Archive for September 3rd, 2009

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The U.S. Postal Service projects smart grid revenue needed to make electric vehicle fleet cost effective

September 3, 2009

Michael Giberson

John Petersen at AltEnergyStocks comments on a recent analysis by the U.S. Postal Service of the economics of converting to an electric vehicle fleet.  Petersen observes that, “after years of reading up-beat promotional materials that talk about ten-year battery lives and seven- to ten-year payback periods, it was refreshing to see a more skeptical buyer’s analysis…”

The USPS report concludes that the switch only makes sense financially if (1) the initial purchase of the vehicles is heavily subsidized, and (2) the vehicles will earn a reasonably good stream of payments from providing ancillary services to the electric power grid via smart grid-type links.  Without both of those two sources of support, however, and the project looks less viable. (Federal subsidies for energy projects are currently falling like candy from a burst piñata, but I don’t think it can last forever. I opined on V2G revenue streams a week or so ago.)  The report doesn’t estimate any income stream from possible carbon credits, but under some policies under consideration carbon credits may offer an additional revenue stream.

An innovative part of the report recommendation is the suggestion that the USPS could serve as a “national laboratory” for testing electric vehicles.  The report observes that the Postal Service serves a geographically diverse area and so faces a wide range of operating conditions.  A random assignment of technologies to locations or some more sophisticated experimental design could maximize the value of information gathered from a widespread test.  Of course it is a separate question whether the social externality of the knowledge created is worth the large initial subsidy that the USPS estimates as necessary.

In the comments at AltEnergyStocks Tom Konrad suggests that the Postal Service could squeeze out additional efficiencies by tuning battery selections to routes (since some battery sizes/technologies are better for short routes and others better for longer routes) and also by swapping batteries on vehicles that return to base multiple times a day.  Seems like good ideas, or at least more treatments possible for the “national laboratory.”

Posted in Electricity | Tagged , | 1 Comment »

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Unintended consequences, hybrid vehicles edition

September 3, 2009

Lynne Kiesling

As the demand for hybrid vehicles increases, the consequences of that increased demand flow through to markets for their inputs, some of which are finite natural resources themselves. Increased hybrid vehicle production raises the demand for rare metals, increasing their prices and threatening short-run shortages.

Among the rare earths that would be most affected in a shortage is neodymium, the key component of an alloy used to make the high-power, lightweight magnets for electric motors of hybrid cars, such as the Prius, Honda Insight and Ford Focus, as well as in generators for wind turbines.

Close cousins terbium and dysprosium are added in smaller amounts to the alloy to preserve neodymium’s magnetic properties at high temperatures. Yet another rare earth metal, lanthanum, is a major ingredient for hybrid car batteries. …

Jack Lifton, an independent commodities consultant and strategic metals expert, calls the Prius “the biggest user of rare earths of any object in the world.”

Each electric Prius motor requires 1 kilogram (2.2 lb) of neodymium, and each battery uses 10 to 15 kg (22-33 lb) of lanthanum. That number will nearly double under Toyota’s plans to boost the car’s fuel economy, he said.

Boy, those fundamental economics principles are a bear, aren’t they? Can’t we get them repealed or something … ?

Posted in Economics, Environmental policy | Tagged , | 2 Comments »

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Solar makes financial sense in Austin, if you are subsidized…

September 3, 2009

Michael Giberson

Geoff Styles (“Can Solar Compete?“) observes two reports from MIT’s Technology Review: one from August 2009 that says cost reductions achieved in the solar power industry “have made solar power cheaper than the natural-gas-powered plants used to produce extra electricity to meet demand on hot summer days,” and another from the September/October 2009 issue saying “power produced by silicon-based photovoltaics is about five times as costly as that generated from fossil fuels.”

Note that, strictly speaking, there is not an inherent conflict. The August claim compares solar to peaking units – naturally the most expensive (per MWh) generators used to make power – while the September/October claim could be seen as comparing solar to baseload or an overall average for fossil fuel generation.

After running through some numbers, Styles writes:

In this simple comparison, at least, it appears that today’s best solar technology is still somewhat more expensive than the fossil-based power it’s likely to be displacing in a typical power grid, … I’m skeptical that simple economies of scale beyond those already achieved could deliver that kind of improvement any time soon. That might explain the necessity for a 30% federal tax credit or grant on solar installations, along with generous state-level incentives and renewable portfolio standards–mandates on utilities for a targeted level of renewable power. Absent these, much of today’s solar activity would probably grind to a halt.

A story in the Austin American Statesman explains the role played by subsidies:

Zabreznik smiled and described how he thinks solar power finally makes sense — not environmentally, but financially.”I’d like to say I’m one of those people who put in solar because it’s good for the environment,” said Zabreznik, 36, a marketing manager turned stay-at-home dad who lives in a new, environmentally-friendly development being built at the former Mueller airport site in Austin. “But I didn’t do it for the environment; I did it because it’s a good deal now.”

… But they acknowledge that their efforts make financial sense only because the federal and city governments will cover most of their costs, meaning that other people’s tax dollars and utility fees are making their solar ambitions possible.

A little later in the story, some details on just how much those subsidies matter:

[Aman] Jain, a financial analyst, created a financial model and discovered that at today’s prices and technology, a solar array would cost a homeowner $4,000 to $7,500. An array would pay for itself in about seven years, he calculated, a finding that he said surprised him.

Those numbers persuaded Zabreznik to make the investment….

Zabreznik says he will pay $5,500 to $7,000 out of pocket, depending on what he and his contractor can negotiate. But the total cost of his array is actually $47,250, according to his contractor, Texas Solar Power Co. Rebates from Austin Energy and federal tax credits cover about 80 percent of the bill.

“Without the subsidies, it’s not remotely worth it,” Jain said.

[NOTE: Another solar subsidy story from Arizona, HT to Scott Gustafson/Arizona Economics]

Posted in Electricity, Energy markets, Regulation | 7 Comments »

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