Click the play button on the video below to see my interview with CNBC Africa on Wednesday morning.

Back with more of an update on my visit to South Africa soon.

Eddie.

What I didn’t speak about was how this vast energy network will be financed.

The first question is how much will it cost. By 2050 Europe will need 50% of its energy from wind. The majority of this will be offshore. This means that somewhere between one million and 1.6 million Megawatts of offshore wind will have to be installed over the next forty years.

The total investment will be around £3 trillion and that is just the wind farms alone. Even if cost efficiencies and reductions mean 50% savings on this estimate, it is still a gigantic investment. It is however gigantic only when considered as an absolute figure.  If we were to build our 2050 electricity generation requirement with fossil fired and nuclear the cost would be in the region of £1.6 trillion.  However with the investment in fossil-fired plant you still have to pay for the fuel.  The cost of this fuel if it were based on oil at $200/barrel would be £1.6 trillion per annum.  Renewables substitute fixed cost for variable cost.

The Supergrid, with its HVDC cables and Supernodes which will transport the electricity to the customer, will cost another £600 to 800 billion. 

Barriers to investment

So how do we unlock the cash to fund this continental, bulk power resource at a time when Europe is slowly pulling itself out of the depths of recession?

The first point to be made is that the money does not have to be found today or tomorrow.  However, before anyone commits to investing, the framework for getting paid has to be proposed and agreed.

Right now  there’s a huge amount of regulatory and policy uncertainty.  The money will flow when the risks are identified, and the rewards are tailored to take the risks into account.  Just as wind and solar were incentivised to get them going, the early builders of, for instance, the first leg of the Supergrid, should be allowed, and be clearly seen to be making good money from the investment.

It’s about creating investor confidence in the immense opportunity this transition presents. There is nothing better to encourage investment than seeing the early mover do very well.

One key word is long-term. The long-term should flow from the short term in a seamless manner. There’s an intense debate taking place in the UK right now about the merits of a FIT (feed-in tariff) versus a ROC (renewable obligation certificate). This transition, if it is to come, must be managed so that confidence is not damaged and activity does not grind to a halt in the meantime. There’s a belief that by choosing the correct one, the proverbial investment gates will open and investor confidence will magically appear. I’m not so sure.

These support schemes have a vital role to play, but they are instruments with a specific task. We need something more fundamental.

Vision

It’s about setting out a clear vision for a low carbon Europe. And that vision must come from the top. Europe’s governments need to show the world that they are entirely committed to leading the global transition to sustainability. The first step is to translate that vision into ambitious targets, which is in turn supported by long-term policy and transparent regulations. This is where the short-term incentives come into their own. And incentives/arrangements upon which investments are justified must not be retroactively changed. That is worse than no incentive at all.

Chris Huhne recently called for a ten percent reduction to Europe’s 2020 emissions target – going from a reduction of 20 per cent to a reduction of 30 per cent. Backed by his German and French counterparts he said the global race to a sustainable low-carbon economy has begun and our economic competitors are not hanging back.  He rightly pointed out that the private sector will deliver the investment which will build this low-carbon future and moving to a more ambitious 30 per cent CO₂ reduction target will provide greater certainty and predictability for investors – so that they can see the case to invest. Very correctly he is focusing explicitly on what it takes to get money into this space including the supply chain companies, who along with developers are the first to be faced with this investment decision.

The logic for the increased target becomes even more compelling when you consider the cost implications. Because of reduced emissions in the recession, the annual costs in 2020 of meeting the current 20 per cent target comes down from €70 billion to €48 billion. A move up to 30 per cent is now estimated to cost only an extra €11bn.

So much for costs, what about the benefits that are supposed to flow from this investment? The estimates here are usually cast in terms of the cost of not investing. Delayed action is expensive. The IEA estimates that every year of delayed investment in low carbon energy sources costs €300-400 billion at the global level. And this is based on the assumption that oil will cost US$88 a barrel in 2020. US$88 a barrel!

Would you invest in a business whose success depends on oil being US$88 a barrel in two or five years, never mind ten years from now?

As an investor, I have put my money on renewables. Rising oil prices will lower the opportunity costs of reaching these targets and the direct economic impacts of hitting the 30 per cent target by 2020 can actually turn positive. Stern took the wider view and his conclusion was the whole thing was an investment no-brainer.  Chris Huhne pointed out that when oil reaches US$130/b the transition to a 30 per cent reduction in CO2 emission pays for itself. 

With wind in Northern Europe the fuel source is free. The more wind we deploy, the less fossil fuels we need to import and burn, the less supply and price risk the customer is exposed to, and  the cheaper our electricity becomes.

Swapping uncertainty for certainty

With the Supergrid, Europe will swap the uncertainty of a fossil fuel future for the certainties of secure, clean and ultimately cheaper electricity.

In a fossil fuel future, the risks to electricity supply are geo-political, physical, environmental and economic. The risks include the malign or perverse policies of energy-rich neighbours, and in an extreme scenario, the threat of resource wars and all that this entails.

