant impacts on fuel consumption and carbon emissions.
Take, for example, solar-powered trash compactors. Sounds cute, right?
Well, the City of Philadelphia has discovered that they can generate significant fuel savings.
Traditional trash cans have to be emptied about 19 times per week. By installing solar-powered trash compactors from Big Belly Solar, Philadelphia only has to empty its trash cans 5 times per week.
From 19 times per week to 5 times per week? That is a 74% reduction in the number of trips that have to be made by garbage trucks. In other words, a 74% reduction in fuel consumption and carbon emissions.
Pretty good for a lowly garbage can.
Or consider solar-powered refrigeration. Another gimmicky idea? Maybe, but also one that can cut fuel consumption in half while greatly improving the lives and income-earning potential of dairy farmers in the developing world.
Cows get milked twice a day in India, usually at remote farms that have no electricity and therefore no refrigeration. The milk will spoil in 5 hours, so trucks have to travel hundreds of kilometers, twice every day, to collect the fresh milk before it spoils.
By installing solar-powered refrigeration from Promethean Power Systems, dairies can cut those trips in half -- to only once per day. Half the fuel consumption. Half the carbon emissions.
A refrigerator that reduces fuel consumption and carbon emissions by 50%?? Now that is a pretty good gimmick.
For more information:
Solar-powered trash compactors: www.BigBellySolar.com
Solar-powered refrigeration: www.Promethean-Power.com
John Howley
Woodbridge, New Jersey
Take, for example, solar-powered trash compactors. Sounds cute, right?
Well, the City of Philadelphia has discovered that they can generate significant fuel savings.
Traditional trash cans have to be emptied about 19 times per week. By installing solar-powered trash compactors from Big Belly Solar, Philadelphia only has to empty its trash cans 5 times per week.
From 19 times per week to 5 times per week? That is a 74% reduction in the number of trips that have to be made by garbage trucks. In other words, a 74% reduction in fuel consumption and carbon emissions.
Pretty good for a lowly garbage can.
Or consider solar-powered refrigeration. Another gimmicky idea? Maybe, but also one that can cut fuel consumption in half while greatly improving the lives and income-earning potential of dairy farmers in the developing world.
Cows get milked twice a day in India, usually at remote farms that have no electricity and therefore no refrigeration. The milk will spoil in 5 hours, so trucks have to travel hundreds of kilometers, twice every day, to collect the fresh milk before it spoils.
By installing solar-powered refrigeration from Promethean Power Systems, dairies can cut those trips in half -- to only once per day. Half the fuel consumption. Half the carbon emissions.
A refrigerator that reduces fuel consumption and carbon emissions by 50%?? Now that is a pretty good gimmick.
For more information:
Solar-powered trash compactors: www.BigBellySolar.com
Solar-powered refrigeration: www.Promethean-Power.com
John Howley
Woodbridge, New Jersey
Tuesday, July 28, 2009
Solar Panel Glut??
Yesterday's electronic version of the Wall Street Journal had an interesting headline:
"Solar Prices Headed Down on Massive Glut"
The story reports that the "supply of solar panel modules ramped up at the beginning of this year and came into collision with slack demand, sending inventories up 64.3%." (emphasis in original).
Wow! Massive Glut! Inventories increased by 64.3%! That is terrifying! The solar energy industry must be headed for disastrous over-supply and ruin!
Wait a second. What does a 64.3% increase in inventories actually mean?
It means, according to an expert quoted in the WSJ story, "the equivalent of one-and-a-half months of excess inventory."
So, let me get this straight. The Stimulus Bill contains tens of billions of dollars for investments in renewable energy including solar, plus it looks like we will have some sort of "cap and trade" or other carbon reduction legislation in the US that will provide a further incentive to invest in solar, plus the Obama Administration is taking a leadership role in global efforts to reduce carbon emissions which will require more investments in renewables like solar, plus the price of oil is still over $60 per barrel despite the worst global recession in most of our lifetimes -- and who knows where the price of oil will go once we start emerging from recession -- which makes renewables like solar attractive alternatives.
