On Friday we visited the Torness Nuclear Power Station, a 1250 MW plant in Dunbar. It's owned by British Energy, a subsidiary of EDF, a large French energy company. Like most of the existing nuclear plants in the UK, the technology used is an advanced gas cooled reactor. This is a unique nuclear technology, and we learned the basic technical differences between it and the more widely used pressurized water reactor system (that is currently in use at the Cook and Palisades nuclear plants in Michigan). In the UK, the spent nuclear fuel is sent by rail to the Sellafield reprocessing facility in Cumbria, in northern England. The fuel is recyclable, and some of the waste is currently turned into glass and buried in Cumbria. The UK government currently looking for more long-term storage in geologic formations and has asked communities to volunteer. According to British Energy, a few communities have shown interest in taking on the nuclear waste (including Cumbria).
The visit was really informative - both about nuclear technology generally, and in particular about the impact of public policy on the financing of new large baseload power plants. We had a great couple of sessions with top BE executives and a lot of give and take on some difficult energy regulatory issues. I love thinking about these issues...and hope to sort some of my thoughts out - perhaps in a law review article sometime in the future.
Friday, February 27, 2009
Thursday, February 26, 2009
Aberdeen - Local Champion in Local Government
One of our key funding criteria at the U.S. Golf Association's grants program is whether a "local champion" exists that will go above and beyond to execute a proposal...make it happen. When it comes to building consensus for innovative small-scale energy projects, the need is just as great. The University of Edinburgh has David Somervell, and the Aberdeen City Council has Janice Lyon. Understated but creative and persistant, Janice has leveraged every partnership and grant funding source she can get her hands on to make Aberdeen a model city government in the clean energy space. The council has worked with private utilities to aggressively retrofit homes in the area for energy efficiency - insulation, etc. And they've also built 3 innovative combined heat and power systems to provide heat, electricity, and cooling to city buildings and city-owned residences. Many of the specific financing circumstances here are unique and not necessarily easily transferrable to the US (higher energy prices, lots of government owned buildings), but the importance of a local champion and the flexibility of local governments or municipal utilities to be creative in this space with small, smart projects is definitely something that can be replicated.
Across England, in large part due to the reconstruction after WW II, a very large percentage of housing (at least by US standards) is owned by local governments. Aberdeen has a population of 250,000, living in about 100,000 residences, 23,000 of which are owned by the Council (40,000 were council-owned at one point). These tend to be rented to low income families. There are 59 multi-story apartment buildings, with 45 flats.
In 2002, the city contracted for an energy study that suggested they pursue CHP. Now, over 800 flats in 14 council-owned buildings are served by 3 CHP schemes. The residents pay 50%-75% less than they did previously on their utility bills (average is about 7 pounds a week now I think she said), in part because of the high efficiency of the generation. The scheme also serves government office buildings, a school, and rec centers (pool, ice rink, etc). The different demand profiles of the offices and residences help to balance the demand load and make the CHP more efficient and financially viable.
The city set up a non-profit corporation, Aberdeen Heat and Power (AHP), to finance the schemes. An independent board, appointed by the council, governs AHP (2 tenant members, 2 council members, 6 others). The capital costs for the first CHP unit were financed by a 40% UK government grant and 60% bank borrowing. The second and third units were all bank financed, with a council guarantee on the loan. The plants are built on council land, as are the pipes (looking to go under roads to ensure that in the future). It was labor intensive - in the competitive marketplace, they needed to sign up every tenant individually to take heat and power from AHP. The plant runs on natural gas now, but is able to transfer to biogas produced through gasification or anaerobic digestion.
Janice said that the private utilities haven't resisted or seen Aberdeen Heat and Power as a threat to their business - indeed, they often cooperate witht the city on efficiency measures and provide funding for some of the city's programming (they are mandated to hit certain electricity demand reductions by the UK Gov't). It'll be interesting to see if this holds true if AHP continues to grow. The context is a little different in the UK because there's no natural geographic monopoly for utilities that is eaten into - it's a competitive market already...and AHP is akin competitor in the market I guess - one that works cooperatively with utilities at times to help them meet energy reduction mandates (Janice mentioned she sold them some reductions - I'm not sure exactly how this works...maybe she earns "white tag" energy efficiency credits from the CHP plant?).
Janice also stressed the importance of peer pressure to spark energy efficiency in private homeowners. All too often, the pure economic benefits of efficiency seems insufficient to drive investment. In Aberdeen, Janet has uses aerial and streetside thermal imaging to show residents whether their homes are leaky (red) or well-insulated (blue). In Janice's opinion, when higher-income homeowners see their houses in red...while the lower-income council housing looks blue - their pride sparks them to act much more than pure economic rationality of efficiency. An innovative company started by a couple of my college classmates called Positive Energy uses some of the same principles (comparing your energy usage to your neighbors) to spark more efficiency. They are running some control group experiences to test the effectiveness in Sacramento - going to be interesting to watch the results come in. The early results are promising.
A couple of the units served by CHP - we toured the plant too...but it looked fairly similar to (a little smaller than) the University of Edinburghs - same generator company.
Across England, in large part due to the reconstruction after WW II, a very large percentage of housing (at least by US standards) is owned by local governments. Aberdeen has a population of 250,000, living in about 100,000 residences, 23,000 of which are owned by the Council (40,000 were council-owned at one point). These tend to be rented to low income families. There are 59 multi-story apartment buildings, with 45 flats.
In 2002, the city contracted for an energy study that suggested they pursue CHP. Now, over 800 flats in 14 council-owned buildings are served by 3 CHP schemes. The residents pay 50%-75% less than they did previously on their utility bills (average is about 7 pounds a week now I think she said), in part because of the high efficiency of the generation. The scheme also serves government office buildings, a school, and rec centers (pool, ice rink, etc). The different demand profiles of the offices and residences help to balance the demand load and make the CHP more efficient and financially viable.
The city set up a non-profit corporation, Aberdeen Heat and Power (AHP), to finance the schemes. An independent board, appointed by the council, governs AHP (2 tenant members, 2 council members, 6 others). The capital costs for the first CHP unit were financed by a 40% UK government grant and 60% bank borrowing. The second and third units were all bank financed, with a council guarantee on the loan. The plants are built on council land, as are the pipes (looking to go under roads to ensure that in the future). It was labor intensive - in the competitive marketplace, they needed to sign up every tenant individually to take heat and power from AHP. The plant runs on natural gas now, but is able to transfer to biogas produced through gasification or anaerobic digestion.
Janice said that the private utilities haven't resisted or seen Aberdeen Heat and Power as a threat to their business - indeed, they often cooperate witht the city on efficiency measures and provide funding for some of the city's programming (they are mandated to hit certain electricity demand reductions by the UK Gov't). It'll be interesting to see if this holds true if AHP continues to grow. The context is a little different in the UK because there's no natural geographic monopoly for utilities that is eaten into - it's a competitive market already...and AHP is akin competitor in the market I guess - one that works cooperatively with utilities at times to help them meet energy reduction mandates (Janice mentioned she sold them some reductions - I'm not sure exactly how this works...maybe she earns "white tag" energy efficiency credits from the CHP plant?).
Janice also stressed the importance of peer pressure to spark energy efficiency in private homeowners. All too often, the pure economic benefits of efficiency seems insufficient to drive investment. In Aberdeen, Janet has uses aerial and streetside thermal imaging to show residents whether their homes are leaky (red) or well-insulated (blue). In Janice's opinion, when higher-income homeowners see their houses in red...while the lower-income council housing looks blue - their pride sparks them to act much more than pure economic rationality of efficiency. An innovative company started by a couple of my college classmates called Positive Energy uses some of the same principles (comparing your energy usage to your neighbors) to spark more efficiency. They are running some control group experiences to test the effectiveness in Sacramento - going to be interesting to watch the results come in. The early results are promising.
A couple of the units served by CHP - we toured the plant too...but it looked fairly similar to (a little smaller than) the University of Edinburghs - same generator company.
Monday, February 23, 2009
London - Unique Government Structures
On Wednesday (after spending some time with New Energy Finance, where I'll be doing a 2 week placement and I'm sure I'll have much more to discuss later), we met with the quasi-governmental UK entity The Carbon Trust. It was set up as a private company by the UK government in 2001, with an independent board made up of some government members and some non-government members. It receives over £100 million in annual funding from the UK government, and has about 150 staff and 350 consultants. Its most well known role is to provide low-cost energy efficiency advice to UK companies, though it also plays a wide variety of roles in the UK's climate policies. It issues a number of reports about climate policy, business competitiveness and climate risks, and many other matters. It also takes some unique equity investments in low carbon technology companies - stuff that's even too risky for some VC's. They often start by granting research grants, which, if the company is successful hitting milestones, eventually turn into equity stakes. These investments are not restricted to UK companies. The staff seems to be made up of a number of high-priced consultants who speak the language of financiers - which might not be cheap for the taxpayer, but which is probably an effective way to make the case for action on climate change to the business community.