We are swapping political, economic and environmental risks for a set of new risks associated with the weather. The Supergrid, because of its length, spanning as it will 5,000km, smoothes out local variations in wind output.  So weather risks are hugely minimised.

As the offshore wind industry evolves, investors will become more confident with the technology. Until that happens the bond market has a significant role to play in bridging the gap between investor confidence and the deep pools of cash needed.  The Moyle interconnector between Northern Ireland and Scotland is a good example. It was funded entirely by debt in the form of credit enhanced bonds. Because credit enhanced bonds are guaranteed by the government, there is no perceived risk by investors – their cash flows are guaranteed. The route mooted by OfGem for funding the investment in Smart Grid is to levy electricity consumers’ bills – the people who will benefit from the investment. This is an alternative source of credit enhancement for bonds funding Supergrid and any other necessary investment in our electricity infrastructure. It is the customer who will pay so it behoves policy makers to organise matters for maximum efficiency in delivering that infrastructure.

So to summarise, I believe Europe’s governments need to come together, create and adopt a united energy vision. It needs to be ambitious, it needs to be as integrated as the electricity system it is facilitating, and it needs to happen fast.  As we’re languishing in the slow lane, China and India are starting to take first place in a race we once led.

This world of ours is on a once off transition to sustainability.  Over three centuries its population will have moved from 600 million to 9.2 billion. There is no rule stipulating that the resources which were adequate in the past will be sufficient for the future. There are many basic raw materials whose abundance cannot be assumed for the future. Oil is depleting rather rapidly, water is becoming scarce in many regions. Metals such as platinum,  lithium and phosphorous are scarce.

Everything that can be recycled will have to be. Greater efficiency and waste reduction will become the norm. The design of cities, factories and houses will include sustainability as their top design criterion.

However, with enough energy all other issues become manageable.

Wind as a power source

In Europe we have proven that wind energy works as both a decentralised and as a mainstream source of electricity, although wind as a decentralised power is almost finished on mainland Europe: many of the high wind speed sites have been built on, population density makes further consenting difficult, and spare capacity on grids has been used up.

Mainstream wind as a large component of the complete electricity solution needs a new set of grids to realise its potential. In Europe it is not possible to build large quantities of wind power onshore. We have to go offshore to do this. The wind offshore is almost unlimited at these northern latitudes. 

In fact, when wind is seen and understood as a continental resource, it reaches its true potential as a bulk power source.

Northern European wind happens because of pressure differences in the atmosphere. Weather systems are characterised by areas of high or low pressure. Wind flows along the lines of pressure which circulate around high or low pressure centres.

As a single power source the output from a wind farm is quite variable. However, if all of these single power sources are joined by means of a grid, over thousands of kilometres, then the fluctuations balance out.  Wind energy begins to resemble a very large nuclear power station (without the radioactive by-products).  In fact, it resembles an ultra large nuclear power station insofar as it operates at a nearly constant load.

If such a scenario is to become reality, then we need to think the grid solution out from scratch. 

Current grids are grossly inadequate for trading electricity across national boundaries: 95 per cent of all electricity is consumed in the country in which it is generated.  So whereas we move food, minerals, people, fuel, money freely across borders, in a freely traded manner which benefits all customers, we make and consume our electricity domestically. 

The fastest moving product has been the slowest to be brought to international trade.

The Supergrid

Europe will be moving great quantities of electricity from where it is generated, largely at sea from wind and in Southern Europe and the Sahara from the sun. Generation will be spread over thousands of kilometres and most bulk transport of electricity will be by cable underground. We have a method of doing this, and that is by high voltage DC. It has been tried and trusted over the past 50 years.

What no one has done yet is to build a high reliability meshed grid in DC (all current grids are built in alternating current [AC]). The goal for the Supergrid has to be to replicate and to give the same degree of reliability in DC as currently exists in AC.

The benefits of the Supergrid are:

• Europe becomes energy self-sufficient

• Our electricity becomes completely decarbonised

• We tap into a free fuel source

• We develop and deploy new technology, for a large market and which can be sold around the world

• Millions of jobs are created , from the manufacture and erection of wind farms and solar plant to the manufacture and installation of the new DC grids

• We trade electricity across Europe

• The technology Europe develops will have a world market, in China, the US, Africa, in the Arabian peninsula and in the Far East. Export orders will be a multiple of European demand.

The Supergrid was strongly advocated by the last EU commissioner for energy, Andris Piebalgs.  Ten countries have come together to develop policy options for the construction of the Supergrid. A grouping of 12 of the largest European companies under the collective title “Friends of the Supergrid” (FOSG) has been assembled http://www.ijonline.com/GenV2/Secured/DisplayArticle.aspx?ArticleID=61223 . The objective is to collate their pooled wisdom so as to accelerate the Supergrid build process.  The FOSG will intervene in the policy formulation debate so as to offer the optimum technological solutions, propose how technical standards could be set and policed, with suggestions as to how the Supergrid could be best owned, operated, paid for and built quickly.

