Sunday, November 16, 2014

Future Japan Electricity Demand Will Decline -- the Komatsu Example (Manufacturing)

Komatsu is a great example of a Japanese company that plays on the world stage.  In recent years over 80% of its sales are outside Japan.  But it is still a Japanese company, and still makes many of its core products -- such as the engines that go in most of its machines -- within Japan.  So it was subject to impact from high electricity costs and limited supply following the 2011 Fukushima accident and reactor shutdown.  Indeed, it must be companies like this that are the reason Japan needs to restart its nuclear fleet and build new coal generation plants.  It must be companies like this that are complaining about the high cost renewables, right?

Well, not exactly.

Komatsu is taking control of its own destiny, just as are many other large users.

In 2011, after the Fukushima accident, the then-President of Komatsu, Mr. Noji, set a goal for the company to reduce its electricity purchasing in Japan by 50% over 5 years.  And the idea was not to do so by shuttering facilities and shifting production overseas -- an obvious big corporate reaction when faced with such a challenge.  It also was NOT to conserve energy by "gaman" -- suffering through sweltering summer workplaces and freezing cold winter offices -- but if anything to improve comfort while conserving.

In March 2014, the company opened a renovated facility at its plant in Azawa, Ishikawa Prefecture. The plant's energy conservation features are shown at pages 29-33 of the current Komatsu English language annual report, downloadable here.

How much did the plant cut its electricity purchases as compared with the prior facility?

90%.  That is right, NINETY PERCENT.  Not 9% or 19%.  90%.

This was done by a combination of
(1) building and production facility design and layout improvements,
(2) better (insulating) building materials,
(3) cooling via ground water circulation,
(4) more efficient machinery (including recapture of energy in the same way that some autos now include regenerative braking),
(4) waste heat recovery, and
(5) a new, adjacent biomass plant that generates 40% of the facility's power needs.

Of course, Item (5) is not a conservation method, just distributed generation.  But it does shift the demand away from the utilities and big generation.  And it helps create a market for local forestry resources.

I heard Mr. Noji, now the Chairman of Komatsu, speak about this at an event last week.  A senior executive from Toshiba spoke up soon after, noting that Toshiba semiconductor fabs consume a huge amount of electricity, and that Toshiba had managed to cut use "only" 36% at its new major domestic fab.

These major Japanese corporations compete globally.  They will find a way.  And that way will NOT pay a huge markup over the costs their competitors face for power generated by the utilities in Japan.

If Japan's corporate sector can do this, who will buy the extra electricity generated once new coal plants are built and nuclear plants are restarted?

Now if only Japan would capture the "low hanging fruit" in its residential and commercial building sector -- higher standards (and consumer incentives) for insulation and double/triple glazed windows, for example.

According to the June 2014 BP Statistical Review of World Energy, Japan's primary energy consumption fell from 531.4 million tonnes of oil equivalent in 2005 to 474 million tonnes of oil equivalent in 2013.  Down 11% over 8 years.  Given demographic trends, and actions of the corporate sector, the smart money would be on further future declines in consumption.

(Note:  Large manufacturing facilities are already subject to exemption from the FIT surcharge.  So this energy conservation drive is not part of some effort to avoid the costs of solar and its FIT surcharges).

Friday, November 14, 2014

Final Nuclear Storage -- U.S. and Japanese Switch Policy Approaches

One of the long standing questions with nuclear power generation is -- where will the waste be stored for the tens of hundreds of thousands of years until it becomes harmless?

This policy issue has both a technical and a political aspect.