On Tuesday we spent some time with the sustainability team for the City of London Corporation, which is a fascinating 800-year-old institution that predates the British Parliament and is mentioned by name in the Magna Carta. The corporation has jurisdiction of a small square mile that is home to the financial district within the modern boundary of London. It serves as a unique local government unit (in part because any legislation of general applicability to local governments needs to mention the City of London Corporation by name because of its ancient status). "The City" - a term used in a similar fashion to "Wall Street" is home to 9000 residents, but over 250,000 daily commuters. As such, its governing board is elected in part by its corporate citizens, not just its residents. The City also often seems to play a role as ambassador and spokesperson for the financial community. The Lord Mayor of London (who is different than the Mayor of London Boris Johnson) is an elected position within the Corporation that is highly ceremonial. We were invited to the his very fancy digs (the Mansion House) for some sustainability awards.
Rules of the Mansion House. Posted in the Men's Room. I'm not sure what riding the wooden horse means, but these days I think I'd rather pay the six pence.
Fairly nice living room. Tad more spacious than my hotel room nearby.
Hall for the award ceremony. Nifty sword and sceptor behind the stage.
Ornate ceiling of the award ceremony hall.
Some of my fellow fellows in the reception room.
On Tuesday we spent some time with the sustainability team for the City of London Corporation, which is a fascinating 800-year-old institution that predates the British Parliament and is mentioned by name in the Magna Carta. The corporation has jurisdiction of a small square mile that is home to the financial district within the modern boundary of London. It serves as a unique local government unit (in part because any legislation of general applicability to local governments needs to mention the City of London Corporation by name because of its ancient status). "The City" - a term used in a similar fashion to "Wall Street" is home to 9000 residents, but over 250,000 daily commuters. As such, its governing board is elected in part by its corporate citizens, not just its residents. The City also often seems to play a role as ambassador and spokesperson for the financial community. The Lord Mayor of London (who is different than the Mayor of London Boris Johnson) is an elected position within the Corporation that is highly ceremonial. We were invited to the his very fancy digs (the Mansion House) for some sustainability awards.
Rules of the Mansion House. Posted in the Men's Room. I'm not sure what riding the wooden horse means, but these days I think I'd rather pay the six pence.
Fairly nice living room. Tad more spacious than my hotel room nearby.
Hall for the award ceremony. Nifty sword and sceptor behind the stage.
Ornate ceiling of the award ceremony hall.
Some of my fellow fellows in the reception room.
Sunday, February 22, 2009
London - Fund Managers and Climate Change, Carbon Trading
On Tuesday and Wednesday, we met with the responsible investing managers for F&C Investments, which manages funds totalling about £100 billion, and Insight Investment, which manages about £150 billion. They were slightly different perspectives, but both gave me a good idea of how traditional money managers think about climate change. Clearly they see it as a business risk - particularly in certain carbon intensive industries like electricity production, cement production, aluminium production, oil and gas production, etc, and industries who are at risk for climate change impacts - like insurance and reinsurance.
F&C told us they use their clout to push that top management and board members explain how they plan to address carbon risks and encourage them to pursue energy efficiency and other carbon-friendly (and bottom line friendly) practices. They also try to play a fairly vocal role in the carbon policy debates - encouraging policymakers to quickly set stable, strong, long-term greenhouse gas reduction policies.
We had an informative and frank discussion with Insight Investments - about the role investors can play in addressing climate change by pushing companies to address risk, but also the limitations of investor actions. Investors care about the bottom line - so they see climate change through the lens of risks and opportunities. While carbon is an issue for many companies, for a lot of companies whose energy costs only make up a small percentage of their operating expenses, fund managers don't currently see climate change as a business risk. Whether this is true is another question (I think there are a lot of product-related climate risks as well), but it is the reality currently. And investors are generally skeptical that governments will take bold action on climate change, until the regulations are in place - the regulatory risks will probably continue to be discounted fairly greatly.
We also had a great discussion of some of the shortfalls of carbon reporting practices currently. Most carbon reporting is backward-looking currently, and investors have a strong preference for forward-looking projections, but companies are very reluctant to go there. What's more, carbon disclosures are rarely audited and often are presented in inconsistent and hard-to-compare formats.
Finally, we had a very interesting discussion about the outlook of pension funds - who theoretically should be very long-term investors, but who in practice often take short-term outlooks and demand quarterly returns on 2 or 3 year contracts. This a very serious problem for addressing climate change through investor influence. If investors started thinking a little longer term about climate risks, their investment strategies might change and they and their fund managers might exert leverage on companies in different ways.
On Thursday, we visited with the Carbon Disclosure Project, a non-profit that has gotten large investors like Insight, F&C, and many others to sign a letter asking companies to answer a questionnaire about their carbon emissions and carbon risk management. They've been very successful to date, getting the majority of the world's large companies to begin reporting.
We also met with Patrick Birley, the CEO of the European Climate Exchange, the electronic trading platform that handles the vast majority of the carbon trades for the EU ETS. The ECX is a subsidiary group of the same company that owns the Chicago Climate Exchange. They set up their exchange by contracting with Intercontinental Exchange, which already trades most European energy commodities. ECX only has 5 staff, which surprised me.
Patrick's a real market capitalist, having spent 14 years setting up the South African derivatives trading market after the fall of apartheid. We had a great discussion about some of the nitty gritties of carbon trading strategies and the process and risks of setting up an exchange. While a lot of CDM trades initially started out as bilateral contracts, many are now moving toward exchanges, because the counterparty risk (risk that your contracting party defaults) is reduced. In an exchange trade, that risk is assumed by a clearinghouse. Particularly these days, with some carbon developers risking default because of quickly falling carbon prices, exchange trades are safer. They can also provide some anonymimity to traders who like to keep a low profile.
The ECX only currently trades futures contracts, but will soon open a spot market, after seeing the success of a French spot market exchange called BlueNext.
All in all, learned a lot.
Group shot with Patrick Birley, CEO of ECX, outside their office.
F&C told us they use their clout to push that top management and board members explain how they plan to address carbon risks and encourage them to pursue energy efficiency and other carbon-friendly (and bottom line friendly) practices. They also try to play a fairly vocal role in the carbon policy debates - encouraging policymakers to quickly set stable, strong, long-term greenhouse gas reduction policies.
We had an informative and frank discussion with Insight Investments - about the role investors can play in addressing climate change by pushing companies to address risk, but also the limitations of investor actions. Investors care about the bottom line - so they see climate change through the lens of risks and opportunities. While carbon is an issue for many companies, for a lot of companies whose energy costs only make up a small percentage of their operating expenses, fund managers don't currently see climate change as a business risk. Whether this is true is another question (I think there are a lot of product-related climate risks as well), but it is the reality currently. And investors are generally skeptical that governments will take bold action on climate change, until the regulations are in place - the regulatory risks will probably continue to be discounted fairly greatly.
We also had a great discussion of some of the shortfalls of carbon reporting practices currently. Most carbon reporting is backward-looking currently, and investors have a strong preference for forward-looking projections, but companies are very reluctant to go there. What's more, carbon disclosures are rarely audited and often are presented in inconsistent and hard-to-compare formats.
Finally, we had a very interesting discussion about the outlook of pension funds - who theoretically should be very long-term investors, but who in practice often take short-term outlooks and demand quarterly returns on 2 or 3 year contracts. This a very serious problem for addressing climate change through investor influence. If investors started thinking a little longer term about climate risks, their investment strategies might change and they and their fund managers might exert leverage on companies in different ways.
On Thursday, we visited with the Carbon Disclosure Project, a non-profit that has gotten large investors like Insight, F&C, and many others to sign a letter asking companies to answer a questionnaire about their carbon emissions and carbon risk management. They've been very successful to date, getting the majority of the world's large companies to begin reporting.
We also met with Patrick Birley, the CEO of the European Climate Exchange, the electronic trading platform that handles the vast majority of the carbon trades for the EU ETS. The ECX is a subsidiary group of the same company that owns the Chicago Climate Exchange. They set up their exchange by contracting with Intercontinental Exchange, which already trades most European energy commodities. ECX only has 5 staff, which surprised me.
Patrick's a real market capitalist, having spent 14 years setting up the South African derivatives trading market after the fall of apartheid. We had a great discussion about some of the nitty gritties of carbon trading strategies and the process and risks of setting up an exchange. While a lot of CDM trades initially started out as bilateral contracts, many are now moving toward exchanges, because the counterparty risk (risk that your contracting party defaults) is reduced. In an exchange trade, that risk is assumed by a clearinghouse. Particularly these days, with some carbon developers risking default because of quickly falling carbon prices, exchange trades are safer. They can also provide some anonymimity to traders who like to keep a low profile.
The ECX only currently trades futures contracts, but will soon open a spot market, after seeing the success of a French spot market exchange called BlueNext.
All in all, learned a lot.
Group shot with Patrick Birley, CEO of ECX, outside their office.
Cap and Trade in a Nutshell
Throughout this blog, I talk about Kyoto and the EU ETS and cap and trade, and I realize I haven't quite explained what I mean by those terms. Here's the theory of how these regulations work in a nutshell.
