WUEG February 2015 Newsletter

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WUEG

February 2014 Newsletter

India: Growing Demand, Growing Dependence

Henry Gager – Head of internal education, Academic Committee

Currently, India is the fourth largest consumer

of energy in the world, following historical

energy giants China, the United States, and

Russia. However, one crucial difference is

beginning to become alarmingly clear in Indian

energy consumption: a growing dependence

on fossil fuel imports. India boasts the world’s

third largest economy and the second largest

population, and has considerable fossil fuel

resources at its fingertips, yet is struggling to

increase its domestic production rates. In

2013, India imported approximately 42% of its

primary energy consumption, a number that is

expected to rise over 50% by the year

2030. Political officials attribute India’s inability

to expand its fossil fuel production to high

debt levels, infrastructure deficiencies, and

energy structure reforms, all of which have

created an unappealing environment for

energy investment. That being said, with an

increasingly modernizing and urbanizing

economy, India is struggling to meet domestic

energy demands and secure reliable and

affordable energy supplies.

Coal is India’s primary source of energy,

making up approximately 45% of total energy

usage. Put concisely, domestic production has

been blown away by increasing

demand. Domestic producers have

consistently failed to meet government

production targets, and shortages across the

country have been reported for nearly a

decade now, with insufficient investment and

mining industry problems plague the

marketplace. Additionally, because the

majority of Indian power plants rely on coal,

major Indian cities have experienced regular

rolling blackouts. As the population continues

to rise and urbanize, demand will increase

exponentially, and securing cheap energy

imports will soon become extremely difficult.

Generating approximately 25% of Indian

power, natural gas has become a key source of

energy. Up until 2004, India did not import any

natural gas, but since the development of the

LNG markets, it has become increasingly

dependent upon foreign imports. In 2013,

India accounted for nearly 6% of the global

LNG market, a staggering share. Reliance of

foreign natural gas again stems from the

inability to produce large quantities

domestically, with production being hindered

significantly by inadequate pipeline

infrastructure. This lack of ground organization

has also drastically affected the oil industry,

which sees production in small, concentrated

areas and minimal transportation across the

country. To this point, many Indian energy


companies have looked to diversify their

supply sources, investing heavily in foreign oil

and gas production fields, particularly in South

America. Yet, as must be importantly noted,

the vast majority of Indian oil and gas imports

come directly from the Middle East, where

access to direct investment is extremely

limited.

Clearly, major changes need to be

implemented in order to secure the currently

uncertain future of Indian energy. Attracting

investment, improving infrastructure, and

working towards reducing debt standing must

be top priorities for Indian officials.

This link details possible energy scenarios for

India in the near future, and can help shed

more light on their growing energy demand.

Sources:

Energy Information Administration

India Energy Security Scenarios

Opinion

The Nuclear Solution to the 9-Billion-

Person Problem

Charlie Gallagher – VP, Academic Committee

On my 47 th birthday, there will be nine billion

people living on this planet. Worldwide, the

middle class is on the rise, as is demand for

food, water, air conditioning, cars, highdefinition

TVs, and, most of all, energy. One of

the biggest questions this world faces is how

can we supply the energy needs of nine billion

people?

died of immediate acute radiation syndrome

and fifteen died in the following years of

thyroid cancer. The United Nations estimated

the radiation-related fatalities to be 4,000 by

the year 2066. It was a tragedy and an

appalling act of negligence by the Ukrainian

power plant’s operators.

The solution is nuclear energy. Nuclear

reactors use a naturally radioactive element

called uranium to split apart atoms in a chain

reaction, which generates heat that turns water

into steam that turns a turbine that generates

electricity.

The history of nuclear power is rough to say the

least. But a brief run-through is useful in order

to bust some myths and provide some

perspective. The first plant was constructed in

1954. Since then, there have been some

notorious nuclear accidents. Chernobyl (1986)

is most notable, where an explosion released

radioactive particles into the atmosphere,

causing global panic. Twenty-eight workers

Point Beach Nuclear Station, Two Rivers, WI. Capacity: 1,026 MW

Three Mile Island (1979), the worst accident in

the history of U.S. nuclear power, resulted in

zero fatalities but cost an estimated $1 billion


to clean up. However, the American Nuclear

Society stated that the average local resident’s

radiation exposure was equivalent to a chest X-

ray. Similarly, a Columbia epidemiological

study “found no link between [nuclear] fallout

and cancer risk.”

