Shale Gas: The Black Revolution

Introduction

In the last 40 years, important changes were occurred in the traditional scenario of the energy sources. First, the crisis of petroleum in 1973 was the first warning about the problems of fossil fuels. More closely, the important economic development prior to 2008 pushed the markets of energy resources due to the growing demand. With traditional sources of energy as oil, gas and coal raising prices, alternatives sources which were unprofitable before, started to seem more attractive. Also, the dependency of the developed countries on the resources of foreign countries, many of them not very trustable, converted the issue in terms of national security.

Among these alternative sources, renewables, especially wind and solar, have been the main character of the play. Not absolutely new, since they had a little bright in the 80’s, now they have experienced a very strong development worldwide. A new industry has been created only five years ago. The benefits of the renewables are tremendously obvious. They do not consume fuels susceptible to expire to get energy from nature, and they almost do not affect the environment, do not pumping CO2 or other gases into the atmosphere or compromise any region with nuclear risks. On the other hand, these technologies are still not cheap enough to compete with the conventional sources. The price of energy is a key variable in the economic growth and any country try to keep it low for achieving more competitiveness and more economic expansion.

But these efforts in finding alternatives to traditional sources, also has applied to investigation in fossil fuels. Since the end of the 19th century, it is known that there are fuels buried into the ground which are not in the conventional geologic formations. These fuels are in structures which permeability is very poor to make the normal drilling process profitable. They are called non-conventional fossil fuels. Many research resources have been expended in investigating new techniques or technologies to get these fuels from earth in a profitable way. Now, it seems that it has been achieved.

These difficult geologic formations, which until very recent years were unprofitable, have different names as shales, tights or sands. From them, currently gas natural and oil are being obtained, and because of its origin, they receive the nickname of shale gas, tight gas or shale oil. At present, the most important one is the Shale Gas, because there are huge reserves of natural gas in shales and because this last 5 years the production of Shale Gas has shooted up. The raise of these new sources of fossil fuels is being named for some people as, ‘The Black Revolution’.

In this paper, it is going to analyze why the Shale Gas is so important in the new era of energy, what are the important environmental and social issues of its production and what can we expect in the evolution of the energy mix in the US and worldwide.

What is the Shale Gas?

As it has been introduced, Shale Gas refers to natural gas that is trapped within shale formations. Shales are fine-grained sedimentary rocks that can be rich sources of petroleum and natural gas and whose porosity and structure does not permit to get the fuels with the traditional ways.

The advent of large-scale Shale Gas production did not occur until Mitchell Energy and Development Corporation experimented during the 1980s and 1990s to make deep Shale Gas production a commercial reality in the Barnett Shale in North-Central Texas. They used a combination of techniques invented for other purposes, the horizontal drilling in conjunction with hydraulic fracturing.

 Extraccion del Shale Gas

As it can be viewed in the figure, natural gas is incorporated into the Shale Gas formation, not is in a bag as conventional gas. Moreover, shales are ordered in horizontal layers. Conventional drilling is totally useless in these formations. The new drilling technique consists of:

  1. A vertical well is drilled
  2. The drill turns to continue horizontally. In this manner, the horizontal drilling permits to make a hole along the shale
  3. Water, lots of chemicals and sand are pumped into the well to unlock the hydrocarbons trapped in shale formations by opening cracks (fractures) in the rock and allowing natural gas to flow from the shale into the well.

As the success of Mitchell Energy and Development became apparent, other companies aggressively entered the play, so that by 2005, the Barnett Shale alone was producing nearly 0.5 trillion cubic feet of natural gas per year. As producers gained confidence in the ability to produce natural gas profitably in the Barnett Shale, with confirmation provided by results from the Fayetteville Shale in Arkansas, they began pursuing other shale plays, including Haynesville, Marcellus, Woodford, Eagle Ford, and others.