The solution to fighting global warming that seems to drawing the most support is by instituting a regulatory scheme called a “cap and trade” system. The goal is to reduce carbon dioxide and other greenhouse gas emissions to slow down climate change. Unlike a traditional regulation that might say “every coal plant can only emit X amount” – this style of regulation uses a market and trading mechanism. Companies are required to get a permit for each ton of carbon dioxide they emit – these permits are usually called carbon allowances. The government rachets down the total number of allowances that are available for everyone every year – reducing the total carbon emitted (this is the cap). Companies can trade or sell allowances to each other (this is the trade), so that if I’m really good about reducing my carbon emissions and you aren’t so good…I can sell you some of my extras. This is arguably economically efficient. On top of this, most of these schemes also allow companies to get extra carbon allowances (often called offsets), if they invest in projects that reduce carbon dioxide in other parts of the developing world (so you can get credits for building a wind farm in China, or by planting trees in Brazil).
The solution to fighting global warming that seems to drawing the most support is by instituting a regulatory scheme called a “cap and trade” system. The goal is to reduce carbon dioxide and other greenhouse gas emissions to slow down climate change. Unlike a traditional regulation that might say “every coal plant can only emit X amount” – this style of regulation uses a market and trading mechanism. Companies are required to get a permit for each ton of carbon dioxide they emit – these permits are usually called carbon allowances. The government rachets down the total number of allowances that are available for everyone every year – reducing the total carbon emitted (this is the cap). Companies can trade or sell allowances to each other (this is the trade), so that if I’m really good about reducing my carbon emissions and you aren’t so good…I can sell you some of my extras. This is arguably economically efficient. On top of this, most of these schemes also allow companies to get extra carbon allowances (often called offsets), if they invest in projects that reduce carbon dioxide in other parts of the developing world (so you can get credits for building a wind farm in China, or by planting trees in Brazil).
It’s a really complicated system – there are lots of questions about how you divvy up the allowances at the start – do you give them away, or make companies buy them. Or a little of both…and who gets them, and what does the money the government gets from selling them get used for. And there’s a whole “carbon trading” system that is set up to implement it – almost like a mini-Wall Street just trading these emissions rights, and options and derivatives and all sorts of complicated financial stuff. The EU's Emissions Trading Scheme (EU ETS) is by far the largest cap and trade scheme for greenhouse gases. The Kyoto Protocol created an offset system called the Clean Development Mechanism that gives credits for investments that reduce carbon emissions in the developing world. Credits from this mechanism can be used to meet the requirements of the EU ETS. London is the world epicenter of the carbon trading community. I've been learning the nitty gritty of how these systems work.
London - Tuesday, Green Investments and Classical Music
We kicked off our week of meetings with various investment fund managers with a visit to Climate Change Capital, probably the world's best known focused carbon-centric investment firm. James Cameron, the co-founder, set the stage with the firm's history. An attorney, James is superbly talented in the arts of persuasion. He laid out the firm's driving mission - to prove to the world the possibility of making money while performing social good, to earn "wealth worth having." The business started shortly after the Kyoto Protocol as an advisory service, primarily with utilities as clients, thanks to cofounder Tony White. At the time, companies were assigning no value to carbon risks when making investments, which is likely now to lead to some professional negligence lawsuits. Their initial business visions were grand and needed to be scaled back to reality. After advising for a while, they were able to raise $125 million for their first investment fund. It was structured as a hedge fund, which they learned was the wrong structure because hedge funds were expected to earn returns quickly, and carbon-focused investments needed a longer time horizon. CCC next raised capital for a series of long-term investments. They were aided in their fundraising by correctly calling the collapse of the carbon price due to an overallocation of allowances in the first phase of the EU ETS. Their most recent fund is a relatively small (200 M euro) property management fund focusing on high-efficiency/low-carbon buildings.
Cameron surprised me a little by saying he believed the "additionality" test in the Kyoto Clean Development Mechanism is actually a bad idea. The concept of additionality was originally insisted upon by environmentalists to ensure the integrity of the offset system. In order to get carbon offsets, the developer must prove the emissions reductions meet an additionality test - that but for the funding from the offsets, the carbon emissions would not have happened. They are "additional" emissions reductions to business as usual practices. Cameron argued that in practice, the additionality test only serves as another hurdle for carbon-saving projects. It becomes another reason not to do good things, which he believes is improper. I'd never heard someone take this stance before - additionality is a crucial concept to most offset schemes. Will be interesting if it goes anywhere.
We next heard from Rick Kwan, a native Canadian and former electricity trader who works for CCC as a carbon trading specialist. He gave us a great, in-depth presentation on the ins and outs of carbon trading. I previously hadn't realized that most carbon trading is driven on the back end of electricity trades in the European markets. When electricity traders decide whether or not to turn on their coal plants or gas plants and sell electricity in the market, they need to account for the carbon those plants produce and buy allowances or offsets accordingly. I knew the two markets were related, but I didn't realize how directly they related in practice. The carbon market has driven a fairly noticeable shift from using coal plants to gas plants, which have fewer carbon emissions. Rick also took us through the financing of a sample CDM project - plugging in how the numbers add up and explaining the different players in the value chain. These days, with the EU carbon price dropping rapidly (driven by the recession and falling oil prices, which often serve as a proxy in natural gas contracts, even though oil is not actually interchangeable with gas), most new CDM projects are not financially viable. Rick stayed with us an hour and a half longer than we'd scheduled, which was quite generous. All in all, a really thought-provoking morning.
On Tuesday night, Guntur organized an outing to the London Symphony Orchestra for a night of Beethoven - Symphonies Nos 4 & 7 and the Namensfeier Overture. Great seats, great hall, great music.
View from just outside the CCC offices. Not too shabby.
Exterior of the Barbican Center, home of the LSO.
Inside the main concert hall.
The orchestra.
Cameron surprised me a little by saying he believed the "additionality" test in the Kyoto Clean Development Mechanism is actually a bad idea. The concept of additionality was originally insisted upon by environmentalists to ensure the integrity of the offset system. In order to get carbon offsets, the developer must prove the emissions reductions meet an additionality test - that but for the funding from the offsets, the carbon emissions would not have happened. They are "additional" emissions reductions to business as usual practices. Cameron argued that in practice, the additionality test only serves as another hurdle for carbon-saving projects. It becomes another reason not to do good things, which he believes is improper. I'd never heard someone take this stance before - additionality is a crucial concept to most offset schemes. Will be interesting if it goes anywhere.
We next heard from Rick Kwan, a native Canadian and former electricity trader who works for CCC as a carbon trading specialist. He gave us a great, in-depth presentation on the ins and outs of carbon trading. I previously hadn't realized that most carbon trading is driven on the back end of electricity trades in the European markets. When electricity traders decide whether or not to turn on their coal plants or gas plants and sell electricity in the market, they need to account for the carbon those plants produce and buy allowances or offsets accordingly. I knew the two markets were related, but I didn't realize how directly they related in practice. The carbon market has driven a fairly noticeable shift from using coal plants to gas plants, which have fewer carbon emissions. Rick also took us through the financing of a sample CDM project - plugging in how the numbers add up and explaining the different players in the value chain. These days, with the EU carbon price dropping rapidly (driven by the recession and falling oil prices, which often serve as a proxy in natural gas contracts, even though oil is not actually interchangeable with gas), most new CDM projects are not financially viable. Rick stayed with us an hour and a half longer than we'd scheduled, which was quite generous. All in all, a really thought-provoking morning.
On Tuesday night, Guntur organized an outing to the London Symphony Orchestra for a night of Beethoven - Symphonies Nos 4 & 7 and the Namensfeier Overture. Great seats, great hall, great music.
View from just outside the CCC offices. Not too shabby.
Exterior of the Barbican Center, home of the LSO.
Inside the main concert hall.
The orchestra.
London - Monday, Sightseeing Day
Sorry I've been a little lax in posting. On Monday morning I got up early (it's amazing at how fast my sleeping habits have reverted back to the law school schedule) and took the train down to London. The internet access at the hotel was a little pricy for my tastes, and I could only spend so much time hanging out at the McDonald's with free wifi around the corner. They put us up in a great location - right next to the British Museum and just north of SoHo. Room was on the tiny side, but definitely manageable (and probably reasonably affordable for Central London).
We had the first day in London to ourselves. I had lunch at Harrod's, the Mecca of department stores. I spent the afternoon dodging school kids looking at dinosaurs at the Museum of Natural History and and admiring Rodin sculptures the Victoria and Albert Museum. Walked home through some of the parks, including a pit stop at the Princess Diana memorial fountain, an understated and elegant circular pool.
Coming from Edinburgh, I was struck by the intensity of London. The mobs of crowds pushing on the tubes even in mid-afternoon, the absolute feast of architectural grandeur everywhere in the city, and the familiar and unsettling feeling of namelessness that I get whenever I go to New York City. Maybe I'm getting old, but while I love to visit mega-cities like this, I wouldn't want to live in one. It just doesn't feel like home.
The deli at Harrod's.
Random elaborate building on my walk.
Random ornate gate.
Natural History Museum.
Courtyard in the V&A Musuem.
Swans on the way home. Kensington Gardens.
My humble abode for the week. It looks bigger than it is.
