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Combined Wind/Pumped Hydro Energy System in WNY as

an Alternative to Peak Oil Induced NY State Socioeconomic Disaster

Derek Bateman bateman@ecc.edu

David Bradley Tantalum73@verizon.net

Submitted to the ESSCCA Conference, Buffalo, NY on April 1, 2001

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Abstract
The economy on which our civilization is based is both environmentally and
economically unsustainable. Two obvious examples are the pending economic
dislocation that will inevitably take place as a result of “Peak Oil” and Global Climate
Change. For huge sectors of the economy many or most business models will no longer
work when we are paying $5.00 to $20.00 a gallon for transportation fuel. What
examples from social science research are available to prepare our society to avoid
economic depression if not societal collapse?

This paper will show how “Renewable Energy Feed-In Laws” (REFILs) can offer an
approach to addressing Peak Oil and fossil fuel induced Global Climate Change, as well
as Peak Oil induced economic damage. It also will focus on how wind turbines along
with pumped hydroelectric energy storage and biomass for WNY/NY State can help
address energy shortages that will result from Peak Oil while providing jobs and
maximizing social cohesion.

Summary
• Global Warming and Peak Oil are related items
• Oil combustion and oil consumption related infrastructure (e.g. cars, sub-
urbs, car-centric shopping centers/malls, etc) are major emitters and/or
causes of CO2 pollution, the major cause of Global Warming
• Global Warming and Peak Oil have different time scales for noticeable
effects and the timing of their impacts will often differ
• Global Warming is mostly a weather, climate, rainfall, and ocean level
phenomena, plus the effects of those on humans and their societies
• Peak Oil is mostly an economic phenomena, and transportation (of goods
and people) related
• Peak Oil is a liquid fuels problem – liquid fuels have unique properties
• Peak Oil is really a Peak World Oil Export problem for the U.S.
• World Oil Exports have been declining since 2006, despite significant
price increases for exportable oil (world oil price(s))
• The Export Land Model predicts a rapid decline in the oil to be exported
to the U.S./importable by the U.S. in the next decade
• World crude oil production is more or less presently at maximum levels;
world oil production rates can only decline from this peak from now on
• Increases in oil prices will NOT lead to significant (or any) increases in
world oil production rates, contrary to conventional economic theory
• Increases in oil prices will NOT stop the decline in the available quantities
of oil available for export, and can only slightly influence it
• Countries now importing oil face significant economic and societal
challenges varying from quality of life to survival issues unless they cut
back/eventually eliminate their imports of crude oil/refined crude oil
• In the next decade, countries with fewer to no oil imports will tend to do
better than those with significant and continuing oil importation needs
• Life (and especially a civilized life) in the U.S. can go on without oil
importation, but changes will be needed in how we transport people and

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goods for a civilized standard of living and a high population density (i.e.
near present population levels) to continue.
• Changing our country’s energy sourcing/usage to stabilize our
climate/minimize CO2 pollution is a major economic growth opportunity
• Changing our transportation system (of goods and people) to one
compatible with initially no oil importation and eventually no crude oil
usage is also a major economic growth opportunity
• Renewable energy costs/required real prices for that energy (electricity,
fuels, heat) vary with type and location, and mostly will be higher than are
present pricing levels for pollution based approaches (coal, oil, natural
gas, nuclear), often because the external costs for polluting energy are
largely not presently incorporated into present prices
• Renewable energy prices need to be based on the cost to produce this
energy and (often) some reasonable profit (return on the investment of
these renewable approaches) to be and become economically viable
• “Carbon Prices”, alias forms of CO2 pollution taxes/fees, are unlikely to
be significantly effective at stimulating renewable energy development via
rising the prices of pollution sourced energy to the required extent
• To be effective, CO2 pollution taxes must be raised significantly before
some renewable energy sources become lower cost; the resulting much
higher energy prices will induce adverse economic consequences and will
collapse the political viability of “carbon prices”, even when price rebates
are given to individual consumers (cap and dividend system)
• Basing renewable energy prices on the present (and usually highly
subsidized) prices for polluting energy will lead to minimal installation
rates of renewable energy and minimal replacement rates of polluting
energy production/fossil fuel consuming facilities for the next decade
• Without major capital investments/job creation in the U.S., the present
“jobless economy” will soon collapse as a result of more frequent and
more intense oil price shocks and/or Global Warming induced
weather/climate changes/disasters often in confluence with banking and
other financial “panics”
• Job creation investments that result in greater oil/pollution based energy
usage are outrageously wasteful forms of investment – in effect, they
really represent consumption, not investment
• The present “jobless recovery”, with the 25 million unemployed and/or
underemployed citizens in the U.S. is really a “meta-stable, sub-optimal
economic equilibrium” of the kind predicted by John Maynard Keynes
when “gambling bubbles” pop and an inadequate government stimulus is
employed to counteract the collapse in the private sector economic activity
(demand); such arrangements can exist for considerable lengths of time
• Significant investments in renewable energy and in ways to minimize
and/or eliminate oil usage may be the ONLY way for the U.S. to climb out
of the current “jobless recovery”; so far, these efforts have been fairly
insignificant and impressively sub-optimal

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• Failure to institute sensible pricing policies such as Feed-In Laws will lead
to insignificant Green Energy investments/Green Job creation, with dire
future economic and societal prospects for the vast majority of people in
this country
• Failure appears to be the present “default option” with respect to Green
Energy/Green Jobs, and to avoid failure on epic (i.e. 1930’s Great
Depression and worse) scales will require changes to renewable energy
pricing systems/investment policies
• Our present governmental, economic, political, media and societal leaders
tend to live comfortably and/or extravagantly under the present “future
failure regime”, and they appear to be well insulated against poverty and
deprivation; their personal motivation to change such an arrangement is
minimal, as they are “doing fine” under the present arrangement
• Whether and how our societal leaders will allow change (to a Green
Energy and Green Jobs based one) to occur that may diminish their status
or the status of their “tribe” and their grasp on economic/political power is
of key importance to our collective future well being; just because it is the
logical thing to do for the vast majority of people does not mean that it
will occur, as the prime decisions are apparently being done by a tiny
minority of our population

Economic Introduction
The Great Recession of 2007 to 2010 (and for most people in this country, still going) has
been widely viewed as the worst economic contraction/disaster since the Great
Depression of 1929 to 1933 (and which really extended to WWII). In March of 2008,
while all eyes were on the spectacles of the financial fraud in the U.S. and the associated
securitization and world-wide sale of defective mortgage backed securities (the Bear
Stearns bank run), world oil prices had almost doubled in less than a one year period. In
addition to or as a result of the oil price spike, huge price increases in natural gas, coal,
ammonia and corn (for ethanol, and related to oil price) also were observed. These price
increases contributed to increasing rates of home mortgage defaults, because the
combination of rising widespread unemployment as well as prices for goods
(commodities) and services (including health care insurance, college expenses, loans and
loan rates) diverted money away from home mortgage payments. In turn, this led to more
of the securitized mortgage bonds going into default, accelerating the process of the
system-wide financial “Black Swan” event. As it turned out, the major money making
opportunity of the year became betting on mortgage bond defaults (shorting the bonds)
and betting on defaults of various banks/financial entities, as well as companies like GM
(shorting their stocks and bonds), as was done in 1929. Rising oil prices acted like a tax
increase on poor and middle income people (especially the bottom 90% of the U.S.
income distribution), and this helped collapse the economic demand for goods and
services in the rest of the economy. After oil prices peaked at $147/bbl, oil prices crashed
when the excess oil inventory could not be sold at the rate needed to pay off loans used to
buy oil futures contracts, and prices rapidly dropped back to near $35/bbl. The Great
Recession was now “on” for all to see; in less than a year, over 7 million people became

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unemployed just in the U.S., and many times that throughout the world. And for good
measure, 18 months later, world oil prices were once again hovering near $100/bbl,
having averaged $78/bbl for all of 2010.

In the Great Depression, one of the worst things that President Hoover and Treasury
Secretary Mellon did after the 1929 Stock Market Crash was to get taxes raised, while
slashing government spending at the same time. The stock market crash in the fall of
1929 led to a drop in tax revenues, and a slight increase in the meager income support
payments to the rapidly swelling ranks of newly impoverished people which increased
government expenditures, and further increased government debt. To plug this revenue
gap, taxes were raised, and this actually accelerated the drop in demand, which led to
even greater deficits and greater economic ruin. As it turns out, the best response would
have been to increase government debt, spend money to employ many of the recently
unemployed, and thus stimulate economic demand (Keynesian stimulus). The disastrous
Hoover-Mellon approach became amazingly unpopular, and in 1932, the Republicans
were largely thrown out of office. In the ensuing Roosevelt administration, many of the
Keynesian stimulus programs were tried/developed, which were successful in ending this
financial collapse in the standards of living for most people, to varying degrees.

Increasing oil prices can act in the same manner as an increase in taxes in the U.S., and in
a very regressive manner, affecting those with the least disposable income the most. The
effect is magnified because so much of our oil is imported, and money to buy this
imported oil has to be exported. Money is also transferred from more job intensive
sectors (such as manufacturing) to the oil industry, which is highly automated, and which
often occurs outside of this country. In addition, huge shifts in the distribution of wealth
within the U.S. will result when those with oil and related energy reserves (inventories,
futures contracts, reserves of oil still in the ground but proven and deliverable) become
the beneficiaries of sudden increases in the value of their holdings. And since nothing
becomes as profitable as oil, most investment funds rush to find more oil. Unfortunately
for the U.S., we are significantly tapped out of new oil supplies; our peak production year
was 1973, and it has been a steady decline in output since then.

The general trend of increasing oil prices worldwide also will produce a transfer of
wealth from oil importing countries to oil exporting countries on a massive scale. The
wealth transfer could well overwhelm the ability of oil exporting countries to buy goods
and services from oil importing countries, and the result will be a net enrichment of a
minority of the earth’s population (oil exporting countries) and a net impoverishment of
oil importing countries. Adding to that imbalance is the “resource curse” that affects most
“oil countries”, as often only a small percentage of their country benefits (for example, as
in Equatorial Guinea) from this sudden inrush of income and wealth, while increased
corruption and oppression of most of the population becomes the normal state of affairs.
Those countries that can minimize or eliminate their oil imports will do better than those
who do not minimize their oil imports, whether by becoming more efficient in their use
of oil, by finding substitutes, or by rearranging their society to deal with a reduced or
eliminated dependence on oil importation. Attempts at the conquest of oil rich Iraq have
shown that this approach does not work, as oil infrastructure is too easily sabotaged (the

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product (oil and natural gas) doubles as the explosive needed to blow up the oil delivery
system).

The replacement of oil consuming (and by extension, fossil fuel consuming) systems in
the U.S. would be a very capital intensive approach, assuming that current standards of
living are to be more or less maintained. The investments in mass transit, biofuels, other
fuels, renewable electricity generation and electrical energy storage as well as new
housing and work arrangements could be a major economic stimulus. This could result in
tens of millions of required new jobs, all paid off over a several decade long period by, in
effect, the avoided cost of oil importation and over time and by avoidance of some part of
the damaging effects of associated Global Warming. In fact, any economic recovery that
does not focus on the replacement of oil importation is unlikely to be effective, because
the “money bleed” from the U.S. to oil exporting countries (presently near $1 billion PER
DAY) is accelerating, and is likely to keep accelerating. The borrowed money used to
pay for this oil importation also results in greater debt and larger interest payments on
this debt, further degrading U.S. living standards in an accelerating pattern. Continued oil
importation without alternatives to present rates of oil consumption will lead to a
collapsed economy once creditors no longer believe that the debt interest can be
services/principal be repaid. A consequence of this “no confidence” scenario will be a
massive regression in the standard of living for most people (i.e. those not rich), massive
dystopias (plural), and a slide into a “Mad Max” type decomposition of American Society
caused by the inability to transport most goods and people to and from the destinations.
There would also be massive world-wide ramifications of such a decline in U.S. and
world-wide living conditions standards of living (after all, who would by all that Made in
China “stuff”), though these effects would no doubt vary by country and/or region.