My own feeling is that the Supergrid will be seen as an absolute necessity by the British and German governments as they seek to meet their 2020 renewable obligations. Certainly the British government’s proposals for Offshore Transmission Owners (OFTO)with their unfair risk sharing and stranded assets (only 40 per cent of the OFTO cables will be used on average over time) that require an on-land strengthening of the grid should be relooked at using the Supergrid as the alternative.

Next week on this column I will look at the cost of building out the Supergrid.

The deadly deniers took a couple of isolated facts, added them together, as one would add 2+2, and convinced everyone that the answer was 293.

It was an easy sell. India wanted to burn coal, the US wanted to pass a health bill, the third world wanted to follow us polluters in the developed world and get rich. Very few of the leaders there had an appetite for decisive action. The EU did not speak with a united voice. China, the great change agent, pursued its own agenda, even if it is suffering the worst of any country from the effects of human induced global warming.

Vested Interests

There had been some changes in leadership in the big oil companies. Out went the softly softly approach of the previous generation of oil company CEOs. They were not going to allow science to ruin their share options. Big coal, particularly in the US, saw its chance, and won concessions from a President trying to correct the injustice of a lob-sided health system. Billions of $’s were spent on a press campaign, peaking nicely in December, which discredited the science of global warming created by humans.

Human induced global warming is good science

We are burning 85,000,000 barrels of oil per day. We are burning 18,630,000 tonnes of coal per day. We are burning 296,000 million cubic feet of natural gas every day. All of these cause the release of 36,590 million tonnes of carbon dioxide per year. In pre industrial times none of this happened. It is a fact that carbon dioxide changes the frequency of light and causes heating (the Dutch put carbon dioxide into their glasshouses to increase the temperature). In two independent pieces of research in the UK and California it was postulated that this would cause heating of the atmosphere. The actual results bore “a scary correlation to the postulated calculations” (Financial Times).

There are 400 million individual readings on land stations and 140 million individual sea surface temperatures used to calculate global surface temperature calculations. They have yielded the temperature curves below.

But how can civilisation survive if the six billion of us (soon to be nine) goes on to use up all the natural resources bequeathed to us by nature. We assume that nature will go on yielding up its bounty even though the evidence that is to hand suggests otherwise. How can civilisation continue to thrive if large tracts of the world are outcompeted by stronger nations for commodity items such as energy, water, phosphates, copper, platinum etc? Civilisation is easier to organise if there is a sufficiency of the basics.

So where does entropy come into all this? The second law of thermodynamics states that the entropy of the universe is increasing (∆q/t>o). This means that the degree of randomness inexorably increases. A greying out is happening; all processes are at least slightly irreversible. Thus for instance when we take a molecule of oil and burn it with oxygen, we go from a highly ordered state where the carbon and hydrogen atoms in the oil are as indicated.

H H H H H H H H H

I I I I I I I I I

H – C – C – C – C – C – C – C – C – C -H

I I I I I I I I I

H H H H H H H H H

to one, whereby the addition (14 molecules of oxygen (O₂) yields 9 CO₂ + 10 H₂O. CO₂ is a gas which by its nature is subjected to an infinity of random collisions with itself and other gases. The degree of disorder on this collection of oil and O₂ is increased by the chemical reactions. As a result of the chemical reaction much heat is released but we are left with molecules which have only ground state energy. To make them react further energy has to be added. No matter how much you place 9CO₂ and 10H₂O molecules in a drum it is never possible to recreate the normal nonane and oxygen you started with. Only by adding energy and pressure over time can we start to recreate the originals.

Take phosphorous: It is concentrated into the guano of sea birds over centuries and is mined and refined to be used in combination with nitrogen in fertilisers. 30% only is used to make plants grow. The rest (70% dissolves and finishes up via rivers in the sea in a highly diffused and diluted state. The entropy of the universe is increasing.

Another way of looking at entropy is to think of the cost of extracting phosphates. It is really cheap to dig them out of the ground. It would be extremely expensive to take a large volume of seawater and by any set of processes imaginable concentrate the phosphates to be usable as fertiliser.

To me the concept of entropy is useful in describing what we are doing to all the elements we need to survive as a species. We are greying out everything. There is only so much highly organised carbon around in the form of oil and gas. It took large amounts of time, sunlight and pressure to create the stock of oil and gas that exists. We are using (very inefficiently) a feed stock that took 20 million years to build. In about 250 years we will have used it all.

It is not sustainable to keep relying on oil and gas for our primary energy.

It is not sustainable to keep on digging out limited supplies of minerals and scattering them into uncollectible enhanced entropy states.

It is not sustainable to cut down our rain forests to grow food or supply land to increasing populations.

Of the extractive industries we now use very few will exist in 100 years.

We will be using no fossil fuels (including uranium) to make electricity in 100 years.

Everything that humans do will have to be done sustainably.

And energy production is one of the major keys to being able to do things sustainably. It will not be possible to have sustainable transport without sustainable energy. It will not be possible to have sustainable food without sustainable energy. Sustainable homes, offices and cities need sustainable energy. For adequate supplies of water we need sustainable energy.

The civilised life, to which all humans can aspire, needs sustainable energy.

