2007 Silicon Valley Projections - Silicon Valley Leadership Group

Energy
Price Volatility
Comparing Gas Volitility
to the Dow Jones
• The natural gas price rally and
subsequent price break in the last
year would be equivalent of the
Dow Jones going from 10,000 to
25,000 and then back to 10,000.
Over-Reliance on Natural Gas?
One hurricane, then a second one exposed our weakness. Just
like 6 years ago, the first rumblings of revolutionary change
began in the natural gas market.
Three headlines further clarified the emerging risk:
• India declares a moratorium on new natural gas plants
after 2012.
• New natural gas pipeline to connect the gas-hungry
eastern market with sources in the west.
• Russia cuts off natural gas to customers in Europe.
When hurricane Katrina mowed over the Gulf of Mexico,
wrecking 15% of the nation’s capacity to deliver natural gas,
prices soared 200% to an all time high of $15.62 (per thousand
cubic feet).
Now customers are paying attention. Risk management plans
become required strategy. We were saved by a very mild winter,
but experts predict $10-15 gas may become normal.
The problem exposed by these events: “Half of our baseload is
supplied by natural gas.”
We are vulnerable and there is currently no workable substitute.
New policies to control CO2, which will be signed by
the Governor and the CPUC this year will render abundant
and cheap conventional coal power not available. In addition,
nothing has less legislative support than new dams for clean
hydropower, and building a new nuclear plant is still officially
illegal in the state.
Can Wind and Solar Step In?
Why can’t we just switch to renewable power like solar and
wind? Why not indeed?
Unfortunately, the physics of power production include limitations
that are seldom discussed. Wind generated power’s
secret is that the closer we get to the peak, the more it disappears.
For July 24, 2006, our all-time record day, wind sources
lost 80% of its capacity by the time we reached the peak in
late afternoon, not even providing 2% of what we needed.
This is typical. California use peaks from 3 to 6 pm, but wind
typically peaks at 2 in the morning. Wind power must be
backed up by baseload such as natural gas, nuclear and
hydro-power. This fundamental weakness will remain until
cost-effective energy storage technology catches up.
What About Solar?
Although less intermittent, solar power similarly suffers from
a lack of coincidence with peak use, and is 2 to 5 times more
costly per kilowatt generated. The good news is that breakthroughs
in thin-film technology may change this.
Further, neither solar nor wind can function to uphold the
voltage of the grid to keep it stable from damaging surges and
sags. Only baseload plants provide these “ancillary services” to
smooth the bumps and dips created by these resources. This
adds even more hidden costs.
What, then, does our future hold? That depends.
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