Monday, November 21, 2011

Post # 57: Energy Technology: The Innovation Challenge

I've been doing a lot of thinking during the past several months about innovation (or the lack thereof) in the energy sector.  By innovation, I mean the entire process from basic discovery though technology implementation and impact.  (I'm all about impact these days...)

This seems to be a timely topic.  Time Magazine's current issue carries the title, "The Invention Issue."  Of course, invention is but one step in the chain between discovery and impact.  I thought I might offer some snippets from my current stream of consciousness about innovation in the energy sector.  We'll focus on patents as one indicator of innovation.  (Again, patents are only one indicator reflective of one milepost in the road between discover and impact.)

Why all the focus on innovation?  Michael Mandel, the Chief Economic Strategist at the Progressive Policy Institute, recently posted on the Atlantic website a pointed article about the importance of innovation to our economy.  The article, entitle "There Are Only Two Ways to Save the Economy:  Innovation or Inflation" is good reading.  His core message is that if our economy is to recover, we must either grow (through technical innovation that leads to job growth and overall economic growth), or we must purposefully inflate our way out of the mess we're in.  He states, "...we have to shift from a consumer economy to a production economy. This is partly about a change in spending patterns, but also about a change in attitude. For example, we need to boost R&D and other investment in knowledge capital, but we also need federal regulatory agencies to encourage rather than discourage innovation. We need more infrastructure spending and other investment in physical capital, but it should be directed towards supporting exports and production in the U.S., rather than clearing up bottlenecks of imported consumer goods. This profound shift in policy and behavior is essential over the long run, but it won't be easy or quick."

I'm obviously sympathetic to Michael's argument.  I recently had an extended discussion with Charles Barton of The Nuclear Green Revolution blog.  Innovation was one of the many subjects we discussed.  (Charles has posted most of the content of our discussion on his blog.)    My comment to Charles was,

"The environment in today’s nuclear energy enterprise is hostile to innovation.  Not by intent, but in reality nevertheless.  The industry is highly regulated.  It is very costly to do research, development, and demonstration.   It’s a very capital-intensive business.  The barriers to entry are incredibly high.  The down-side risks of innovation are more easily rendered in practical terms than the upside gains.  Often it seems everyone in the enterprise (federal and private sectors) are so risk-averse that innovation is the last thing on anyone’s mind.  In this environment, “good-enough” is the enemy of “better”.  Humans learn by failing.  It’s the way we learn to walk, talk, and ride a bicycle.  Our environment today has little tolerance for failures at any level.  There’s no room for Thomas Edison’s approach to innovation in today’s world.  On top of all of this, or perhaps because of it, the nuclear industry invests less on R&D, as a percentage of gross revenues, than practically every other major industry you might name."

So this got me to wondering about innovation in other energy sectors.  One of the sources of information I turned to was the World Intellectual Property Organization (WIPO).  WIPO's document, Patent-based Technology Analysis Report – Alternative Energy  summarizes almost 78,000 recent alternative energy patent applications from the U.S., Europe, Japan, Korea, the People's Republic of China, and WIPO's patent office.  The data roughly covered the period between 1976 and 2008.  (In case you're wondering, only 15,326 of those patent applications came from the U.S. Patent Office.  An amazing 42,842 of them came from the Japanese Patent Office.  That's more than everyone else combined!) The analysis focuses on solar energy, wind energy, bio energy, hydro energy, geothermal energy, wave/tidal power, hydrogen, fuel cells, carbon capture and storage, and waste-to-energy (using stuff otherwise destined for landfills for direct burning or liquid fuels production).  There are several interesting analyses in the report.  One insight (their Figure 2) is that the global rate of patent filings peaked around 2003 and has since decreased (caveat:  no data for 2009 and later years).

Total alternative energy patent applications and application growth rates (Ref: Figure 2 from "Patent-based Technology Analysis Report – Alternative Energy," WIPO.

A second insight is that the rate of alternative energy patent applications in the U.S. peaked in 2002 at just a bit more than 1500, dropped by 20% to around 1300 in 2004, and was headed downward at a pretty fast clip at that time.

One of the most interesting observations is WIPO's analysis of the global pattern of patent activity.  I quote from their report,

"A general model for patterns in patenting activity can be established to understand the stages of development of a particular technology. On the introduction of a new technology, only a small number of applicants are involved in patenting in the field and only few applications are filed. Following this growth period, the technology enters a development period, during which the technology develops rapidly as a result of active competition between numerous applicants, who together file many applications. As research and development continues, the growth in the number of applications stagnates or declines as does the number of applicants. This period can be termed a “maturity period”. As new technologies or even entirely new technology paradigms emerge, a period of decline begins for the original technology, at which point the number of applications and applicants in that field declines strongly. It is possible for a revival of interest to occur in the original technology, if a new application can be found for it, leading to resurgence in the number of applications and applicants (KIPI 2005)."