If we are to get through the next century intact as a species we have to stop global warming.

The heading to this blog was Sustainability, Entropy and Risk. And so now on to the risk part. Risk can be defined as:

A variable series of outcomes from any venture, which generally should they occur, will adversely affect the success of the venture. Some risks will be well known, some less so. The likelihood of occurrence of any of the identified risks varies from probable to highly unlikely. The consequence of the risk happening can vary from minor irritations affecting only a small part of the venture to catastrophic destruction of the venture with major environmental consequences.

For those of us in business we know that risk and return are intimately related. If an enterprise or project is inherently risky then the returns from this enterprise or project must be high. Risk can be described in terms of volatility. A very volatile outcome is almost synonymous with a risky one. It is possible to measure risks because we can look at historic volatility, calculate the mean outcome and work out the standard deviation of each individual outcome from the mean. Means and standard deviations allow us to apply statistics which through the medium of the frequency distribution curve allow us to consider the mean riskiness as well as the low probability outcomes. Some low probability outcomes are not material but some, if they occur, will be catastrophic for the business.

Risk for electrical utilities is different from risk for other free enterprise companies. One of the primary risks for a utility business is the cost of its raw material. Most business exists in a competitive arena and the price at which they sell their products is not within their control.

Around the globe today hundreds of companies are going out of business because the price of their raw material rose too high. They lose money and many collapse.

The primary raw material of an electrical utility is fossil fuels. But look what happens when the price of the raw material increases. The utility goes along to the Energy Regulator and argues for a price increase. In almost every circumstance the Regulator grant the price increase. Would it not be lovely if the whole world of business were organised like this. No matter what you did the customer paid.

However, things are changing for utilities. Regulators will have noticed that wind and solar renewables on the system mitigate the fossil fuel price. Renewables even go further than give a fixed price. They have a merit order effect, they product electricity without CO₂ and they reduce demand for and the price of fossils.

Pretty soon the Regulator will ask the question. How much renewable energy do you generate? And what is your plan for the future?

Actually the degree of risk of any project is becoming more and more bound up with how sustainable that project is. This could be a very broad subject for enquiry indeed the principles could become quite abstract. So by way of an example let me compare two scenarios for utilities. The first utility is conservative and uses only fossil fuels, the second has a balanced portfolio including let’s say 20% wind, hydro and solar in its plant mix. The primary energy for the renewables is free and the cost is fixed. The systematic risk of the first business is much higher (without a concrete set of figures it is impossible to quantify exactly) than the second. The current rules applied by the Regulators allow risks to be passed onto the customers. But how long will this situation pertain? Surely, when Regulators see very high profits resulting from systematic lower risk accruing to the greener utility they will begin to disallow fossil fuel electricity price increases.

There will be winning utilities and there will be losing utilities. The winners will be the ones with the lower risk profile, i.e. the more sustainable.

A speech is not an essay, or a song, a play or a dirge. It is the public telling of a story that attempts to convince an audience of your point of view.

Like all stories, it must have a beginning, a middle and an end. The audience is the thing that must decide on the tone, length and content of the speech.

Most audiences are speaker proofed to some degree. They have been bored so many times that they generally have low expectation. If the room is dark and there isn’t air conditioning the worst result for them may not be falling asleep – provided of course they don’t snore, that might be embarrassing.

So what kind of an audience is being addressed. They are the customer for which the message has to be packaged. A highly specialised audience who have travelled a long way at their own expense will, an audience who is present because they are compelled or are killing time, would be at the other end of the spectrum.

So let us assume our mythical audience is some mixture of these two.

To one degree or another they need to be entertained.

So the speaker is telling a story which has to be, to some degree entertaining.

Reading a speech is hardly ever entertaining. Engaging in conversation with the audience and taking feedback from them can be entertaining. You certainly have more of a chance of getting the message across if you try and engage with them. The worst of all worlds is where the speaker shows slides on a powerpoint and constantly turns his/her back to the audience to read what is written on the screen behind.

I like to single out someone in the audience and to address my remarks to him or her. Eye contact is essential. Of course all the audience has to feel involved and so the speakers’ conversations has to be with different people, people who are located at various places. This can be difficult to do because the audience can be unevenly lit. It is much easier to see someone who has a light shining on them.

I was once at a speech at the end of a dinner when an architect got up to describe a whole series of beautiful buildings. The audience was merry, it being a Friday night in England. The speaker never established mastery. There was an audible din to begin with and it got gradually louder. His response was interesting. He gradually turned away from the audience and finished up for the final ten minutes speaking to the screen, his back to us. We, of course responded to the situation. Someone at my table was asleep and snoring. Others at the table amused themselves by seeing who could land pieces of bread in his open mouth. Loud haloos, much laughter and 100% disinterest in what the speaker was saying.

Any general audience cannot concentrate beyond twenty minutes. Therefore they will remember one or two things that were said. O.K.

Well if that is the case why tell them forty things. They will always remember one thing so if you tell them forty then you leave it up to them which one. It may not be the important one. This reasoning alone tells us about preparing the speech. What is the one message you want them to remember. Weave the story around this.