But the solar panel industry is experiencing a "massive glut" because it has one and a half months of excess supply?
Fortunately, solar energy investors have a slightly longer perspective than journalists and financial analysts. That one and a half month excess supply of solar modules will soon be history.
John Howley
Orlando, Florida
"Solar Prices Headed Down on Massive Glut"
The story reports that the "supply of solar panel modules ramped up at the beginning of this year and came into collision with slack demand, sending inventories up 64.3%." (emphasis in original).
Wow! Massive Glut! Inventories increased by 64.3%! That is terrifying! The solar energy industry must be headed for disastrous over-supply and ruin!
Wait a second. What does a 64.3% increase in inventories actually mean?
It means, according to an expert quoted in the WSJ story, "the equivalent of one-and-a-half months of excess inventory."
So, let me get this straight. The Stimulus Bill contains tens of billions of dollars for investments in renewable energy including solar, plus it looks like we will have some sort of "cap and trade" or other carbon reduction legislation in the US that will provide a further incentive to invest in solar, plus the Obama Administration is taking a leadership role in global efforts to reduce carbon emissions which will require more investments in renewables like solar, plus the price of oil is still over $60 per barrel despite the worst global recession in most of our lifetimes -- and who knows where the price of oil will go once we start emerging from recession -- which makes renewables like solar attractive alternatives.
But the solar panel industry is experiencing a "massive glut" because it has one and a half months of excess supply?
Fortunately, solar energy investors have a slightly longer perspective than journalists and financial analysts. That one and a half month excess supply of solar modules will soon be history.
John Howley
Orlando, Florida
Sunday, March 8, 2009
Make No Small Plans
My problem with President Obama's stimulus package is that it lacks ambition. Especially when it comes to investing in the new grid we will need to support renewable energy.
We know that our energy infrastructure is at the breaking point. Yet the stimulus package allocates only $80 billion over a number of years for a wide range of energy projects. A lot of that money will go to basic energy efficiency upgrades like replacing old boilers and insulation in public buildings. All things that should be done, but these investments will not be enough to create a 21st Century energy infrastructure.
The problem is: We are making small plans with short-term objectives. This is no way to reinvigorate the most important economy in the world.
To understand why, let's look back at the successes of the 20th century.
Imagine what the US economy would have been like in the first half of the 20th century if we never built the railroads. Without railroads, we would have remained a predominantly agrarian economy in which most people lived their entire lives without traveling more than 50 miles from their birthplace.
That changed with the railroads. In the 25-year period between 1875 and 1900, almost 200,000 miles of new railroad tracks were built in the US. Because of this massive investment in the late 19th century, we started the 20th century with about 260,000 miles of track in the US, compared to about 280,000 miles of track in the entire rest of the world combined.
Building the largest railroad network in the world gave us a competitive advantage that helped transform the US from a mostly agrarian society to a diversified economic powerhouse during the first half of the 20th century.
Now imagine what the US economy would have been like in the second half of the 20th century if we never built a national highway system.
Beginning with planning during WWII, the national highway system has grown into 160,000 miles of roads connecting virtually every part of the continental United States -- making it the largest highway system in the world.
Building the largest road system in the world gave us a competitive advantage that was essential to our success as the most dynamic economy in the world during the second half of the 20th century. Do you think computers are important to the US economy? Remember that they would never have reached the store (or your home) without a truck on a highway.
Now imagine what the 21st century will look like if we do not invest in new energy infrastructure.
The electric grid we rely on today is not much different than the one we began building at the turn of the last century (and not much more reliable either). We use higher voltages, and we have some basic demand response programs, but our electric grid is still essentially as dumb (lacking intelligence) as it was when Nikola Tesla delivered his famous lecture on polyphase alternating currents in 1888. This grid based on a 100-year-old design is not capable of supporting the economy of the future.
The questions we face are pretty straightforward:
Will we continue to rely on a 19th century electric grid design to power a 21st century economy?