Economic vitality

Although Shale Gas production started ten years ago, only in the past 5 years has been recognized as a “game changer” for the U.S. natural gas market. The proliferation of activity into new shale plays has increased dry shale gas production in the United States from 1.0 trillion cubic feet in 2006 to 4.8 trillion cubic feet, or 23 percent of total U.S. dry natural gas production, in 2010. Wet shale gas reserves increased to about 60.64 trillion cubic feet by year-end 2009, when they comprised about 21 percent of overall U.S. natural gas reserves, now at the highest level since 1971. Oil production from shale plays, notably the Bakken Shale in North Dakota and Montana, has also grown rapidly in recent years.

Something is considered as a ‘game changer’ if it has the ability to change the price of good. That has happened in the case of the Shale Gas.

As you can see in the figure on the left, due to the more offer of gas natural in the market, and also the contraction of the demand, the price of natural gas has dramatically fallen down between 2005 and 2010. Moreover, the projection shows that thanks to the influence of the Shale Gas, the evolution of the prices (blue line) will be below the prior projections which did not considered the new gas. That has huge implications in energy markets. For example, less natural gas prices imply less electricity prices and more difficulties to renewables to achieve grid parity.

To better understand the importance of this new source of gas, let compare it with the actual figures of the natural gas market in the US. Of the total natural gas consumed in the United States in 2009, 87% was produced domestically; thus, the supply of natural gas is not as dependent on foreign producers as is the supply of crude oil (only 51% domestic), and the delivery system is less subject to interruption. The availability of large quantities of Shale Gas will further allow the United States to consume a predominantly domestic supply of gas.

According to the EIA Annual Energy Outlook 2011, the United States possesses 2,543 trillion cubic feet (Tcf) of potential natural gas resources. Natural gas from shale resources, considered uneconomical just a few years ago, accounts for 862 Tcf of this resource estimate, more than double the estimate published last year. At the 2010 rate of U.S. consumption (about 24.1 Tcf per year), 2,543 Tcf of natural gas is enough to supply over 100 years of use. Shale Gas resource and production estimates increased significantly between the 2010 and 2011 Outlook reports and are likely to increase further in the future. The Shale Gas represents about 37 years of supply considering the US consumption of 2009.

Reservas de Shale Gas de EEUU

The US plays of Shale Gas are spread around the country but there are some formation especially important located in Barnett shale (Texas), Bakken Shale (North Dakota and Montana), and the most important is Marcellus Shale (Pensilvania, New York and others).

The Shale Gas is being extracted in rural zones, and that is causing important changes in these villages. There are some important environmental implications, due to the extraction of Shale Gas is not perfect and can affect aquifers. Moreover, the social equity in the villages is changing since the owners of the lands where the gas is extracted are earning much money for royalties they had imagined feeding cows and growing plants.

Ecological Health

Local effects

The extraction of Shale Gas is not as simple as it was presented above. As many industrial activities, important bad externalities are generated. The amounts of water and chemicals pumped for the hydraulic fracturing are huge. Drilling a typical deep shale natural gas and oil well requires between 65,000 and 600,000 gallons of water. Not only the consumption of tons of water is something to be considered from an environmental position, also the composition of the chemicals is important. The problem is that the actual composition has not been revealed because is considered an industrial secret. About a 2% of the mixture is chemicals. They are crucial for the Shale Gas extraction and include acids, anti-bacterial agents, breakers, clay stabilizers, corrosion inhibitor, crosslinker, friction reducers, gelling agents, iron controls, pH adjusting agents, and scale inhibitors, between others.

The huge amount waste water of the process, full of chemicals, sand and muddy has to be treated. Analysis performed to this waste water shows that it contains some components that are carcinogenic and even nuclear radioactive. The treatment of this water is done in the States with the more lax regulation. Many of them do not have equipment to remove these chemicals out of the water, which is pumped in rivers. Nobody knows what will be the effects of these chemicals in the environment in a long term, because this new type of extraction is almost new.