We mentioned entertain. Entertainment need not necessarily be humorous. Indeed the most difficult art to master is that of the stand up comic. People go to the theatre to be entertained by tragedy, melodrama, farce, burlesque etc as well as comedy. Almost all audiences are, albeit reluctantly entertained by authenticity, a sincerely held and enthusiastically explained view. This is or should be the goal for most speakers.

Sometimes the authenticity is in the message. I remember a speech from 1967. The speaker was a black man from South Africa and we the audience were students. His English was bad, accent had to be listened to to understand, he wasn’t loud or emotional or dramatic. But was he authentic! Most of us learned about apartheid for the first time that night. All were converted to the anti-apartheid cause. His presence, an exile from his land, reaching out and haltingly trying to explain was quite sufficient. Best live speech I ever heard.

So how do you deal with an unruly audience. Sometimes it is nearly impossible, particularly when speaking, after a drink laden dinner about a serious topic.

I clearly recall, one night after 12 midnight, getting up to speak to a rural Ireland audience. They were very courteous – mannerly to a fault. They were also catatonic from drink, tiredness, boredom from three previous speakers at the end of a hard weeks work. I could see they weren’t listening to my delightful story. I modulated my voice, I used by arms. Eye contact was like looking into the eyes of a fish on a fishmongers slab. I tried my final shot.

I stopped talking

I stood silent for ten seconds.

Now ten seconds is a really, really long time on stage. There was no reaction. By the eight second a few people realised something was wrong and a chair or two scraped.

This audience was not for waking. I quickly said thanks and sat down.

At the end of a speech it is no harm to say again what the main point you were making was.

I would welcome any readers’ comments and indeed we will publish them here.

Thank you.

By its very nature it is going to take some time to construct the Supergrid.

There are many elements of it which have to be thought out. We have seen in the U.K. over the past five or six years a concerted policy of building offshore wind. Over the years I have engaged in many debates with people who thought the Supergrid was a luxury. Something we could do at our leisure at a later time.

With pressure coming on, this view is now beginning to get profoundly challenged. Britain is trying to build thirty thousand megawatts in the sea by 2020. The people planning the build programme thought that the additional MWs could simply be attached to a slightly modified existing onshore grid. What emerged from this thinking was an extraordinary collection of cables jutting out into the North Sea and the Irish Sea, almost like the bristles on a hedgehog.

What those who planned this extension of the current order seemed to forget was that there required to be built an enormous onshore grid to conduct the power from where it is landed to where the people would consume it.

Britain would thereby face into a large build programme of overhead power lines running inwards to the cities of Manchester, Birmingham and running southward to the large conurbation that is London.

Anybody who has tried to build the grid onshore in the past twenty years will realize that it is virtually impossible to do. We have seen power lines objected to everywhere we look in Germany, in Ireland, in the US and indeed in every developed country. In Germany it is extremely difficult to get power from the old East Germany into the Rhur and it is equally difficult to get power from a wind congested North Germany down to a green hungry Munich area.

We have seen it take years to develop the Beauly Denny line in Scotland. It can be pointed out that the Beauly Denny line was merely an upgrade of an existing line through an area mainly inhabited by sheep. Anybody who considers that one would be able to construct power lines through a densely populated place like rural England should think again.

The process will simply be too displeasing to too many people and should not be attempted.

We are after all trying to do something that has never been done in history before and that is to recast in an altogether new way how electricity is made and transmitted in England.

The solution is actually quite simple and that is to build a new grid in the sea.

Even though it is technically new, it can be done without seeking planning permission from anybody apart from the Government, a Government who has already demonstrated strong commitment to offshore wind.

If we were to start building the offshore Supergrid it is merely another small step to connect it up to Germany. This added step would ensure that the cables carrying the power from offshore to onshore would be loaded up from 40% of the time to 90%, on account of the other electricity that would be flowing on the cables. A whole new trading regime would be introduced. The price of power in England would fall because at times the demand for electricity would be met with surplus Germany capacity. At other times German electricity requirements would be met from English surplus capacity. So the transmission cost per unit of electricity would be more than halved.

The customer would be the ultimate winner. The price of power would fall. The first thirty thousand megawatts to be built will simply be the precursor and model for Britain becoming a huge exporter of power to green hungry Europe.

There is nothing more certain in this world than that the Supergrid will be built.

With Europe still in recession and US demand for fossil fuels down 7% on what it was two years go, oil is trading at $85US a barrel. Can anybody imagine or speculate to what price oil will get when the US returns to 4% annual growth and is shortly thereafter joined by Europe which is on a growth path once more?

Contrary to what some sages have argued recently the world is not made of gas and the lifetime of fossil fuels is strictly limited. We really need to get on and plan the Supergrid now. We have to put behind us what was done in the past in another era, an era of oil plenty.

