Many people are hoping for wind and solar PV to transform grid electricity in a favorable way. Is this really possible? Is it really feasible for intermittent renewables to generate a large share of grid electricity? The answer increasingly looks as if it is, “No, the costs are too great, and the return on investment would be way too low.” We are already encountering major grid problems, even with low penetrations of intermittent renewable electricity: US, 5.4% of 2015 electricity consumption; China, 3.9%; Germany, 19.5%; Australia, 6.6%.
In fact, I have come to the rather astounding conclusion that even if wind turbines and solar PV could be built at zero cost, it would not make sense to continue to add them to the electric grid in the absence of very much better and cheaper electricity storage than we have today. There are too many costs outside building the devices themselves. It is these secondary costs that are problematic. Also, the presence of intermittent electricity disrupts competitive prices, leading to electricity prices that are far too low for other electricity providers, including those providing electricity using nuclear or natural gas. The tiny contribution of wind and solar to grid electricity cannot make up for the loss of more traditional electricity sources due to low prices.
Leaders around the world have demanded that their countries switch to renewable energy, without ever taking a very close look at what the costs and benefits were likely to be. A few simple calculations were made, such as “Life Cycle Assessment” and “Energy Returned on Energy Invested.” These calculations miss the fact that the intermittent energy being returned is of very much lower quality than is needed to operate the electric grid. They also miss the point that timing and the cost of capital are very important, as is the impact on the pricing of other energy products. This is basically another example of a problem I wrote about earlier, Overly Simple Energy-Economy Models Give Misleading Answers.
Let’s look at some of the issues that we are encountering, as we attempt to add intermittent renewable energy to the electric grid.
Issue 1. Grid issues become a problem at low levels of intermittent electricity penetration.
In 2015, wind and solar PV amounted to only 12.2% of total electricity consumed in Hawaii, based on EIA data. Even at this low level, Hawaii is encountering sufficiently serious grid problems that it has needed to stop net metering (giving homeowners credit for the retail cost of electricity, when electricity is sold to the grid) and phase out subsidies.
Hawaii consists of a chain of islands, so it cannot import electricity from elsewhere. This is what I mean by “Generation = Consumption.” There is, of course, some transmission line loss with all electrical generation, so generation and consumption are, in fact, slightly different.
The situation is not too different in California. The main difference is that California can import non-intermittent (also called “dispatchable”) electricity from elsewhere. It is really the ratio of intermittent electricity to total electricity that is important, when it comes to balancing. California is running into grid issues at a similar level of intermittent electricity penetration (wind + solar PV) as Hawaii–about 12.3% of electricity consumed in 2015, compared to 12.2% for Hawaii.
Even with growing wind and solar production, California is increasingly dependent on non-intermittent electricity imported from other states.
Issue 2. The apparent “lid” on intermittent electricity at 10% to 15% of total electricity consumption is caused by limits on operating reserves.
Electric grids are set up with “operating reserves” that allow the electric grid to maintain stability, even if a large unit, such as a nuclear power plant, goes offline. These operating reserves typically handle fluctuations of 10% to 15% in the electricity supply.
If additional adjustment is needed, it is possible to take some commercial facilities offline, based on agreements offering lower rates for interruptible supply. It is also possible for certain kinds of power plants, particularly hydroelectric and natural gas “peaker plants,” to ramp production up or down quickly. Combined cycle natural gas plants also provide reasonably fast response.
In theory, changes can be made to the system to allow the system to be more flexible. One such change is adding more long distance transmission, so that the variable electricity can be distributed over a wider area. This way the 10% to 15% operational reserve “cap” applies more broadly. Another approach is adding energy storage, so that excess electricity can be stored until needed later. A third approach is using a “smart grid” to make changes, such as turning off all air conditioners and hot water heaters when electricity supply is inadequate. All of these changes tend to be slow to implement and high in cost, relative to the amount of intermittent electricity that can be added because of their implementation.
Issue 3. When there is no other workaround for excess intermittent electricity, it must be curtailed–that is, dumped rather than added to the grid.
Overproduction without grid capacity was a significant problem in Texas in 2009, causing about 17% of wind energy to be curtailed in 2009. At that time, wind energy amounted to about 5.0% of Texas’s total electricity consumption. The problem has mostly been fixed, thanks to a series of grid upgrades allowing wind energy to flow better from western Texas to eastern Texas.
In 2015, total intermittent electricity from wind and solar amounted to only 10.1% of Texas electricity. Solar has never been large enough to be visible on the chart–only 0.1% of consumption in 2015. The total amount of intermittent electricity consumed in Texas is only now beginning to reach the likely 10% to 15% limit of operational reserves. Thus, it is “behind” Hawaii and California in reaching intermittent electricity limits.
