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197 comments on Peak Oil Media: Buffett on Net Energy and Peak Oil and Lovelock on Putting Your Head Between Your Legs and Kissing Your...

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DaveMart on March 6, 2008 - 9:39pm Permalink | Subthread | Parent | Comments top

Since both the extraction of minerals and their processing is so energy intensive I am sure that after reflection you would agree that high energy costs can't but mean high materials costs - just look at the energy cost to refine aluminium as one example.
No doubt high demand from Chindia will also play it's part, but until we have changed our energy systems totally to renewables/nuclear and batteries high energy costs are automatically going to mean high materials costs, even aside from other cost pressures, which as you point out are themselves likely to be severe, so construction costs for wind turbines will be very heavily impacted.

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Nick on March 6, 2008 - 10:03pm Permalink | Subthread | Parent | Comments top

"Since both the extraction of minerals and their processing is so energy intensive I am sure that after reflection you would agree that high energy costs can't but mean high materials costs "

Not really. First, for most minerals labor is much more important than energy, and 2nd, keep in mind that not all energy has risen greatly in cost. Oil has quadrupled, but natural gas hasn't risen nearly as much, and coal has risen very little (keep in mind that most coal is sold on long-term contracts, unlike oil).

"just look at the energy cost to refine aluminium as one example."

First, aluminium uses electricity, which hasn't risen much in price. 2nd, aluminium is the most energy intensive commodity of all - most use much, much less.

" high energy costs are automatically going to mean high materials cost"

Again, not really. This is a common error in PO circles, and it's really not so.

It's true that commodity costs have affected wind, but a bigger problem has been the shortage of turbine manufacturing capacity, due to the skyrocketing demand. Manufacturing is expanding, but it can't keep up.

We have short-term capacity bottlenecks in a wide variety of areas. That's one reason why it makes sense to ramp up everything we can - none of them alone can grow fast enough.

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DaveMart on March 6, 2008 - 10:50pm Permalink | Subthread | Parent | Comments top

You remark on energy costs being more loosely related to energy costs sounds well-founded.

However, in a situation of very tight oil and with the constraints on natural gas production that have been noted on this blog it would seem that gas prices are also likely to rise a lot.

Coal also seems relatively constrained, and although the system of long term contracts may delay rises they will not halt them in the long run, so spot prices for coal perhaps act as some sort of proxy for the trends in the market.

I can't see demand from India and China slowing much for materials though, and financing new mines is not proving easy at the moment, so for the next few years at least materials costs seem likely to remain high - and as you say, the short term is proving problematic.

I accept your point about nacelle costs, but high material costs in general will have a far greater impact on wind than nuclear.

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Nick on March 7, 2008 - 1:46am Permalink | Subthread | Parent | Comments top

"Coal also seems relatively constrained"

Not really. It's a short-term question of building infrastructure - ports, rail, etc.

"high material costs in general will have a far greater impact on wind than nuclear."

Well, wind costs rose from an recent historical average of $1.50/watt to $1.80 in 2007 - that's not a big increase. The fundamental costs are falling due to increasing size & better technology, and turbine manufacturing capacity will catch up, so a price rise is a temporary blip.

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DaveMart on March 7, 2008 - 6:54am Permalink | Subthread | Parent | Comments top

By the time we could get the infrastructure built for significant coal use, and the exporting countries had done so, or we built new mines if resources are available, we could be deep into a nuclear build and save the CO2.

Have you a source for your wind-power costs - since you are talking in dollars, I assume that they relate to US costs, which has a different cost base to the UK and a better on-shore wind resource in many areas.

Even in the US the most recent figures I have seen are for the T Boone Pickens 4GW nameplate facility in Texas, which is going to cost $10bn and would generate and average hourly energy flow of around 1.4GW - much less during Texan peak demand in the summer.
If I have not lost a decimal place that is over $6 a watt rather than $1.8, unless you are talking about some kind of levelised cost which can show just about anything depending on the assumptions put in - presumably once again you are talking about nameplate capacity, which is just downright confusing in the case of wind, however as you say it may be useful in comparing the scale of the price rise - you don't though give a date for the $1.50 figure.

If I have the Picken's figures right though on a nameplate basis that still works out as $2.50 watt nameplate, not $1.80

The figures I have based my costs on are 2006 UK Government figures - costs will have risen since then.

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Nick on March 7, 2008 - 1:43pm Permalink | Subthread | Parent | Comments top

"By the time we could get the infrastructure built for significant coal use, and the exporting countries had done so, or we built new mines if resources are available, we could be deep into a nuclear build and save the CO2."

New infrastructure in the US, such as rail, is a 1-3 year thing, not a 10 year thing. I think Australia has a port capacity bottleneck - I'm not sure on a timeline there. Anyone have info?

My source on recent historical costs was FPL, though I don't have a link. The 2007 data is nameplate (for comparison purposes) for both the US and the world - overall stats on new capacity and dollars spent (which may exaggerate costs, from a PPP standpoint) - I'll see if I can find a link.

Don't forget the scarcity pricing for wind turbines: manufacturers have a 2 year backlog.

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DaveMart on March 7, 2008 - 2:18pm Permalink | Subthread | Parent | Comments top

Here is a link to the Pickens 4GW $10bn project:
http://www.nytimes.com/2008/02/23/business/23wind.html?_r=1&oref=slogin&...

There is one heck of a price difference here, $2.50 watt against your figure of $1.80.
That's about a 65% price increase against your original $1.50

I am not saying your figures are like this, but I am pretty suspicious of costings in the renewables industry, they often seem to have taken off subsidies first, and in general got up to all sorts of games, just so long as they get their subsidies - the market basically stopped when Denmark stopped them.

I am particularly interested in your statement that the increase in costs is mainly due to supply shortages in the nacelles rather than rising material costs - have you got any breakdowns on this?

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Nick on March 7, 2008 - 3:14pm Permalink | Subthread | Parent | Comments top

I'll see what I can find on Pickens, and nacelle costs.

" I am pretty suspicious of costings in the renewables industry, they often seem to have taken off subsidies first"

I'd note that we're talking about capital costs, and subsidies typically don't apply to capital costs.

"the market basically stopped when Denmark stopped them."

That doesn't tell us much. Developers may have been waiting for resumption, or gone somewhere else where things were slightly better. We should note that most sources of energy would halt without subsidies, explicit or implicit, such as guaranteed utility reimbursement for investment (a key factor in general), CO2 externalities, or Price-Anderson.

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