The questions that have to be addressed by those planning the Supergrid are:

1. Who will own it?

2. How will it be governed?

3. How will it be paid for?

4. Where will it run from/to?

5. How will it be operated?

6. How will it integrate and interface with the existing onshore grids?

7. To what standards will it be built?

8. How will these standards be arrived at?

9. How will the builders of the Supergrid be incentivized?

10. What will the expected rate of return be?

Firstly let me say that the debate sparked off by my last blog is most welcome. That different opinions exist is known. What is happening now is that they are being expressed in public and the people will be allowed to judge for themselves as to the merits of what each has to say. I will be in South Africa next week and would welcome a public debate with Dr. Kemm, the pro nuclear person.

South Africa makes most of its electricity from coal. The coal fired power stations are located in the area between Johannesburg and Swaziland. From here the power is transported to every load centre in South Africa. There are considerable electrical losses in the system. Losses in alternating current systems are dependent on voltage and distance travelled, and their exact calculation will also take into account the electrical loads along the way. Building a 150MW wind farm in Jeffrey’s Bay area would save more than 11 million kilo-watt hours each year in electrical losses between the coal fired stations and the South Coast. This is enough to power more than 4,000 residential households for 1 year. If the wind energy output is scaled up to 1,000 MW in the South (still less than 3% of the system) then the losses saved rises to 137 million kilo-watt-hours each year which could power more than 50,000 homes.

If we take the fines that will be applied to all coal generation in a world where we have agreement on reducing global warming we see a further value accruing to wind energy. Right now the price of a tonne of CO₂ is €13. Every unit of coal fired power puts 0.8kgs of CO₂ into the atmosphere. So each unit of wind generated electricity saves R 0.11. If the price of the fine went to €30 then the saving would be R0.25. It is confidently expected that this price for CO₂ fines will be at the lower end of the range by the middle of this decade. There is a clear message here for the policy makers in South Africa. Investing in wind is the really effective hedge against fines for coal fired generation.

In our last blog we mentioned water use by coal fired power stations. 1.2 litres for every unit of electricity produced. In a water stressed country like South Africa, how much does fresh water cost? So far, the 167 local authorities charged with supplying water have got coverage of 87% of all households, a considerable achievement given the 65% coverage of 15 years ago. If water is limited, water used in electricity production competes with water that might be supplied to households. A 1,000 MW coal fired power station uses 8,935,000 cubic meters (m³) of water per annum. When it is considered that the FBW per household per month is 6 m³, it can be seen that the development of a coal fired power station competes with households for water. In fact to keep one 1,000 MW coal fired station going would in a constrained water situation deny the basic water quantity to 124,000 houses. How can one put a cost on this?

How will this situation change with global warming? Unfortunately only one way: for the worst.

The contention that wind is completely unpredictable runs contrary to experience elsewhere in the world. It also runs counter to what can be figured out from a study of wind patterns in South Africa.

An analysis of wind speed data taken over 10 years from 8 geographically dispersed locations in South Africa (Figure 1) shows that the power output from a portfolio of generators rarely differs by more 15% over 10 minute intervals. In fact 40% of the time there is no difference in power.

Figure 1:

In addition, the daily power output from such a portfolio of generation is shown to be not only predictable but also follows the daily electricity load shape (Figure 2). Figures 3 and 4, are based on a 2025 scenario showing that wind can provide base-load generation up to 6,000 MW displacing coal generation and that during the day wind will replace expensive diesel powered peaking generation.

Figure 2:

Figure 3:

Figure 4:

These graphs tell the real story about the prospects for wind energy in South Africa. To summarise them in words is helpful:

· They are based on real data compiled over ten years. This data comes from real sites, and actual power curves from existing wind turbines are used.

· They show that wind power has a strong capacity factor. In environmental terms it reduces the amount of fossil fuels that have to be used to meet customer demand.

· Wind power does not have to be backed up with coal or nuclear.

· Wind power makes its biggest contribution during the day when the demand for electricity is most valuable.

· In a situation where open cycle gas turbines have to be used because of shortages of generation, wind energy costing R 1.25 per unit replaces gas fired electricity at R 2 to R 3 per unit

· These graphs show how, by dispersing wind energy generation across South Africa that the variation in an individual wind farm is smoothed out. The wind is always blowing somewhere.

Operators like predictability. Today, wind power can be forecast accurately to enable supply-demand balancing. Modern forecasting systems rely on advanced numerical forecasting computer models and real time production data. Accuracy of the order of 4-8% of power for a portfolio of wind farms can be achieved with a 24 hour ahead forecast.

This is not new technology. In 2008 wind power contributed 9% of overall power in Spain, a country with limited interconnection to other countries. Notably wind power peaked at 41% of total system power during this period. To manage the system REE, the system operator, requires wind farm operators to provide short-term forecasts. Deviation from these forecasts incurs penalties.

The UK has approximately 4 GW of installed wind capacity. Forecasts must be supplied by operators of wind farms with an installed capacity greater than 50 MW. Penalties are incurred by electricity suppliers for deviation from their overall forecast power for all generation types. This ensures that greater forecasting accuracy benefits the wind farm operator and grid operator. In some countries such as Australia the system operator has implemented their own forecasting system.