Numerous political and social action groups have touted the benefits of our economy
changing to one more based on renewable energy as the energy driver/source for our
society and economy. Given oil pricing trends, and also the depletion of the finite
supplies of prime fossil fuels (notably oil and natural gas, followed by coal), continued
dependence upon exponentially decreasing supplies and exposure to exponentially
increasing prices does seem like economic and societal folly. In fact, the probability of a
viable U.S. economy which is still significantly dependent on imported oil plus locally
sourced natural gas and coal, seems increasingly a remote one, and less and less probable
over time. Thus, it is unlikely that a viable U.S. economy and society would continue
WITHOUT a huge push to renewable energy based society.

Such a Green Energy based economy and society would employ a larger fraction of the
population in producing energy, or producing systems and manufactured goods that
convert renewable energy (mostly biomass, sun and wind, all of which are solar derived)
into usable electricity, fuels (stored chemical energy) and heat. In addition, a significantly
enhanced mass transit (mostly rail based) sector would replace a large amount of car and
truck transportation (rail is easily electrified). Much of this energy related development
would require a larger fraction of our economy be manufacturing based, as much of this
infrastructure needs to be made (wind turbines, rail, electricity for rail, electricity storage
systems, etc). In addition, many of the automobile-centered living and working

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arrangements would need to evolve to a less auto-centered arrangement; in other words,
sub-urban life would need to become less dominant, and densely populated urban regions
that can be serviced by mass transit and/or pedestrian/biking more efficiently and
economically than what now exists would need to be expanded. Of course, all of these
are also job producing transitions. Finally, without the need to import oil, the need for a
huge military also shrinks, and this will have the net effect of lowering taxes/a massive
job stimulus, over time.

But, without renewable energy producing systems to replace fossil fuel based systems,
none of this will happen, leading to several dystopian future scenarios. Furthermore,
while converting to a coal based society may be possible for a bit (the U.S. has significant
coal reserves) until those deplete within a 50 year period, constraints such as the cost to
do it, water to do it with and spiraling CO2 (and other) pollution consequences would also
kick in. Like oil, coal exploitation also has limits, especially since many of the better coal
reserves have been tapped out in the eastern half of the country, and any mismatch
between supply rates and consumption rates can also result in significant price spikes.
Those price spikes can also happen when foreign countries like India and China buy up
only a small percentage of U.S. coal output, as coal is what is considered economically
“inelastic” (small changes in the supply/demand balance lead to large price shifts) – see
http://pesd.stanford.edu/publications/the_worlds_greatest_coal_arbitrage_chinas_coal_im
port_behavior_and_implications_for_the_global_coal_market/. However, conversion of
coal to oil is expensive, investment and resource intensive, and this would accelerate coal
usage significantly. About 2 bbls of refined oil can be made per ton of coal; 12 million
bbls/day of imported oil would require the use of 2 billion tons/yr of additional coal, and
since present U.S. coal extraction rates are about 1 billion tons/yr, an additional 2 billion
tons/yr of coal production is highly unlikely. This would also do nothing about current oil
sourced CO2 pollution, and the 2 billion tons/yr of coal would result in a significant
increase in the overall CO2 pollution rate, and/or a massive need to bury the CO2 waste
product from coal to oil conversion systems. As it turns out, it would be cheaper to
convert to a more efficient, less car based and more renewable energy sourced society
than to go down the coal to oil route, even if it means lessening the importance of
suburban living and increasing the importance of urban living arrangements.

But, there is the big IF; if conversion to a renewable energy based system needs to be
done, can it be accomplished with existing energy pricing systems, especially for
electricity and liquid fuels? In the U.S., this is doubtful, and the continued pricing system
could only be useful if fossil fuel prices drastically rise to the point where at least some
renewable sources are less expensive (even when external costs are NOT included in
pollution energy pricing). If prices rose rapidly to that level, our economy and society
would be drastically affected, to well beyond Great Depression levels, in which case
consumption rates of fossil fuel energy would drop, prices would lower and the
motivation to change would be temporarily removed.

Current fossil fuel pricing is such that most renewable energy varieties are more
expensive than non-renewable sources, and the failure to include external costs such as
CO2 pollution and coal particulate pollution accentuates that arrangement. Furthermore,

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current pricing systems have an immense difficulty in incorporating long term future
fossil fuel pricing into present pricing. Part of this difficulty lies in achieving any kind of
broad-based consensus on what future fossil fuel prices will be over time; after all, Peak
Oil was not officially acknowledged as happening in 2006 until 2010. Even in the year
2010, most of our country still has no real idea as to what Peak Oil will mean for them in
the next decade. Since most people and companies have to be focused on the near term (6
months to 2 year range) – in other words, a high discount rate outlook - decade long time
frames have little meaning for most people and most businesses.

Of all the energy pricing systems that have been tried on a large scale to date, the Feed-In
Law systems (also called Feed-In Tariffs, Advanced Renewable Tariffs, Renewable
Energy Payments, Standard Offer Contracts, CLEAN systems) seem to be the best at
delivering more energy at lower real cost, creating more job growth, stimulating
technological improvements, and distributing the benefits and costs in the fairest manner.
And in states like NY, it is unlikely that any significant renewable energy development
will occur in the near future without some form of a Feed-In Law system, due to our
“marginal based pricing” of key energy sectors, notably electricity. A failure to have a
pricing system for renewable energy based on the cost to produce this energy and NOT
based on fossil fuel prices will mean that essentially no significant renewable energy
development (Green Jobs, Green Economy) will occur for some time, if at all.
Eventually, when confronted with massive economic and social failure induced by
massive unemployment from ever higher oil/energy prices, there will only be two routes
out – continued socio-economic decline, or else sensible renewable energy pricing based
on the cost to produce this renewable energy. In this paper, the more optimistic route is
examined, which is not to say that it will be adopted; after all, “should be” and “will be”
are two completely different things.

Energy and Climate


Many of the “pieces” of the puzzle that is our near term likely energy system in WNY are
in existence, and in play, even if these are not widely recognized in WNY by our
dominant media entities and political leaders. Most no longer question the reality that is
defined by the connection between Global Warming and atmospheric CO2
concentrations, though doing something about that is another matter altogether. Most
people realize that oil prices are high and trending higher. Since 1998, average world
crude oil prices have increased from $15/bbl to over $80/bbl in 2010, an economically
unsustainable rate of roughly 14%/yr (doubles every 5 years). At this rate, by 2020, the
average crude oil price will be over $280/bbl versus the present $85/bbl, but this is before
a more correct and less optimistic model of oil pricing (Export Land Model) is
considered. At consumption rates approximating current ones, this would mean that 3.5
times as much of the present “oil part” of people’s disposal income would be spent on oil,
and at constant real income (for most, a best scenario prospect for the next decade), much
less money would be available for anything else – rent or mortgage, taxes, food, clothing,
entertainment, medical expenses and education, to name a few. This squeeze on the
incomes of most people is clearly not economically or socially viable. Furthermore, the
price of oil is an important factor in the cost to make/provide for many items in the U.S.,
so oil price rises also increase the prices of many other items, especially those that need

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transporting, involve food, clothing, etc. It is too bad that the March, 1998 warning
published in Scientific American (The End of Cheap Oil - http://dieoff.org/page140.htm)
was never heeded.

To make matters more apocalyptic, Peak Oil officially happened in 2006 according to the
International Energy Agency, and is going on 5 years old. Based upon worldwide
production data, production rates of oil have been essentially constant despite drastic
price increases. Furthermore, the oil discovery trend in the last 40 years – where more oil
is consumed during a year than has been discovered – has continued, and shows no sign
of abatement, as shown in Figure 1.

Figure 1
From http://www.theoildrum.com/files/campbelldiscoverycurve200903_0.gif

As a country that has evolved over the last century on gasoline powered automobiles and
diesel powered trucks, this is not good, as we will have to deal with a future of reduced
rates of petroleum usage. The recent price history (see Figure 2) of crude oil is
instructive, and an indication of the near future unless steps are taken to reduce oil
demand, and put some balance back into the supply-demand arrangement. The short term
alternative is continued massive export of money, until the money and/or credit runs out.

For the most part, oil products are all about energy used in transport of people and things
– gasoline for automobiles, diesel for cars, trucks and trains, kerosene for aircraft, fuel oil
for shipping. While some easy substitutes are possible – for example, conversion of most
freight rail to electric (locomotives are diesel electricity sourced electric motor driven) –
these all require long term investments (electric lines to power rail lines, and associated
electric distribution infrastructure), which will need to come out of current consumption

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monies or be financed by long term repayment by the energy consumers. However, it is
the automobile habit and related sub-urban and/or ex-urban lifestyle/habitation pattern
that will be most difficult to alter/replace/evolve from, in various manners. Most
Americans now live in the sub-urbs, even though 80% or more of the people in this
country live in large urban areas (metros). In large part, they have completely bought
into/been seduced by the “iron triangle” (see http://www.theoildrum.com/node/2767) of
oil-natural gas as one leg, car-housing-finance as another and media-advertising as the
last leg (selling the car-housing-suburb dream that is also based on oil consumption) all
glued together with copious amounts of cheap, long term debt financing. By now, most
middle class Americans know of no other kind of existence than “the ‘burbs”, and for
them, back to the farm is not in the cards, and back to the city might mean dealing with
societal inequities that have been ignored for a long time.

Figure 2
From http://gailtheactuary.files.wordpress.com/2010/12/world-oil-production-and-average-price.png

Oil consumption also happens to be the major source of our country’s CO2 pollution – in
2010, about 45% of it, with coal at 35% and natural gas at 20%. Almost no oil is now
used to make electricity (a case of demand destruction brought on by high oil prices),
while coal is almost exclusively used to make electricity, and about 20% of natural gas is
used to produce electricity. Most natural gas is used for heating uses, especially
residential and commercial (building) heat. Any methane used to make electricity comes
out of future home heating supplies, since there are only finite supplies of extractable
methane (just like with oil) in North America.

The “lag time” for significant effects of Global Warming to become apparent is fairly
long term, and in the next 20 years, Peak Oil problems are likely to be dominant.
However, most CO2 injected into the atmosphere will linger for at least 50 years, and the

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real impact may not play itself out for close to a century. There are also many
complicated feedback mechanisms and “magnifiers” to the Global Warming situation,
such as melting permafrost caused methane emanations and Greenland ice sheet
decomposition (like landslides). Of course, in the long run, we are all dead (Keynes), so
long term is more about our descendents or for those expecting to live a long life (such as
those presently under 18 years old). The unfortunate irony is the fact that those who will
be most affected by CO2 pollution are those with the least ability to do anything about it.

As it turns out, renewable energy can be supplied in volume by existing technology as


long as that is in the form of electricity. Renewable based fuels can be supplied, but not at
rates comparable to current oil production, and generally not at prices thermally
competitive with present oil prices (though that may soon change as oil prices keep on
rapidly rising). Most renewable sources of liquid fuels (biofuels) cannot compete with oil
on the basis of price, even at $100/bbl; prices close to double that may be required to
make many biofuels cost competitive. In the short term, most renewable energy
production will be in the form of either electricity or heat, and very little in the form of
liquid fuels, with corn based EtOH likely to supply up to 10% to 20% of U.S. car fuel.

Thus, Global Warming is a severe LONG TERM problem, now beginning to manifest
itself. Peak Oil is a much short-term term issue, which has been manifesting itself since
roughly 2006, and which played an important factor in setting up and setting off the Great
Recession of 2007-201(?). Global Warming will impact on the climate, food production
and the flooding of many coastal regions. Peak Oil’s effects will be as a series of
increasingly severe economic disruptions along with transport issues which will affect the
availability of food supplies, food affordability and food security.