More recently, the 2011 Fukushima nuclear

meltdown caused billions of dollars in damage

and a worldwide radiation scare that,

laughably, prompted some Californians to

swallow iodine tablets in fear of radiationrelated

thyroid cancer. There were three

fatalities: two workers who fell and one worker

who bled to death from being struck by a

piece of machinery. A UN Committee on

atomic radiation (UNSCEAR) reported in early

2014 that there is “no evidence [the incident]

will lead to an increase in cancer rates or birth

defects.”

Both the Three Mile Island and the Fukushima

accidents were partially the result of fear: TMI

engineers warned their superiors several times

that valves were loose (later found to be one of

the primary causes of the TMI incident) but the

managers ignored these warnings, fearing

costly regulatory intervention; the Japanese

utility TEPCO publicly admitted that they

“failed to take stronger measures to prevent

disasters for fear of inviting lawsuits or protests

against its nuclear plants.”

To compare casualties from nuclear energy to

those from other energy sources is like

comparing annual base-jumping fatalities to D-

Day. In 2005 alone there were 6,000 deaths

from coal mining, according to the World

Wildlife Fund. An accident at a hydropower

plant in China—the Shimantam Dam—killed

171,000 people in 1975.

Yet only 57% of Americans favor nuclear

energy. The political repercussion of this

sentiment has made nuclear power perhaps

the most painfully over-regulated industry in

America. At a power plant I visited this

summer in Florida, there were 700 individuals

on-site; 350 of them were security

personnel. The costs of compliance are rising

faster than ever, in large part due to ignorance,

panic, and political cowardness.

The economic perspective, however, is most

central to this argument. The shale gas boom

coupled with this egregious nuclear

governance has made gas plants increasingly

cost-competitive with nuclear. But nuclear

power has the potential to be the most

economically viable solution to the nine-billionperson

problem. Here’s why.

First, nuclear power runs all the time. Wind

blows at night when there is little demand; as a

result, many turbines turn in their blades

because no one is there to buy the power.

Solar only generates when—and where—the

sun shines, and unless you cover north Africa

with solar panels, this technology simply won’t

cut it for rising energy demand. Second, fuel

costs (uranium) have a fraction of the volatility

and exposure to market forces as gas, oil, and

coal. Third, the planet has only so much

available space. The San Gorgonio Pass Wind

Farm has a capacity of 615 MW over 5500 acres

(and the geology that creates the wind tunnel

is one-of-a-kind). The Seabrook nuclear plant in

New Hampshire has twice the capacity on onesixth

the acreage. Unless families want to live

amongst the noisy wind turbines, the best

energy solution to meet future demand is

nuclear.

Finally, and most importantly, once the world

includes the full cost of carbon in the price of

power (and other commodities), the value of

carbon emissions-free nuclear energy will

soar. Coal—and even gas—will inevitably lose

the price war to nuclear.


My intent is not to bash solar and wind, nor to

say that nuclear energy is risk-free. I only wish

to convey a sobering reality: nuclear power is

the best choice for the world. And if we can

convince politicians and citizens alike to even

consider that possibility, we are one step closer

to having nine billion fully-powered people.

Sources:

American Nuclear Society

Chernobyl Forum Assessment Report

Journal of Contemporary Asia

UNSCEAR

New York Times

World Wildlife Fund

Clean and Safe Energy Coalition

Sustainable Startups

OxiCool: A Cleaner Approach to Air

Conditioning

Connor Lippincott – Senior Member, Academic Committee

This is the first in a series of articles about startups and small companies working on sustainable energy solutions. This

month’s focus is OxiCool, Inc., a company that is amidst their first product roll-out after 6 years of work.

I first learned about OxiCool at the Penn Start-

Up Career Fair, where I met their CEO,

Ravikant Barot, and their Director of

Administration and Sustainability, Emma Kaye.