But maybe, this is not the worst problem. When the drill punches the land, in many cases, some of the layers crossed are aquifers. In some places of Pennsylvania and other States, the tap water has been contaminated by the waste water and even by the gas. The problem was shown in the documentary ‘Gasland’ by Josh Fox, where it is possible to see incredible images of taps running with flammable water. Also, it presents some cases of people living near the drills with terrible and strange diseases, animals dead, bad water contamination and other health issues. A ‘silent law’ seems to be happening because many people of these farms are earning lots of money with the royalties of the gas and also they have disclosure contracts with the drilling companies.

As named above, the Shale Gas production started in Texas ten years ago. I had the opportunity to speak in October 2010 with Keith Sheedy, Chief Engineer’s Office from the Texas Commission on Environmental Quality. He basically explained that in Texas, no water contamination have occurred in this ten years of commercial exploitation. The cases of Pennsylvania are due to bad practises in the drilling process. When the hole is not properly cemented, then some of the gas running through the hole can pass to aquifers and contaminate the tap water.

Anyway, drilling has been doing for decades in similar industries, so regulations should have existed about water uses and disposal, but why is not the Shale Gas drilling regulated by environmental rules as the rest of industrial activity? Because, The Congress, pushed by Vice President Dick Cheney, exempted gas drilling from EPA Clean Water Act regulations in 2005. It is something curious that Cheney was former CEO of the Halliburton Company, one of the biggest driller and Shale Gas extractor in the US. After 2005, Shale Gas drilling boomed.

There are other collateral effects in Shale Gas extraction. Fracturing is changing the structure of the geologic formations. In the drilling zones some earthquakes has been occurred in recent years, and the seismic activity is above the average. In addition, the great amount of water used, generates large truck traffic to this normally quiet populations.

Global effects

The global effects of the boom of Shale Gas are similar to the rest of fossil fuels usage. As fossil fuel, CO2 are generated in its combustion. The CO2 is a greenhouse gas that contributes to the global warming, which diverse effects in the environment. Even, during the Shale Gas extraction, many other greenhouse gases, more powerful, as CH4, are liberated due to bad practises in the drills and the lack of regulation.

Moreover, it is an exhaustible fuel. That means that there will be a day when there will not be more.

The usage of fossil fuels generates strong externalities for the rest of the world, and they are not incorporated in the cost of its use. As indirect effect, the boom of the natural gas or the reduction of its price is bad for renewable energy because is a substitutive product. As lower is the price of fossil fuel generation, more difficult is for renewables to achieve grid parity and be competitive by their own.

At the end, the more usage of natural gas, despite is greener as other fossil fuels as coal or oil, address our world to a very tough scenario, with a society dependant of scarce fuels and an earth that had suffered non-return changes in its ecosystem.

Social Equity

In the past five years, many drills have been done. In the next figure it is possible to see the evolution of the Shale Gas drills (red spots) in the Barnett shale during the last decade.

 

The economic benefits for the owners of the land have been important. Signing its gas lease about $1,000 per acre and a royalties of 12.5% for the gas produced, can make them to earn between $1,500 and more than $500,000 per year during the term of the extraction, which can last some years. This is much money for people used to feeding cows and growing plants for fringe benefits.

This disparity of earnings is generating some social equity problems within farmers but more between ‘county folk and city people’. The city people are not earning anything with the drilling but they suffer the problems of water contamination, truck traffic and risks from the unknown effects of the activity. They are against drilling but farmers, in general, are in favor of it. Disputes are increasing in these, up to now, calm and little populations.

A good impact of the drilling activity is the job creation. According to a recent study by Pennsylvania State University, the industry has created 23,000 jobs, including employment for roustabouts, construction workers, helicopter pilots, sign makers, Laundromat workers, electricians, caterers, chambermaids, office workers, water haulers and land surveyors.

Another controversial topic is the unequal tax policies to the drilling activity. Currently, companies operating in Pennsylvania pay no tax to extract gas. (Governor Tom Corbett reportedly received at least $1 million in campaign donations from gas interests). Corbett recently introduced legislation that would levy fees that critics say would amount to a tax of 1% per well on gas extraction, significantly lower than Arkansas (3.45%) and Texas (5.4%). It is not very fair to tax differently the activity between States, since the basins extends along vast territories of different States and the problems of the activity are affecting people in the same way.