We had the first day in London to ourselves. I had lunch at Harrod's, the Mecca of department stores. I spent the afternoon dodging school kids looking at dinosaurs at the Museum of Natural History and and admiring Rodin sculptures the Victoria and Albert Museum. Walked home through some of the parks, including a pit stop at the Princess Diana memorial fountain, an understated and elegant circular pool.
Coming from Edinburgh, I was struck by the intensity of London. The mobs of crowds pushing on the tubes even in mid-afternoon, the absolute feast of architectural grandeur everywhere in the city, and the familiar and unsettling feeling of namelessness that I get whenever I go to New York City. Maybe I'm getting old, but while I love to visit mega-cities like this, I wouldn't want to live in one. It just doesn't feel like home.
The deli at Harrod's.
Random elaborate building on my walk.
Random ornate gate.
Natural History Museum.
Courtyard in the V&A Musuem.
Swans on the way home. Kensington Gardens.
My humble abode for the week. It looks bigger than it is.
Sunday, February 15, 2009
Golf at North Berwick
I love golf.
With the temperatures getting over 40 and the sun peeking out, I paid £5.60 to take the train from Edinburgh to North Berwick, about 30 minutes east along the Firth of Forth. When we stopped, I headed about the length of a long dogleg par five down to the starter's shack at the North Berwick West Links. And I'm so glad I did. What an absolutely fabulous golf course. Greens putt as pure as any I've ever played. Views of the Firth are magnificiant. Every hole has great character. The wind was blowing pretty stiffly, especially on the way out. Like many of the old links-style courses here, the layout course goes out from the clubhouse along the coast for 9 holes and then comes back in. Easy to walk - the tees are almost always just off the previous green. Indeed, it's very unusual to take a "buggy" unless you have a physical handicap. I didn't see a single one today.
And I really started to understand why everyone says you have to be creative in your shotmaking in Scotland. I'd always heard that, but I don't think it quite hit home. I thought - yeah, sure...bump and runs and punch shots might be good for you, but I'll stick with hitting it high and hard. I learned quickly that just doesn't fly with winds like today's coming off the Firth. The combination of the wind and the great lay of the land makes playing approach shots and pitch shots challenging, fun, and maybe a little more dependent on a good bounce I'm used to. Like many great courses, North Berwick fits right into to the landscape. No earth moved to build this course. It's natural. It belongs. It's a central piece of the town and coastline.
While it was fairly busy...I didn't once have to wait to play a shot. I made it around in less than 3 hours...whenever I drew near a foursome, they let me play through immediately and did it very swiftly. We Americans could learn a little about pace and courtesy from the Scots.
What a great way to spend a February Sunday. Golf the way it's supposed to be played, where it has been played for hundreds of years. I'd put it right up there with Pine Valley and Kiawah's Ocean Course as one of my all time favorites. And at £35 for a winter round, I will definitely be back. Those plans I had to spend a week in Ireland in April might be giving way to another week over here playing great golf courses. I took a LOT of photos, and posted some of them here. You will want to click on these to get larger versions - the small ones just don't do this place justice.
On the way there.
Taking some good advice from the starter, I punched a four iron off the tee and floated a little half eight iron over a blind shot bluff. Left myself a nice little makeable birdie putt. Which I obviously short-armed and 3-putted.
1 Green. Looking at the beach with the town of North Berwick behind.
2 tee. A rather daunting looking tee shot on a long par four into the teeth of the wind. I smoothed one out there, but still left my hybrid approach short of the green.
Little burn, with a row of houses behind.
The first three holes are on what seems to be public access land to the beach...so there are old couples and kids and young men with dogs walking back and forth while you're playing. It's not annoying - they're very considerate of your play. Feels very natural. This wall in the middle of the third fairway marks the start of the "private" land (the public can still walk there, but fewer do).
After a pitch at 3, I had this for par. Missed again.
4th tee.
Looking out from the 4th tee. Blind 186 yard shot to a long green over the central hill. Strong wind blowing into your face and right to left.
I absolutely pured a hybrid. Pitch mark was about 8 inches from the hole.
Obviously lipped out the putt.
5 fairway...looking over the beach. I finally got my first birdie after a knock-down 8-iron landed hole high about 30 feet to the left, and I rolled in a nice putt.
6 green. First of a few difficult bunker shots. This one is almost straight up. I played it beautifully but missed the putt coming back.
Looking back as I head toward the turn.
12 Fairway. Hit what I thought was a great drive. I was wrong. The green is visible beyond. I blasted out straight sideways and caught it thin, sending it across the fairway to some fescue. Double.
12 green. Beach behind. Cool little lighthouse on the island.
Next tee shot - even worse. I could barely even get a stance to take this sideways. Another double on another short par 4.
13 green. Tiny, narrow little green tucked behind a low fence. Blind approach. Coast on the left. Great hole. My ball's on the hill on the left - thought it would come off there but it got caught in the fescue. Hit a tricky little chip well, but missed another easy putt.
Hit a nice 2-iron to the middle of the narrow fairway on 14 - titled "Perfection." The approach is another blind shot over some bluffs - you can see a target pole behind.
Hit a very nice wedge. I think I play the blind shots better than the ones I can see.
Ancient bell I rang to let the group behind know I cleared the 14th green.
16 tee. Play is over the fence with a painted out-of-bounds line. Back to the more public area of the course. Little park on the right.
Very fun 16th green. Incredibly long and narrow, with a giant gorge in the middle of the green that you can see here. If you somehow hit the back of this green, I don't know how you'd play for that putt. I left my approach well right and hit a little flop shot to here.
17 green. Left myself a long putt after a another approach blind shot.
Finishing up in the oak-paneled clubhouse, looking over 18.
All in all - I played so-so. Had an 85, but that could have easily been under 80 with a couple of more made putts and a couple of fewer bunkers off the tee. I'll know better next time I play.
With the temperatures getting over 40 and the sun peeking out, I paid £5.60 to take the train from Edinburgh to North Berwick, about 30 minutes east along the Firth of Forth. When we stopped, I headed about the length of a long dogleg par five down to the starter's shack at the North Berwick West Links. And I'm so glad I did. What an absolutely fabulous golf course. Greens putt as pure as any I've ever played. Views of the Firth are magnificiant. Every hole has great character. The wind was blowing pretty stiffly, especially on the way out. Like many of the old links-style courses here, the layout course goes out from the clubhouse along the coast for 9 holes and then comes back in. Easy to walk - the tees are almost always just off the previous green. Indeed, it's very unusual to take a "buggy" unless you have a physical handicap. I didn't see a single one today.
And I really started to understand why everyone says you have to be creative in your shotmaking in Scotland. I'd always heard that, but I don't think it quite hit home. I thought - yeah, sure...bump and runs and punch shots might be good for you, but I'll stick with hitting it high and hard. I learned quickly that just doesn't fly with winds like today's coming off the Firth. The combination of the wind and the great lay of the land makes playing approach shots and pitch shots challenging, fun, and maybe a little more dependent on a good bounce I'm used to. Like many great courses, North Berwick fits right into to the landscape. No earth moved to build this course. It's natural. It belongs. It's a central piece of the town and coastline.
While it was fairly busy...I didn't once have to wait to play a shot. I made it around in less than 3 hours...whenever I drew near a foursome, they let me play through immediately and did it very swiftly. We Americans could learn a little about pace and courtesy from the Scots.
What a great way to spend a February Sunday. Golf the way it's supposed to be played, where it has been played for hundreds of years. I'd put it right up there with Pine Valley and Kiawah's Ocean Course as one of my all time favorites. And at £35 for a winter round, I will definitely be back. Those plans I had to spend a week in Ireland in April might be giving way to another week over here playing great golf courses. I took a LOT of photos, and posted some of them here. You will want to click on these to get larger versions - the small ones just don't do this place justice.
On the way there.
Taking some good advice from the starter, I punched a four iron off the tee and floated a little half eight iron over a blind shot bluff. Left myself a nice little makeable birdie putt. Which I obviously short-armed and 3-putted.
1 Green. Looking at the beach with the town of North Berwick behind.
2 tee. A rather daunting looking tee shot on a long par four into the teeth of the wind. I smoothed one out there, but still left my hybrid approach short of the green.
Little burn, with a row of houses behind.
The first three holes are on what seems to be public access land to the beach...so there are old couples and kids and young men with dogs walking back and forth while you're playing. It's not annoying - they're very considerate of your play. Feels very natural. This wall in the middle of the third fairway marks the start of the "private" land (the public can still walk there, but fewer do).
After a pitch at 3, I had this for par. Missed again.
4th tee.
Looking out from the 4th tee. Blind 186 yard shot to a long green over the central hill. Strong wind blowing into your face and right to left.
I absolutely pured a hybrid. Pitch mark was about 8 inches from the hole.
Obviously lipped out the putt.
5 fairway...looking over the beach. I finally got my first birdie after a knock-down 8-iron landed hole high about 30 feet to the left, and I rolled in a nice putt.
6 green. First of a few difficult bunker shots. This one is almost straight up. I played it beautifully but missed the putt coming back.
Looking back as I head toward the turn.
12 Fairway. Hit what I thought was a great drive. I was wrong. The green is visible beyond. I blasted out straight sideways and caught it thin, sending it across the fairway to some fescue. Double.