Or will the US make the investments necessary over the next 20 years to build the largest and smartest electric grid in the world?
Daniel Burnham, the Chicago architect, inspired many at the start of the 20th century with his admonition that we should "make no little plans." We need to adopt his charge today when it comes to investing in the future of energy infrastructure in the US.
Now is not the time to make small plans. We must make massive investments in our energy infrastructure starting today and continuing for a few decades. The number will be in the trillions, not the billions. That is the only way we will create jobs today. And it is the only way we will secure a future of prosperity for our children and grandchildren.
P.S. -- Here's Burnham's full quote:
"Make no little plans. They have no magic to stir men's blood and probably themselves will not be realized. Make big plans; aim high in hope and work, remembering that a noble, logical diagram once recorded will never die, but long after we are gone will be a living thing, asserting itself with ever-growing insistency. Remember that our sons and grandsons [and daughters and granddaughters] are going to do things that would stagger us. Let your watchword be order and your beacon beauty. Think big."
John Howley
Woodbridge, New Jersey
We know that our energy infrastructure is at the breaking point. Yet the stimulus package allocates only $80 billion over a number of years for a wide range of energy projects. A lot of that money will go to basic energy efficiency upgrades like replacing old boilers and insulation in public buildings. All things that should be done, but these investments will not be enough to create a 21st Century energy infrastructure.
The problem is: We are making small plans with short-term objectives. This is no way to reinvigorate the most important economy in the world.
To understand why, let's look back at the successes of the 20th century.
Imagine what the US economy would have been like in the first half of the 20th century if we never built the railroads. Without railroads, we would have remained a predominantly agrarian economy in which most people lived their entire lives without traveling more than 50 miles from their birthplace.
That changed with the railroads. In the 25-year period between 1875 and 1900, almost 200,000 miles of new railroad tracks were built in the US. Because of this massive investment in the late 19th century, we started the 20th century with about 260,000 miles of track in the US, compared to about 280,000 miles of track in the entire rest of the world combined.
Building the largest railroad network in the world gave us a competitive advantage that helped transform the US from a mostly agrarian society to a diversified economic powerhouse during the first half of the 20th century.
Now imagine what the US economy would have been like in the second half of the 20th century if we never built a national highway system.
Beginning with planning during WWII, the national highway system has grown into 160,000 miles of roads connecting virtually every part of the continental United States -- making it the largest highway system in the world.
Building the largest road system in the world gave us a competitive advantage that was essential to our success as the most dynamic economy in the world during the second half of the 20th century. Do you think computers are important to the US economy? Remember that they would never have reached the store (or your home) without a truck on a highway.
Now imagine what the 21st century will look like if we do not invest in new energy infrastructure.
The electric grid we rely on today is not much different than the one we began building at the turn of the last century (and not much more reliable either). We use higher voltages, and we have some basic demand response programs, but our electric grid is still essentially as dumb (lacking intelligence) as it was when Nikola Tesla delivered his famous lecture on polyphase alternating currents in 1888. This grid based on a 100-year-old design is not capable of supporting the economy of the future.
The questions we face are pretty straightforward:
Will we continue to rely on a 19th century electric grid design to power a 21st century economy?
Or will the US make the investments necessary over the next 20 years to build the largest and smartest electric grid in the world?
Daniel Burnham, the Chicago architect, inspired many at the start of the 20th century with his admonition that we should "make no little plans." We need to adopt his charge today when it comes to investing in the future of energy infrastructure in the US.
Now is not the time to make small plans. We must make massive investments in our energy infrastructure starting today and continuing for a few decades. The number will be in the trillions, not the billions. That is the only way we will create jobs today. And it is the only way we will secure a future of prosperity for our children and grandchildren.
P.S. -- Here's Burnham's full quote:
"Make no little plans. They have no magic to stir men's blood and probably themselves will not be realized. Make big plans; aim high in hope and work, remembering that a noble, logical diagram once recorded will never die, but long after we are gone will be a living thing, asserting itself with ever-growing insistency. Remember that our sons and grandsons [and daughters and granddaughters] are going to do things that would stagger us. Let your watchword be order and your beacon beauty. Think big."