Conclusions: my personal vision

An important change in the energy world is happening. The important economic implications of the availability of domestic natural gas are something to be considered for any country. The US has been the first country to exploit the benefits of the Shale Gas, but it is expanding through the world. You can see in the next figure the worldwide reserves.

 

The new distribution of the sources of energy changes the game of power. No dependency from Middle East could be a fact that changes the course of international policy.

Apart of the good benefits from the economic point of view, there are other aspects in the sustainability analysis that have to be considered. The local effects on the environment are not trivial. Public health and environment ecosystem is endangered. Nobody knows what will be the effects of the chemicals used for extraction in the long term but, my impression is that many companies are working as fast as they can to get the maximum amount of gas before the effects will be public. Responsibility from the Government must be priority to avoid this, but as another market failure, the current democracy system permits the regulator be supported by the companies which he has to regulate.

At a local scale, the social problems of inequity will convert stronger in future years. Ronald Coase, a famous economist, states that if trade in an externality is possible and there are no transactions costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights. In this case, this bargaining is not happening and that will push unfortunate people to fight for its rights.

From a global sustainability point of view, the raise of the fossil fuels has huge impact on the world. If the fossil fuels come to be cheap again, the efforts in renewables will stop and we will experience something similar to the 80’s, when the first renewable plants were built and no more were set up until 20 years later. At the end, it is to delay the inevitable, but in a worse scenario. We will have a warmer earth, more population and more bubble, because we have been growing with more energy than we can produce in our present time.

In a more practical way, the implications for the US energy mix or the electricity energy mix are obvious. The current 45% of coal will be substitute by gas, cleaner and not much more expensive now. If you see the predictions of new electrical capacity added from EIA, you can figure out:

 

 After knowing more about the Shale Gas, I understand better the words by President Obama during the State of the Union discuss in 2011, when he claims for a new goal for America’s energy future, saying 80 percent of electricity should come from clean energy sources by 2035. He considers clean, among others, wind, solar, nuclear and natural gas. 

References

 

Energy Information Administration (EIA): www.eia.gov

Josh Fox, Gasland, the movie: www.gaslandthemovie.com

The Economist, ‘We will frack you’ November 22, 2011: www.economist.com

Chesapeake, Hydraulic Fracturing Facts: www.hydraulicfracturing.com

New York Times, ‘The Fracturing of Pennsylvania’ November 17, 2011: www.nytimes.com

 

Minimizing externalities

The electricity generation has important externalities issues. An externality happens when the price of a good doesn’t reflect all the costs that are generated in its manufacturing. That is because some of affections of the product manufacturing has no cost for the company because the price is zero, for instance, there are no price for the clean air or for a not-nuclear-risky generation. In the electrical generation, the product is very homogenous: electrical energy, measured in kWh. But, obviously, it is not the same for the planet how you obtain this energy. But the market, the wholesale market by own, doesn’t reflects all of these affections. So, in electricity markets, both negative externalities and positive externalities happen at the same time. In these two pages, I will analyze the two most popular methods of internalizing the benefits of the positive externalities of the renewable generation: Feed-in Tariffs (FiT) and Renewable Portfolio Standards (RPS), and I will focus on two country examples: Spain (FiT) and the US (RPS). There are also methods for internalize the negative externalities as the carbon cap and trade for CO2 emissions, but I will not consider them in this article.

So, the promotion of the renewable energy, as solar, wind or biomass, is an issue of how to internalize their positive externalities into the market. These benefits are well known. The clean or renewable energies, do not pollute, do not contribute to climate change, do not imply resources depletion, do generate local employment, do promote the national industry, do improve the energetic independence, and more. All of these benefits are not include in the Levelized Cost of Energy (LCOE) or the price of the electricity. Because of that, these technologies are not competing in the same conditions as the conventional generation. That makes that the price of them is above the average price of the electricity in wholesale market, and as a consequence, the utilities do not want to build this expansive plants or to purchase expensive energy to others. This is because the benefits of the renewable energy do not go to them, but to society. That is a market failure and that is because they need the regulation or the support from the Government.