Based on the modeling of the company that oversees the California electric grid, electricity curtailment in California is expected to be significant by 2024, if the 40% California Renewable Portfolio Standard (RPS) is followed, and changes are not made to fix the problem.
Issue 4. When all costs are included, including grid costs and indirect costs, such as the need for additional storage, the cost of intermittent renewables tends to be very high.
In Europe, there is at least a reasonable attempt to charge electricity costs back to consumers. In the United States, renewable energy costs are mostly hidden, rather than charged back to consumers. This is easy to do, because their usage is still low.
Euan Mearns finds that in Europe, the greater the proportion of wind and solar electricity included in total generation, the higher electricity prices are for consumers.
The five countries shown in red have all had financial difficulties. High electricity prices may have contributed to their problems.
The United States is not shown on this chart, since it is not part of Europe. If it were, it would be a bit below, and to the right of, Czech Republic and Romania.
Issue 5. The amount that electrical utilities are willing to pay for intermittent electricity is very low.
The big question is, “How much value does adding intermittent electricity add to the electrical grid?” Clearly, adding intermittent electricity allows a utility to reduce the amount of fossil fuel energy that it might otherwise purchase. In some cases, the addition of solar electricity slightly reduces the amount of new generation needed. This reduction occurs because of the tendency of solar to offer supply when the usage of air conditioners is high on summer afternoons. Of course, in advanced countries, the general tendency of electricity usage is down, thanks to more efficient light bulbs and less usage by computer screens and TV monitors.
At the same time, the addition of intermittent electricity adds a series of other costs:
- Many more hook-ups to generation devices are needed. Homes now need two-way connections, instead of one-way connections. Someone needs to service these connections and check for problems.
- Besides intermittency problems, the mix of active and reactive power may be wrong. The generation sources may cause frequency deviations larger than permitted by regulations.
- More long-distance electricity transmission lines are needed, so that the new electricity can be distributed over a wide enough area that it doesn’t cause oversupply problems when little electricity is needed (such as weekends in the spring and fall).
- As electricity is transported over longer distances, there is more loss in transport.
- To mitigate some of these problems, there is a need for electricity storage. This adds two kinds of costs: (1) Cost for the storage device, and (2) Loss of electricity in the process.
- As I will discuss later, intermittent energy tends to lead to very low wholesale electricity prices. Other electricity providers need to be compensated for the effects these low prices cause; otherwise they will leave the market.
To sum up, when intermittent electricity is added to the electric grid, the primary savings are fuel savings. At the same time, significant costs of many different types are added, acting to offset these savings. In fact, it is not even clear that when a comparison is made, the benefits of adding intermittent electricity are greater than the costs involved.
According to the EIA’s 2015 Wind Technologies Market Report, the major way intermittent electricity is sold to electric utilities is as part of long term Power Purchase Agreements (PPAs), typically lasting for 20 years. Utilities buy PPAs as a way of hedging against the possibility that natural gas prices will rise in the future. The report indicates that the recent selling price for PPAs is about $25 to $28 per MWh (Figure 6). This is equivalent to 2.5 to 2.8 cents per kWh, which is very inexpensive.
In effect, what utilities are trying to do is hedge against rising fuel prices of whatever kind they choose to purchase. They may even be able to afford to make other costly changes, such as more transmission lines and energy storage, so that more intermittent electricity can be accommodated.
Issue 6. When intermittent electricity is sold in competitive electricity markets (as it is in California, Texas, and Europe), it frequently leads to negative wholesale electricity prices. It also shaves the peaks off high prices at times of high demand.
In states and countries that use competitive pricing (rather than utility pricing, used in some states), the wholesale price of electricity price varies from minute to minute, depending on the balance between supply and demand. When there is an excess of intermittent electricity, wholesale prices often become negative. Figure 7 shows a chart by a representative of the company that oversees the California electric grid.
Clearly, the number of negative price spikes increases, as the proportion of intermittent electricity increases. A similar problem with negative prices has been reported in Texas and in Europe.
When solar energy is included in the mix of intermittent fuels, it also tends to reduce peak afternoon prices. Of course, these minute-by-minute prices don’t really flow back to the ultimate consumers, so it doesn’t affect their demand. Instead, these low prices simply lead to lower funds available to other electricity producers, most of whom cannot quickly modify electricity generation.
To illustrate the problem that arises, Figure 8, prepared by consultant Paul-Frederik Bach, shows a comparison of Germany’s average wholesale electricity prices (dotted line) with residential electricity prices for a number of European countries. Clearly, wholesale electricity prices have been trending downward, while residential electricity prices have been rising. In fact, if prices for nuclear, natural gas, and coal-fired electricity had been fair prices for these other providers, residential electricity prices would have trended upward even more quickly than shown in the graph!