Barot, a Wharton MBA Graduate, started the

company in 2009 through the Frederick

Innovative Technology Center, Inc. incubator.

Since then they have worked with both the

military and large trucking companies to make

and distribute an air conditioning system that

avoids the environmentally harmful gases

present in most air conditioners today. Kaye

told me that they have broken ties with the

military for now since “there was too much red

tape” but that this summer was going to see

their first product release with an unnamed

trucking company.

Their product, which they bill as “the world’s

only truly green air conditioner,” simply uses

water in the place of other, less ‘green’

refrigerants. It’s a simplified system, requiring

only the unit and a heat source. This works well

for motor vehicles, especially large trucks,

which generate plenty of heat on their own. A

test run at a 2012 Marine Corps event showed

that the unit was able to reduce the

temperature of 115°F water nearly

instantaneously to 60°F. They also claim that

their unit can save 90% of trucking air

conditioning fuel costs. Their claims are

impressive, and it seems as though they have a

final product that will be able to live up to

these expectations.

In the broader scope of things, the lack of

fluorocarbons in this system is promising. Most

systems in developed countries have phased

out chlorofluorocarbons (CFCs), which directly

deplete the ozone layer as a result of the 1987

Montreal Protocol. However, most refrigeration

units still use hydrofluorocarbons (HFCs) which

do not deplete the ozone layer but still

contribute to global warming. One of the most

widely used refrigerant blends, HFC-134a, has

a global warming potential (GWP) of ~1300—a

significant amount. Limiting the use of these

agents is definitely good for the environment.

However, this system does still require a large

heat source, which can often bring

unsustainable methods into the equation.

OxiCool even claims that its “technology


capitalizes on the low cost and efficiency of

natural gas”. Claiming this as a perfect system

would be overly optimistic, but overall, it

seems as though they have a good product

that can help reduce damage to the

environment.

Their product roll-out this summer will be

interesting to follow, and I hope it is profitable

enough to continue to expand.

Sources:

OxiCool

Daikin Global

EPA

Beyond Keystone XL: How Albertan Oil Sands

will reach the Global Market

Max Isenberg – senior member, Academic Committee

President Obama’s February 24th veto of

legislation that would have moved forward

negotiations on the Keystone XL pipeline

connecting Canadian oil resources to refineries

and shipping terminals in the United States has

raised questions about the impact to Albertan

oil sand production. Understanding the

existing and proposed alternatives to Keystone

XL can help put the planned pipeline into the

greater context of oil sands production and

transportation.

Mining at the Alberta oil sands (Source: Pembina Institute)

Other Pipelines

Currently, a few pipelines exist to transport oil

sands within Alberta and to key shipping sites.

The Transmountain Pipeline, operated by

KinderMorgan, currently has the capacity to

transport 300,000 barrels per day to Vancouver

for export to Asia and the US West Coast. The

company has plans to almost triple the

throughput of the pipeline by 2017.

Additionally, the original Keystone pipeline,

which starts in Hardisty, the main terminal from

which oil sands are transported out of Alberta,

takes a roundabout path to Cushing,

Oklahoma, and carries up to 600,000 bpd.

Keystone XL would more than double the

transport capacity and take a shorter path to

Cushing. Interestingly, no single pipeline

connects Eastern and Western Canada; as a

result, despite being a net exporter of oil,

Eastern Canada must import 640,000 barrels

per day. While plans exist to build such a

pipeline, they remain at least a few years away.

Road and Rail: Dangerous

Alternatives?

Beyond pipelines, crude can be shipped from

the region via rail or truck. Rail has gained

increasing popularity in recent years as

pipeline investment cannot keep up with the

demand for capacity. Currently, rail takes away

over 200,000 BPD, an impressive ramp up

given that rail shipments only began in 2013.

Predictions of rail shipments suggest between

700,000 and 900,000 BPD could be transported

by 2016. While numbers for the magnitude of

road transports are hard to come by, it appears

that it still remains a minor method of

transportation in Alberta. However, as demand


for transport remains unfulfilled, tanker trucks

will gain in use and importance.