Figure 4 from their report is a graphic depiction of this pattern (I apologize for the poor quality of the clip):

A general model for patent filing activity (Ref: Figure 4 from "Patent-based Technology Analysis Report – Alternative Energy," WIPO.

One has to wonder how the superposition of the nuclear energy innovation challenges I mentioned above impacts this model.  I believe most of these challenges lead to "technology lock-in" and "loitering" in Stage III of the process.

A number of other organizations, including the International Energy Agency (IEA) 2009 are engaged in the business of spurring and coordinating energy R&D.  See, for instance, IEA's reports on global energy R&D portfolios.

Margolis and Kammen argued in the 30 July 1999 issue of Science (Vol 285 no. 5428 pp. 690-692) that R&D intensity in the U.S energy sector was extremely low and was reducing the capability of the sector to innovate.  Looks like little has changed...

So, I will continue to bombard the energy technology innovation issue with simple questions. "What is the innovation process, and how does the process work (or alternatively, why doesn't it work?" "Who's doing the innovating?"  "Where is innovation happening?"  "How can the innovative cycle be accelerated?" These are not simply intellectual sandbox exercises.  The quality of life of billions of our fellow human beings around the world depend on the answers...  Here's to success!

Just thinking...


Wednesday, November 9, 2011

Post # 56: Sobering News From International Energy Agency

The International Energy Agency (IEA) released its World Energy Outlook 2011 today.

I'm still absorbing the analysis, but the best way to describe the message of the report is "sobering".

According to IEA analysis, unless the world takes "bold" action (their term) to change our energy policies, we will be locked into an "insecure, inefficient and high-carbon" energy system.  They go on to say, "Governments need to introduce stronger measures to drive investment in efficient and low-carbon technologies.  The Fukushima nuclear accident, the turmoil in parts of the Middle East and North Africa and a sharp rebound in energy demand in 2010 which pushed CO2 emissions to a record high, highlight the urgency and the sale of the challenge."

The IEA typically explores futures by scenario analysis.  The "New Policies Scenario" is, given our current direction, probably the best that can be hoped for.  In this scenario, recent government commitments are implemented in a "cautious" manner.  Under this assumption, and given current population and economic mega-trends, the year 2035 looks like this:

  • Total global primary energy demand has increased by 1/3 relative to 2010 levels.  Ninety percent of this demand growth is in non-OECD countries.  China is consuming 70% more energy than the U.S., with per-capita demand still less than half that of the average American.
  • The percentage of energy supplied by fossil fuels drops from today's 81% to 75%.  Renewables share of energy production rises from 13% to 19%, based on subsidies that rise from $65B in 2910 to $250B in 2035.  (Want to take odds on all those subsidies coming through?)  It is worth noting, though that the IEA calculates that global fossil subsidies in 2010 amounted to $409B.
  • Oil demand rises from 87 million barrels/day in 2010 to just 99 million barrels/day in 2035.  Virtually all of this is driven by growth in the transportation sectors of emerging economies. (Everyone wants a personal automobile.)
  • The 2035 price of oil is assumed to reach just $120/barrel in 2010 dollars.  (I think this is a low-ball assumption).
  • The use of coal RISES 65% by 2035.
  • Nuclear power output rises by only 70% by 2035.
  • Natural gas's share of energy production rises dramatically, almost equaling that of coal.
  • Carbon dioxide emissions between 2010 and 2035 amount to 3/4 of the total emitted during the past 110 years.
  • Approximately $38 Trillion in investments is required by 2035 – about $1.5 Trillion per year – to achieve this scenario.  The investment breakdown is: $16.9 trillion in the Power sector, $10.0 trillion in the Oil sector, $9.5 trillion in the Gas sector, and $1.2 trillion in the Coal sector.
  • The global average temperature rise is 3.5 ºC.

The IEA also looked at a "450 Scenario", which lays out a pathway to to achieving a 2ºC global average temperature rise.  There's some really sobering news here. According to EIA's analysis, given the existing energy infrastructure in place, all of the emissions allowed through 2035 will be emitted by 2017.  We are "locked-in".   A major redirection of global policies would be required to address this problem.  According to the EIA, "Delaying action is a false economy: for every $1 of investment in cleaner technology that is avoided in the power sector before 2020, an additional $4.30 would need to be spent after 2020 to compensate for the increased emissions."  As they say, "the door to 2ºC is closing...