Note that the recent average wholesale electricity price is about 30 euros per MWh, which is equivalent to 3.0 cents per kWh. In US dollars this would equate to $36 per MWh, or 3.6 cents per kWh. These prices are higher than prices paid by PPAs for intermittent electricity ($25 to $28 per MWh), but not a whole lot higher.
The problem we encounter is that prices in the $36 MWh range are too low for almost every kind of energy generation. Figure 9 from Bloomberg is from 2013, so is not entirely up to date, but gives an idea of the basic problem.
A price of $36 per MWh is way down at the bottom of the chart, between 0 and 50. Pretty much no energy source can be profitable at such a level. Too much investment is required, relative to the amount of energy produced. We reach a situation where nearly every kind of electricity provider needs subsidies. If they cannot receive subsidies, many of them will close, leaving the market with only a small amount of unreliable intermittent electricity, and little back-up capability.
This same problem with falling wholesale prices, and a need for subsidies for other energy producers, has been noted in California and Texas. The Wall Street Journal ran an article earlier this week about low electricity prices in Texas, without realizing that this was a problem caused by wind energy, not a desirable result!
Issue 7. Other parts of the world are also having problems with intermittent electricity.
Germany is known as a world leader in intermittent electricity generation. Its intermittent generation hit 12.2% of total generation in 2012. As you will recall, this is the level where California and Hawaii started to reach grid problems. By 2015, its intermittent electricity amounted to 19.5% of total electricity generated.
Needless to say, such high intermittent electricity generation leads to frequent spikes in generation. Germany chose to solve this problem by dumping its excess electricity supply on the European Union electric grid. Poland, Czech Republic, and Netherlands complained to the European Union. As a result, the European Union mandated that from 2017 onward, all European Union countries (not just Germany) can no longer use feed-in tariffs. Doing so provides too much of an advantage to intermittent electricity providers. Instead, EU members must use market-responsive auctioning, known as “feed-in premiums.” Germany legislated changes that went even beyond the minimum changes required by the European Union. Dörte Fouquet, Director of the European Renewable Energy Federation, says that the German adjustments will “decimate the industry.”
In Australia, one recent headline was Australia Considers Banning Wind Power Because It’s Causing Blackouts. The problem seems to be in South Australia, where the last coal-fired power plants are closing because subsidized wind is leading to low wholesale electricity prices. Australia, as a whole, does not have a high intermittent electricity penetration ratio (6.6% of 2015 electricity consumption), but grid limitations mean that South Australia is disproportionately affected.
China has halted the approval of new wind turbine installations in North China because it does not have grid capacity to transport intermittent electricity to more populated areas. Also, most of China’s electricity production is from coal, and it is difficult to use coal to balance with wind and solar because coal-fired plants can only be ramped up slowly. China’s total use of wind and solar is not very high (3.9% of consumption in 2015), but it is already encountering major difficulties in grid integration.
Issue 8. The amount of subsidies provided to intermittent electricity is very high.
The renewable energy program in the United States consists of overlapping local, state, and federal programs. It includes mandates, feed-in tariffs, exemption from taxes, production tax credits, and other devices. This combination of approaches makes it virtually impossible to figure out the amount of the subsidy by adding up the pieces. We are pretty certain, however, that the amount is high. According to the National Wind Watch Organization,
At the federal level, the production or investment tax credit and double-declining accelerated depreciation can pay for two-thirds of a wind power project. Additional state incentives, such as guaranteed markets and exemption from property taxes, can pay for another 10%.
If we believe this statement, the developer only pays about 23% of the cost of a wind energy project.
The US Energy Information Administration prepared an estimate of certain types of subsidies (those provided by the federal government and targeted particularly at energy) for the year 2013. These amounted to a total of $11.3 billion for wind and solar combined. About 183.3 terawatts of wind and solar energy was sold during 2013, at a wholesale price of about 2.8 cents per kWh, leading to a total selling price of $5.1 billion dollars. If we add the wholesale price of $5.1 billion to the subsidy of $11.3 billion, we get a total of $16.4 billion paid to developers or used in special grid expansion programs. This subsidy amounts to 69% of the estimated total cost. Any subsidy from states, or from other government programs, would be in addition to the amount from this calculation.
Paul-Frederik Bach shows a calculation of wind energy subsidies in Denmark, comparing the prices paid under the Public Service Obligation (PSO) system to the market price for wind. His calculations show that both the percentage and dollar amount of subsidies have been rising. In 2015, subsidies amounted to 66% of the total PSO cost.
In a sense, these calculations do not show the full amount of subsidy. If renewables are to replace fossil fuels, they must pay taxes to governments, just as fossil fuel providers do now. Energy providers are supposed to provide “net energy” to the system. The way that they share this net energy with governments is by paying taxes of various kinds–income taxes, property taxes, and special taxes associated with extraction. If intermittent renewables are to replace fossil fuels, they need to provide tax revenue as well. Current subsidy calculations don’t consider the high taxes paid by fossil fuel providers, and the need to replace these taxes, if governments are to have adequate revenue.