John Howley
Woodbridge, New Jersey
Thursday, September 11, 2008
The Most Cost Effective Energy Solution
The Department of Energy is promoting something called "trip linking." It is a very simple, even obvious idea. Instead of making 5 trips in your car to run 5 different errands, plan out your day and make just one trip with 5 stops. You will save gasoline because you will drive fewer miles (e.g., just one trip down your driveway instead of 5). You will also reduce emissions even if you drive the same distance because your car engine runs more efficiently when it is warmed up than when it repeatedly turns over from a cold start.
I heard this message on the radio several times this week. Do we really need to tell people something so simple and obvious?
YES!!
One of my company's technology partners recently had an enlightening experience with energy education and awareness. They installed a smart electric meter that allowed every employee to see their building's energy consumption on a real time basis on a computer screen. Pretty soon a lot of employees began noticing that there were distinct spikes in energy consumption throughout the day. Being curious, some employees tried to figure out what was causing the spikes.
Turns out it was the elevator. Every time someone used the elevator, the little chart on the screen jumped.
Once people realized how much electricity was being consumed by the elevator, they began to walk up and down the stairs.
Two months after simple energy consumption awareness began, the company announced that electricity consumption in the building had dropped by more than 3%. Then the fun began. Employees wondered how much electricity could be saved if they conscientiously turned off lights when not needed. And if they turned off their computers at night. Pretty soon, everyone in the building was taking little steps to reduce their energy consumption ..... and watching the results on their computer screens.
After 7 months, the company had reduced its electricity consumption by more than 14%. No huge investments in technology. A 14% reduction in energy consumption merely by making people aware of the energy they were wasting.
So, what is the most cost effective energy solution?
Awareness and education.
John Howley
Woodbridge, New Jersey
I heard this message on the radio several times this week. Do we really need to tell people something so simple and obvious?
YES!!
One of my company's technology partners recently had an enlightening experience with energy education and awareness. They installed a smart electric meter that allowed every employee to see their building's energy consumption on a real time basis on a computer screen. Pretty soon a lot of employees began noticing that there were distinct spikes in energy consumption throughout the day. Being curious, some employees tried to figure out what was causing the spikes.
Turns out it was the elevator. Every time someone used the elevator, the little chart on the screen jumped.
Once people realized how much electricity was being consumed by the elevator, they began to walk up and down the stairs.
Two months after simple energy consumption awareness began, the company announced that electricity consumption in the building had dropped by more than 3%. Then the fun began. Employees wondered how much electricity could be saved if they conscientiously turned off lights when not needed. And if they turned off their computers at night. Pretty soon, everyone in the building was taking little steps to reduce their energy consumption ..... and watching the results on their computer screens.
After 7 months, the company had reduced its electricity consumption by more than 14%. No huge investments in technology. A 14% reduction in energy consumption merely by making people aware of the energy they were wasting.
So, what is the most cost effective energy solution?
Awareness and education.
John Howley
Woodbridge, New Jersey
Thursday, April 24, 2008
We Are The Solution
Last week I gave a presentation on “Energy Efficiency Best Practices” to more than 100 CEOs of multinational corporations. The presentation began with a disclaimer. I did not intend to talk about alternative energy. I would focus, instead, on energy efficiency. On how companies can dramatically reduce their energy costs -- without changing what they do -- simply by using existing technologies to make their facilities run more efficiently.
Just to be clear, the first slide in my presentation said: “Focus on Efficiency.” Then I ended with the same slide: “Focus on Efficiency.”
What happened during the Q&A session? No one asked about energy efficiency. Instead, every one asked about alternative energy. What about electric cars? What about fuel cells? What about biofuels? What about cellulose? What about solar? What about wind?
Why were they asking about alternative energy? Because we all want to find the magic new technology that will make energy both environmentally friendly and inexpensive. Then we won’t have to do anything ourselves.