There are several possible “solutions” to either of these problems, but many (such as a
massive human die-off) are quite bleak, and less than desirable. Part of the solutions to
both Peak Oil and Global Warming involve using less oil and less natural gas, so in some
ways, dealing with the Peak Oil issue (by using less oil) could also lessen CO2 pollution.
However, there are some solutions to Peak Oil (such as coal to liquid fuels, (CTL) and
nuclear energy derived hydrogen based fuel/fuels) which could provide liquid fuels for
some time but which would be quite devastating, environmentally, economically and/or
climatically.

In this paper, some solutions to both Global Warming and Peak Oil will be proposed
which seem to be appropriate for the WNY region. Obviously, local solutions to
renewable energy production depend upon the local renewable energy resources, as well
as what local regions are willing to pay for that energy. After all, the price paid for
energy is a major determinant in the quantity of energy which can be provided, up to
some limit, since electricity that costs too much could be a very regressive restraint on
regional economic and societal viability. This economic dampening would occur through
the Demand Destruction and declining disposable income mechanisms (money diverted
to pay for electricity cannot be spent on other items). In effect, this means that in the mix
of electricity used to supply WNY, not too much of it can be of the very expensive kind

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since this will also cause Demand Destruction up to the point where little or no electricity
can be afforded by those with limited incomes.

Discussion

In 2010, the International Energy Agency concluded that Peak Oil had already arrived,
and published their startling conclusion. To many this was a “what took you so long”
event. However, the fact that world oil production has been essentially constant (top of
the peak) for the last five years (since early 2006 – see Figure 3) is far less important to
most countries that import oil (which constitute the vast majority of the planet’s human
population) than the amount of oil available for export (see Figure 4)

Figure 3
From http://www.theoildrum.com/files/FIG_01_IEA_WORLD_SUPPLY_OCT_2010.PNG

After all, the gross amount of oil Saudi Arabia or Russia produces has very little effect on
the world oil price, as those countries subsidize internal consumption (domestic prices).
What affects the world oil price is the amount of oil that they export (which is production
minus domestic consumption). World Export Oil has been DROPPING for that last 5
years, and because worldwide discoveries are still less than annual consumption, more
countries switch from net exporters to net importers (for example, Great Britain in 2005,
and Egypt in 2010). Given the increase in consumption of oil in China and India as well
as the steady increase in oil consumption in most oil producing countries (as explained in
the Export Oil Model), the difference has to be made up by other importing countries

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consuming less oil. This has been very apparent in much of the “third” and “fourth”
world (where things are really dire), as well as in the OECD countries such as the U.S.
and Europe. The significant recent drop in oil imports to OECD countries (does not
include India or China) shows this (see Figure 5).

Figure 4
From http://www.theoildrum.com/files/FIG_03_WORLD_NET_OIL_EXPORTS_2009.PNG

The Export Oil Model – world wide version – for the next 5 years can be seen in this
article: http://www.aspousa.org/index.php/2010/10/peak-oil-versus-peak-exports/. It
predicts a drop of between 11 to 13 million barrels per day (mbd) in the volume of
“exportable oil” between 2011 to 2016 (5 years). Since a $20/bbl price is approximately
equivalent to a 1% change in the supply or demand of oil, a 27% to 33% drop in
exportable oil indicates a huge increase in price – up to $600/bbl. This is probably well
beyond the “linear extrapolation zone”, and would cause numerous severe economic
contractions (recessions/depressions) as a result of Demand Destruction. But somehow,
demand for oil outside of India and China has to collapse by a significant amount, as
caused by “market rationing” in order to make production rates equal to consumption
rates. However this works out, even constant rates of oil consumption in this country do
not seem probable for the next 5 years, and certainly for the next decade. In effect,
China’s and India’s high value added and/or highly subsidized manufacturers will outbid
U.S. commuters for a significant quantity of the importable crude oil available on world
oil markets.

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Figure 5
From http://www.theoildrum.com/files/FIG_05_OECD_NET_IMPORTS_SEP_2010.PNG

To add to this problem of oil supply, the coal situation in both India and China (who
combined consume most of the world’s coal) also needs to be considered. China has
recently become an importer of coal (165 million tons/yr in 2010, up 23% vs. 2009 – see
http://www.steelorbis.com/steel-news/latest-news/chinas-coal-imports-rise-31-percent-to-
165-million-mt-in-2010-580056.htm), and about 5% of its massive consumption is now
imported from numerous countries – see http://www.postcarbon.org/article/193411-peak-
coal-is-moving-closer-too. Domestic coal production by China is regarded as a national
priority, and this trend (increasing coal imports) is accelerating as domestic production
peaks while the quality of and the accessibility of domestic Chinese coal decreases. In
2008, international coal prices spiked when Australian supplies temporarily were stopped
by flooding in Australia’s coal producing/exporting regions, so both China, India (a big
coal importer) and Japan had to shop around the world to maintain their coal
consumption rates. In the U.S. coal prices tripled on the East Coast as a result of large
scale spot buying; when electricity demand in Europe shrank due to the 2008 financial
crash, prices fell back to normal. China recently stopped almost all of its coal to liquid
fuel (CTL) projects, probably due to worries about long-term coal supplies – see
http://www.energybulletin.net/stories/2011-02-13/excessive-optimism-our-enemy-coal-
liquids-case-study. This means that any CTL or related gas to liquids (GTL) projects are
possible only in locations in the U.S. isolated from international coal prices (basically
certain isolated regions in the upper Great Plains/Rocky Mountains, where water (another
key ingredient in CTL processes) is also increasingly rare. CTL projects are unlikely to
be able to supply much of the current U.S. oil market because coal prices (a major CTL
production cost) are apt to increase drastically.

14
At some time during the next decade, some kind of CO2 pollution tax (though probably
inadequately low) is likely, if for no other reason than a need for another revenue source
to states and the Federal government. Such a CO2 tax, if sufficiently high enough, would
increase the price of fossil fuel prices, further increasing demand destruction effects. If
the tax was not great enough, then coal and natural gas based electricity and oil based
fuels would still be less expensive that non-polluting renewables, and no replacement of
significance would take place. Due to the differences in the cost to produce various kinds
of renewable energy, only the lowest cost renewables would be installed unless enormous
CO2 pollution tax rates were adopted. For example, the cost of coal based electricity
would need to rise by a factor of 3 to make on-shore wind price competitive with coal
derived electricity, and effectively no substitution could take place until that price parity
occurred (http://wagengineering.blogspot.com/2010/08/ethics-and-morality-of-carbon-
pricing.html). However, coal prices (when CO2 pollution taxes are converted to a coal
cost) would need to rise by a factor of 40 in Western NY before house based PV systems
became competitive with coal based electricity.

In addition, the lack of importable oil might be dealt with by converting natural gas to oil
(GTL), but this will mean that less natural gas is available to make electricity, which
could result in more coal usage to make electricity, thus increasing price pressures on
coal. Due to the strong interconnection between the coal and natural gas markets via
electricity in the U.S., decreasing the use of one fuel in one market (such as diverting
methane to gasoline synthesis and from electricity production) will just raise the price of
the other fossil fuel.

Any “cure” to the problem wrought by Peak Oil and especially by Peak Export Oil easily
can be explained as a result of incorrect pricing, as long as the long term social
implications are not considered. And since additional increases in oil prices are unlikely
to result in an increased oil supply, all that increasing prices will do is to cause fewer
consumers to be able to use oil, and it will cause all consumers to use less oil on an
average basis. But, increasing prices can result in societies changing so that less oil needs
to be used to accomplish the same or similar tasks as is the current case – for example,
moving people from ex-urbs and sub-urbs into more transportation energy efficient living
arrangements (such as cities), or raising car fuel efficiency by lowering highway speed
limits. In addition, competing products to oil (such as biofuels or electrified transport)
can also become viable to some extent when oil prices rise to a sufficient level. And
while there is unlikely to be enough biofuels made in the US and certainly NY State to
substitute for present rates of imported oil (about 12 mbd for the U.S. at present, or about
65% of current consumption), significant quantities of biofuels can be made. Due to the
horrible level of energy efficiency/significant inefficiency with respect to transportation
(the U.S. has average vehicle miles per gallon levels that are half of Europe’s, and Europe
now generally has a higher standard of living than does the U.S.), simply getting 44 mpg
average fuel efficiency (Europe and Japan’s current average) instead of 22 mpg could cut
U.S. crude oil imports by close to 8 mbd, or about 2/3 of present imports.

15
Of course, many of these changes can take time, and to date, most U.S. corporations,
governments and public institutions have really not focused on the need to get efficient.
Increasing energy efficiency (the most cost effective and rapid way to reduce energy
consumption and costs), let alone trying to secure long term significant biofuel supplies
has not really been pursued to the required extent to date. However, demand destruction
also works; following the 2007-2008 oil price spike, oil consumption dropped 10%, close
to 2 mbd of oil imports, and electricity consumption dropped by at least 5%. In NY,
electricity prices on the generated portion (not transmission and distribution costs/prices)
dropped by 50% to 70% (location dependent) following a slight drop in demand by 6%.
An unfortunate effect of this conservation/drop in electricity consumption was to
essentially stop all new renewable energy installations for the next two years, since the
depressed prices for generated electricity were below the level needed to break even/meet
profit expectations, even when significant state and Federal subsidies were present.

Most renewable energy installations are capital intensive. Any increase in overall
employment from deployment of renewable energy is most likely to occur with the
manufacture of these systems, followed by employment to install these systems. These
systems become very expensive sources of energy if the investment in the purchase and
installation have to be paid back rapidly (though after the capital has been repaid, they
tend to be very low cost). However, to keep long term energy prices as low as possible,
long term loans at low interest rates and equivalent “inexpensive, low discount rate
equity” must be employed to finance renewable energy investments. Such low cost
financing is only possible if the financial risk associated with this investment is low.

In general, the financial risk of a renewable energy project tends to be centered on the
price obtained for the product (energy), providing the investment is not fraudulent. In
other words, if the annual energy yield of the project under consideration is well defined,
it is the price obtained and the price certainty for the product of this investment (annual
energy output) that is a big determinant of the risk of this investment. Another risk to be
considered is whether the product can be sold, and whether the price could be undercut
(generally by fossil fuels or other pollution based energy, as well as by a drop in demand
for electricity).

At present, renewable energy tends to be a minor component of NY’s energy mix, and
especially for three major categories – electricity, transportation fuel and heat. If the price
for energy in these categories were the result of a weighted sum of all energy products
(for example, coal, natural gas, oil, biomass, trash, nukes, wind and hydroelectric sources
for electricity), increasing the price on a minor fraction of the energy group only would
have a minor effect on the overall price. However, this is not actually the what occurs, as
prices for oil and electricity in NY State are generally set by the marginal price – the
price needed to provide the last bit of all of the energy requirement. It is this marginal
price that is paid to ALL energy producers during a particular period of time, regardless
of the actual cost to produce this energy. With oil, prices are now set by how much
people will pay for this oil, and not by the weighted average cost that it takes to produce
this oil. Only energy efficiency can put a ceiling on oil prices, since producers would then
be forced to sit on their product while at the same time continuing to pay off their

16
creditors and investors. At present, natural gas is mis-priced (priced too low) due to a
temporary glut; current prices are about 50% of the price needed to justify new
production (such as expensive tight shale gas).