USA OLD POLICY.  In the U.S., the long-preferred site was Yucca Mountain, Nevada, where the geological features apparently give an excellent prospect for the required very-long-term stability.  The Federal government long ago began promoting the site for these reasons, as reflected in many U.S. policies.  Unfortunately, the State of Nevada and its residents were not asked first, and they have not been particularly welcoming.  And then the senior Senator from Nevada, Harry Reid, became Senate Majority Leader, and following the election of President Obama in 2008 he obtained the appointment of one of his Nevada proteges as head of the U.S. Nuclear Regulatory Commission.  All this was not so positive for the idea of using Yucca Mountain as a permanent waste depository. Another decade or more of delay and back to the drawing board.
Yucca Mountain -- The Outside
JAPAN OLD POLICY.  In Japan, the government also has been looking for a permanent waste depository.  (Actually, not permanent, assuming human beings are still around in the very, very distant future.  Just very, very long term).  In Japan, the approach to siting nuclear projects has typically involved more carrots than sticks.  So the Japanese government long followed a strategy of waiting for someplace to "raise its hand" and volunteer to serve as a waste disposal.  After all, the waste will be buried so deep that no one will need to worry about it for hundreds or thousands of years.  But no community in Japan has raised its hand.

USA NEW POLICY.  In the U.S., the government realized its mistake in trying to force Nevada to accept Yucca Mountain, and inspiring the mobilization of a vocal and effective opposition.  So the U.S. is now switching to a policy of looking for someplace to "raise its hand" -- someplace that wants the investment, jobs, stability and "carrots" that will come with this role.
Yucca Mountain -- The Inside
JAPAN NEW POLICY.  In Japan, the government realized that if it kept waiting for a community to "raise its hand", this might never happen.  The lack of a final waste depository hurts the nuclear restart campaign, so the government will now go ahead and study the question from a technical/geological perspective, and try to identify the best site or sites for the depository based on technical grounds.

So Japan has pretty much adopted the former U.S. approach.
And the U.S. has pretty much adopted the former Japanese approach.

And despite this issue floating around (at least in the U.S.) for the past 40 years or more ... it is still not resolved.  The problem is not, primarily, technical, though the technological questions are complex.  It is a political challenge.  Can a representative democracy actually do this?  When?  And what will it take to get it done?

Tuesday, November 11, 2014

Stop the Bullying, Please!

Japanese media from time to time turns its focus inward and looks at the phenomenon of "ijime" in Japanese society.   Ijime is usually translated as "bullying" and most commonly thought of as a middle/high school phenomenon.  Sometimes a more granular approach identifies types of "harassment" such as "power harassment" (boss to subordinate) or "pregnancy harassment" (company to female employee) in the workplace, or bullying/hazing type tactics by athletic team coaches.  I guess this type of thing, common in almost any society in some or another form, comes with the territory in a society like Japan that is full of hierarchical/vertical relationships.

Last week, I was talking with a prominent Japanese lawyer who handles many project financings, including solar power projects.  He asked me (in Japanese) "why is the Nikkei Shimbun bullying solar power developers"?

Indeed, the past year there has been a massive campaign in the Nikkei and some other outlets (Yomiuri, and presumably also Sankei commentators and other more conservative outlets I do not usually read), to demonize solar power.  It is clearly driven by the utilities, their supporters in the LDP and the government and industry, and it is transparent.  I have not commented before, but it struck me that this lawyer had it right.  What is going on a type of "ijime" or bullying.

Upon passage of the FIT legislation in August 2011 - happy faces on Kan and Son.
Solar PV is never mentioned in the Nikkei or Yomiuri without the adjectives "expensive, unreliable".  Okay, to be completely fair, maybe they substitute "unstable" or "intermittent" for "unreliable" but always include "expensive." And the media continues to repeat, ad nauseum, the allegation by someone (never named) that developers are "sitting on" approvals waiting for module prices to go down before building projects -- in fact, as the yen has plunged (again down more than 5% the past few weeks), module prices have increased in local currency terms and as a percentage of project income.

Recently there was an article in Nikkei about the relevant METI study committee wanting to reform the system to prevent 不当利益 -- illicit profits.  There was another one about how METI wants to block sellers of retail power from marketing to consumers as "100% green" or "all renewable" when their generation is sold (with subsidies) under the FIT.  Of course, if it turned out consumers all want, and are willing to pay more for, "all renewable" power, then that would not be a good result for the existing utility industry or other suppliers.

This whole campaign reached its low point, for me, in a large article on page 2 of the Nov 4, 2014 Nikkei entitled 「蹉跌再生エネルギー」("Failure of Renewable Energy, Part 1") -- apparently the first in a series.