Don’t get me wrong. I’m no Luddite. In fact, I firmly believe that over time very smart scientists and engineers will make major breakthroughs that will eliminate our dependence on carbon-based fuels. Just in my lifetime, the microprocessor has revolutionized communications, media, data processing, medical diagnostics, and virtually every aspect of our lives. Once discovered, similar types of breakthroughs in energy and power generation will relegate carbon to the same dustbin of history as the rotary telephone.
But continuing to waste energy while waiting for alternative energy breakthroughs is a bit like continuing to spend recklessly while waiting to hit the lottery. It might happen someday. Maybe not. Even if it does, who knows when.
In the meantime, we have such a simple solution…….and it is us. Simply by taking very basic steps, we can reduce our energy consumption by 20% or more without altering our lifestyles or business practices. And we can do that today with existing technologies that have very short paybacks.
So, please, a little focus on efficiency.
John Howley
Hong Kong
Just to be clear, the first slide in my presentation said: “Focus on Efficiency.” Then I ended with the same slide: “Focus on Efficiency.”
What happened during the Q&A session? No one asked about energy efficiency. Instead, every one asked about alternative energy. What about electric cars? What about fuel cells? What about biofuels? What about cellulose? What about solar? What about wind?
Why were they asking about alternative energy? Because we all want to find the magic new technology that will make energy both environmentally friendly and inexpensive. Then we won’t have to do anything ourselves.
Don’t get me wrong. I’m no Luddite. In fact, I firmly believe that over time very smart scientists and engineers will make major breakthroughs that will eliminate our dependence on carbon-based fuels. Just in my lifetime, the microprocessor has revolutionized communications, media, data processing, medical diagnostics, and virtually every aspect of our lives. Once discovered, similar types of breakthroughs in energy and power generation will relegate carbon to the same dustbin of history as the rotary telephone.
But continuing to waste energy while waiting for alternative energy breakthroughs is a bit like continuing to spend recklessly while waiting to hit the lottery. It might happen someday. Maybe not. Even if it does, who knows when.
In the meantime, we have such a simple solution…….and it is us. Simply by taking very basic steps, we can reduce our energy consumption by 20% or more without altering our lifestyles or business practices. And we can do that today with existing technologies that have very short paybacks.
So, please, a little focus on efficiency.
John Howley
Hong Kong
Tuesday, April 22, 2008
The Laws of Physics
The first law of thermodynamics (conservation) holds that energy cannot be created or destroyed. The total amount of energy and matter in the Universe remains constant, merely changing from one form to another. Simply put, we cannot get energy from nothing.
Think about what that means for our hopes (and dreams) of a carbonless future for energy. Unless the first law of thermodynamics is disproved, we will always have to transform some form of matter or energy to get energy. If not carbon, then something else. Neutrons for nuclear plants. Food for biofuels. Land for windfarms. Silicon or some other material for solar panels.
Which leads to that other basic law. There is no free lunch.
John Howley
Manila, Philippines
Think about what that means for our hopes (and dreams) of a carbonless future for energy. Unless the first law of thermodynamics is disproved, we will always have to transform some form of matter or energy to get energy. If not carbon, then something else. Neutrons for nuclear plants. Food for biofuels. Land for windfarms. Silicon or some other material for solar panels.
Which leads to that other basic law. There is no free lunch.
John Howley
Manila, Philippines
Saturday, April 12, 2008
The Economics of Energy Conservation
I remember watching President Jimmy Carter on television during the OPEC Oil Embargo. He was wearing his Mr. Rogers sweater, sitting in front of a fireplace, and telling the country that we all must conserve energy. His message was plain. Energy conservation means making sacrifices, like turning down the thermostat and putting on sweaters to keep warm in front of a fire.
Being fond of comfortable wool sweaters, wood fires and the notion that a little personal sacrifice could help eliminate our dependence on foreign oil, I was taken with President Carter's message. Unfortunately, President Carter's approach to energy conservation was not sustainable. You cannot heat the clean rooms in semiconductor manufacturing plants with fireplaces in the winter, nor can you cool hospital operating rooms by opening windows in the summer. Most big energy consumers -- factories, hospitals, office buildings and other commercial and industrial enterprises -- were not going to solve the energy crisis or our dependence on foreign oil by going back to a simpler time or by doing less.