Also, the amount and percentage of required subsidy for intermittent renewables can be expected to rise over time, as more areas exceed the limits of their operating reserves, and need to build long distance transmission to spread intermittent electricity over a larger area. This seems to be happening in Europe now. In 2015, the revenue generated by the wholesale price of intermittent electricity amounted to about 13.1 billion euros, according to my calculations. In order to expand further, policy advisor Daniel Genz with Vattenfall indicates that grids across Europe will need to be upgraded, at a cost of between 100 and 400 billion euros. In other words, grid expenditures will be needed that amount to between 7.6 and 30.5 times wholesale revenues received from intermittent electricity in 2015. Most of this will likely need to come from additional subsidies, because there is no possibility that the return on this investment can be very high.
There is also the problem of the low profit levels for all of the other electricity providers, when intermittent renewables are allowed to sell their electricity whenever it becomes available. One potential solution is huge subsidies for other providers. Another is buying a lot of energy storage, so that energy from peaks can be saved and used when supply is low. A third solution is requiring that renewable energy providers curtail their production when it is not needed. Any of these solutions is likely to require subsidies.
We already seem to be reaching limits with respect to intermittent electricity supply. The US Energy Information Administration may be reaching the same conclusion. It chose Steve Kean from Kinder Morgan (a pipeline company) as its keynote speaker at its July 2016 Annual Conference. He made the following statements about renewable energy.
This view is very similar to mine. Few people have stopped to realize that intermittent electricity isn’t worth very much. It may even have negative value, when the cost of all of the adjustments needed to make it useful are considered.
Energy products are very different in “quality.” Intermittent electricity is of exceptionally low quality. The costs that intermittent electricity impose on the system need to be paid by someone else. This is a huge problem, especially as penetration levels start exceeding the 10% to 15% level that can be handled by operating reserves, and much more costly adjustments must be made to accommodate this energy. Even if wind turbines and solar panels could be produced for $0, it seems likely that the costs of working around the problems caused by intermittent electricity would be greater than the compensation that can be obtained to fix those problems.
The situation is a little like adding a large number of drunk drivers, or of self-driving cars that don’t really work as planned, to a highway system. In theory, other drivers can learn to accommodate them, if enough extra lanes are added, and the concentration of the poorly operating vehicles is kept low enough. But a person needs to understand exactly what the situation is, and understand the cost of all of the adjustments that need to be made, before agreeing to allow the highway system to add more poorly behaving vehicles.
In An Updated Version of the Peak Oil Story, I talked about the fact that instead of oil “running out,” it is becoming too expensive for our economy to accommodate. The economy does not perform well when the cost of energy products is very high. The situation with new electricity generation is similar. We need electricity products to be well-behaved (not act like drunk drivers) and low in cost, if they are to be successful in growing the economy. If we continue to add large amounts of intermittent electricity to the electric grid without paying attention to these problems, we run the risk of bringing the whole system down.
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Interesting comparison how much electricity it would take to swich to electricity on trucking.
“Question: How much power would catenary trucks on 24 miles of wires along I-710 need?
Answer: from .29% (ICF 2014) to 1% (my calculation) of all the electricity generated in California for a year. That means just 2,400 to 8,275 of California’s 175,000 miles of roads would use all of California’s electricity.
My assumptions for I-710 catenary:
16,349 hybrid catenary trucks I-710 in 2020 (SCAG 2013)
3 round-trips per day per truck (Calstart 2013. On good days 4 to 5 trips are made)
48 miles per round trip (24 * 2 miles of catenary wires on I-710)
313 days of drayage deliveries (ports are closed on Sundays)
3.5 kWh/mile (2.21 kWh/kilometer) due to the inefficiency of the dynamic loading on catenary wires, with a 10% efficiency loss assumed (ICCT 2013).
California produces 250,561 GWh of power a year (ICF 2014)
2579 GWh needed by all catenary trucks per year = 16,349 trucks * 3 round-trips * 48 miles per trip round-trip * 313 days per year * 3.5 kWh/mile (3,438,783,264 kWh)
1% of all generated California electricity used per year = 2579 GWh / 250,561 GWh per year California
100% / 1% * 24 miles = 2,400 miles of roads would use all of California’s electricity
.16 GWh per truck per year = 2579 GWh per year / 16,249 trucks
But ICF 2014 estimates .29% of annual power. That’s still a lot!
ICF 2014 “Aggressive Adoption” by 2030 (all trucks electrified) assumptions for I-710
.29% of all generated California electrity used per year = 722 GWh all trucks/year (table 13) / 250,561 GWh per year California
Consume 3 kWh/mile (page 87). Using 3 kWh lowers my calculation to 2211 GWh/year, .88% of California electricity, still 3 times more than .29%
36,100 trucks = 722/.02 .02 GWh/year/truck (table 33), all trucks 722 GWh/year.