In a market, even the Government can not control the quantity and the price of a product at the same time. If you fix the price for the renewable generation (as FiT does) you do not know what will be the amount of renewable generation that you will obtain. The same, if you fix the quantity you want (as RPS does); you do not know what will be the price for this generation. The price plus the quantity is the key point, because that will be the cost for the electricity customers who are also your voters. So you have to be careful with that because otherwise you can make your citizens to pay so much for the electricity if the price plus the quantity is too high or you can make them not to gain the benefits of renewals if the renewals were not developed due to low prices which do not make the investments profitable. The two methods are good if they are well designed, but that is not the common case.

The Feed-in Tariffs
In the Feed-in Tariffs option, the government decides what will be the price of the renewable generation. That has enormous advantages for developing the market because it is very easy for developers, investors and financial institutions to know what will be their retribution and the Internal Rate of Return (IRR) for their investments. It is easy to calculate the IRR and if the FiT is well calculated -the price will be a bit more than the cost of capital- then the development of renewable is smoothly and a reasonable cost for ratepayers, being the society awarded with the benefits of clean generation.
Spain has become a power in renewals thanks to FiT. The government support has been very strong and determined. Spain has been successful implementing some FiTs, for instance in the case of wind, but has made huge mistakes in solar PV. Spain started to use FiTs in 2000, and ten year later, the 35% of the total generation is using renewals (2010).

In the following graph you can see the average cost of electricity in the wholesale market (black line), the LCOE of wind power (blue line) and the FiT (yellow and red line). As long as the FiT is above the cost, the investment is interesting. This FiT was well calculated to make the investor obtain a 5-7% IRR.

Spanish Fit in wind

In the following graph you can see the objective in wind (red bars) and the actual development (blue bars). As you can see, the development has been constant and progressive.

Spanish wind development vs objective

That is the successful example. But what did it happen in solar? In the following graph you can see the average cost of electricity in the wholesale market (black line), the LCOE of solar power (red line) and the FiT (yellow line). As you can see, the FiT was much more than the cost, so the investors obtained more than 11% IRR.

Spanish Fit in solar PV

What was the result? An over investment in solar PV power. Government wanted 400MW and they obtain more than 3,000MW. That implied a huge cost for citizens, and, as a result, the FiT has been reduced dramatically.

Spanish solar PV development vs objective

Renewable Portfolio Standards
With this method, the Government fixes the quantity of renewable generation that it wants, but not the price. That makes that the developer, the investor, and the most important, the financial institution that is going to put the money on the table, they do not know what will be their IRR before they start to promote a plant. So they have to deal with a lot of risk if they want to build a renewable plant. That is crucial, because at the end, the development of the renewals results too slowly.

You can see the example of the US. The US was the first country in building renewable plants in the 80’s, but now, only the 10% of the total generation is renewable (being 7% big hydro). So they have thirty years of expertise in renewable and only 10% as a result.

The US uses the RPS. That is an objective that some states try to achieve. For example, California has a RPS of 33% renewable in 2020. This objective becomes an obligation for the utilities, which have to provide a 33% of their portfolio using renewals.

Not bad, but then why have they achieved so few renewable generation up to now? Because two things: first of all, they make auctions to know the price of generation (trough Request for Proposals) and due to the competition, many of the bidders offers a price below the real cost, thinking that when they will build the plants, the technological development will made the cost reduced. But that not happened, and now there are a lot of projects that will not be ever built because the developers offered a very low price. Second, because, in fact, the utilities are not penalized if they do not comply with the RPS. So they do not have real incentives to buy more expensive energy that will make their ratepayers to pay more. As a result, the real price of renewals is not revealed.