We soon found out that even personal sacrifice would last only so long. Once the immediate crisis of the embargo ended, our society lost its sense of urgency about conservation. Within a few years we had discovered the joys of driving gas guzzling SUVs.
Fast forward 30 years to where we are today, the early 21st Century. Al Gore and others have focused our attention on global warming and the need to reduce carbon emissions. At the same time, we are facing another energy crisis caused by rising energy costs. Oil above $100 a barrel. Electricity rates going through the roof.
This time we are talking about energy conservation in terms of becoming more efficient. Major corporations and venture capitalists have jumped on the bandwagon, asserting that conservation is not just good for our environment, but it is also good for business. For example, the President and CEO of Wal-Mart noted in a recent interview that his company is pursuing energy efficiency because it is good business -- consistent with the company's founding principles -- to cut costs by becoming more efficient:
“We looked at what Sam Walton started and how he developed the company. It was by eliminating waste, bringing in efficiencies. And by thinking about sustainability from our standpoint, it really is about how do you take cost out, which is waste, whether it's through recycling, through less energy use in the store, through the construction techniques we're using, through the supply chain. All of those things are simply the creation of waste. We found it's consistent with the entire model we've had since Sam opened the first store.” H. Lee Scott Jr., President and CEO, Wal-Mart Stores Inc., quoted in “Waste Not”, The Wall Street Journal, March 24, 2008.
Even altruistic environmentalists have made their arguments for conservation based on what is most cost effective. For example, the Canadian Chapter of the World Wildlife Federation has focused on the cost-saving benefits of energy efficiency: “Energy efficiency investments such as building retrofits are one of the lowest-cost and most effective options for reducing greenhouse emissions.” WWF-Canada Backgrounder, March 24, 2008.
How do businesspeople determine whether energy conservation measures are "cost effective"? They simply compare the financial returns available from investments in energy conservation projects with returns available from other types of investments. This requires nothing more than an analysis of (a) how long it will take for the financial savings generated by an investment in the energy conservation project to equal the cost of that investment, known as the PayBack Period; (b) how long those financial savings will continue in the future; (c) what those savings equate to in terms of a percentage return, known as the Internal Rate of Return; and (d) an adjustment for the company's cost of capital, depreciation on any equipment that is installed as part of the conservation project, and other factors.
For example, if replacing an incandescent light bulb with a compact fluorescent bulb (CFL) costs an average of $2.00 (including labor) and will result in a reduction of $2.00 per year in the cost of electricity, then the CFL pays for itself in one year and the PayBack Period is one year. If the CFL will last 10 years, then each investment of $2.00 in CFLs today will generate financial savings of $20 over the life of each new bulb. A very rough Internal Rate of Return is close to 100% because your $2.00 investment is generating 100% return ($2.00 per year). Put another way, to match the return on your investment in CFLs, you would have to invest in something else that generated almost 100% per year.
The actual Internal Rate of Return is less than 100% because you have to factor in your cost of capital -- that is, how much did it cost you to earn or borrow the original $2.00 investment -- and other factors such as depreciation of any equipment installed as part of the conservation projects. But for our purposes, it is sufficient to understand that energy efficiency investments with one-year PayBack Periods are extraordinary investments that cannot be matched by almost any other investment, at least not without taking on much more significant risks.
The Internal Rates of Return for investments with two-year and three-year PayBack Periods are also extraordinary. If an investment pays for itself within 2 years, then it is generating financial savings equal to 50% of its cost each year. And if an investment pays for itself within 3 years, then it is generating financial savings equal to 33% of its cost each year. Depending on how long the savings will last (10, 20 years or more), the cost of the company's capital, etc., investments with two-year and three-year PayBack Periods usually will generate Internal Rates of Return in the range of 30% to 45%.