12 green. Beach behind. Cool little lighthouse on the island.
Next tee shot - even worse. I could barely even get a stance to take this sideways. Another double on another short par 4.
13 green. Tiny, narrow little green tucked behind a low fence. Blind approach. Coast on the left. Great hole. My ball's on the hill on the left - thought it would come off there but it got caught in the fescue. Hit a tricky little chip well, but missed another easy putt.
Hit a nice 2-iron to the middle of the narrow fairway on 14 - titled "Perfection." The approach is another blind shot over some bluffs - you can see a target pole behind.
Hit a very nice wedge. I think I play the blind shots better than the ones I can see.
Ancient bell I rang to let the group behind know I cleared the 14th green.
16 tee. Play is over the fence with a painted out-of-bounds line. Back to the more public area of the course. Little park on the right.
Very fun 16th green. Incredibly long and narrow, with a giant gorge in the middle of the green that you can see here. If you somehow hit the back of this green, I don't know how you'd play for that putt. I left my approach well right and hit a little flop shot to here.
17 green. Left myself a long putt after a another approach blind shot.
Finishing up in the oak-paneled clubhouse, looking over 18.
All in all - I played so-so. Had an 85, but that could have easily been under 80 with a couple of more made putts and a couple of fewer bunkers off the tee. I'll know better next time I play.
Saturday, February 14, 2009
University of Edinburgh's CHP Plant
Today we toured one of the University of Edinburgh's three combined heat and power units - an incredibly efficient way to provide heat and power for the university. Most existing coal plants only turn about 30% of the energy stored in the coal into electricity, and the remaining energy is wasted - often in heat that goes into the air. You have to get coal or gas really hot to make electricity. CHP or co-generation plants capture that heat and use it to heat buildings. The university's system is 85% efficient. It's a really smart way to get much more bang for your buck and save carbon emissions by avoiding having to burn fossil fuels for both heat and electricity.
It's one of many projects David Somervell, the university's energetic and committed sustainability advisor, has developed over the past 20 years. David is a great change agent for this place - he thinks extremely long-term and puts a lot of energy into setting the fundamental principles that will drive changes over time. In this case, he's gotten the university leadership to buy-in to a very cost-effective principle that 5% of their annual energy fuel budget should go to energy efficiency projects. He's also successfully gotten the university to look at energy efficiency projects from a much longer term investment perspective than a typical for-profit business. Most private companies never consider energy infrastructure investments that don't pay for themselves within a year or two - the university has a general rule of looking at 4 year paybacks as do-able, and went for a 7-year payback to revolutionize their heat and power with 3 CHP units. It's a little easier for a 400-year-old university to think long term than a company trying to make payroll every month, but that's even more reason why institutions like universities and governments should lead the way on financing these projects. They'll be around for a long time and they will pay off in the long run. David's also been successful in getting the leaders of the University to think deeply about how they manage risk - not just financial risk, but energy price volatility risk over the next 50 years, as well as institutional and brand risk related to carbon footprints, etc. Change is slow, if you get these key drivers lined up, you can get a lot of really good things done over the long haul.
At the same time, money talks when it comes to these projects. The CHP units cost £12 million altogether - £5 million of which came from a UK government grant program, and the rest was financed by the University (through a private special purpose vehicle to avoid/delay some value-added-tax liabilities). CHP can often be quite expensive to install because it requires extensive piping infrastructure, but Edinburgh actually previously used steam engines to provide "district heating" - so replacing the relatively inefficient steam system with a modern CHP system was not that expensive.
I also like David's perspective on what's actually green and what's just "green jewelry." One of the greenest, most efficient buildings in the UK looks like any other tall tower on campus - but uses light and heat incredibly efficiently. On the other hand, another building with flashy building-integrated PV panels looks great symbolically (which has some value), but might was not the most cost-effective energy or carbon saving investment. (David also noted that he doesn't sell ROC's from his PV building because the registration processes are so complicated and the units produce so little electricity in the grand scheme of things that it's just not worth it.) In the same way, a super-efficient CHP unit like this one, even though it burns a fossil fuel (natural gas), might in some ways be a greener method of producing heat and electricity (and offsetting a lot of much less efficient coal fired electricity) than an expensive solar system.
Energy efficiency is really the most cost effective way to be green - you SAVE money and save emissions. I hope we consider projects like the CHP plants back home in Michigan - for example, it might be a really good option for Lansing, which needs to replace a coal-fired power plant and already has a steam-infrastructure for heat like the university did.
The visit also raised another difficult problem for me however - while I trust David and think the systems he's created are really efficient and great, I'm not an engineer and couldn't really critically analyze these units over any other. It's incredibly important to hire good engineers and consultants - but I'm not sure how a layperson knows who's good and who's not. Maybe it's like any specialty - you try to rely on good recommendations.
This CHP unit is actually a tri-generation unit - it produces electricity, heat, and cooling via an absortion chiller (heat is combined with a chemical to produce cooling).
David showing Rassul the control panel for the gas-fired electric engine - putting out about 1.3 MW of electricity.
Gas-fired engine - it's LOUD!
Waste heat from the engine is collected.
Heat can be stored in a giant tank of water when it's not needed and used later.
If need be, the unit has a couple of gas boilers to produce heat (they only run 10-15% of the time). The blue thing sticking out is a nitrous oxide scrubber - cleaner emissions.
The entire facility, because it serves a vet school animal shelter, is backed up by a diesel electricity generator (which can also be called into service by utilities during times of peak demand - in the US that would be hot summer days when air conditioners work over time. This is the MOST expensive time to produce powers, and partnerships like these are innovative win-wins. Another great possibility for Michigan that I know our utilities and manufacturers are working toward.).
David also showed us a video about CHP's use in Europe, and how it (and decentralized electricity generation generally) could be a great solution for the UK. It's produced by Greenpeace, and of course you always have to consider the source whenever taking in information, but I actually think it's a pretty balanced and unbiased statement of the facts (with a little hyperbole thrown in). Good explanations of the how electric systems work. Definitely worth the 18-minute watch if you have the time.
It's one of many projects David Somervell, the university's energetic and committed sustainability advisor, has developed over the past 20 years. David is a great change agent for this place - he thinks extremely long-term and puts a lot of energy into setting the fundamental principles that will drive changes over time. In this case, he's gotten the university leadership to buy-in to a very cost-effective principle that 5% of their annual energy fuel budget should go to energy efficiency projects. He's also successfully gotten the university to look at energy efficiency projects from a much longer term investment perspective than a typical for-profit business. Most private companies never consider energy infrastructure investments that don't pay for themselves within a year or two - the university has a general rule of looking at 4 year paybacks as do-able, and went for a 7-year payback to revolutionize their heat and power with 3 CHP units. It's a little easier for a 400-year-old university to think long term than a company trying to make payroll every month, but that's even more reason why institutions like universities and governments should lead the way on financing these projects. They'll be around for a long time and they will pay off in the long run. David's also been successful in getting the leaders of the University to think deeply about how they manage risk - not just financial risk, but energy price volatility risk over the next 50 years, as well as institutional and brand risk related to carbon footprints, etc. Change is slow, if you get these key drivers lined up, you can get a lot of really good things done over the long haul.
At the same time, money talks when it comes to these projects. The CHP units cost £12 million altogether - £5 million of which came from a UK government grant program, and the rest was financed by the University (through a private special purpose vehicle to avoid/delay some value-added-tax liabilities). CHP can often be quite expensive to install because it requires extensive piping infrastructure, but Edinburgh actually previously used steam engines to provide "district heating" - so replacing the relatively inefficient steam system with a modern CHP system was not that expensive.
I also like David's perspective on what's actually green and what's just "green jewelry." One of the greenest, most efficient buildings in the UK looks like any other tall tower on campus - but uses light and heat incredibly efficiently. On the other hand, another building with flashy building-integrated PV panels looks great symbolically (which has some value), but might was not the most cost-effective energy or carbon saving investment. (David also noted that he doesn't sell ROC's from his PV building because the registration processes are so complicated and the units produce so little electricity in the grand scheme of things that it's just not worth it.) In the same way, a super-efficient CHP unit like this one, even though it burns a fossil fuel (natural gas), might in some ways be a greener method of producing heat and electricity (and offsetting a lot of much less efficient coal fired electricity) than an expensive solar system.
Energy efficiency is really the most cost effective way to be green - you SAVE money and save emissions. I hope we consider projects like the CHP plants back home in Michigan - for example, it might be a really good option for Lansing, which needs to replace a coal-fired power plant and already has a steam-infrastructure for heat like the university did.
The visit also raised another difficult problem for me however - while I trust David and think the systems he's created are really efficient and great, I'm not an engineer and couldn't really critically analyze these units over any other. It's incredibly important to hire good engineers and consultants - but I'm not sure how a layperson knows who's good and who's not. Maybe it's like any specialty - you try to rely on good recommendations.
This CHP unit is actually a tri-generation unit - it produces electricity, heat, and cooling via an absortion chiller (heat is combined with a chemical to produce cooling).