The large headline, in the middle of the page, was 「国民に6.5兆円の請求書」, which translates roughtly as a "6.5 trillion yen bill for the Japanese people!"  That is over $50 billion a year.  Except the headline was more like this:
A business newspaper, Nikkei is not known for inflammatory headlines.  I do not see in Nikkei a similar headline about the "20, 30 or 40 trillion yen bill for the Japanese people!" from the Fukushima accident and related cleanup, decommissioning and retrofitting of nuclear reactors.  How much is Japan's total cost of electricity in a year?

Nor does Nikkei "call a spade a spade" when one of the utilities refuses to decommission a reactor that has a less than 1% chance it will ever reopen ... just to keep the asset on a balance sheet and avoid, or at least delay, potential insolvency.  And when METI and other regulators get together to change the electricity ratebase accounting calculations so that operators can recover costs from their ratepayers and amortize even non-functioning or prematurely decommissioned reactors, I see only a polite article discussing the idea, not really anything to indicate the painful numbers involved -- a trillion yen?  10 trillion yen?, and certainly not in 30 point typeface.

How did the Nikkei writer arrive at the 6.5 trillion yen figure?   What is the basis?  The Nikkei article does not say.

It is actually very difficult to know the cost of the FIT, as compared to an alternate world where the FIT had not been adopted.  This is even more so in a country where there are not transparent, liquid markets in electric power.  In Germany, solar looks expensive, but it actually pushes WAY down the cost of wholesale power during peak periods (daytime).  If a user gets cheaper power, but pays a bit renewable surcharge, the user is no better or worse off economically than before, but solar looks "expensive", and the competing coal generator is extremely unhappy at the low prices it gets for its output.

But in Japan, one key assumption is how much of the approximately 70GW of "METI certified" solar projects will actually be built.

METI produced some materials for the committee now considering the future of the FIT on this very subject, dated September 30, 2014.  You can find them here.  (Materials #8).

What the METI submission to the committee says is that the annual "surcharge" amount for the projects operating under the FIT as of June 30 2014 is around 650 billion yen, or just under US$600 million.  The anticipated figure if ALL METI-certified projects were to start operations?  Around 4 times that amount, or 2.7 trillion yen per year.  But of course, the very same METI chart warns that THIS WILL NOT HAPPEN.  METI realizes that no one expects this, as projects will NOT go forward for any number of reasons, some of which are listed in the chart.

In fact, Japan implemented 7GW of solar in 2013, will implement around 10GW in 2014.  My guess is that there will be similar numbers next year and perhaps a bit less in 2016 (to the extent we can know).  These will be a mix of 40-yen, 36-yen and 32-yen approved projects.   The total that will be built from the 69GW that has been certified?  Probably around half, or less.  The short term economic burden on consumers will be real (as compared with coal or even gas-fired generation), but very manageable.  A few hundred yen per month for the average consumer ... much of whose bill is going to pay the cost of other, opaque mistakes and errors by the suppliers over past decades.  And many of these facilities will continue to produce electricity, selling at and pushing down market rates, for 5, 10 or even 15 years after the FIT purchase obligation ends.

But this is a very scary world for the utilities.  Each GW of solar means a loss of peak electric sales for them, and more trouble justifying their existing generation expansion plans.  Each household that implements solar with storage in the future ... means a permanent lost customer.  They will either embrace these changes and preserve an interesting, if very different, business, or will go the way of the dinosaurs.

When I first started to work on solar PV projects in Japan, I can remember several meetings with a major Japanese institution when I would explain what we were trying to do -- bring the best of the world's experience to Japan and accelerate implementation of solar PV here, including the Moore's Law-like cost reductions seen elsewhere in the world.  The counterparties would warmly thank us for our efforts to develop such a business to help expand renewables in Japan.

That was before the change in government, and the utilities realizing that solar PV and other renewables under the feed-in tariff is an existential threat to their business models.  That was before the nuclear restart fell 12-18 months behind its initial schedule.   Indeed, now as Japan heads into its winter peak electricity use period having survived a second consecutive zero nuclear power summer, and with no specific government conservation targets for large users, AND as oil and gas prices plunge to their lowest levels in many years, the utilities and government might be worried about people starting to ask questions such as "is there really a crisis that requires the nuclear restart?"