Since energy efficiency investments carry very little risk (and a lot of side benefits), any energy efficiency investment that generates an Internal Rate of Return of 30% to 45% makes good business sense. It is almost impossible to get that type of return on your investment anywhere else without taking on significant risks.
The bottom line: A CFO will almost always invest in energy efficiency projects that have PayBack Periods less than three years, because Internal Rates of Return over 30% are hard to find without taking on significant risks. And a CFO is almost compelled to invest in energy efficiency projects that have PayBack Periods in the two-year range, because low-risk Internal Rates of Return over 40% are almost impossible to find.
The Internal Rate of Return for energy efficiency investments with four-year PayBack Periods are also good. A four-year PayBack Period means the investment is generating savings equal to 25% of the investment every year. Even after discounting for cost of capital, the Internal Rate of Return should be in the 15% to 20% range. This is still very good considering the relatively low risk of energy efficiency investments compared to the types of risk that must be taken to obtain returns of 15% to 20% in other investments.
In addition, energy efficiency investments generate other types of returns that make them much more valuable than pure financial investments. These side benefits include reducing carbon emissions, generating good will as a "green" company, reducing maintenance costs on equipment that now runs more efficiently, etc.
PayBack Periods longer than four years are more difficult to justify on financial considerations alone. Depending on cost of capital, a five year PayBack Period will generate an Internal Rate of Return that often is in the same range as what the company can earn by reinvesting in its own business. The energy conservation project then starts to compete with other internal capital needs. Do we conserve energy? Or do we expand our plant so we can grow into an important new market? The energy conservation project can still win out, but not on financial considerations alone.
What are the implications when companies make their energy efficiency decisions based on Internal Rates of Return? I've already gone on too long for today, so I'll save that for another blog entry. In the meantime, I look forward to your comments and questions on this primer on the economics of energy conservation.
John Howley
Hong Kong
Being fond of comfortable wool sweaters, wood fires and the notion that a little personal sacrifice could help eliminate our dependence on foreign oil, I was taken with President Carter's message. Unfortunately, President Carter's approach to energy conservation was not sustainable. You cannot heat the clean rooms in semiconductor manufacturing plants with fireplaces in the winter, nor can you cool hospital operating rooms by opening windows in the summer. Most big energy consumers -- factories, hospitals, office buildings and other commercial and industrial enterprises -- were not going to solve the energy crisis or our dependence on foreign oil by going back to a simpler time or by doing less.
We soon found out that even personal sacrifice would last only so long. Once the immediate crisis of the embargo ended, our society lost its sense of urgency about conservation. Within a few years we had discovered the joys of driving gas guzzling SUVs.
Fast forward 30 years to where we are today, the early 21st Century. Al Gore and others have focused our attention on global warming and the need to reduce carbon emissions. At the same time, we are facing another energy crisis caused by rising energy costs. Oil above $100 a barrel. Electricity rates going through the roof.
This time we are talking about energy conservation in terms of becoming more efficient. Major corporations and venture capitalists have jumped on the bandwagon, asserting that conservation is not just good for our environment, but it is also good for business. For example, the President and CEO of Wal-Mart noted in a recent interview that his company is pursuing energy efficiency because it is good business -- consistent with the company's founding principles -- to cut costs by becoming more efficient:
“We looked at what Sam Walton started and how he developed the company. It was by eliminating waste, bringing in efficiencies. And by thinking about sustainability from our standpoint, it really is about how do you take cost out, which is waste, whether it's through recycling, through less energy use in the store, through the construction techniques we're using, through the supply chain. All of those things are simply the creation of waste. We found it's consistent with the entire model we've had since Sam opened the first store.” H. Lee Scott Jr., President and CEO, Wal-Mart Stores Inc., quoted in “Waste Not”, The Wall Street Journal, March 24, 2008.
Even altruistic environmentalists have made their arguments for conservation based on what is most cost effective. For example, the Canadian Chapter of the World Wildlife Federation has focused on the cost-saving benefits of energy efficiency: “Energy efficiency investments such as building retrofits are one of the lowest-cost and most effective options for reducing greenhouse emissions.” WWF-Canada Backgrounder, March 24, 2008.