Both trucking and rail pose environmental,

safety, and economic concerns. The likelihood

for leaks are significantly higher for rail cars and

trucks, which are less reliable methods of

conveying crude than pipelines. Additionally,

rail and roads often run through populated

areas and accidents (such as in Quebec in

2013) violently demonstrate the volatile nature

of crude. Finally, hiring drivers and contracting

trains, though requiring less capital investment,

cost significantly more per unit of oil moved.

While effective as a stopgap measure to

transport crude, pipelines represent the most

realistic long-term vehicle for getting oil sands

crude to market.

Oil Sands Hit by Oil Prices

Despite all the hub-bub, current oil prices may

make the entire debate moot. Oil sands

projects, with their very high set-up costs and

relatively low grade product, face significant

cuts to investment as oil prices have plunged

and stayed low for several months. Shell’s

shelving of an oil sands mine on February 23rd

underscored the threat that the current pricing

environment could have on new production

and alternative pipelines. Still, those

operations that are being completed or have

already been finished will be finished, as the

expectation remains that prices will eventually

rebound. The long term impacts of the price

environment are unclear, but the fact remains

that oil from oil sands is going to reach the

global market, one way or another.

Sources:

Business News Network

Canadian Association of Petroleum Producers

Financial Post

Forbes

Solar Energy in China

Sheetal Akole – Senior member, Academic Committee

With a population of over 1.4 billion people

and an economy growing at 7.7% per year,

China currently holds the title to the largest

energy consumer in the world. Major cities

such as Beijing, Xi’an, and Nanjing are now

known for their pollution, contributed by their

dependence and use of coal-powered plants.

As of 2011, coal constituted 69% of total

energy consumption, and oil constituted 18% --

renewables only accounted for approximately

7%. However, a more recent look at China’s

energy consumption shows shifting trends,

with renewables, especially solar energy,

beginning to play a larger role.

In 2012, China had 3 gigawatts (GW) of solar

capacity – their goal was to reach 35 GW by

2015. As of August 2014, China’s total power

supply was up to 23 GW, coming in second (in

terms of solar capacity) behind Germany, which

had 36GW of capacity. Although Germany

remains the global leader in solar power

generation, China is challenging their position.

In 2013, China increased its photovoltaic (PV)

generation capacity by a whopping 232%.

Compare this to Germany’s 56.5% decline in

new PV generation capacity additions.

Many of the large strides taken by China in

terms of solar energy generation comes as a

result of two main characteristics: China’s

massive solar panel manufacturing industry and

the way China incentivizes solar power. China

has ramped up its PV cell production and is


selling them on the world market below cost,

undercutting domestic panel-makers and

uncompetitive manufacturers out of business.

Over the past seven years, the costs of PV

systems have fallen 80%.

While most developed countries have been

scaling back government incentives for solar

panels, China has been increasing tariffs and

subsidies offered to private industry. Both

ground mounted and rooftop panels are

eligible for a feed-in tariff. Feed-in tariffs allow

energy producers to charge a higher price for

their electricity than the retail rate, amounting

to, in this situation, a subsidy of between 14

and 16 cents per kilowatt hour. New public

buildings and public infrastructure are also

eligible for subsidies, encouraging orders for

solar equipment.

Looking forward, China has set its sights on

reducing carbon emissions and continuously

increasing their supply of solar energy. By

2020, the government aims to have 15% of

China’s power mix coming from renewable

energy sources, and with solar panel costs so

low, a large portion of this mix will be solardriven.

In addition, China is seeking solar

markets overseas because its current

manufacturing capacity exceeds domestic

demand. However, certain countries (such as

the United States) are pushing back, imposing

anti-dumping and anti-subsidiary tariffs on

China. The two questions we are left with are

how China will handle the overcapacity of solar

panels that they are manufacturing, and

whether the solar industry will be able to

sustain itself in the long run when government

subsidies are removed.

Sources:

World Resources Institute

United Nations Environmental Programme

OilPrice

New York Times

Apple Runs on Renewables

Arthur Chen – senior member, Academic Committee

There has been some big news surrounding

Apple, Inc. in the past month. First, it became

the first company in America to hit a $700B

market capitalization. Second, there are rumors

swirling around when Tim Cook will deliver the

iWatch. Third, and most recently, the

Cupertino-based company appears to be

making a move in the electric car space.