The IEA also conducted some interesting parametric analyses which they've not yet posted.  They have a "low nuclear" variant in which nuclear energy drops by 15% by 2035.  They also focus quite a bit of attention on China's per-capital energy demand growth...  Most of the variants appear to make matters worse.

Given all of this news, and an attention deficit world awash in all sorts of distractions, it's not unreasonable to consider scenarios in which efforts to reduce carbon emissions are not successful.  In that event, we can (a) hope the climate modelers are wrong, (b) pursue terra-forming to alter the atmospheric dynamics, or (c) prepare to deal with all of the ramifications of a warmer climate.

Quite a Gedanken Experiment!


Monday, November 7, 2011

Post # 55: Nuclear Energy - Fallen and Can't Get Up ?

Last week I attended the winter meeting of the American Nuclear Society (ANS) in Washington, D.C.  It was a time to catch-up with friends and colleagues; let folks know that though I've "retired" from ORNL, I have not retired; and hear the latest technical and business updates from the nuclear energy community.

I must admit I left the meeting with a touch of the "blahs".  The tone of the meeting, from beginning to the end, was "haunted"  (Halloween occurred during the meeting) by three underlying thoughts: (1) the overall US and global economic malaise, (2) real and potential repercussions from the Fukushima Dai-ichi incident, and (3) the blessing/curse of cheap natural gas.  These realities directly and indirectly resurfaced multiple times while I was there.

I'm reminded of the famous TV commercial from several years ago involving an elderly lady who's laying in her kitchen floor calling out, "Help!  I've fallen and I can't get up!".   I couldn't help but wonder, "Is this dear lady's exclamation a metaphor for nuclear energy?"

It seems every time during the past 25 years we were on the verge of a "nuclear renaissance", a major setback occurred... Is this "deja vu all over again" as Yogi Berra famously quipped?  Sure looks like it - in the U.S. and Europe at any rate...

The continuing domestic and global economic malaise has two major short-term impacts on nuclear power:  (1) it decreases electric load growth rates, and (2) it creates a risk aversion paranoia in the financial sector.  The first factor enables utility planners to delay capacity additions needed to meet load growth.  The second factor makes it more difficult for companies to proceed with capital-intensive endeavors.  Small Modular Reactors (SMRs) have the potential to help in the second case, by reducing both the lump sums of capital to be borrowed, and providing earlier revenue generation from the capital that is borrowed. (More about SMRs later...)

I'm happy that natural gas prices are as low as they are.  I cook with natural gas, dry my cloths with it, and heat my house with it.  But I wonder... what if fracking turns out NOT to be the panacea it is currently believed to be by many in the gas industry?  The future for domestic gas production would be severely impacted if fracking were to become an unacceptable practice.  What might lead to this outcome?  An "accident" in which a major aquifer becomes contaminated and unusable for human consumption.  That could be a Black Swan for fracking.  I hope it never occurs, but I shared here before my concern about the potential environment impacts of widespread fracking.

The echos of the Fukushima accident still ring loudly in the nuclear industry and will continue to do so for years to come.  One of the immediate impacts of the Fukushima accident was a major scaling-back of business expansion and staffing plans by major nuclear vendors and suppliers.... a "hunkering-down" so to speak - in anticipation of a major knee-jerk response from governments and customers around the world who had new nuclear power construction plans on the table.  And we have seen quite a bit of this response in Europe to be sure.

As I write this, futures prices for natural gas are sitting around $4 per million BTU.  That's certainly not "too cheap to meter", but it's cheap.  This reality is dominating the near-term behavior of energy suppliers in our country (and in many - but not all - other countries).  One of the presentations I saw at the embedded ANS 2011 SMR Conference concluded that at natural gas prices of $6 per million BTU, virtually no other electrical generating technology (coal,  SMRs, etc) will be competitive – unless carbon emissions are penalized.  That means free market forces are unlikely to result in much new generating capacity other than gas-fired units for the foreseeable future.

So, am I bullish on nuclear energy?  YES - in the mid-to-longterm!  Friedman has said the world is "Flat, Hot, and Crowded".  In my view, all three factors create a demand for safe, affordable, sustainable nuclear energy.  Flat: the nuclear industry is global.  Hot: Nuclear is among the lowest carbon emitting energy technologies on the planet.  Crowded:  Four billion people need energy – now.  Nuclear energy is the only technology within our reach that can address a major portion of this need.

The middle-east appears poised to move ahead with nuclear energy.  China and other parts of the Pacific Rim outside of Japan are moving.  There are serious rumblings on the African and South American continents.

Where's the U.S. leadership?