How do businesspeople determine whether energy conservation measures are "cost effective"? They simply compare the financial returns available from investments in energy conservation projects with returns available from other types of investments. This requires nothing more than an analysis of (a) how long it will take for the financial savings generated by an investment in the energy conservation project to equal the cost of that investment, known as the PayBack Period; (b) how long those financial savings will continue in the future; (c) what those savings equate to in terms of a percentage return, known as the Internal Rate of Return; and (d) an adjustment for the company's cost of capital, depreciation on any equipment that is installed as part of the conservation project, and other factors.
For example, if replacing an incandescent light bulb with a compact fluorescent bulb (CFL) costs an average of $2.00 (including labor) and will result in a reduction of $2.00 per year in the cost of electricity, then the CFL pays for itself in one year and the PayBack Period is one year. If the CFL will last 10 years, then each investment of $2.00 in CFLs today will generate financial savings of $20 over the life of each new bulb. A very rough Internal Rate of Return is close to 100% because your $2.00 investment is generating 100% return ($2.00 per year). Put another way, to match the return on your investment in CFLs, you would have to invest in something else that generated almost 100% per year.
The actual Internal Rate of Return is less than 100% because you have to factor in your cost of capital -- that is, how much did it cost you to earn or borrow the original $2.00 investment -- and other factors such as depreciation of any equipment installed as part of the conservation projects. But for our purposes, it is sufficient to understand that energy efficiency investments with one-year PayBack Periods are extraordinary investments that cannot be matched by almost any other investment, at least not without taking on much more significant risks.
The Internal Rates of Return for investments with two-year and three-year PayBack Periods are also extraordinary. If an investment pays for itself within 2 years, then it is generating financial savings equal to 50% of its cost each year. And if an investment pays for itself within 3 years, then it is generating financial savings equal to 33% of its cost each year. Depending on how long the savings will last (10, 20 years or more), the cost of the company's capital, etc., investments with two-year and three-year PayBack Periods usually will generate Internal Rates of Return in the range of 30% to 45%.
Since energy efficiency investments carry very little risk (and a lot of side benefits), any energy efficiency investment that generates an Internal Rate of Return of 30% to 45% makes good business sense. It is almost impossible to get that type of return on your investment anywhere else without taking on significant risks.
The bottom line: A CFO will almost always invest in energy efficiency projects that have PayBack Periods less than three years, because Internal Rates of Return over 30% are hard to find without taking on significant risks. And a CFO is almost compelled to invest in energy efficiency projects that have PayBack Periods in the two-year range, because low-risk Internal Rates of Return over 40% are almost impossible to find.
The Internal Rate of Return for energy efficiency investments with four-year PayBack Periods are also good. A four-year PayBack Period means the investment is generating savings equal to 25% of the investment every year. Even after discounting for cost of capital, the Internal Rate of Return should be in the 15% to 20% range. This is still very good considering the relatively low risk of energy efficiency investments compared to the types of risk that must be taken to obtain returns of 15% to 20% in other investments.
In addition, energy efficiency investments generate other types of returns that make them much more valuable than pure financial investments. These side benefits include reducing carbon emissions, generating good will as a "green" company, reducing maintenance costs on equipment that now runs more efficiently, etc.
PayBack Periods longer than four years are more difficult to justify on financial considerations alone. Depending on cost of capital, a five year PayBack Period will generate an Internal Rate of Return that often is in the same range as what the company can earn by reinvesting in its own business. The energy conservation project then starts to compete with other internal capital needs. Do we conserve energy? Or do we expand our plant so we can grow into an important new market? The energy conservation project can still win out, but not on financial considerations alone.
What are the implications when companies make their energy efficiency decisions based on Internal Rates of Return? I've already gone on too long for today, so I'll save that for another blog entry. In the meantime, I look forward to your comments and questions on this primer on the economics of energy conservation.
John Howley
Hong Kong
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