Conclusions
We have seen to examples of trying to internalize a positive externality. But it is not easy because it is extremely difficult for a legislator to put a price for all of these things that are not in the market. Nevertheless, from the errors, we learn, so, these experiences will improve Government thinking. Benchmarking is also good thing to do for legislators to learn from the errors of the neighbours.

Ecological Footprint Branding

The other day I was taking my class about Sustainability in my Certificate at UCLA. During the class, many topics were discussed. One of the things that amazed the most the class is the amount of trash which is generated by developed countries citizens, specially americans. Every 15 seconds, 60,000 plastic bags are consumed in the US, 2,000,000 plastic bottles every hour and about half a millon cell phones every day. So, the figures are amazing.

Only the 1% of the total material that the customers buy, remains for a long, the rest is waste, specially packing. For every pound of product destinated to sell, 15 pounds of trash are generated. So, you can imagine how sustainable we are.

Ecological footprint branding

That made me to have an a idea. All of these figures probably are striking for everybody, and the problem of the overconsumption is a behavioral problem, so Why do not educate people about how are they consuming? It would be so easy as requiring by law that all the products have a sticker with their ecological footprint. Imagine a steak with the information of how many water is necesary to produce it, how many CO2 has been pumped and how waste has been produced in its manufacturing. That will do customers to be aware about what effects are they producing in the environment, and also it will push companies to be more sustainable since they will compete to improve their green marketing.

If you are interested in how our loose regulation is destroying the planet, I recommend this smart video:

RFP, las cartas sobre la mesa

Las politicas de promoción de las energías renovables son un caso muy interesante de estudiar desde el punto de vista económico. ¿Como internalizar las ventajas sociales que implican de forma adecuada? En España y en Europa, las feed-in tariffs han sido la estrella estos últimos años, pero los gobiernos han aprendido que pueden ser peligrosas. Un ejemplo claro es el español con la fotovoltaica, en el que un error (no de cálculo, sino político) en el precio de generación fotovoltaico o prima, provocó una sobreinversión sin precedentes. El gobierno, que confió en las previsiones de las asociaciones fotovoltaicas (que iluso), más algunas triquiñuelas de pasillos y despachos (el actual ministro tiene mucho que ver cuando estaba en la oficina económica), puso un precio muy por encima del coste real de generación, y de 400MW que buscaba, consiguió más de 3.000MW en un año. En otras palabras, murió de éxito. Tampoco vamos a hacer sangre del árbol caído, porque después llegaron Italia, Francia y Rep Checa y cometieron el mismo error, y encima con el precedente español.
Claro esto es fácil de decir ahora a posteriori, pero no me hubiera gustado estar en la piel del funcionario o político que tuvo que decidir la tarifa para los siguientes años. ¿Cómo asignar el precio, sin datos de los costes reales? Porque los costes, de saberlos, los sabrían las empresas promotoras y los epecistas, y si acaso, porque ¿cómo saber lo que va a costar algo que nunca se ha hecho?. En fin, no es fácil poner una feed-in tariff.
Por ello los americanos, que de competir saben mucho más que nosotros, emplean otro método, el de los Renewable Portfolio Standard, forzando, sin mucha fuerza por cierto, a las utilities a servir a sus clientes un porcentaje de generación renovable. Y como Poncio Pilatos se lavan las manos, la pelota para el tejado de la utility que tiene que fijar los precios que va a pagar.
Las utilities, que por cierto, actuan como monopolistas con los clientes y como monopsonistas cuando compran energía (muchos vendedores y un solo comprador), hacen una subasta para comprar energía renovable. Como cuervos a un pastel acuden todos los developers y ponen sus precios, tanto ajustan que incluso ofertan por debajo del coste actual, pensando que quizás en un par de años, cuando construyan el proyecto, los precios habrán bajado. Ello ha dado lugar a un montón de ofertas temerarias y PPAs firmados que no se van a realizar nunca, una situación que ‘nadie’ quiere (si obviamos la hipocresia política). Estas subastas son las llamadas Request for Proposal o RFP.
Sin embargo, la estrategia ultimamente esta siendo un poco distinta. Las utilities hacen RFP pero sólo por una pequeña parte de la capacidad que quieren comprar, digamos 50MW y después por otro lado, firman PPA bilaterales con las empresas por valor de muchos más MWs. ¿Que curiosa estrategia no? gastarse un dineral en consultores y hacer un proceso tedioso y largo de RFP para sólo firmar pocos MW en PPA y luego firmar muchos más bilateralmente.
Está claro lo que hacen, más sabe la utility por vieja que por utility. Con el RFP consiguen una referencia de precio más o menos ajustada a la realidad, ya que casi el resultado de la subasta es el propio coste con algo o nada de margen. Con esa referencia, saben cuánto le tienen que pagar al developer serio con el firman un bilateral por cientos de megas, sin pagar de más por ello y con la garantía de que al ser rentable para el developer, el proyecto se va a acabar realizando.
Asi que nota para el próximo Secretario de Energia, (el que tenemos poco va a durar, aunque espero conocerle personalmente en Octubre), feed-in tariffs sí, pero el precio que lo ponga una subasta competitiva por una pequeña parte de la capacidad. Eviten lobbyes y colusión y tendrán un desarrollo renovable sostenible.