David showing Rassul the control panel for the gas-fired electric engine - putting out about 1.3 MW of electricity.
Gas-fired engine - it's LOUD!
Waste heat from the engine is collected.
Heat can be stored in a giant tank of water when it's not needed and used later.
If need be, the unit has a couple of gas boilers to produce heat (they only run 10-15% of the time). The blue thing sticking out is a nitrous oxide scrubber - cleaner emissions.
The entire facility, because it serves a vet school animal shelter, is backed up by a diesel electricity generator (which can also be called into service by utilities during times of peak demand - in the US that would be hot summer days when air conditioners work over time. This is the MOST expensive time to produce powers, and partnerships like these are innovative win-wins. Another great possibility for Michigan that I know our utilities and manufacturers are working toward.).
David also showed us a video about CHP's use in Europe, and how it (and decentralized electricity generation generally) could be a great solution for the UK. It's produced by Greenpeace, and of course you always have to consider the source whenever taking in information, but I actually think it's a pretty balanced and unbiased statement of the facts (with a little hyperbole thrown in). Good explanations of the how electric systems work. Definitely worth the 18-minute watch if you have the time.
Carbon Offsets for Planting Forests and Avoiding Deforestation
We spent a couple of sessions this week learning the ins and outs of forestry credits. Basically, the idea is that trees absorb a lot of carbon dioxide via photosynthesis on a global scale. When they are planted at large scale, or simply not cut down at large scale, it's a huge piece of the climate change solution. So lots of companies or people who want to claim that their actions are carbon neutral (offsetting their emissions from their business or from a flight they might take), are essentially paying people in developing countries to plant trees or engage in agricultural or forestry practices that create or leave more trees standing. The amount of carbon saved from the atmosphere is verified by scientists and economists who model what they think might have happened if the project did not happen vs. what they think will happen now that project went forward. And therein lies the source of my skepticism about these types of projects. While encouraging sustainable land use and stopping deforestation are an incredibly important (and probably absolutely necessary because of their relatively low cost) pieces of the climate change solution, I simply don't have a lot of confidence in the modeling that goes into these projects. It seems based on sketchy measurements and all sorts of assumptions that may or may not be accurate. I've been told that experts are developing methodology to attempt to stop people from skewing the numbers, and I have never been presented with how these methodologies work, but as of now, I'm not convinced these are reliable or real numbers. When a profit motive is introduced, I really worry that developers are incented to game the system and their modelling to produce more credits. What's more, there is a significant risk of "permanance" - whether carbon saved in trees today will be cut down and burned next year.
Does that mean we shouldn't invest in them? Not necessarily. I'd like to see these things develop and models and measurements get more precise and reliable. We saw some great projects described that are really having wonderful impacts in Africa - helping farmers use the land better and earn income while storing more carbon - win/win/win. But I think we need to be very careful before using these methods. Currently they are mostly just used in what are known as the carbon "voluntary" markets - which means people buy them to offset their emissions because they want to...not because the government is mandating them to get a certain amount of emission allowances. The "compliance" markets often have much higher prices per ton of carbon avoided than the voluntary markets, and a number developing countries like my fellow fellow Guntur's Indonesia, which has a lot of deforestation, really want the next international climate to have a deforestation offset that is fairly easy to get. The current credit for forest projects under the Kyoto Protocol's Clean Development Mechanism addresses the permanance risk by granting only "temporary" credits five years after a project starts, subject to verification 10 years after it starts. The EU also doesn't allow companies to buy these credits to meet their EU cap and trade obligations. As such, they are essentially risky "second class credits,"no one wants to buy them, so there is only one certified forest project under Kyoto right now. There are no credits at all under Kyoto for projects that claim to stop deforestation. The advocates of easing restrictions on forestry offsets haven't convinced me yet...but I'm keeping an open mind and hoping someone figures out a way to solve these problems in a way gives me confidence that the projects are really offsetting carbon in a cost effective way. At one level, the marginal cost of forest projects might be relatively low when compared with building a solar PV plant (and they have important poverty-reducing functions), but I'm very worried about the transaction costs of verification and the modeling risks.
Does that mean we shouldn't invest in them? Not necessarily. I'd like to see these things develop and models and measurements get more precise and reliable. We saw some great projects described that are really having wonderful impacts in Africa - helping farmers use the land better and earn income while storing more carbon - win/win/win. But I think we need to be very careful before using these methods. Currently they are mostly just used in what are known as the carbon "voluntary" markets - which means people buy them to offset their emissions because they want to...not because the government is mandating them to get a certain amount of emission allowances. The "compliance" markets often have much higher prices per ton of carbon avoided than the voluntary markets, and a number developing countries like my fellow fellow Guntur's Indonesia, which has a lot of deforestation, really want the next international climate to have a deforestation offset that is fairly easy to get. The current credit for forest projects under the Kyoto Protocol's Clean Development Mechanism addresses the permanance risk by granting only "temporary" credits five years after a project starts, subject to verification 10 years after it starts. The EU also doesn't allow companies to buy these credits to meet their EU cap and trade obligations. As such, they are essentially risky "second class credits,"no one wants to buy them, so there is only one certified forest project under Kyoto right now. There are no credits at all under Kyoto for projects that claim to stop deforestation. The advocates of easing restrictions on forestry offsets haven't convinced me yet...but I'm keeping an open mind and hoping someone figures out a way to solve these problems in a way gives me confidence that the projects are really offsetting carbon in a cost effective way. At one level, the marginal cost of forest projects might be relatively low when compared with building a solar PV plant (and they have important poverty-reducing functions), but I'm very worried about the transaction costs of verification and the modeling risks.
Friday, February 13, 2009
Wave Power
The University of Edinburgh is probably the world's leading research institution for wave power, and on Tuesday we heard a really informative presentation on the current state of wave power units from a scientist who has been charged by the EU with setting up protocols to compare emerging wave power technologies. The amount of energy in ocean waves is absolutely enormous (particularly off the UK), and if it could be successfully harnessed, it could be a powerful renewable energy source. Unlike wind turbines, which are a pretty developed technology and all look the same, there are dozens of radically different types of wave energy devices. Our presenter expected some consolidation down to 5 types or so, but because wave conditions differ much more than wind (which is pretty much the same everywhere), he still expects some variation in wave eventually.
The most well known type of wave device may be the Pelamis. It's essentially a snake-like object that bobs up and down and harnesses energy. Check out the website here. It was originally designed by a Edinburgh grad student, and is now operational at commercial scale off the coast of Portugal (thanks in part to a pretty generous feed-in-tariff of 23 euro-cents per kilowatt-hour).
Here are an interesting couple of videos that show the gradual research and development process from model to pool to ocean (our presenter decried the venture capitalists who are currently pushing people to have full-commercial scale wave energy devices in a year or two...skipping this gradual R&D process.)
Models
Small Scale
(skipped lots of slightly bigger scales)
Full sea-trials
The most well known type of wave device may be the Pelamis. It's essentially a snake-like object that bobs up and down and harnesses energy. Check out the website here. It was originally designed by a Edinburgh grad student, and is now operational at commercial scale off the coast of Portugal (thanks in part to a pretty generous feed-in-tariff of 23 euro-cents per kilowatt-hour).
Here are an interesting couple of videos that show the gradual research and development process from model to pool to ocean (our presenter decried the venture capitalists who are currently pushing people to have full-commercial scale wave energy devices in a year or two...skipping this gradual R&D process.)
Models
Small Scale
(skipped lots of slightly bigger scales)
Full sea-trials
Interesting Energy Regulatory Policy Idea from Anthony White, formerly of Climate Change Capital
On Wednesday night, the law school here hosted Dr. Anthony White, a well-known former UK energy regulator, transmission company executive, and bank executive focused on utility investments. Until a few weeks ago, he was an executive at Climate Change Capital, which is probably the world's largest climate-related investment group based on London. Next week in London, we'll be meeting with one of his CCC partners, James Cameron, the former Baker and McKenzie attorney who was one of the key architects of the Kyoto Protocol when he represented the Alliance of Small Island States.
White was a big proponent of the UK's move from regulated utilities to a free market electricity system around 1990, but he's now rethinking whether deregulation is a good idea in the age of climate change. In order to meet the UK's goal of reducing their greenhouse gas emissions by 80% by 2050, most everyone here agrees they will need to completely decarbonize their electricity generating sector. That means efficiency, renewables, and probably either nuclear or carbon capture and sequestration for baseload (unless energy storage advances enough to allow for storage of intermittent resources like wind, solar, or wave).
As is the case in the US, many existing British power plants are old and will be shut down soon, meaning they need to be replaced with new investment. But while there's been a lot of talk of investment, there's been no action. White laid out a scenario similar to what we heard from Consumers and Detroit Edison during Michigan's energy reform debates last year - competitive electric markets make it difficult to efficiently invest in large new plants. Because no one company wants lose market share by investing in a new plant (and having to raise prices to cover that investment), it means there won't be any investments until there's a shortage of electricity, when prices go way up (and maybe blackouts happen). Further, the high prices in the UK will not occur at the same time as high prices in other countries - putting British businesses at a competitive disadvantage and putting jobs at risk. The high prices then trigger a bunch of investment from all the utility companies at once, usually overinvestment, and prices drop significantly again. It's a classic commodity market. It works exactly as it was designed to - in an era of fossil fuel electricity.