241,000,000 total miles all trucks a year (Table 12). Therefore, every day all trucks drive 769,968 miles collectively (241,000,000 / 313 working days).
100% / .29% * 24 miles = 8,275 miles of roads would use all of California’s electricity
Just 21 miles/day on catenary = 769,968 miles a day all trucks / 36,100 trucks. In my calculation each truck goes 144 miles a day, and then 56+ miles using the other mode, since the specs call for 200 miles a day. If just 21 miles, the other mode must go 180 miles a day. That can’t be right!
Even if the ICF 2014 estimate of .29% of all California electricity is correct, that’s an awful lot of electricity. Just 8,275 miles of California’s 175,000 miles of roads would use all of California’s electricity– think how much power America’s 10 million trucks would need over 4 million miles of roads.
Since fossil fuels are finite and global production has peaked, or will soon (i.e., oil, coal, natural gas), it makes sense to try to run transportation on 100% renewable electricity. But is an 80 to 100% renewable electricity system even possible? I make a case in “When trucks stop running” that it isn’t.
And catenary doesn’t solve the main problem, which is keeping tractors and harvesters running so they can plant and harvest food. How would you string overhead wires across millions of acres of cropland?
Catenary also locks in a very expensive infrastructure on a road that may not be heavily used in the future. Will the ports continue to move as many goods if the unreformed financial system crashes again and trade drops in the consequent depression, or when energy becomes too expensive or too scarce a component of the supply chain? It’s more likely globalization will decline and more goods made locally in the future.
I was very upset that the father in “Angela’s ashes” spent money on booze rather than food for his children. So is a goal of zero-emissions rather than energy efficiency the best way to spend our remaining energy when no commercially viable way of replacing oil is even in sight, and it takes 50 years to make an energy transition (Smil 2010)?”
An energy transition definitely would take a long time. I agree with Smil on the 50 years. Maintaining the road would also take energy products. So would converting all of the trucks to electricity, and adding the infrastructure to carry the electricity. I know that electrifying trains is an expensive undertaking (which is why we mostly haven’t done it). I would suppose that electrifying road transportation would be as well.
Via Euan’s links..
1.5MW per piece at 200t, <300x units to be installed for <500MW big tidal wave park capacity.
The core technology is Austrian/US, essentially ~10yrs of adapting hitech big hydro and wind to sub see conditions, so it should be solid by now. Price of generating electricity is supposedly 3x per subsidized UK nuclear pricing (already on the more expensive side in global comparison).
I guess should they abandon it prematurely for what ever reason on the bottom of the shelf (insta doom collapse scenario) the leaking gearbox fluids would be probably nothing in comparison to coal or nuclear waste pools, so?
Anyway, it's interesting near term solution, as long they can haul up/down these 200ton puppies from the shelf for repairs, and connect it to the larger functioning grid, on the other hand the energy source (tidal) they are taping in is more predictable than wind..
Data from 2014 slide (smaller project then)
Highly scheduled performance (in contrast to wind/PV) but not baseload source..
– operating life 25yrs
– capacity factor 27%
– price GBP305 per MWh
It is more predictable, but salt water is awfully corrosive. I wonder how long the devices would really last between repairs.
Afghanistan’s version of Dancing with Stars?
I was really impressed with how they used a burning cigarette to put an end to the dog fight…. very creative
I’m feeling a bit nauseous after that….
It broke up when a lighter was used on the nose after the cigarette failed to impress the dog.
I like the fact that they had coke as a soft drink when they set the table.
I have been up all night analyzing the bizarre behaviour of HRC…
And then.. at 6am… it hit me… like a diamond bullet fired at my forehead….
Skip to the 32 second mark and watch what happens to her head….
Now compare that with this:
Surely now it is obvious what is wrong with Clinton ….. she is possessed by the demon Pazuzu …. who is a close friend of The Donald….
I URGE The Democratic Party to act NOW!
They must act before the first debate with Trump or all will be lost because Trump has asked Pazuzu to make an appearance….
Contact http://www.fasteddyinstantexorcisms.com for a low low rate of USD4.500,000 to out the unclean demon….
Would you accept payment in rocks? Rocks make excellent lifelong pets. They never ask for food, water, or comfort.
Focus people, focus.
What kind of rocks? Some high quality flint would be best. Some of those ancient tribes lived very good lives with flint tools- cutters, scrapers, spearpoints, arrowheads, etc.
In ancient, pre-contact Hawaii, the biggest opihi I’ve ever seen (from their shells left in rock shelters) were traded to those supplying adzes from a quarry site near the top of Mauna Kea at about 12,000 feet elevation. Thing is, they brought those opihi from the coast all the way up there by foot, apparently to trade for those adz. Must have been highly-prized rocks by the Hawaiians.