This system of marginal pricing favors speculation and short term investment, and
discourages long term investment in capital intensive energy production and storage
systems. This marginal pricing system also insures that electricity is always available at
some price, though often at an excessive price; the primary focus is to make sure that the
grid is always operational, and that there is sufficient supply to ALWAYS meet demand,
even though demand can vary widely over time. Under such arrangements, investments
in renewables can only occur when the consensus/estimates of long term prices rise to the
point where these investments are financeable. And since there may be a 2 to 5 year lag
from when these are started to when they begin to generate revenue from sales of energy,
there is a circular logic that develops. Such investments are not made until the pain from
excessive fossil fuel pricing becomes either significant or extreme. Another effect of this
“logic” is that those receiving the economic rents from spiking polluting energy prices (in
general, when one of the fuel components of the energy mix spikes, while others maintain
fairly constant costs) are often the only ones who can afford the renewable energy system
investments (due to their windfall profits). However, since their windfall profits are
coming from the existing arrangement, there is little incentive to change the existing
arrangement, since renewable energy investments would lead to less windfall profits to
those low cost producers who own fully paid off facilities. This situation can also lead to
an extremely rapid concentration of wealth by a small number of people, followed by
significant economic crashes. These crashes come about when the majority of customers
end up diverting too much of their money to pay for their energy, and do not have enough
money to keep other parts of the economy from sinking…

Thus, the marginal pricing system for electricity and oil ends up being detrimental to
renewable energy development, especially when “old energy” (polluting and/or depleting
energy) sets the price ceiling for renewable energy. A more logical system would be to
base renewable energy prices on the actual cost to produce this energy, and to disconnect
the price of renewables from non-renewables. Next, to insure that a constant revenue
stream from sale of the renewable energy is available to pay back investors and lenders,
there needs to be some way of insuring that all of the energy produced (or at least that
contracted) can be sold at reasonable prices. The “reasonable price” basis requires that a
reasonable cost and a reasonable profit rate can be defined, but fortunately, this can be
done as demonstrated by the large number of countries who use such pricing systems.

In general, the two ways such systems are employed is via Power Purchase Agreements
(PPA’s) for either bids (quota) or by Feed-In Laws, where the amount of renewables
added per year is not set but is somewhat determined by the “reasonable profit” part of
the price calculation. In either case, investors who either win the bids (low bid) or who
are able to meet the Feed-In Law price can then proceed to line up low risk financing
based on a contract that assures the producer of a stable cash flow. Combinations of these
(PPA’s/quotas/REFILs) can also be employed.

17
When the combination of a Feed-In Law/PPA fixed renewables price is added to a non-
renewable marginal price system, there is an odd benefit – prices for consumers usually
drops unless a high quantity of a very high priced renewable (for example, photovoltaic
electricity) is employed. This is called the “Merit Order Effect”, and the odd result is that
adding more of the somewhat expensive renewable energy (for example, wind or biogas)
to a system where average fossil fuel prices are lower than these renewable prices
actually lowers average prices paid by consumers. Two other results of this Merit Order
Effect are that polluting energy producers will on occasion experience negative prices
(they have to pay others (usually storage facilities) to take their electricity), and that the
extraordinary profits taken by fully paid off low cost producers (usually coal or old
nuclear based) are reduced. By removing these “windfall profits”, incentives to maintain
polluting facilities also are reduced.

So far, more than 50% of all wind turbine capacity, 75% of PV systems and almost all
biogas systems in developed countries have been installed via the Feed-In Law system.
Many countries use a combination of FIT’s (feed-in tariffs) for small and medium scale
projects and then PPA bids for very large scale or large investment projects, such as
offshore wind farms. Most of the modern technology of wind turbines, biogas, biomass
combustion and PV systems has been developed in countries that have FIT systems. Most
of this development also has occurred with private or state run (pseudo-private)
companies, and direct government led R&D has actually played only a minor role. In
FIT/PPA systems, government subsidies of prices are not needed; costs are paid by the
consumers of this energy. In contrast, in countries like the U.S., subsidies of renewable
energy lower the price of renewables to the prices set by polluting (and often fully paid
off) energy levels – further depressing prices by raising supplies, and so requiring even
more subsidies due to low energy prices. This also encourages higher consumption rates
of energy/suppresses energy efficiency efforts. The subsidies are usually paid for either
directly or indirectly from governmental tax revenues, and more renewable energy
installed corresponds to lower governmental tax revenues. In the U.S., the tax credit and
tax deduction approaches only can be used effectively by the very rich This results in the
rich being the only ones to significantly benefit financially from investments in
renewables, while those not rich have to make up the difference by paying higher tax
rates, often via highly regressive forms like sales taxes. This system also results in only
the ultra-rich being able to own the significant renewable energy production systems
(such as wind farms), and it excludes widespread ownership of renewable energy
production arrays.

At present, Feed-In Laws are only used with electricity, but similar systems might work
with energy crops. In theory, renewable fuels could also benefit from a similar system of
fixed prices, but in this case, the government(s) would need to take a more active role. In
this arrangement, farmers who grow the feedstock would contract with the relevant
government to supply crops/feedstock to conversion facilities (many ethanol (EtOH)
plants are owned by farmers cooperatives, and these function as a way to enhance the
value of the crop by conversion to fuel and protein concentrates). In turn, conversion
facilities would sell the fuels to some entity (governmental or regulated private entity),
which would then distribute this fuel to blenders, who would be required to use these

18
fuels in set (and increasing) amounts, and who would in turn pass along costs or savings
to consumers. In this way, fuel prices would be largely disconnected from the price of
crude oil, which can vary drastically and is no longer related to the average cost to
produce this oil. This would also allow prices to be adjusted based on fertilizer costs,
weather, crop yields, etc. It would also somewhat disconnect energy crop prices from
food for humans prices, although there would always be some connection (for example,
via protein concentrate by-products). This system would work for cellulose crops (wood,
grasses), oils (canola oil, by-product protein concentrate), and mixed crops like corn
(kernels, stover and cobs, DDGS).

Pricing renewable energy to consumers on a cost plus a reasonable and definable profit
basis could drastically increase the amount of renewable energy sold to consumers, since
investors would not be likely to lose money on their renewable energy installations. In
turn, this would cause a drastic increase in the demand for renewable energy systems to
be made, which is where most of the new employment potential and new business
potential exists for the renewable energy sector. The cost plus reasonable profit pricing
system would also minimize the probability of bankruptcy caused by rapid swings in
fossil fuel prices (especially collapse in those prices after price spikes) for renewable
energy developers. In turn, a large number of existing or new businesses in the renewable
energy supply chain would experience an increase in the demand for their products and
services, all of which would result in more employment. The additional employment and
increased business activity (the multiplier effect) would also increase state and Federal
tax revenues and decrease expenditures for unemployment. Since tax revenues do not
have to be given away to “bribe” investors into making renewable energy investments
with FIT systems, governmental tax revenues actually increase as more renewable energy
systems are installed. As more renewable energy replaces the export of money for the
import of fossil fuels, more of a community’s money and wealth is recycled instead of
“bled out”. This leads to a “virtuous cycle” on many levels, in contrast to what is
practiced in the U.S. at the present time.

Lastly, the increase in governmental revenues from this increase in economic demand
(renewable energy development) would allow for more mass transit systems to be
installed, which would allow more electricity to be used in transportation, and result in
less liquid fuel usage in transportation. Of course, these transportation investments
(especially short and medium distance rail, electric freight rail) also create jobs and
stimulate demand. Odds are, such transportation systems would always lose some
money/require some taxpayer funding for operation, but perhaps that is a cost for or of
civilization in a post-Peak Oil World.

Examination of Some of NY’s Renewable Potentials


In the following section, NY’s renewable energy potential is examined with respect to
what can be produced at “reasonable” costs and prices within a 10 to 20 year timeframe.
The assumptions used are that existing technology is employed (no new breakthroughs
are assumed - nice but not necessary, though some gradual improvements are likely). In
addition, production costs are assumed to be as low as they are likely to get for wind,

19
biomass, biogas and pumped hydroelectric storage; some minor production cost drops
still are likely for PV and tidal based systems.

For NY State, the renewable electrical energy sources that are arranged from the lowest
cost to the highest cost are as follows:

1) Existing hydroelectric facilities (and fully paid off)


2) Onshore wind (commercial scale)
3) Biomass co-generation
4) Biogas/land fill gas co-generation
5) Biomass and biogas with no co-generation
6) Hydrokinetic and Tidal generation
7) Offshore wind turbines
8) Small scale wind turbines
8) Solar (in general PV, but also solar thermal)

In general, commercial scale wind turbines would be those greater than 750 kw capacity;
most of the ones commonly used are now greater than 1500 kw. Production costs are
similar for large scale arrays and single units of commercial scale systems, though
slightly less costly when economies of scale are introduced. NY only has one significant
tidal resource (Long Island Sound/NY City), but three offshore wind zones (Lake Erie,
Lake Ontario and Long Island (Atlantic Ocean side). Many of these renewable electricity
systems (such as small wind turbines, solar PV, biogas) can be small to moderate in terms
of the capital outlay needed, but they also only produce small quantities of energy. PV
based electricity requires net prices between 50 to 80 c/kw-hr, depending upon scale and
whether they are roof or ground mounted to justify such projects on a subsidy-free basis,
and is between 5 to 10 times the comparable price needed (same money cost) for
commercial scale onshore wind turbines. Small wind turbines often require prices of 25
c/kw-hr or more to economically justify such installations.

All of these are capital intensive investments. The cost of capital is one of the dominant
factors in their electricity production cost, and for most, operating fuel and labor costs are
very small percentages of the annual capital costs, even at 5% per year/20 year term
conditions. In almost all cases, before any revenue from sales of energy are received, the
entire cost of the system must be paid to owners/lenders.

Electrical energy storage costs, arranged in order of increasing cost per unit of energy
stored (capital intensity), are:

1) Pumped hydroelectric
2) Compressed air
3) Batteries
4) Flywheel

Of these, pumped hydroelectric and compressed air generally require significant capital
investments, and these tend to be large scale investments ($100 million or more).

20
However, these also can store tremendous amounts of energy, and deliver large amounts
of power when needed. Flywheels and batteries can be much smaller, but are
significantly more expensive on a delivered energy basis. Flywheels can be up to 97%
efficient but this performance comes at a very steep cost/required investment.

Fuels that can be made renewably consist of

1) Ethanol (EtOH) via plant sugar/starch fermentation


2) Synthesis gas/pyrolysis gas derived liquids (synthesis gas from biomass); includes
EtOH
3) Cellulose based EtOH
4) Ammonia from renewable energy/biomass
5) Biodiesel
6) hydrocarbons/alcohols from renewable electricity/biomass and CO2 (biomass sourced)
7) Methane from renewable electricity and CO2 (biomass based)
8) Electrolytic hydrogen

In many cases renewable electricity can be converted into stored chemical energy (fuels),
but this has a considerable cost premium to it versus using that electricity directly for
transportation. However, in many cases, such as long term energy storage, remote site
usage (construction and farming, for example) and for cold weather conditions,
converting the electricity to stored chemical energy is the more viable option. Storage of
hydrogen as H2 gas/liquid is something to be avoided, if possible, due to the high energy
cost of such approaches, high cost of storage vessels (ultra high pressure/cryogenic, and
required alloys to avoid catastrophic hydrogen embrittlement) and the low energy density
on a volumetric basis, as well as the low overall system efficiency.

The cost to produce renewable energy is subject to a number of variables, such as the site
renewable energy resource and more importantly, the cost of capital. The utility of this
energy also varies; liquid fuels have a premium attached to them because they can be
easily used in transportation and easily stored due to their high volumetric energy density.
In general, Peak Oil is really a liquid fuels supply problem, and a minor heat supply
problem. Electricity can be easily stored on a short term basis (hour, day and week
duration) via the listed approaches, but long term energy storage is best accomplished by
converting the electricity to liquid fuels which can be burned on demand at a later time.
Electricity can also be stored as heat and/or “cold”.