At the same time, White argued the even if we get a price on greenhouse gas emissions, it likely won't drive the sorts of large investments necessary to decarbonize because any greenhouse gas price by its very nature will be new and volatile. Banks are very conservative, and when it comes to investing in things like wave farms or nuclear energy or CCS, they will factor in very low carbon prices when making investment decisions because they don't like the trust the price will be high. (At the same time, their conservatism may have them betting on HIGH carbon prices when considering loans to things like coal plants) .
White's main thesis is that markets don't necessarily provide the CHEAPEST outcome - they lead to the most FINANCEABLE outcome. When nothing is financeable, no investment is made. And this is a serious problem for a country that hopes to decarbonize. Or the solutions that are financeable are solutions with lower capital requirements but higher operating costs (like gas-fired plants...which are cheaper to put up, but have an ongoing cost of fuel). Most renewables have higher upfront costs, but their ongoing fuel source is free.
White's solution is to allocate risk differently than we do today. He wants to retain competitive markets for site selection, but does not want private companies to have to bear the risk of deciding WHAT to build and WHEN to build it. So the UK government would set-up an single energy purchasing entity and would decide what to build (nuke plant, wave farm, CCS, etc) and when to build it. It would then issue an RFP for 20 years of generation and open it up to competitive bidding amongst electricity generators to build the plant. Once the purchaser got the energy, it would resell it to the UK's electricity retailers, who would continue to operate in a competitive market. It's financeable because the single-buyer is a low credit risk.
This would have the impact of gradually phasing out utilties' concerns about their type of generation and energy trading, and in White's mind get them more focused on customer service as they focus on the retail energy business. This would be a radical cultural shift from what White sees as a "utilities build power stations" focus.
Interesting idea, and much easier to implement in places like the US that have regulated utilities than it would be in the UK . White's speech same immediately following a speech from my fellow fellow Demus King, one of Australia's chief energy policy advisors who is as strong an advocate of electricity deregulation as anyone. It was a really interesting and throught-provoking contrast.
White's also a huge fan of changing the utility-customer relationship from utility-person to utility-property...which could open up a boom in energy efficiency investments if the investments are financed via the electricity bill. Michigan's trying to work on a system like this now - which could be a really powerful tool to save people money on their electric bills.
White was a big proponent of the UK's move from regulated utilities to a free market electricity system around 1990, but he's now rethinking whether deregulation is a good idea in the age of climate change. In order to meet the UK's goal of reducing their greenhouse gas emissions by 80% by 2050, most everyone here agrees they will need to completely decarbonize their electricity generating sector. That means efficiency, renewables, and probably either nuclear or carbon capture and sequestration for baseload (unless energy storage advances enough to allow for storage of intermittent resources like wind, solar, or wave).
As is the case in the US, many existing British power plants are old and will be shut down soon, meaning they need to be replaced with new investment. But while there's been a lot of talk of investment, there's been no action. White laid out a scenario similar to what we heard from Consumers and Detroit Edison during Michigan's energy reform debates last year - competitive electric markets make it difficult to efficiently invest in large new plants. Because no one company wants lose market share by investing in a new plant (and having to raise prices to cover that investment), it means there won't be any investments until there's a shortage of electricity, when prices go way up (and maybe blackouts happen). Further, the high prices in the UK will not occur at the same time as high prices in other countries - putting British businesses at a competitive disadvantage and putting jobs at risk. The high prices then trigger a bunch of investment from all the utility companies at once, usually overinvestment, and prices drop significantly again. It's a classic commodity market. It works exactly as it was designed to - in an era of fossil fuel electricity.
At the same time, White argued the even if we get a price on greenhouse gas emissions, it likely won't drive the sorts of large investments necessary to decarbonize because any greenhouse gas price by its very nature will be new and volatile. Banks are very conservative, and when it comes to investing in things like wave farms or nuclear energy or CCS, they will factor in very low carbon prices when making investment decisions because they don't like the trust the price will be high. (At the same time, their conservatism may have them betting on HIGH carbon prices when considering loans to things like coal plants) .
White's main thesis is that markets don't necessarily provide the CHEAPEST outcome - they lead to the most FINANCEABLE outcome. When nothing is financeable, no investment is made. And this is a serious problem for a country that hopes to decarbonize. Or the solutions that are financeable are solutions with lower capital requirements but higher operating costs (like gas-fired plants...which are cheaper to put up, but have an ongoing cost of fuel). Most renewables have higher upfront costs, but their ongoing fuel source is free.
White's solution is to allocate risk differently than we do today. He wants to retain competitive markets for site selection, but does not want private companies to have to bear the risk of deciding WHAT to build and WHEN to build it. So the UK government would set-up an single energy purchasing entity and would decide what to build (nuke plant, wave farm, CCS, etc) and when to build it. It would then issue an RFP for 20 years of generation and open it up to competitive bidding amongst electricity generators to build the plant. Once the purchaser got the energy, it would resell it to the UK's electricity retailers, who would continue to operate in a competitive market. It's financeable because the single-buyer is a low credit risk.
This would have the impact of gradually phasing out utilties' concerns about their type of generation and energy trading, and in White's mind get them more focused on customer service as they focus on the retail energy business. This would be a radical cultural shift from what White sees as a "utilities build power stations" focus.
Interesting idea, and much easier to implement in places like the US that have regulated utilities than it would be in the UK . White's speech same immediately following a speech from my fellow fellow Demus King, one of Australia's chief energy policy advisors who is as strong an advocate of electricity deregulation as anyone. It was a really interesting and throught-provoking contrast.
White's also a huge fan of changing the utility-customer relationship from utility-person to utility-property...which could open up a boom in energy efficiency investments if the investments are financed via the electricity bill. Michigan's trying to work on a system like this now - which could be a really powerful tool to save people money on their electric bills.
Random Climate Change Policy Concerns
It's been a really, really good week of sessions. I feel very engaged. Hoping to blog a bunch of different things tonight. Forgive me if some of these are over-wonky, I realize I don't explain everything to a non-energy geek like I probably should, but I'm trying to keep this blog as a journal for myself, and find I'm usually short on time.
Two slightly counterintuitive thoughts have been bugging me today...would appreciate any thoughts you guys might have:
1. Conventional wisdom is that the economic downturn is going to reduce greenhouse gas emissions because economic activity (manufacturing, transportation, etc) will slow down, and we'll burn fewer fossil fuels. No one is celebrating that - but it probably is short term fact of life that perversely helps the climate change problem. However, when you combine this fact with another fact of economic life these days - the steady offshoring of manufacturing activity from developed countries (US, Europe) and to low wage developing countries (China, Mexico), I think we have an interesting wrinkle for the upcoming international climate negotiations in Copenhagen. This is pure speculation, but my guess is that if anything the recession/depression might SPEED UP offshoring in the medium turn. Once all these U.S. factories have been turned off or turned down, when the time comes to turn them back on again, I bet it will be much easier to turn them on in China or Mexico. The recession-driven belt-tightening did the dirty work of reducing the sunk costs and transaction costs of laying off the workers, shuttering the factories, etc that often keep U.S. factories running even when labor is cheaper in China or Mexico. This further complicates the essential question that needs to be answered in Copenhagen to get a global climate change deal - what are the emissions reductions burdens that each country should bear? Offshoring perversely makes it easier for countries like the US and UK to meet their emissions targets, while even more rapidly increasing the emissions from countries that powerfully argue that they need to develop their economies out of poverty conditions and therefore need to increase their emissions. If this process is sped up...where do you set the global targets in the shorter terms? And do we still aim to go for a long-term target (say 2050) of every country having the same emissions per capita? Or per unit of GDP?
2. It's also fairly conventional wisdom (if you listen to folks like Tom Friedman or GE CEO Jeff Immelt) that the U.S. failure to regulate carbon and therefore put a price on carbon emissions is resulting in billions of dollars of capital waiting on the bench. Companies don't have a solid market signal, so they don't know what sort of things to invest in. "We have an all star team of engineers and entrepeneurs on the bench, waiting for a carbon price." This certainly makes some sense (though is less true in a credit crisis)...but my concern is what happens if the carbon price that finally gets set is insufficient to drive investment in technologies that combat climate change. The unknown fear of a carbon price is might perversely be a more effective climate change driver than the establishment of a carbon price that's very low. Plans for coal plants, which are huge emitters of greenhouse gases even in their "clean" forms, are being abandoned left and right across the country - partly because of the credit crunch, partly because of problems getting permits, but I think at least partly because of uncertainty about future carbon prices. If we set a carbon price that's too low, however, we might finally have more carbon price certainty and get more capital off the bench for climate-unfriendly investment than all the clean tech solutions we want and need.