I can’t add much to this:
“19 September 2016 – RheinEnergie inaugurated 450 MW Niehl-3 CCGT power plant (Germany)
The German electricity utility RheinEnergie inaugurated the newly constructed Köln-Niehl gas combined cycle CHP plant in Cologne, Germany. The 453 MWe (265 MWth) plant was built under a turnkey contract by Alstom (now General Electric) in two and half year at a cost of €350m. The Niehl-3 power plant is able to reach full capacity from a standby position in 15 minutes, which provides grid stability in a context of high penetration of volatile and weather dependant energy sources such as wind or solar. “
€350m more gets added to the electricity bills of German citizens and industry … all thanks to the wonders of solar and wind power!
Congratulations Germany! Bravo! Well done!
Let’s see what the Germans think…
Herr Richter…. what do you think about this situation.
Vell Fast Eddy … ziss is za price ve have to pay for za green energy… ya hol .. I vill have to eat my zauerkraut vissout za sausage because I need to pay za higher bill… and I might get laid off at za factory when it moves to za poland verr zay use za coal for za electricity … but at least I am doing my part to support za sustainable world.
Herr Richter — have you heard of a place called DelusiSTAN…
Vat is Zat?
It’s your new home… it is a wonderful place … up until the moment when you end up under the bridge roasting cat over a fire fueled by plastic bags….
Ooh Fast Eddy…. you iz a very crazy man … don’t be zo zilly…. vood you like to zing zong vit me? It iz my favourite one…. it iz called za Koombaya… letz have za beer and zing za song… in za spirit of za oktoberfest… no?
Sure – vy not! We can pretend it’s champagne and we are on the Titanic!
Zat voz vundabar!
And the Hanjin situation evolves….. So Hanjin filed for Bankruptcy protection on August 31 in S.Korea and many other nations and is now in a state of dissarray- ships at sea, ships being unloaded, ships sold, ships legally encumbered etc. However , many other shipping firms are having problems here-
From Wolf Richter
“But the glut of ships, in the face of weak demand, is such that the pain for carriers is likely to continue, with many more false-hope ups followed by brutal smack-downs, and with more carriers cracking under their debt.
“There’s now a new and potentially lethal problem for weaker carriers: shippers, who’d counted on a bailout of Hanjin but got caught with their pants down when it didn’t happen, don’t want to see their merchandise get stranded again. So they’re scrutinizing carriers and will try to avoid those that don’t pass the smell test, which would only hasten their demise.
“And creditors, who’ve learned from the Hanjin fiasco to not count on government bailouts of even the biggest carriers, are likely to try to protect their balance sheets more carefully. So they’ll pull back at the worst possible time, just when that carrier needs it the most. This is what caused Hanjin to keel over.”
is yet another glitch in the consumption system we all take for granted as being infinetly ongoing
oil consumption was unsupportable—now shipping is unsupportable
all part of the same collapse scenario
When we look at the auto transportation situation in the USA, we see that a very large number of replacement parts are required to keep 250M autos running. And 15.5M semi trucks operating.
Most of these critical repair & replacement parts come from Asia by ship.
according to the greenies, sails are the answer to shipping costs.
Can we ship crude oil on a sailing ship? Or Catepillar D9 Bulldozers? How about an M1 Abrams Tank? Or a wind generator?Or an oil rig? How would we ship food by sail boat when these boats would not have refrigeration?
don’t ask me—ask the greenies
the ideal solution would be to instal a wind generator on a sailing ship, powered by burning the oil carried in the hold
but nobody listens to me
That is a demonstration of Total Genius!
Let’s diagram this…. Tim … feel free to add to this as I have no engineering background whatsoever…
But I can imagine a massive generator fueled by oil…. then on the deck we have say 10 of these suckers….
Then on the other end of the deck we have a windmill – I’ve set up a prototype on a small boat for display purposes….
Why stop there? We now have an endless supply of wind ON DEMAND anywhere on the planet….
This is …. drum roll please…. A Perpetual Motion Machine!!!
Keith — you may as well get out your golf clubs…. Norman has obsoleted you….
Some Spaniards are planning a new conquest of America when the oil era ends.
Ships built in secret shipyards.
Do not tell the CIA, please. 🙂
I’ve always admired those cool Spanish iron helmets from that conquistador period. The ones with the curving crest on top, awesome.
A good start would be to not ship food that needs refrigeration and/or only ship luxury food.
“Can we ship crude oil on a sailing ship? Or Catepillar D9 Bulldozers? How about an M1 Abrams Tank? Or a wind generator? Or an oil rig? ”
The largest sailing ship had a capacity of 58,000 barrels or 4914 NRT:
“How would we ship food by sail boat when these boats would not have refrigeration?”