Blowing hard at WindPower 2011

Windpower 2011 took place this week at Anaheim, California. There were all the people related with wind: developers look for investment opportunities, turbin manufacturers trying to sell their wind mills to developers, component suppliers trying to sell to turbine manufactures, economic develop. agencies looking for developers and some crazy inventors with the most incredible gadgets in wind power generation.
We exploited the occasion for improving our knowledge about US market and networking with the best. The most interesting meeting was with Oklahoma folks. We had the opportunity to know the Governor, Mary Fallin and chat with her and with her team. From the Spanish side, they were Dan Foley (CEO of Acciona), Martin Mugica (CEO of Iberdrola Renewables), Alfred Ritcher (Director at Gamesa), Javier San Miguel (Director at Cener), Aitor Sotes (CEO of Ingeteam) and my good friend Aitor Eizmendi (Business Developer of Sisener).
Oklahoma wind power
Oklahoma is supposed to be one the most interesting states to develop wind power. Its wind resource is very high (it is in the wind belt) and belongs to the eastern grid connection, (unlike the independat Texas, who belong to ERCOT). This is because Acciona has built a wind farm there and the rest of the companies are interested in it. However, they had the same problem that many other states in the US: a low inside consumption due to the low population and a lack of capacity in transmission lines to export the electricity to great places of consumption. We explained to the gently Governor the solution we made for dealing with the same problem in Spain. We showed the changes we did in order to deregulate the sector (not socialize the cost, ;-)) and to establish the new Red Electrica de España (REE) as the independent owner of the transmission lines and the system operator. I hope they appreciated our knowledge in the matter and we had opened a new way to solve the endemic trouble.

We also arranged a meeting with Kansas, Arkansas and Missouri, to explore the same business opportunities in wind power generation. The four states are neighbours and I imagine they want to follow the sucess way of Texas (with the 26% of wind power capacity in the US). Nevertheless, it is important to take into account thet the electricity regulation in Texas is totally different from the rest of the US. They have a liberalized market and a high consumption. It is important to transmit the message to Governors, regulators and economic development folks that without the correct regulation, it is very difficult to develop the sweet renewables.

Missouri meeting at Windpower

Arkansas meeting at Windpower

Apart of this, the exhibition had few people that the prior year and the sense of the market is that is a bit stopped and probably will continue like in the short run, due to  the fall out of cash grants at the end of the year, as everybody expect about.