Past history in other countries suggests that politicians are really bad at setting strict enough carbon prices - short term pain for long term gain is never an easy (or likely) vote for a politician. In the EU, for example, in order to get a climate policy in place, large emitters of greenhouse gases (utilities, cement and metal manufacturers, airlines, etc) often demand large amounts of free emissions rights, arguing that they'd go out of business or jack their prices otherwise. Many economists think this is a bad idea - they think that all emissions rights should be auctioned so that you actually feel the price of emitting carbon and try to change your behavior. In addition, politicians often don't often set the carbon emissions level (the "cap" part of cap and trade) at a level low enough to have any real impacts, for fear of disturbing existing economic activity (and jobs). But disturbing (and shifting) economic activity is the whole point. It's a tool to shift the economy from a dangerous high carbon economy to a safer low carbon economy. Yes, we'd prefer it to be slowly to allow workers and companies to transition. But being over-careful results in outcomes like the EU's first round of cap and trade - where the carbon price went to zero because there were too many emissions credits in the economy and no one needed to buy them. While I think we need to implement a carbon price, I'm more afraid of implementing a bad carbon price that's too low than not doing anything at all - because the fear of a high carbon price might actually be "working" fairly well right now.
Two slightly counterintuitive thoughts have been bugging me today...would appreciate any thoughts you guys might have:
1. Conventional wisdom is that the economic downturn is going to reduce greenhouse gas emissions because economic activity (manufacturing, transportation, etc) will slow down, and we'll burn fewer fossil fuels. No one is celebrating that - but it probably is short term fact of life that perversely helps the climate change problem. However, when you combine this fact with another fact of economic life these days - the steady offshoring of manufacturing activity from developed countries (US, Europe) and to low wage developing countries (China, Mexico), I think we have an interesting wrinkle for the upcoming international climate negotiations in Copenhagen. This is pure speculation, but my guess is that if anything the recession/depression might SPEED UP offshoring in the medium turn. Once all these U.S. factories have been turned off or turned down, when the time comes to turn them back on again, I bet it will be much easier to turn them on in China or Mexico. The recession-driven belt-tightening did the dirty work of reducing the sunk costs and transaction costs of laying off the workers, shuttering the factories, etc that often keep U.S. factories running even when labor is cheaper in China or Mexico. This further complicates the essential question that needs to be answered in Copenhagen to get a global climate change deal - what are the emissions reductions burdens that each country should bear? Offshoring perversely makes it easier for countries like the US and UK to meet their emissions targets, while even more rapidly increasing the emissions from countries that powerfully argue that they need to develop their economies out of poverty conditions and therefore need to increase their emissions. If this process is sped up...where do you set the global targets in the shorter terms? And do we still aim to go for a long-term target (say 2050) of every country having the same emissions per capita? Or per unit of GDP?
2. It's also fairly conventional wisdom (if you listen to folks like Tom Friedman or GE CEO Jeff Immelt) that the U.S. failure to regulate carbon and therefore put a price on carbon emissions is resulting in billions of dollars of capital waiting on the bench. Companies don't have a solid market signal, so they don't know what sort of things to invest in. "We have an all star team of engineers and entrepeneurs on the bench, waiting for a carbon price." This certainly makes some sense (though is less true in a credit crisis)...but my concern is what happens if the carbon price that finally gets set is insufficient to drive investment in technologies that combat climate change. The unknown fear of a carbon price is might perversely be a more effective climate change driver than the establishment of a carbon price that's very low. Plans for coal plants, which are huge emitters of greenhouse gases even in their "clean" forms, are being abandoned left and right across the country - partly because of the credit crunch, partly because of problems getting permits, but I think at least partly because of uncertainty about future carbon prices. If we set a carbon price that's too low, however, we might finally have more carbon price certainty and get more capital off the bench for climate-unfriendly investment than all the clean tech solutions we want and need.
Past history in other countries suggests that politicians are really bad at setting strict enough carbon prices - short term pain for long term gain is never an easy (or likely) vote for a politician. In the EU, for example, in order to get a climate policy in place, large emitters of greenhouse gases (utilities, cement and metal manufacturers, airlines, etc) often demand large amounts of free emissions rights, arguing that they'd go out of business or jack their prices otherwise. Many economists think this is a bad idea - they think that all emissions rights should be auctioned so that you actually feel the price of emitting carbon and try to change your behavior. In addition, politicians often don't often set the carbon emissions level (the "cap" part of cap and trade) at a level low enough to have any real impacts, for fear of disturbing existing economic activity (and jobs). But disturbing (and shifting) economic activity is the whole point. It's a tool to shift the economy from a dangerous high carbon economy to a safer low carbon economy. Yes, we'd prefer it to be slowly to allow workers and companies to transition. But being over-careful results in outcomes like the EU's first round of cap and trade - where the carbon price went to zero because there were too many emissions credits in the economy and no one needed to buy them. While I think we need to implement a carbon price, I'm more afraid of implementing a bad carbon price that's too low than not doing anything at all - because the fear of a high carbon price might actually be "working" fairly well right now.
Tuesday, February 10, 2009
Landfill Gas and Lord Adair Turner
Last Friday we travelled east along the Firth of Forth (past some of the best links golf country in the world) to Dunbar, where a company called Viridor has a landfill gas project. The landfill is relatively new...about 10 years old. It was built in what was a limestone quarry used by Scotland's only cement factory, a La Farge operation. As of 2003, the EU requires all landfills (new and old) to be capped and capture methane emissions. Methane is a particularly potent greenhouse gas that has a global warming potential of more than 20 times carbon dioxide. So most new landfills (and most old ones too, it seems) are now installing the necessary piping and electric generating engines to produce electricity from this methane they are already capturing. As the EU gets slightly better about recycling and composting organic waste (the UK at least is still miles behind the US in recycling in my opinion so far), however, the waste coming into the landfill starts to produce less methane.
Viridor is also hoping at building an incinerator to burn garbage and produce electricity on this site (which they claim would run at 60% efficiency (much better than most coal plants today) and have clean emissions). They have submitted a planning permit and are meeting with some local opposition. This incinerator would currently qualify for renewable obligation certificates (their version of REC's for their renewable obligation), though the way he answered my question suggested to me that this might change in the future. When I asked if they were considering gasification, he said they looked it at, but it wasn't yet "bankable." (meaning it was not a proven enough technology that banks would consider making loans to finance the capital costs of installation).
Yesterday, we attended a speech by Lord Adair Turner, the chair of both the UK's Financial Services Authority (bank regulator) and the UK's Climate Change Committee, a recently created entity meant to serve as a non-partisan government advisory board on climate change. The event also included a speech by Jacqueline McGlade, the executive director of the European Environment Agency, which seems to provide impartial information and support to the EU and member country environment agencies. They broadly discussed the significant threat of climate change the the challenges for governments to mitigate climate change. Turner explained how the committee came up with the UK's 80% greenhouse gas reduction goal (essentially they tried to estimate where the world needed to be by 2050 to avoid dangerous climate change and come up with Britain's projected per capita share of total world emissions). While the goal is massive, the committee estimated it could be accomplished at cost of only 1-2% of total UK GDP (cashing in on savings from efficiency, shifting behavior at no cost to GDP, and realizing that energy costs are only a small portion of the UK's overall GDP). McEwan Hall, a magnificant hall built by a local brewer to host the university commencement ceremonies, was a great setting for the event.
La Farge Cement Factory
Active landfill operations
Sealed landfill with gas pumps and pipes
Pipes taking the gas into the electricity generating shed.
Trained Falcons who chase off seagulls.
Fellow fellows before the lecture.
McEwan Hall shots
Ceiling
More McEwan
Viridor is also hoping at building an incinerator to burn garbage and produce electricity on this site (which they claim would run at 60% efficiency (much better than most coal plants today) and have clean emissions). They have submitted a planning permit and are meeting with some local opposition. This incinerator would currently qualify for renewable obligation certificates (their version of REC's for their renewable obligation), though the way he answered my question suggested to me that this might change in the future. When I asked if they were considering gasification, he said they looked it at, but it wasn't yet "bankable." (meaning it was not a proven enough technology that banks would consider making loans to finance the capital costs of installation).
Yesterday, we attended a speech by Lord Adair Turner, the chair of both the UK's Financial Services Authority (bank regulator) and the UK's Climate Change Committee, a recently created entity meant to serve as a non-partisan government advisory board on climate change. The event also included a speech by Jacqueline McGlade, the executive director of the European Environment Agency, which seems to provide impartial information and support to the EU and member country environment agencies. They broadly discussed the significant threat of climate change the the challenges for governments to mitigate climate change. Turner explained how the committee came up with the UK's 80% greenhouse gas reduction goal (essentially they tried to estimate where the world needed to be by 2050 to avoid dangerous climate change and come up with Britain's projected per capita share of total world emissions). While the goal is massive, the committee estimated it could be accomplished at cost of only 1-2% of total UK GDP (cashing in on savings from efficiency, shifting behavior at no cost to GDP, and realizing that energy costs are only a small portion of the UK's overall GDP). McEwan Hall, a magnificant hall built by a local brewer to host the university commencement ceremonies, was a great setting for the event.
La Farge Cement Factory
Active landfill operations
Sealed landfill with gas pumps and pipes
Pipes taking the gas into the electricity generating shed.
Trained Falcons who chase off seagulls.
Fellow fellows before the lecture.
McEwan Hall shots
Ceiling
More McEwan
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