Many also claim that the costs of renewable energy are dropping, but with a couple of
exceptions, this is no longer true. Since tidal energy is in its early stage of
implementation, this technology will become slightly less expensive over time.
Photovoltaic systems are still dropping in cost, but this seems to be more of a pseudo-
slave labor/subsidized capital (in China) phenomena. Wind turbines onshore have gotten
as inexpensive on a annual energy output basis as they will likely ever get, and cost
increases in steel, concrete, epoxy, fiberglass, copper and aluminum will no longer allow
for cheaper commercial scale wind turbines. There may also be a slight decrease in
offshore wind costs, but nothing of significance. For biofuels, the biomass feedstock can

21
readily determine the production cost, and this (long term future prices) is largely
unknowable now. Most of these energy production and storage system also require lots of
raw materials (steel, concrete, aluminum, glass, copper) as well as electricity and thermal
fuels, all of which will be increasing in price as increased consumption rates produce
higher supply prices.

For NY State, of the lower cost renewable electricity approaches, wind turbines may be
the most significant new supply source. Coupled with existing hydroelectric, some
modest run-of-river, and a reasonable exploitation of the Long Island Sound tidal
resource, all of NY’s present electricity could readily be supplied by wind turbines, at
least 4 times over. However, wind energy at any given location varies with time and is
also seasonally dependent (most intense in the winter, least intense in the late
spring/summer). Storage becomes a critical issue, even for a geographically distributed
arrangement across an area as big as NY State. In addition, the complexity and long
distance arrangements that are needed as the wind content of a grid system move beyond
25% also become increasingly difficult and expensive.

Furthermore, all electricity systems need back-up, even so-called dependable fossil fuel
ones, in order to be continually operable (Texas in February of 2011 is a good example).
Grids generally are operated under the variable demand arrangement (required power
varies with time), and adding varying supply to a variable demand system increases the
complexity of this system. While wind turbines themselves are capable of acting as
“spinning reserve” (which is a very short term problem measured in minutes), significant
shifts in the wind speed across the state could have a major effect on electricity supply for
the state. While these events may be somewhat rare, they will occur, and having back-up
supplies is needed to avoid a complete grid collapse, which has significant extra financial
and societal costs.

Pumped hydro storage systems provide the most dependable form of back-up at large
scales and low delivered electricity cost. However, like all things thermodynamic, there is
a net energy cost to them; pumped hydro systems are net consumers of electricity.
However, this is the price required to avoid a grid brown-out or black-out. Most pumped
hydro systems have an 80% to 85% net efficiency (the pumping part is the most
inefficient). These systems not only serve to provide energy within a few minutes of
need, they can also serve as excess supply “sponges”. When excessive electricity is made
during very windy periods of low electricity demand, pumped hydro units can act as
sources of load in a very significant manner, and can follow wind turbine outputs easily.

Pumped hydro systems and the related deferred hydro systems (dams) have three
requirements - water, height and sufficient grid access. NY State and especially Western
NY have numerous locations where all these three factors are co-located, or else where
additional grid connections could be made. The “battery capacity” (energy storage) is
provided by the volume of water stored in the pond/reservoir. The power output is
provided by the product of the water flow rate and the height difference between the
reservoir and the pond/lake to which the water is returned. Very small pond areas can
store tremendous quantities of energy if the height is present. The total energy stored is

22
the product of the volume pumped up and the height to which it is pumped less the
efficiency factor. In these systems, high power outputs come at the cost of a limited time
period when such outputs can be sustained. Both small to large height differences can be
used, and NY State has two great examples of this. The Lewiston facility associated with
the Niagara Falls Power Project has a 100 ft height difference but a 4 square mile pond
(4800 MW-hr, 240 MW rated), while the Benheim-Gilboa project has a 100 acre pond on
top of a 2000 foot tall mountain (8000 MW-hr, 1440 MW rated). Even within Erie
County, numerous potential sites on top of hills exist for such systems (these often
require an upper and lower pond), with adjacent high voltage transmission lines (115,000
volts or more). Other potential sites include the Southern Tier near the Allegheny,
Delaware, Mohawk, Hudson, Susquehana and other rivers, the Finger Lakes, the Taconic
Mountains, near Lake Champlain and Lake George as well as other sites near the Catskill
Mountains.

While any renewable energy source can feed into grid usage or grid storage, onshore
wind turbines are the lowest cost electricity production system which can supply NY
State with what would eventually be near 30 GW of average electricity demand (when
natural gas heating is replaced by electricity, gasoline by mostly electricity). Most of this
part of North America also has this potential to varying extents, except for the Atlantic
coastal regions, where both tidal and offshore wind have even more potential. Our
regional weather provides us with adequate water, but this generally means that skies are
overcast, raining or snowing for about half of all daylight hours. This lack of insolation
(unobstructed sunlight) means that solar power in this region will be at least twice as
expensive as in desert regions. Its best application in places like New York is as an offset
to summer peak electricity demands (air conditioning (AC) related), though AC usage is
actually likely to decline as electricity prices rise and median incomes continue to fall.

There is also a considerable biomass potential that could be used like conventional gas
and coal fired units, but in doing so, the liquid and gaseous fuel potential is partly
consumed. While some biomass based electricity will be produced (especially in co-
generation applications), its best potential is best left to heat and fuel applications. As
future oil supplies and then natural gas supplies become constrained, some increase in
electricity demand will be expected with regards to residential and commercial heating,
as well as gradual increases in the amount of electricity used for transportation. Even in
very energy-efficient homes using highly efficient groundwater sourced heat pump
systems, electricity demand can be considerable. Using very expensive solar PV
electricity for such uses will be a very expensive route; solar space heating and solar hot
water systems are much more economical. Given the large capital demands that will be
placed on society by a massive wind energy/pumped hydro storage build-out, it is quite
doubtful that significant PV build-out will occur in regions like the U.S. Northeast,
especially in terms of delivered energy (the installed capacity and amount of money
invested in PV could be considerable, however).

Another important new market for electricity will be cars (all-electric or Plug-In
Hybrids). If an average usage of between 0.32 kw-hr/mile is assumed (2.9 miles/kw-hr in
this article -http://www.ecoworld.com/energy-fuels/electric-car-cost-per-mile.html) and

23
average miles traveled per day is assumed to be less than 30 miles, total new electricity
usage would be near 9.6 kw-hr per day, or close to 2.4 MW-hr/yr per car. If 5 million
electric cars eventually are used at such rates, NY electricity usage would need to
increase slightly (increase by 1.4 GW, or 9% more than present rates). Given the high
cost to install and operate this system (as in, buying the electric or plus-in hybrid cars),
the efficiency of mass transit becomes significantly more apparent, as does more sensible
living arrangements than suburbs/ex-urbs for metropolitan regions, where both mass
transit and walking/biking are often viable alternatives.

A summary of a possible all renewable NY Electricity system is summarized in Table 1.


While this may not be the route that eventually evolves/is selected, it provides a basis for
discussion and an idea of the overall capital requirement and more importantly, the job
creation potential of a renewable energy option for NY State.

Table 1
A Plausible NY Renewable Electricity System Description
Source Delivered Capacity Capital Job-yrs
GW GW $ Billions (thousands)
Existing = 17 GW*
Hydro 3 4 nc 0
Biomass 1 2 2 15
Tidal 2 3 20 300
Onshore Wind 8 24 60 900
Offshore Wind 3 7.5 30 450
Pumped Hydro na 10 11 165
Subtotal 17 123 1830

New = 17 GW*
Biomass 1 2 2 15
Pumped Hydro na 10 11
Onshore Wind 10 30 75 1125
Offshore Wind 6 15 60 900
Subtotal 17 148 2040

Demand = 34 GW
Pumped Hydro 2
Existing 16
Trains/cars/trucks 2
Fuels 4
Ngas replacement 10
Total 34

* Includes 1 GW average consumed by pumped hydroelectric energy storage systems

The total capital over a number of years (20?) would be $271 billion, creating
approximately 3.87 million direct job-yrs in the manufacture and installation of these

24
systems (basis ~ 15,000 job-yrs per billion invested in wind turbines –European Wind
Energy Association estimate). Hopefully, most of these jobs (majority would be
manufacturing) would be within NY State. Net production would be 32 GW average
delivered power. Using the wind turbine assumption that non-capital cost is 2 c/kw-hr,
the average electricity cost at a 5%/20 yr capital cost would be around 9.7 c/kw-hr – or
close to 10 c/kw-hr. The more expensive sources (offshore wind) would be installed
mostly at the end of the pollution fuel replacement effort. Such bulk electricity prices are
similar to those experienced in NY City/Long Island in the 2006-2008 period (and not the
same as consumers pay, as these do not include transmission and delivery fees, which
now average 60% or more of a typical NY consumer.

A total of 54 GW of onshore wind turbines (Low Wind Speed Turbines) would be the
equivalent of 30,000 x 1.8 MW Vestas V100 turbines (other types would be used, of
course), which would average a 33% net output across NY State. At a maximum
placement density of 5 MW per km2, about 4220 square miles of NY State land (9.2%
area) would be generating electricity. The 22.5 GW of offshore units (modeled on the
Vestas V112 x 3 MW unit, but again, other models would be used) would comprise 7500
turbines. At the 5 MW/km2 placement rate, 1758 square miles of water surface (20% of
windy water surface in Lake Erie, Lake Ontario and south of Long Island) would be
utilized (about 4.2 per square mile).

The electricity requirements for NY state would be the sum of existing uses,
transportation uses and fuels syntheses as well as for the replacement of natural gas used
for some industrial (much of this could be from biofuel co-gen systems), most
commercial and almost all residential heating requirements. At present, of the 16 GW of
NY State consumption, only about 3 GW is provided by renewables (and mostly by
hydroelectricity from Niagara Falls and Massena). The remaining 13 GW of existing uses
is pollution based (nuclear, natural gas, coal, some oil), and needs to be replaced with
renewables totaling 14 GW (includes 1 GW of storage losses). A probable mix
(expressed as delivered power) would be 2 GW of tidal (Long island), 1 GW of biomass
and 11 GW of wind (8 GW onshore, 3 GW offshore). If the wind turbine needs were
expressed in terms of capacity, this would be approximately 24 GW of Low Wind Speed
Turbines (LWST, well suited to NY’s inshore wind regimes) and 7.5 GW of offshore
capacity. Using presently available wind turbines, this would be about 13,000 x 1.8 MW
LWST units for onshore, and about 2500 x 3 MW (average) rated offshore units.

The combined investment of about $123 billion represents a job requirement of about 1.8
million job-years, SOMEWHERE. Obviously, the more that the 1.8 million job-years are
located in NY, the better it is for NY State. A failure to “capture” this job opportunity
would be an epic economic and political disaster for NY State, and especially for what
remains of NY’s middle class.

In addition, approximately 4 GW (delivered basis) would be needed for electric cars and
renewable fuels production. The replacement of natural gas for heat in most houses and
commercial applications would require up to 10 GW during the winters (NY’s windy
season), assuming some heat (10%) is supplied by passive solar, about half of the

25
remainder is supplied by ground sourced heat pumps and with the rest using resistance
heating. This brings the total new electricity demand to approximately 28 GW (assumes
the 3 GW of hydroelectric and 1 GW of electric storage are augmented with new
wind/biomass and tidal sourced electricity). The storage capacity needed would be
approximately 10 GW (1/3 of total wind capacity). The 14 GW of new wind sourced
electricity (4 GW offshore, 10 GW onshore) plus the 10 GW pumped hydro would
require a long term investment of another $148 billion, with a similar job demand of 2
million job-years.

There would also be additional capital expenditures to the NY grid, mostly involving re-
wiring existing transmission lines with thicker wires at higher voltages. In addition, the
pumped hydroelectric facilities also would need new transmission lines capable of
delivering up a GW on demand (2 x 230 kv transmission sets). Many of these upgrades
are needed anyway; this “re-powering” would also justify “rewiring”. This capital
expenditure is also a job creation mechanism.