Possibly lost amongst this deluge of news was

another major news story. Apple announced

that it had entered into a $850 million dollar

agreement to buy solar energy from First Solar,

the biggest developer of solar farms in the US.

The 130 megawatts of power provided by this

procurement deal will be enough to power all

of Apple’s headquarters, offices, stores, and

data centers in California.

The contract is set start almost immediately in

mid-2015, and the plants (formally located in

the California Flats Solar Project in Monterey

County) will have an ultimate footprint of 2,900

acres when it is completed by the end of 2016,

1,300 of which will be allotted to Apple. This

agreement builds on top of Apple’s existing

investments in two 20 MW plants in North

Carolina and one 20 MW plant in Nevada. At

this point, all of Apple’s data centers are

powered by renewables, positioning the

world’s biggest company as a leader in the

corporate community over the future of

energy.


While Apple’s deal is the first of its kind for

solar, many other large companies have

already struck similar deals. Just last year,

Google signed a 400 MW deal power-purchase

deal in wind, bringing the company’s total to 1

GW. Amazon signed a 150 MW deal for wind

just last month, and Microsoft has done deals

for a total of 285 MW itself. Outside of Silicon

Valley, large retailers like Wal-Mart have been

installing solar arrays on its roofs, and Ikea

joined a group of large companies in a

commitment to be fully renewable by 2020.

Apple’s new deal inspires questions as to

whether this represents the beginning of a new

age of environmental responsibility among

American companies. For his part, Tim Cook

has taken the lead on the issue. While speaking

at the Goldman Sachs Technology and Internet

Conference, he said: “We know at Apple that

climate change is real. The time for talk has

passed and the time for action is now.” He

went on to say: “We’re doing this because it’s

right to do. But you may also be interested to

know that it’s good financially to do it.”

If the world’s biggest company can do it,

perhaps all the other companies aspiring to be

the next Apple will take their cue and follow

suit.

Sources:

Bloomberg

The Verge

Oil Prices Update - February 2015

Thomas Lee – senior member, Academic Committee

the start of the year down to about 1,000 units,

according to Baker Hughes data. Also,

Bloomberg reports that amidst OPEC's refusal

to cut output, international oil majors like Shell

and Chevron have announced capital

expenditure cuts of more than $40 billion since

last November.

After the last few months’ drop to a historic 6-

year low, crude oil prices have begun to rally.

On February 25, WTI front month futures

traded at $50 per barrel, up from around $44 at

its lowest in January; Brent traded at $61

dollars, showing an increase in the Brent-WTI

spread that seemed to disappear at the end of

January. This crude price rise reflects supply

adjustments to overall low prices--WTI is still

down 50% from highs last June. For example,

U.S. weekly oil-rig count decreased 31% from

Downstream, gasoline prices also rose. On

February 24, RBOB (reformulated blendstock

for oxygenate blending) futures traded at

$1.62, up from lows of $1.28 in January. The

RBOB-Brent crack spread increased to 18 cents

per gallon, doubling since the start of the year.

This additional price hike above crude is driven

significantly by the largest U.S. refinery strike

since 1980, yet unresolved as of February 25.

The massive United Steelworkers walkout by

more than 6,000 union members closed 12

refineries, or one-fifth of U.S. refining capacity.

Similarly, the February 18 explosion and fire at

an ExxonMobil refinery in Torrance, California

negatively impacted capacity (although this


incident's effect on crude indices is less since

the California market is relatively isolated from

other U.S. and international markets). Without

these incidents, consumers would have seen

even lower prices at the gas station.

The diminished refining capacity contributes to

the fact that, despite the slowdown in crude

supply, large crude oil inventory buildups are

occurring. The weekly U.S. change in crude oil

inventories is around positive 8.4 million

barrels. These factors suggest that prices are

not increasing indefinitely but rather are

stabilizing. A senior Gulf OPEC delegate

commented to Reuters that a price level of $60

is acceptable; they will likely not cut output.

Americans should be expecting gasoline prices

to remain low well into 2015.

Sources:

Bloomberg

CNBC

Energy Information Administration

Forbes

LA Times

Reuters

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