Lots of food is shipped unrefrigerated. Ice blocks is one way, or more dried and/or salted food. Evaporative cooling might be a possible solution as well.
How would you like to be standing on the dock, watching your $3B latest generation supercomputer being loaded on a sailing ship for transport across the Pacific Ocean?
see above—-shooting the messenger is never a good idea
—and if we are reduced to sailing ships, i somehow doubt we will be loading supercomputers on them
just a thought
I read that no one knows when or where an economic collapse starts. It just starts in the periphery in some un thought of place and then spreads and hits the core.
In 2008 Iceland went bankrupt (Iceland who ?), then Ireland went bankrupt before Lehman went bankrupt.
Hanjin could perhaps be the start of the coming economic collapse ?
Watch the Yale University prof. Freedman’s youtube lectures on the fall of Roman Empire, it’s from ~2011. The parallels with today’s problem how to possibly prolong can kicking “tze zstability” as long as possible are very striking and no it’s not only about the barbarians, lot of internal reasons for implosion too..
In one respect this time is different — in that if the central banks can prevent collapse — they will step in …. in the past ‘moral hazard’ would have played a role — as would the fact that stepping in would only make the problem worse down the road…
But because the central banks understand that there will be no reset this time — they will do ‘whatever it takes’
I think Lehman was allowed to fail so as to frighten the masses into accepting the desperate policies that have followed.
I don’t think something like Hanjin could be the trigger for the end game — because that can be controlled…
The black swan will be something that the central banks cannot control.
Recall when the China stock market started to reel last year…. the PBOC rushed in to stop the selling…. if that had not stemmed the tide then that might have tipped the cart over…
Perhaps the trigger might be a massive desperate intervention in Japan — with the markets do not react — confidence collapses — and the central banks lose control.
Or perhaps the trigger will be that corporate profits continue to fall — layoffs pile up — and we get a deflationary death spiral that the central banks are powerless to stop.
My money is on the death spiral — Bernanke has stated that is what he fears most….
Might it be more accurate to suggest that Hanjin’s demise is part of the ongoing progress of the process of collapse? The global economy can no longer support the freight capacity that it did in the past, therefore there are casualties such as Hanjin.
Yes. All the bubbles created by QE stimulus will eventually start to pop when the deflationary down spiral starts to wreak havoc among debt bloated corporate balance sheets.
Hanjin is perhaps just a symptom and an early warning of what is to come. But Hanjin is perhaps not big enough to create destruction on its own.
Big Oil Was Never That Big a Money-Maker, Goldman Sachs Says
Return on capital declined during the era of high oil prices
That is a great article, thanks! Look at the gray line on Figure 12. Even when QE pumped up oil prices after 2008, cash basis returns never got very high. In fact, they started fallen rapidly.
The article also makes the point, “. . . Big Oil were hit with a triple whammy of higher taxes, more expensive service costs, and increased finding and development (F&D) expenses.” I don’t think that people understand how important the tax piece of this is. One prices go up, governments want a bigger piece of what is available. This is especially true for exporters. It is true for coal as well as for oil. It means that prices can never fall, without big repercussions.
Yes, the CROCI line breaks the Brent Oil Price line and then starts to deteriorate.
The tax graph represents taxes in Europe I believe. We Europeans know how to extract taxes. But those days are now unfortunately coming to an end as well with deteriorating corporate profits.
Yoshua, what is the meaning of CROCI?
Thanks in advance.
Cash Return On Capital Invested
I read somewhere that the US shale oil balance sheet is US$32Bn in the red, so they need at least 7 years of high oil prices just to get back to break even. Which means that someone, somewhere is carrying that loss on their books.
The net effect on the US economy and employment is more nuanced, which is why fracking has difficulty spreading to other parts of the globe:
“While higher discretionary income due to lower oil prices boosted consumer spending by 0.61 percent, the collapse in oil drilling reduced total investment by 0.62 percent, almost perfectly offsetting the benefits, according to the report.”
““It is readily apparent that without the shale oil boom, the response of the U.S. economy to the recent oil price decline would have been different, if only because of the lower share of oil and gas extraction in GDP. Going forward, one question of obvious policy interest is whether higher investment in the oil sector could help offset the contractionary effect on private consumption of a future recovery of the real price of oil,” reads the report’s conclusion.”
Of course, our problem is that we cannot really live with just half of the economy. If one half disappears, it takes with it resources that are necessary for the other half.
When Prime Minister Sir Robert Peel visited Michael Faraday’s lab and was treated to a demonstration of the power of electricity, he is said to have asked, “Of what use is it?” To which Faraday famously replied: “I don’t know, but I’ll wager that some day you’ll tax it.”
In those days, the British government was taxing windows, among other things. And building owners often bricked up windows in order to reduce their window tax.