Forecasting enables scheduling of other power sources so that expensive peaking plant can be avoided. This ensures that the cheapest possible electricity is always on the grid.

We pointed out before that wind was the cheapest solution for electricity generation in South Africa. We reiterate our contention here. There is no contradiction between wind energy needing a period of support, to help overcome the capital cost, and being the cheapest source of generation. The support lasts only for a period, while the wind goes on being free forever. Once built, a wind farm will be there for 100 or more years and for the last 80 years electricity will be produced at the marginal cost of running a wind farm. That’s really cheap, native to South Africa and, free from pollution.

My next blog will contrast wind generation with nuclear.

The record of ESKOM in exploiting wind or any other renewable is among the worst in the world.  They haven’t done any new renewables.  There are no commercial wind farms in South Africa.  The energy plans drawn up by Eskom, with no critical inputs from elsewhere, shows a tiny proportion of wind, and a massive investment in pumped storage projects like Ingula, with the potential for even more such wasteful pumped storage projects to follow.  Personally, I would love to see some kind of an economic case being made for pumped storage.  We do not know if they ever pay for themselves, because there is no transparency about their project economics. They generate no net electricity, in fact they are at best 70% efficient.   This means that if 100 units of electricity are stored only 70 are got back out.   The principle is that they take electricity when it is cheap at night, store it, and release it to the market when it is expensive during the day.  In no markets that have been studied has the price differential between day and night justified the investment made in building the pumped storage.  I have seen it included in some proposals to build new nuclear power stations.  All it does is add to the cost of nuclear.  

The main area we would take issue with their executives is on their contention that “renewables are expensive and we all know that”.  I suspect the “we” refers to people in ESKOM, because those of us not included in the “we” know the opposite.

The first question is:  what does “expensive” mean?  Does it mean the capital cost is expensive, the fuel is expensive, the clean- up of waste is expensive, the annual running cost is expensive or the decommissioning cost is expensive?  Or does it mean the water used in cooling and the steam cycle is expensive?  The risks you undertake in committing to a particular generating plant leads to expense and were those risks taken into account by ESKOM when he talked about expense?

Let us compare wind energy, currently the most developed of the renewables with a coal fired plant or a nuclear plant.

If something appears expensive because it costs “millions”, this has little meaning because the alternative to that something could cost billions.

Expensive is always a comparative term.

Look at what happens when you build a coal fired plant.

On average, the capital cost of the coal fired plant is the same as the wind plant around the world.

Every tonne of coal costs money.  It may not cost a lot if the coal is mined cheaply in South Africa but it is still “expensive” relative to wind which costs nothing.  Coal mines run out as well whereas the wind always blows.

Each unit of electricity produced using coal releases 0.8kg CO₂ into the atmosphere.  A 1,000 MW coal fired power station releases, and dumps into the atmosphere, when running full out, 1,880 tonnes of CO₂ every day.  Once the carbon taxes are put in place,this will costs ZAR 260,000.00 per day in fines.  In a year this amounts to ZAR 94.8 million.  The same electricity delivered from a wind farm costs nothing in fines.

By the way the price the carbon fine is based on is €13 per tonne, (the current price).  In the successor treaty to Kyoto the level of prices could go to a €30 – €40 range.

Coal stations use water in the steam cycle and for cooling purposes.  Water costs money particularly in South Africa, where it is in short supply.   The water usage in South Africa, where cooling towers would be used, is 1.2 litres for every unit of electricity.

Wind power uses no water.  It turns the raw energy in the wind directly into electricity.  All the cooling, and there isn’t a lot, is done using air.

When it comes to annual running costs, wind energy scores heavily.  Wind units turn themselves on and off automatically.  They do not have high pressures or temperatures to contend with.  In addition the creation of this new industry will support the governments clean technology and green economy strategy by creating new jobs as you re-skill workers to take up cleaner, safer jobs in this sector.

What about risk?  Coal is an internationally traded commodity.  Its price has varied over the past year from $220 per tonne to $80/tonne.  This price risk is passed on to the electricity customer.  Small or large businesses in South Africa are forced to carry an electricity price risk as is now seen in the MYPD tariff hikes Eskom is asking for, and most South Africans are up in arms about.  This affects business profoundly.  It affects business competitiveness and therefore impacts on employment, something South Africa can least afford.

There is no price risk with wind.   What cost you see on day one is the cost you see at day 1,000 or 10,000 or day 100,000 or day 1,000,000.  It is planable.    Around the world it has been observed that wind power lowers the risks on a power system.  Consequently, it lowers the price to the customer.  Depending on the plant mix the cost reduction amounts to between 5 and 15%.

I hear you say that because South Africa mines it own coal that the risk goes away.  Actually that is not the case.  If coal continues to be burned at say a cost of $80/tonne and the internationally traded cost is $180/tonne then South Africa is subsidising its local electricity production.  This means the external revenue foregone shoves up the price of other goods or money (in increased interest charges).  The risk is paid for elsewhere in the economy.

Fossil fuel price risk never goes away.  It will be with us until the world achieves the transition to sustainability.