In addition to NY’s sourcing, interconnections with Quebec hydroelectric and wind, the
Bay of Fundy (tidal) offshore Maine (wind) and the Canadian Maritimes provinces would
also provide buffering of supply/demand mismatches. At times, NY’s excess supplies
would also provide power to these other areas, or else to states to the south of NY. The 10
GW of pumped hydro could also provide an income source to windy but flat states like
Ohio, Indiana and Illinois.

Under such a scenario, NY would “look” quite different, as there would be one
commercial scale wind turbine on average for every two square miles, though obviously
more abundant in windy and agricultural areas. Using a wind turbine density of 12.8 MW
per square mile (5 MW per square kilometer), on average, wind farms arrays would exist
across 4220 square miles of NY, or about 9% of the land area of the state. They would
also provide about $500 million per year of income to rural areas (rental, taxes or PILOT
payments). In addition, about 3000 offshore wind turbines would be placed on Lake Erie,
Lake Ontario and to the south of Long Island (most of these would exist in the 6000
square miles of ocean to the south of Long Island). On average, at least 7 GW would be
injected into the Long Island/NYC region via tidal and offshore wind turbine arrays,
providing close to half of that region’s electricity supplies. These would actually lower
the metro NYC electric bills for most consumers for a considerable amount of the year,
especially once natural gas prices re-equilibrate to oil prices later this decade. Finally,
about 20 pumped hydro storage facilities would be located throughout NY.

All of this demand of renewable energy systems would also radically alter NY’s
economic and political “arrangement” which is now dominated by the FIRE (Finance,
Insurance and Real Estate) businesses. The shift from “value-less added” to wealth
creating economic activity would have a massive stimulative effect on NY’s lower and
middle classes, and it would most likely be fiercely fought by the “bankster/predator”
class which now exercises almost complete control over NY’s economy and thus its
politics. Oh well, most will not miss that situation, especially when the alternative to
replacing the financialization of NY’s economy is a viable one, and not replacing a

26
finance driven economy will lead to a series of “Greater Recessions’ and “Greater
Depressions”, with attendant societal disintegration.
----------------

Costs of Renewable Electricity Production


Wind turbine electricity production ($/MW-hr) costs can be approximated with this
formula:

Cost = $20 + (Turbine Cost * Fixed Charge Factor)/Annual Energy Output


Cost = $20 + (TC * FCF)/AEP

Wind turbine costs (fully installed) range from about $2 million/MW capacity form
“regular” units to $2.5 million/MW capacity for LWST units; production costs for either
tend to be competitive. Offshore wind turbines have installed costs ranging from $4
million to $5 million/MW-hr, but there tend to be higher wind speeds present than for
onshore units. The FCF corresponds to a “mortgage payment” – interest plus principal. In
this approximation, debt and equity are assumed to have the same money cost, and this
would only apply to low risk investments. A 7.6% interest rate for 20 years has a FCF
value near 0.1 (10%) and a 5%/20 year loan has a FCF value near 0.08 (8%).

Onshore wind turbine electricity production costs (and before any subsidies/grants)
would range from 11.1 c/kw-hr (25% net output) to 7 c/kw-hr (45%) for LWST at a
5%/20 year money cost, or 13.4 c/kw-hr (25%) to 8.3 c/kw-hr (45%) at a 7.6%/20 year
money cost. Obviously, prices would need to be higher to incorporate profits, and
subsidies (such as interest payment deductions) may lower prices for the electricity at the
expense of raising someone else’s taxes. For offshore wind turbines, the cost of
electricity production would range from 15 to 11 c/kw-hr, depending on net output (40%
to 45%) and the FCF.

The high end of renewable energy costs is typified by the new 1.1 MW solar PV array in
Buffalo (SUNYAB). Given the $7.5 million dollar cost and net output of 13% 1270 MW-
hr/yr, an annual O&M cost of 1.5% of the installed cost, required breakeven prices (i.e.
no profit) would range from 68 c/kw-hr (FCF = 10%) to 54 c/kw-hr (FCF = 8%).

At the low end of electricity production costs, the NYPA facility stands out. In 2009, net
production at the Niagara Falls complex (NPP) averaged 1580 MW. Since there are no
present significant capital expenses, only labor costs are significant. At the NPP,
employment is approximately 260 people, with an estimated average total compensation
of about $26 million/yr. This works out as $1.87/MW-hr, or about 0.2 c/kw-hr for the
electricity production cost (transmission costs are not included; these tend to be billed
separately). Most NYPA electricity has no effect on electricity pricing in Western NY
(NYISO prices), since this electricity is generally sold at cost under long term contracts
to industries and municipal electric utilities.

Most electricity prices are set by coal and natural gas prices in WNY (depends on the
hour examined), but generally by coal based electricity prices. In 2010, NYISO prices

27
averages 3.9 c/kw-hr, a slight increase from 2009 prices of 3.2 c/kw-hr. NYISO prices
were almost exclusively set by coal based generators, which have all been paid off and
thus have essentially no significant capital expenses.

If natural gas based prices were dominant in WNY, electricity costs can be estimated as:

Cost = 1.5 + (0.3412)(Cost of Natural Gas)/efficiency

In this formula, delivered natural gas prices would be in units of $/MBtu, and a high
efficiency combined cycle facility would have a 50% thermal efficiency. Production costs
would vary from 4.5 c/kw-hr (Henry Hub gas price at $4.7/MBtu) to 11.7 c/kw-hr at a
Henry Hub price of $13.7/MBtu (prices last seen in 2008). Natural gas prices are highly
unpredictable (apparently spiking in prices approximately every 3 years followed by
sharp price collapses). At present, prices are less than 50% of the estimated marginal
price needed to obtain a very sub-par 10% return on investment (ROI).

Pumped Hydroelectricity storage costs about 1.2 c/kw-hr on an operational basis, in


addition to the pumping efficiency loss of approximately 15% to 25%. The capital
expense of these systems is the main cost (they tend to have a 50 to 100 year operational
life). Construction costs are about $1.1 million/MW of capacity, and these are the
majority of operating expenses – see
http://www.parcon.uci.edu/paper/EmergingElectricalTechnologies/eeenergy.htm)

-----------

Fuels
At present, NY State uses about 130 million (m) barrels (bbls)/year of gasoline, 40 m
bbls/yr of diesel and 30 m bbls/yr of kerosene (jet fuel). This tends to be done in a very
inefficient manner, for example, using cars that presently average 22 mpg or less. If the
vehicle miles traveled per year (vmty) was to remain constant, and average fuel
efficiency doubled, fuel consumption would drop by 50%. Next, if half of the miles
traveled per year used fuel-consuming engines (for example, via the use of electric
vehicles, mass transit, pedestrian/biking, less vehicular usage of any type or less distance
per trip was needed for the other half), then fuel usage could drop to 25% of present
levels. The most important fuel usage minimized would be gasoline; usage could drop to
roughly 32 million bbls/year of gasoline equivalent. This would be equal to roughly 49
million bbls/yr of EtOH, assuming high compression engines (more efficient, made
possible with high EtOH content fuels) are not used. At yields of 10 bbls of EtOH/acre
using 150 bshls/acre of corn (or some other crop), this could be made by about 1/6 of NY
State land (7700 square miles). The 49 million bbls/yr of EtOH would be equal to about
2.1 billion gallons of EtOH, or about 20 large scale EtOH biorefineries (NY capacity is
now near 165 million gallons/yr, or 8% of needed capacity).

As can be seen by that quick analysis, “conventional” low efficiency transportation (the
present day situation) cannot readily be supported by the growth of energy crops and their
conversion to EtOH fuel, due to the huge land needs (2/3 of NY’s land area), for starts.

28
Furthermore, conversion of much of NY’s agricultural land to corn or a crop with an
equivalent annual EtOH yield would require a significant investment, a long term
commitment, and the wisdom of a mono-culture based fuel source is highly questionable.
Thus, not all personal transportation (via cars) will be sourced by fuels produced in NY
State, nor should it. Most people in NY live in the metropolitan NY region (12 million
out of 19.5 million), and most people live in metropolitan regions (holds for upstate, too).
The average car trip tends to be less than 20 miles each way, and as such, a large quantity
of these could be done via electric cars or Plug-in Hybrids operated in all electric mode.
Thus, NY’s fuel requirements could actually be dropped to an equivalent of near 25 m
bbls/yr, or roughly 1 billion gallons/yr if half of NY’s vmty are converted to electric.

Such a biofuel production rate would be a major stimulant to NY’s agricultural sector.
The 25 m bbls/yr EtOH is the equivalent of 374 million bshls/yr, now worth $2.2 billion
($5.88/bshl, or 10.5 c/lb). With an economic multiplier of nearly 7 for farming, this
would actually make NY’s agricultural sector a much more significant contributor to NY
State’s economy. However, unless some kind of pricing security is made, this will never
happen, nor would the additional $2 billion investment in EtOH production facilities, and
possibly related needs, such as ammonia fertilizer plants. And therein lies a major
problem as gasoline prices continue to double every 5 years…

Most plug-in hybrids will have an electric range of near 40 miles, after which time a fuel
is needed. During cold weather times, battery performance will not be able to achieve
those values. In many rural or semi-rural areas, long distances are often traveled. Farming
tends to be quite energy intensive; tractors and trucks to transport crops to rail
depots/nearby cities are also energy intensive, and these are likely to require fuels as the
energy source. And since the post Peak Oil society will need to evolve from petroleum
usage, the source of such fuels becomes an important question. If natural gas to liquids
(GTL) and coal to liquids (CTL) possibilities are ruled out (a big if), then renewable
sources must be used. The two possibilities include biomass sourced and electrolytic
sourced.

The lowest cost fuels are likely to be based on sugar (itself often based on hydrolysis of
starch) fermentation; at present, EtOH can be manufactured for approximately
$2.10/gallon with corn at $5.88/bushel (corn is the main cost) – see Table 2. In this
process, most high value food parts of corn (fiber, vitamins, mineral fast and especially
proteins) are preserved via DDG’s (dried distillers grains). Present US consumption of 4
billion bshls/yr of corn is really the conversion of 69 million tons/yr of sugar (from 69
million tons/yr of starch) into EtOH and 34 million tons/yr of DDG’s, most of which is
used for animal feed (about 200 lbs per person per year in the U.S.). At present, the
energy to do this is largely supplied using natural gas as the primary thermal energy
input, but this natural gas could be replaced with corn stover. It would require about 24%
of the stover which is grown with the corn to be used as the heat source to replace the
natural gas used in biorefineries that convert corn to EtOH, CO2 and DDG’s (corn stover
has approximately the same composition as wood, and a similar calorific value on a
weight basis). However, such a change would require additional capital inputs (possibly
new boilers, ash/particulate handling, gasifiers, stover transport and collection, cost of

29
stover) and raise operating expenses SLIGHTLY. Again, since the price of EtOH is
presently set by crude oil, and the EtOH/DDGS production costs are largely set by corn
and natural gas prices, such investments are generally not possible at the present time due
to the low margins in the EtOH business. The additional cost to remove the unreliably
priced natural gas from the production process raise production costs by about 10%, or
else lower production costs, depending upon what natural gas prices happen to be at any
given time. Such an arrangement would also contribute to farmer profitability
significantly (this could double to quadruple per acre farmer profits), and this would
remove the main fossil fuel input in the process that converts crops to fuels.