Do we really need new large coal-fired plants ... or won't we have access in the future to cheaper LNG?   Shouldn't we plan future electric capacity based upon the "Moore's Law" characteristics of technology-driven renewables like solar and storage?

Friday, November 7, 2014

Floating LNG

One of the main challenges of LNG has been the massive related infrastructure.  First, you need a natural gas field that can deliver enough gas to justify building pipelines, ports, liquefaction and storage facilities, etc., etc.  These projects cost not billions of dollars, but tens of billions of dollars "all in".

What if you could do the liquefaction on a ship?  Then you could locate the ship near an offshore LNG field, load the cargoes directly onto LNG tankers, and when the gas field is tapped out, move the plant. 

I attended part of METI's annual LNG Producer-Consumer Conference yesterday, November 6, 2014.  In the "new technology" panel, I was expecting a lot of discussion about gas-powered fuel cell generators, compressed gas vehicles, etc.  The head of Tokyo Gas did discuss these things, at a very high level, but others focused on upstream developments.  Someone from Anadarko just talked up their Mozambique project -- a sale pitch and not much about technology.  The President of Chiyoda gave a general corporate presentation on their track record in LNG.

But representatives of both Shell and JGC did at least spend most of their presentations on new technology -- in this case, floating LNG.
An image of Shell's floating LNG concept
Shell's Prelude LNG facility, whose hull launched in 2013, will weigh five times as much as a U.S. nuclear-powered aircraft carrier when in operation, and be almost 500 meters long.  The cost?  Guesstimated to be over US$10 billion.
The hull of its first FLNG, launched and in the water.
JGC and Samsung Heavy Industries have been selected to build another floating plant, for Petronas, (the national oil company of Malaysia).

These facilities could significantly reduce the cost of opening up new gas fields for LNG shipment, and could allow LNG to flow from fields that otherwise would not justify the investment for pipelines and an onshore plant ...  Of course, this will increase already intense competition among producers for support from major LNG consumers in Japan, Korea, China and India.

Of course, just as with Enron's infamous barge-mounted power plants (infamous because they were the assets involved in a dodgy asset sale/buy back at the end of a financial year that resulted in several investment bankers going off to prison, if memory serves), a floating LNG liquefaction plant also helps with political risk.  In case of war or threat of expropriation ...just sail away and moor at some other gas field. 

Tuesday, November 4, 2014

The (Near) Future of Solar -- Part 3

Module prices will continue to drop rapidly in coming years.  A few examples:

1.  Sun Edison announcement in October of a $0.40 per watt cost 400 watt module from 2016.  See report of the announcement here.

2.  1366 technologies' kerfless wafer promises more than 50% reduction in wafer costs for polysilicon modules, or overall 20% module cost reduction.  Scaling now to 250MW production facility.  See reports here and here.

3.  Martin Green, the "father of solar" in Australia, conservatively estimates that the cost of producing modules will fall by at least 50% over the next decade, reaching less than 30 cents per watt before 2025 ... a price at which coal (+ sequestration OR recapture OR carbon tax), nuclear and other sources will not be able to compete.  If he is talking in Australia cents (not clear, but likely), then that would be around US$0.26 per watt. ...

4. And it is widely reported that even today large, utility scale solar has a lower levelized cost of energy (LCOE) in many places now for new installations than competing fossil fuels.

5. Now this -- residential solar plus storage is now competitive in Australia among other places.

6. And next this -- an industry report indicates that even in that rain-swept island of Great Britain, the levelized cost of energy (LCOE) of large scale solar should fall below that of LNG around 2020.  The LCOE will fall 30% from 2014 to 2020.  Of course, this number -- LCOE -- is the overall cost of providing a kWh, and is not limited to cells/modules, the true the "Moore's Law" components of solar.  As the report notes, solar has a history of beating these kinds of predictions ... unlike some other forms of energy.