Once wind generation plant is built it is indeed arguable that there are no effective decommissioning costs.  The wind farm will be there when our grand children’s grand children are growing up.  To be sure individual components will have been replaced but the electrical substations, the roads, the foundations, the towers, the bed plate in the nacelles; the transformers are all very long lasting items.  So long as we rely on electricity a wind farm will continue to pump out the units.

All the arguments used above, save the CO₂ cost, apply to nuclear as well.  It however  has a few nasties that are unique to it such as the emissions and in particular, where to store the radioactive waste which is a problem. South Africa has yet to find a proper long term solution to it, as with many other countries around the world

A nuclear plant cannot be built in the private sector alone.  Its life is approximately 40 years, but it produces waste products like caesium 137, strontium 90  and plutonium 239 which have half lives of 30 years, 29 years and 24,0000+ years respectively.   Treating and storing this waste has to be paid for by somebody – it is not usually charged for in the price of electricity – the tax payer carries the cost and the risk.

Governments become involved.  There are also security issues with all of these radioactive elements with plutonium particularly being beloved by terrorists.

So what about ESKOM’s assertion that “renewables are expensive and we all know that”?

This assertion is untrue.

This assertion is not based on any facts or analysis.

In fact the opposite is true.  Everywhere wind power has been introduced it has reduced the price of electricity and it has helped stabilise the price volatility of fossil fuels.  It is seen as the cornerstone of German, British, Danish, and Spanish generation.  It is the fastest growing generating methodology.

In my next Blog I will show how wind does not need to be “backed up” by any coal or nuclear in South Africa.

Today it is sufficient to prove that wind is the cheapest generating solution for South Africa.

There can be no question that nuclear generates electricity without releasing any CO₂ and that it will continue to do this, and has a role to play in a future lower CO₂ world, if not a sustainable world.

As to the claim that it’s the cheapest large-scale low-carbon electricity source; one wonders how this was calculated. It is difficult to compare two generating methodologies, one of whose power is free and whose capital cost is high, with another whose capital cost is high and whose fuel is not free. It has also to be pointed out that the annual operating and maintenance costs of nuclear power are considerably in excess of wind power. Wind turbines switch themselves on and off automatically, having an availability of 97/98%, and apart from the occasional breakdown are subject to annual overhaul once a year.

So the question is how to compare two such systems.

Both nuclear power and wind power stations are long lasting industrial complexes.

With periodic maintenance and the odd replacement of components, I would expect a wind farm to last more or less indefinitely. There are no high temperatures or high pressures which eat into the useful life of all steel components.

A nuclear power plant will last forty years at a stretch. Thereafter it more or less needs a complete refurbishment. Throughout this period the fuel will have been paid for and the staffing of 300 people approximately will be needed to run it.

By contrast an offshore wind fired power station will be in receipt of ROCs (the support regime for twenty years). Thereafter the price can fall away to pretty close to zero. It is no longer in need of a subsidy because the capital cost will have been paid for.

So for twenty years electricity from an offshore wind farm costs in the order of 15 Euro cents a kWhr. After twenty years and for the next eighty years the price can be as low as 4 Euro cents a kWhr.

Throughout this period, including the first twenty year period when it is in receipt of ROCs, the cost of the wind farm will have been static. It will have a risk reducing effect on the volatility of all fossil fuel prices including uranium.

I am not seeking to make the point that nuclear energy is necessarily a bad thing. I do not share the view that just because nuclear leaves a long trail of liabilities behind it when it closes down that it renders nuclear undoable.

I seek to be realistic in my assessment of the relative costs of wind and nuclear. I believe that all forms of low carbon technologies are worthy of consideration and should be deployed. I have never tired of pointing out that the biggest risk facing humanity is global warming. Whatever we need to do, however unpalatable, then we must be prepared to do it.

In saying all this let me be absolutely clear about one thing; wind is by far the cheapest solution. Wind is only in need of support during the period when the capital cost is being amortized. It is by and large a very long lasting piece of equipment. It is not subjected to high temperatures and pressures, its failure mechanisms are mainly fatigue and corrosion. The world has been dealing with corrosion at sea for a very long period of time and I would not anticipate that wind energy would cause too much of a burden in the future.

I see little point in the CEO of a large nuclear supplied generation set-up attacking the newcomer – wind energy. All solutions are necessary so long as they generate electricity without increasing the CO2 burden on the atmosphere.

Fossil U-235 is the oldest of the fossil fuels, probably there since the formation of the earth. How much is around? How much will be left over when China builds thirty new nuclear power stations? What price will U-235 get to? How realistic would it be to base our entire future on nuclear power? When would the waste get reprocessed and for how long? What happens to the decay product plutonium 239 whose half life is 24,000+ years?

One of the reasons why advocates of the nuclear industry should not try to rubbish offshore wind has to do with the old adage, “Those who live in glass houses should not throw stones”. The nuclear industry is the only one I know of which cannot look after its own trail of liabilities. It cannot be run in the private sector. Governments must undertake to put money to work more or less indefinitely, long after the nuclear power station has closed down.