Calculation Basis:
2.8 gal EtOH per bshl (= 56 lbs corn)
1 lb corn = 1 lb dried stover (56 lbs dried stover/bshl corn)
19 MJ/kg HHV (Higher Heating Value) = 8194 Btu/lb HHV
Corn stover composition is approximately C6H9O4, “mw” = 145
http://www.iata.org/SiteCollectionDocuments/Documents/IATAConversionTechnologies
Finalv2.pdf
8194 Btu/lb HHV = 7662 Btu/lb LHV (Lower Heating Value) -> 7500 Btu/lb

Table 2
Corn to Ethanol Conversion Cost Estimate
Item Cost Conversion/Yield Cost/gal EtOH, $/gal

Corn $5.88/bshl 2.8 gal/bshl 2.10


DDGS $200/ton 18 lbs/bshl -0.643
Capital FCF = 8%, $170 m plant, 110 m gal/yr 0.123
Labor, Mgt $8.8 m/yr per plant 0.08
Misc $4.4 m/yr 0.04
Electricity 11 MW, $100/MW-hr 0.09
Ngas $6/MBtu, 36,000 Btu/gal EtOH 0.216
Taxes, PILOT, etc $11 million/yr 0.10
Profit 0.094

Total 2.20

Corn Stover $45/ton, 4.8 lbs/gal EtOH – Ngas substitute 0.108


Corn Stover fuel “profit” 0.108 = $11.88 m/yr

Cellulose based liquid fuels are presently more costly than corn based EtOH on a thermal
basis ($/Btu), largely because these facilities are or will be significantly more capital
intensive than are corn based facilities, while delivered cellulose feedstock prices are of
secondary importance. Such fuels will require higher prices than $3 to $4/gal for
gasoline, and their development is significantly hindered by relatively low crude oil
prices (at less than $100/bbl). Both cellulose hydrolysis/fermentation to ethanol and
cellulose to synthesis gas to liquid or cellulose pyrolysis fuels could utilize some part of

30
the feedstock as the “manufacturing plant’s” energy source (usually the lignin part for
fermentation routes). As a result, natural gas usage will not necessarily be required to
power these facilities. The raw material supply is very large, and could be made larger if
cellulose based energy crops could be economically viable. But again, this is a crude oil
based price competition situation, and at present, crude oil prices are sufficiently low
enough to render cellulose to fuels plants uneconomic. Thus, pricing is really the key
item to commercializing such fuels, and this mostly involves the cost of capital. Since
future crude oil prices are not sufficiently defined and definable, cellulose based liquid
fuels have an undefined price (this is set by oil prices). This predicament generates a
large amount of economic risk is associated with investments in these biofuels, which
makes the cost of borrowed money and capital for such projects very high (due to high
risk associated with an unknown future price for the product).

“Conventional” biodiesels (methyl and ethyl esters of fatty acids) are derived from
animal and plant oils/fats. These start off as either carboxylic acids or glycerol esters of
these acids, and the conversion to a diesel fuel is a well established process. In general,
the cost of the fatty acid or glycerol ester is the dominant factor; high prices for vegetable
oils can render most biodiesel operations as non-viable. This is apt to be a niche
application, due to raw material availability. Biomass based diesels (hydrodeoxygenated
oils, HDO’s) can also be made from synthesis gas, as well as by thermal processing of
fats and greases; these tend to be similar to crude oil based hydrocarbons.

Another category of renewable fuels can be classified as hydrogen based, where the
hydrogen comes from biomass sourced synthesis gas or by the use of renewable
electricity to produce hydrogen from water. The combination of water electrolysis and
biomass syn-gas also can be more efficient that either approach. The hydrogen produced
from water electrolysis and/or biomass syngas is then reacted with either nitrogen
(making ammonia (NH3)) or with carbon dioxide. Ammonia is both a fertilizer and also a
fuel (when anhydrous), and can be used in very high compression ratio diesels (more than
30:1 compression ratios), which allows engines to be operated with greater thermal
efficiency. Hydrogenation of CO2 (obtained from fermentation operations and/or biomass
combustion) can produce methanol, ethanol, dimethyl ether, butanols, acetate esters as
well as a variety of hydrocarbon fuels via Fisher-Tropsch synthesis (often the basis of
CTL, GTL operations). The production costs of biomass based hydrogen are mostly set
by the raw material and capital, and for electrolytic based systems, the cost of electricity
dominates the production cost, followed by intensive capital costs. Water electrolysis
systems can also serve as grid load regulation systems by absorbing excess wind
generation during times of low electricity demand and high wind providing that the
capital intensive hydrogen storage problem is accommodated.

Again, as with cellulose based fuels, renewable ammonia and CO2 hydrogenation
facilities are presently too expensive at present discount rates (10%) and electricity prices
relative to natural gas and oil based costs. However, when oil prices double and stay at
least that cost, “electro-fuels” could be economically viable at electricity prices near 10
c/kw-hr. Dual facilities (biomass plus water electrolysis) would be less expensive,

31
because the electricity “raw material” cost factor is diluted with lower cost biomass (such
as wood, corn stover and grasses).

Electrical requirements are fairly significant for fuels and/or fertilizer. To supply NY
with enough ammonia to produce 25 m bbls/EtOH/yr via fermentation, about 200,000
tons/yr NH3 would be needed (requiring 200 MW of electricity), where 1 MW yields
about 1000 tons/yr of NH3. For conversion of fermentation derived CO2 into more EtOH
(0.42 gal EtOH via hydrogenation per gallon of fermentation derived EtOH), about 246
MW would be needed to make 45 million gallons of EtOH/yr (about 2.35 GW needed to
make 10 million bbls/yr EtOH).

Hydrogen based EtOH can also be derived from corn stover, which is made in roughly
equal mass to corn kernels used to make EtOH via fermentation. Stover constitutes a
massive cellulose resource, whose only value to soils lies in the minerals (potassium,
phosphorous, trace elements) contained, and which can be recycled from stover
combustion or syn-gas operations (the ash component). If 25% of the stover grown is
used as the heat energy for fermentation operations, and only 75% of stover (and corn
cobs) is collected from fields, this allows over 50% of the stover grown to be used for
biomass to energy, which could produce up to 12 m bbls/yr of EtOH from this resource.
The CO2 by-product could also be hydrogenated to yield another 5 m bbls/yr EtOH,
requiring another 1.15 GW. This combination of fermentation, syngas and electricity
could produce 52 m bbls/yr of EtOH from 374 m bshls/yr corn (2.2 million acres),
200,000 tons/yr NH3 (200 MW) and 3.5 GW of electricity for CO2 hydrogenation. At 30
mpg (pure EtOH basis), this translates to approximately 66 billion vmty, or about 3360
miles traveled per capita (present NY average is 7000 vmty from 130 m bbls/yr of
gasoline at an average of 25 mpg). The EtOH yield using this combined approach is
about 992 gallons/acre (23.6 bbls/acre), or about 2.4 times as much as the present 10
bbls/acre average.

Thus, using 374 million bshls/yr of corn and 60% of the stover (10% to power
fermentation facilities, 50% as a bio-synfuel source) grown on 2.2 million acres (3850
square miles, or roughly 4 rural NY State counties = 8.4% of NY’s land area) and 2.7
GW of electricity, about 52 million bbls/yr of EtOH and 3.4 million tons/yr of DDGS (30
wt% protein, or 345 lbs/person annually) could be made. In other words, this is possible ,
and in doing so, significant investments (rural, biorefineries, hydrogenation facilities,
electrolysis facilities) would need to be made, with a corresponding drastic increase in
industrial output and employment within the state, as long as most of these systems can
be made within the state. And in the process, a huge outflow of money from the state’s
people would be staunched ($14 billion/yr just from gasoline purchases with crude oil at
$85/bbl). On a simple basis, the investment for the stover to EtOH ($3 billion), CO2 to
EtOH units ($6 billion), fermentation units ($3 billion) and required onshore wind
turbines to supply 3.7 GW ($25 billion) would be paid back in 3 years. The $37 billion
invested would create about 550,000 job-yrs SOMEWHERE; hopefully the majority
would be in the U.S. The ~ 2 GW extra needed for electrified automobile transportation
would require an additional investment of roughly $14 billion, or 210,000 job-yrs
SOMEWHERE. Adding in these additional wind turbines (7 GW capacity) would bring

32
the total investment to $51 billion, which is 3.5 years of gasoline purchases at current
prices, and which should be considered as LOW prices.

While the ethanol produced would not necessarily be used in cars, it could also substitute
for diesel fuel in construction equipment, farm equipment, busses and trucks (high
compression ethanol engines are now commercially available). In this analysis, EtOH
also would serve as an approximation of biodiesel and fuel oil. The difficulty is not in the
design and construction of bio-synfuel facilities, EtOH fermentation plants or CO2
hydrogenation units, or even in financing them, as long as viable long term pricing is
available for the biofuels, and especially in getting the labor to make and install such
systems. The problem is far greater than those, most of which have enormous economic
benefits in terms of job creation and energy security.

In Table 3, a summary of an EtOH fuel system for NY State is given; this is just an
example for what COULD be done, not necessarily what will be done. EtOH has certain
advantages over hydrocarbon based fuels (water soluble, low toxicity, rapidly
biodegradable), though it only has 70% of the volumetric fuel density of gasoline. With
an octane rating of 113, it can be used in engines with compression ratios of over 25:1
(Scania engines for buses), raising thermal efficiency to close to 42%, in contrast to the
present gasoline engine thermal efficiency of 26%.

Table 3
Ethanol Based NY Liquid Fuels Production System
Source Quantity Comments
Million bbls/yr

Corn (or equivalent) 25 375 million bshls/yr, 2.03 million acres


3906 square miles, 8.5% of NY,
uses 25% of stover (2.625 m tons/yr) as fuel

CO2 Hydrogenation 1 10.5 Uses CO2 by-product from fermentation


Uses 2.4 GW electricity for H2 source

Stover 12 Uses 50% of stover produced to make EtOH


5.25 m tons/yr stover consumed

CO2 Hydrogenation 2 4.5 Uses CO2 byproduct of stover to EtOH


Uses ~ 1 GW electricity for H2 source

NH3 (for corn/equivalent) 219,000 tons/yr uses 219 MW for electricity to


make H2, purify N2

EtOH Fermentation Plants 10 plants 110 MW electricity used

33
Those problems mostly involve the “who wins, who loses” balance, as well as providing
low cost, long term financing for these energy systems related to transportation. It is
unlikely that private industry and private banking/financial investment entities would do
this without some kind of societal “incentive” Odds are, NY State would actually need to
provide low interest long term financing, and in some cases may actually need to own or
at least be part owners in the production or either the electrical generation system or the
liquid fuels production systems. These liquid fuels could also serve as a back-up fuel for
back-up electricity generation systems for areas remote from pumped hydroelectric
storage systems (NY City/Long Island in particular). The state financial investment
would be justified by a consideration of the alternative – no affordable crude oil based
fuels would mean no transportation of most goods and people to and from their desired
destination (such as to and from work, to markets from farms/greenhouses, etc), as well
as the inability to build things (all construction equipment tends to need this) and to grow
things (peasant farming is unlikely to provide sufficient food for 19.5 million people in
the state, even averaged across the country). Modern NY society will need to evolve
towards less and less liquid fuel usage, but it is unlikely that no liquid fuels will be
required (for example, for chain saws, boats, farm equipment, road construction
equipment) at our current “level” of civilization for several decades.

The production of biofuels and hybrid arrangements of “electro-fuels/biofuels” would


have a massive stimulative effect to rural NY, and it would prevent the near certain
continued decline of the rural economy that is presently dairy and specialty fruits based.
In addition to the several billion dollars of new markets (biomass crops, biofuel crops),
the addition of $0.5 billion/yr from wind turbine leasing/PILOT fees also would also be
most welcome. For the first time in several decades, rural NY would no longer be an
economic “basket case” situation, largely dependent on the “kindness”/continued
sufferance of the metro NY region for their financial well-being. In addition, the large
surge in manufacturing would benefit the hundreds of small towns, many of which used
to be economically based on a mix of agriculture and manufacturing, but lately have seen
their manufacturing sectors significantly annihilated by “so-called Free Trade” (alias
psuedo-slave labor based offshore manufacturing).