There have been various taxes on electricity consumption at different times and places since, and these days taxes on oil consumption are just about universal. As Gail often points out, taxes on energy are very important for funding government spending. Energy decline is going to leave a huge hole in government balance sheets, and it’s a whole that renewables, even if they were a sustainable, reliable and feasible means of powering the economy—which they aren’t, would never be able to fill.
Yep, to this day many mansions – manor houses have got their northern windows bricked up, served several purposes at once: lower taxation, less maintenance, better temp comfort.
The energy decline and taxation will be very interesting, although the freight train of printing money is already on such uber steroids, so taxation (no longer necessary) might not be an issue prior reset into quasi direct feudal arrangement..
Would be interesting to know if the talked about subsidies for fossils are in the end (if “net’ed”) are real subsidies…
Increased costs of new production.
I guess this terrible reality is behind this.
Does the graph representing global average E&P capex cost per barrel ?
Yes, operating costs of new oil fields, atencción, new, not total.
They have risen at an alarming rate of 10.9% annually for 14 years.
With the implacable logic of compound interest, that would mean that in less than four decades the price of exploitation of new deposits reach a whopping $ 9,000 a barrel! It is what they have exponential functions, it seems that the situation remains good until a few moments before it gets out of control.
This is what we see in the following graph:
Of course it is hypothetical. That will never happen. Before industry and the oil market will collapse, not to mention the global economy.
Are you sure we will collapse ? 🙂
You mean there’s a chance?
The collapse of BAU has become a bit too petty for my liking. I’d like the exponential growth eventually concluding as an implosion of the universe itself.
Like this, but on a much grander scale:
Yes, we will decouple from reality. Naomi Klein and Forbes magazine ordain it!
Yes. It’s much more fun to bribe politicians and create financial vaporware such as custom derivatives than it is to deal with real world producing enterprises. And loading up emerging economies with tons of dollar junk debt can be quite entertaining also. Then when everything falls apart, you put the junk in the rubes account and convert the firm’s accounts heavily into gold.
8 litres of water per person per week…
Hard to take baths with 8 liters per week.
oh i dunno
sharing 16 litres might be fun
I thought in a hot climate 2 liters per person per day was the limit for safety…
In the documentary Future of Water, activists made a big deal about South africa only giving away 6000L of water per family and month, for free. Misery is a relative measure.
it’s later than you think
Baths!? 8L per week is not even sufficient for hydration.
“A daily water intake of 3.7 L for adult men and 2.7 L for adult women meets the needs of the vast majority of persons.”
I know. Just kidding!
It is so apt that you talked about water. In our place (a very large area), the water pumping system broke down and we have no water. It was taken for granted and nobody stored any water. We don’t usually buy drinking water from the store but we boil our water. We heard many people in our area are out of drinking water and I myself have not bathed yet since early morning (it is now 11pm). It is so taken for granted that water will flow from the tap that once the water stops, many don’t know what to do.
Just imagine if the power is out because Saudi Arabia cannot ship the oil or we have no natural gas to buy (Due to lack of faith in letters of credit) and there goes the electricity.
All it takes is just a bank run where there is no physical money left and all electronic digits are worthless. I think even if our “not-so-developed-world”, I doubt we can last for 5 days without everyone dying from thirst of hunger
daily bathing is yet another manifestation of our hydrocarbon fuelled existence.
we take it for granted—but i fear our natural state is smelly
not to worry—we will get used to it—-when everybody smells the same, you won’t even notice
Winter-colder months were obviously more dense, not only due to weather but also more
cooking-wood burning duties for house comforts, i.e. quite smelly in aggregate at least in the working class indeed. However, this improved during the summer/warmer season for the workers as well, for instance you have to bath the horses and other animals, so obviously people jumped into the river banks too, few times per month? Plus you could wash bodily parts more frequently from your own house well/water bucket now in good temperatures. Good enough.
Well, actually, if you stay in the tropics like I do where the weather is always warm and nice, the primitive people do bath all the time to keep cool and we sweat a lot. Hundreds of years ago, all the streams and rivers are really clean and nice. So, bathing is normal but we take it for granted when we turn on the taps, water run. In temperate climates, bathing is really optional. The water is really cold even in summers.
humankind may have originated in the tropics—but we don’t all have the option of living there
i fear our natural state is smelly
Norman, I fear our natural state is flea and louse infested, scabby and dead at 30.
i didn’t like to mention that
“Ne te lave pas, j’accours et dans huit jours je suis là.”
That’s one of the most depressing videos I’ve seen in quite some time. And it usually takes a lot to get me depressed. India is so toasted.
This should perk you back up http://www.forbes.com/sites/greatspeculations/2016/06/13/india-may-be-the-new-china/#6338a65233df
That’s right! With all their soon to be had American-style, neo-liberal, Forbesian wealth, Indians will be able to enjoy a fridge full of coke! No need for silly water!