Nevada: el barrio rojo de California

Los pasados días 5 y 6 de Mayo fuimos a visitar Nevada en viaje oficial con el objetivo de explorar el Estado y buscar oportunidades de desarrollo de proyectos renovables. Nevada es muy conocido sobre todo por Las Vegas, que es como el gran parque de atracciones de California. La moralidad aquí es extraña: California es uno de los estados más “progres” del pais pero hay ciertas cosas prohibidas como el juego, el alcohol a partir de las 2:00AM y en la calle y el topless. Y Nevada, estado interior y muy conservador-republicano en general, permite todas las cosas anteriores y además todo ello concentrado en un sitio único como es Las Vegas. Los angelinos van a Vegas como los madrileños vamos a la playa en verano y de forma similar, a adentranos en el terreno de las cosas prohibidas, y de ahí el dicho “whatever happend in Vegas remain in Vegas”.

En el terreno energético, es otro estado que merodea a California como un niño alrededor de un pastel (o como un buitre alrededor de una presa). La población de Nevada es casi de 3 millones de personas, aunque anualmente tiene más de 40 millones de turistas. Por ello su consumo eléctrico es peculiar, bajo consumo medio pero gran variabilidad; una mala situación para las caprichosas renovables, que tienden a producir cuando quieren, pese a los esfuerzos en almacenamiento de algunas. Ello sumado a un exceso de capacidad de generación, en tiempos de recesión con demandas poco crecientes, hace que vean a las renovables como algo no para ellos. Su idea, es convertirse en productores y exportar la electricidad al devorador California. Y aquí topamos de nuevo con el problema de US: la falta de capacidad de transmisión y un mercado monopolistico. Y ninguno de los personajes de esta pelicula parece que sea el resposable. Hablamos con la Public Utility Commission, para ellos su preocupación es el consumidor (que vota a los Commissioners) y al que han de mimar y no subir los precios de las tarifas electricas. Hablamos con NVEnergy, principal utility del Estado, ellos encantados de hacer nuevas lineas, siempre que alguien se las pague claro…Hablamos también con la oficina del gobernador y con las agencias de desarrollo económico, para ellos las renovables están muy bien, sobre todo por los trabajos que generan (la obsesión americana, a ver si aprendemos en España) y la riqueza que atrae, pero claro las líneas électricas son de una empresa privada, y ellos no deben inmiscluirse en decisiones privadas y de ¿libre? mercado.

Commissioner Varela

Con el recien nombrado Commissioner Valera

Visita al estado de Nevada

Todos con los agradables y sabios representantes del condado de Nye (más John Wayne)

Representates de NVEnergy

NVEnergy folks

Las malas lenguas dicen, que además con la fusión entre Nevada Power y Sierra Pacific, cuyo hijo es NVEnergy, la situación va a ser incluso peor. Ahora ambas utilities han fusionado también sus objetivos de RPS y Sierra Pacific tiene viento en el norte, más barato que el sol, asi que la previsión es de un parón a corto plazo en Nevada. Una pena para un Estado donde renació la CSP con Nevada Solar One, y donde les gusta apostar… o mejor que otros apuesten y ellos llevarse la caja?

Trip to Arizona

On February 1st and 2nd, I traveled to Arizona to meet the main agencies and key players of the State related with Energy. Six spanish companies came with us, and the trip was very interesting since this State is supposed to convert itself in one of the leaders in renewables in US.

We met the following agencies and companies:

  • Arizona Commerce Authority
  • City of Phoenix
  • Salt River Project (Utility)
  • Greater Phoenix Economic Council
  • Carbon Free Technologies (PV Developer)
  • Quarles & Brady (Attorneys)
  • Arizona Public Service (Utility)

We stayed in Phoenix, and one the most striking thing for me was thet this city is actually the 5º city in the US. And it is growing up very faster also¡. So we can expect a growing electricity consumption in a short future. Also it is close to a really big energy consumer: California. So by the side of the energy demand, we can say it is a good place for develop projects.

What about the offer side? Arizona is the best place in US in solar resource. One of the things we forget in Europe, it is that in renewables, the main factor is the resource. (In Spain you can see PV plants in the cloudy north or even Germany-not sunny indeed- ¡weird¡). In addition, the cost of the land is lower than California and the permiting proccess is pretty simple. Nevertherless, they suffer the same problem than I have seen in the southwest: a lack in transsmission capacity and a monopolistic market organization. It is something to think about it.