In addition, NY State would benefit enormously by no longer exporting $14 billion/yr in


gasoline money, $4 billion in diesel, and $4 billion in fuel oil/kerosene. That $22 billion
present expenditure rate could well be several times that by 2020, and attempts to pay
that via financial scamming of the world in NY’s “Big Casinos” (NYSE, NASDAQ,
NYMEX, bonds, paper trade, hedge funds, investment banking, etc) would once again
lead to a rolling series of financial catastrophes. Another wild card is the approximately 1
trillion cubic feet/year of natural gas currently consumed (about $4.5 billion at
$4.5/MBtu, $22 billion at $20/MBtu). These major drains on the NY economy could be
mostly staunched and in effect, recycled back into our economy via these massive
renewable energy investments (up to $220 billion, plus various grid enhancements).

-----

34
Renewable Fuels Costs
The cost of biofuels is highly dependent on feedstock costs as well as capital costs. At
present, EtOH made from corn is the dominant biofuel used in the U.S. Using a cost of
corn at 10.5 c/lb ($5.88/bshl) and natural gas at a delivered price of $6/MBtu, as well as a
DDGS by-product price of $150/ton (7.5 c/lb), the production cost is remarkably low –
near $2.20/gal, assuming a plant that costs $170 million, an electricity price of 10 c/kw-hr
(11 MW average usage) and a FCF of 8% is employed for a facility with an output of 110
million gallons/yr (see Table 2).

If the gas cost (EtOH is $0.216/gal with natural gas at $6/MBtu) was replaced with corn
stover at $45/ton (dry basis), the thermal costs would drop by 50%, and 60% of the non-
renewable energy used to convert corn to EtOH would not be used. A “profit” of close to
$12 million/yr would also result (less the capital of corn stover gasification/combustion
systems, which are relatively inexpensive). This could also supply farmers with extra
sales of nearly $160/acre, which is generally more than they receive as a profit from the
sale of the corn (though some of this would also be swallowed up in the costs to collect
and transport it to an biorefinery as well as to return the ash to the fields).

Ammonia can be manufactured by converting water and electricity to hydrogen and


oxygen, and then reacting the hydrogen with nitrogen from the air to produce ammonia.
Capital costs for a facility to produce about 50,000 tons/yr NH3 would be approximately
$100 million, while electricity consumption would average 50 MW. Production costs
would be near $880/ton using very expensive electricity at 7.5c/kw-hr (present farmgate
prices are near $790/ton (March 2011)). On the other hand, H2 raw material can also be
made from corn cobs/stover at a rate of 5.88 lbs H2/lb dry stover for approximately the
same price when stover is $45/ton (raw material is ~ $2646/ton H2, capital is about
$1360/ton H2). Ammonia at $790/ton contributes $0.41/bshl to the price of corn, or less
than 7% of the present price; it is one of the main energy inputs into corn using high yield
agriculture (as in 170 bshls/acre).

Ammonia has approximately 35% of the heating value of diesel fuel, and the present
diesel equivalent price is around $500/ton. At $1000/ton, a diesel price of $7.85/gal
would be equivalent to ammonia. But, the primary use of ammonia is as a source of fixed
nitrogen for plant fertilizer/protein manufacture by plants.

CO2 reduction costs are also highly dependent on H2 prices, which in turn are either
biomass based or electrolytic based (Niagara Falls electricity, for example). It would
require approximately 2.2 lbs of H2 to make a gallon of EtOH from CO2 feedstock. To
produce EtOH via CO2 reduction, electricity at 7.5 c/kw-hr would need a EtOH price of
near $4/gal. On the other hand, corn stover derived EtOH could produce EtOH at
competitive prices. Stover can also be used to make methanol (MeOH), which can be
readily converted into gasoline and diesel cuts via the Mobil MTG process (methanol to
gasoline). At present, the cost to make EtOH via CO2 reduction would be near $5.50/gal
at 10 c/kw-hr electricity (electricity portion is $4.73/gal). This “back end” of the EtOH
system would be justified when gasoline prices exceed $8/gal (estimated price within 5

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years of now), although converting lower cost (Niagara Falls) power to EtOH would
lower EtOH from CO2 production costs significantly (very electricity price dependent).

An approximate estimation of the capital costs for these facilities would be:

EtOH fermentation facilities (9) @ $170 m each $1.5 billion


Corn Stover  EtOH facilities (10) @ $250 m each $2.5 billion
CO2 hydrogenation (10) @ $400 m each $4.0 billion

Total capital required for 52 m bbls/yr (143,000 bbls/day) $8.0 billion

While this may seem like a large investment, a Gas to Liquids Facility in Qatar with a
similar output of oil products had an installed cost of over $18 billion. A similar facility
in the U.S. would cost close to $25 billion. It’s the going rate for liquid fuels
manufacture…..

Biosynfuels, such as using corn stover to make gasoline and diesel like materials, would
be a very capital intensive operation. Costs are claimed to be similar to those now present
in world oil markets (gasoline/.diesel near $3/gal in bulk), but very few have been made
to date. The primary costs are involved in paying back the investors/lenders.

Biodiesel’s main cost is the glycerol ester raw material (canola, soybean oil), which is
nearly 75% of the prduction cost of biodiesel. Production costs get lowered by using
“spent” cooking oils, lard from slaughterhouses, and other sources such as trap grease. At
present, with vegetable oils costing nearly $4/gal, only used oils are economically viable
feedstocks.

----

Conclusion
However, NY could also choose a path of financial, and hence societal, ruin, based on
continued fossil fuel addition/consumption, until the exceedingly high cost becomes too
onerous for most NY residents. We could go “full tilt stupid” and attempt to provide 28
GW delivered electricity with 30 GW of new nuclear plants (capacity basis) at a cost way
north of $450 billion (eventual cost would be $15 billion per delivered GW), only to run
out of usable and affordable uranium, and to find that only terrorist states will accept the
spent fuel rod trash (only to return it in less than desired manners..). In any case, with the
majority of NY’s 19 million residents destitute and cold every winter, near starvation
most of the time, something like bubonic plague ravaging the meager relics of a public
health system on a regular basis, there just seems to be so little in favor of the “Business
as Usual” (BAU) way of arranging our life. The Green Jobs/Green Energy scenario
seems so much more preferable… It does not seem conceivable that any degree of
fairness or equity can come from the BAU as Peak Oil slams us in the next decade, and
then Global Climate Change comes in for the knockout punch via the decomposition of
the Greenland Icesheets and the drowning of much of Long Island/NY City when ocean
levels rise rapidly by 30 feet.

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So how can social science prepare us for what needs to be done – sensible pricing for
renewable energy? Without setting prices for renewable electricity and fuels on the basis
of the cost to produce this electricity and liquid fuel, renewable energy will remain a
trivial shadow of what it could be, and a money-losing proposition, for good measure.
Until renewables get made financially viable and freed from all kinds of confusing
subsidies (also used for polluting energy to an even greater extent), there seems to be
little possibility that NY State can hold its own. And the probability that we can “gently
slide” back to peasant based agriculture, also seems extremely remote. Or that we can
gently slide to a low energy lifestyle with 20 million inhabitants mostly destitute due to a
lack of viable employment/lack of affordable energy also seems remote. If we slide, it
will be mostly likely be quite fast, and quite brutal, just like NY winters without heat or
much food.

Actually, it seems so trivial – pass a Feed-In Law, and start installing onshore and
offshore wind farms and pumped hydroelectric energy storage facilities, ASAP. Issue
bonds to do some of these (such as the pumped hydro facilities), while for others, let the
private industry route work where it can. But, trivial or not, the fact remains that under
the present pricing systems for both electricity and biofuels, renewables are still money
losers when prices are set by old, established polluting energy systems which, in the case
of oil, have essentially run their course, and will soon no longer be affordable by most
NY residents. One would suppose that education of the public would be the key, but
since corporate owned media in the state show close to zero inclination to push for
sensible pricing, that option is mostly closed. Furthermore, many in the “liberal” and
“environmental” organizations of note still pursue the “CO2 pollution tax” (“carbon
pricing”, “cap and dividend”. etc) route to raising pollution based energy prices to the
point where renewables are less expensive. Unfortunately, since median NY family
incomes shrank in the last decade (and the percentage shrinkage increasing as income
decreased), this becomes a de-facto tax on average NY’ers, and one of little consequence
to the upper 10% and upper 1% ruling class. They also assume (incorrectly) that
renewable energy prices will drop significantly, to the point where CO2 pollution taxes of
significant magnitude can be avoided – also a grand illusion. Thus, most “name brand”
environmental and liberal organizations propose solutions that are no solutions, or which
will be most regressive on those with the least income. Many of these same so-called
liberal leaders fail to recognize that a revived manufacturing sector is the key to
economically reviving the economic prospects of MOST NY’ers (and not just the
predator class), And perhaps this is due to a combination of social class, where they get
their money from and the fact that so many work in or with or know people who work for
the “predator class”, and the inability of the liberal /environmental “leadership” to
comprehend what actual manufacturing is and can be and why it is so important; they
swallow the “knowledge based society” theme hook line and sinker, and fail to realize
where wealth really comes from, other than by financial machination.

Actually, the idea of pushing the main problem of viable societal change that leads to a
more equitable society, and one with a more ecologically and environmentally
sustainable/sensible society onto “price systems for renewable change” may be shocking

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to many. But, without sensible pricing, the Green Jobs/Green Economy possibility seems
to morph into a mirage. Without some kind of financial incentive for workers and
opportunity hungry companies, the political changes needed for a Green Jobs/Green
Economy seem even more improbable than they may be even with sensible renewable
energy pricing systems. Even the recent horrendous set of THREE nuclear reactor partial
core meltdowns might not be enough to foreclose the nuclear option, since that has been
(and will be) pushed hard by its advocates as a cure for CO2 pollution-less electricity,
hydrogen and “homegrown energy”. The positive lure of huge economic growth, profits,
employment and numerous benefits to society vanishes without the economic viability
that comes from sensible pricing systems for renewable energy that are based on the
actual cost to make this renewable energy. Pricing renewables based on whatever non-
renewable energy is priced at (and with the non-renewables often loaded with huge
governmental subsidies and permission to avoid risk (like nuclear accidents and Global
Warming consequences) seems like buying a first class seat on the Hellbound Train.

And so, can “sensible renewable energy pricing” be used as an organizing feature?
Probably not, but a successful progressive social movement will need to have this as a
central end result. It may need to be the sales job of a century, and not just to the general
public, but to those who are the dominant voices in the progressive movement, and those
who are the present “progressive leaders”.

Maybe have some rock concerts pushing Feed-In laws as the organizing theme. After all,
to quote the boys from Led Zepplin;

“Cryin’ won’t help you, prayin’ won’t do you no good


When the levee breaks, mama you got to move…”

Notes:
The Ethanol synthesis from CO2 is modeled on a Rhodium Selenide (Rh10Se) catalyst
that was demonstrated to have the following yield:

6.35 H2 + 2 CO2  0.825 C2H6O + 0.35 CH4 + 3.175 H2O


12.7 88 39.75 5.6 57.15

Reference: http://www.platinummetalsreview.com/pdf/pmr-v41-i4-166-170.pdf

Other systems with improved yields are quite possible.

The hydrogen made by water electrolysis is made using existing commercially available
2 MW electrolytic cells (Statoil, ex-Norsk Hydro) in an 82.5% yield. For this, 21.9 kw-hr
of electricity is required to convert 9 lbs of water into 1 lb of hydrogen and 8 lbs of water.

File = bwag022611g.doc

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