Category Fuel Costs

Despite efforts that have enabled the U.S. to limit its demand for oil, world oil demand is up significantly. Advances in technology such as solar energy and vehicle fuel cell could help the world reduce its dependence on oil.

Figure 1 Oil and Gold Prices

The U.S. Department of Energy (DOE) and the U.S. Environmental Protection Agency (EPA) today released the Fuel Economy Guide for 2008 model year vehicles Fuel Economy Leaders: 2008 Model Year Coming in first place is the Toyota Prius (hybrid-electric) with city/highway miles per gallon (MPG) of 48/45. With higher fuel costs more people are factoring in fuel efficiency into their purchase decision. However, it is the purchase of pickup trucks and SUV that account for most of the vehicle purchases in the U.S. and these vehicles are dramatically less fuel-efficient than hybrids and small four-cylinder automobiles.

Despite the trend towards larger vehicles, the U.S is not experiencing a rapid rise in oil demand. Yet oil prices continue to climb. While geopolitical risk may account for the bulk of the recent price increase, latest information from the U.S. Energy Information Administration (EIA) Total Petroleum Consumption shows increasing oil demand from China.

Figure 2 Oil Demand: U.S. and China

Figure 2 illustrates that while oil demand in the U.S. has grown only modestly since 2000, the growth in China’s oil demand is rising rapidly. The recent data from the EIA shows oil demand through Q2/07. The demand for oil in the U.S. is up 5% from 2000 while in China oil demand is up 59% over the same period.

Improving vehicle fuel efficiency may abate rapidly rising oil demand in the U.S., but more emphasis on diesel and hybrids could take us a lot further. For example, Toyota has been slow to introduce its diesel line of pickup trucks in the U.S. while it offers a broad line of more fuel-efficient vehicle outside the U.S. Toyota offers several cars and trucks in Europe with impressively high fuel efficiencies that are not available in the U.S. Infact, the Toyota Hilux two-wheel drive pickup truck offers a four-cylinder diesel engine with an MPG of 44.8 on the highway and 29.1 in the city.

We are also seeing progress on fuel cell vehicles that could ultimately ameliorate are demand for oil, if not eliminate it entirely, all with no carbon dioxide or other emissions. We see most major automakers developing hydrogen powered fuel cell vehicles. Honda for one has the right concept in employing solar energy to make hydrogen.

Honda’s experimental hydrogen refueling station in Torrance, CA increases the solar incre3ases the efficiency of hydrogen fuel by using solar energy to produce hydrogen. The hydrogen is then used to power Honda’s Honda’s FCX concept hydrogen fuel cell vehicle with the only emission being pure water vapor. These fuel cell vehicles may not be ready for prime time, they provide a clear reality to what is achievable.

The bottom line is that supply and demand dictate price and the availability of cheap oil is on the decline. Further research into solar and hydrogen fuel cells could significantly change our dependence on oil.

With the Solar Decathlon is taking place in Washington DC today promoting commercially available solar energy technology and oil prices pushing to an all time high of $84/barrel, where are we in terms of cost parity with hydrocarbon fuels. Advances in solar energy technology, lower production costs, and rapidly rising oil costs could bring solar energy into parity with hydrocarbon fuels within five years.

The cost of solar energy remains prohibitively high at about $0.45 per kilowatt-hour (KWH) for an installed system. (a kilowatt-hour equals a 100-watt light in operations for 10 hours and equals 3,412.14 British Thermal Units – BTU) As a reminder, there is significant variance in cost per KWH ($0.23-to-$0.68) because a solar energy system is dependent upon daily available sunlight, which varies from about two hours a day in Alaska to almost six hours in Arizona. Solar energy costs are based on data from solar photovoltaic (PV) supplies SunPower (SPWR) and Sharp Solar.

In comparison to hydrocarbon fuels, one gallon of gasoline has an energy value equal to approximately 125,000 BTUs and cost around $3.00/gallon. The energy value of a gallon of gasoline equates to 36.6 KWH, therefore its price is about $0.08 per KWH. So there is significant disparity between gasoline at $0.08/KWH and solar energy at $0.45.

Fortunately, there are a number of initiatives seeking to improve the economics of solar energy. When we measure the cost of solar energy in dollars per watt we find a complete solar energy systems cost around $8.90/watt. (If we amortize the $8.90/watt over a twenty year expected life of a solar energy system, it amounts to $0.45/KWH) To improve the economic value of solar energy we can lower production costs and/or improve solar efficiency in terms of raising the KWH of electric produced per solar panel.

From the Lewis Group. at Caltech, we learned about several technological approaches to improving solar energy efficiency. Among some of the leading solar technologies are multi-junction semiconductor cells and solar concentrators. In a multi-junction cell, individual cells are made of layers, where each layer captures part of the sunlight passing through the cell. One of the key limits to solar efficiency are the semiconductor band gaps where excess solar energy is lost to heat instead of being converted to electric. Solar concentrators amplify available sunlight and increase the watts per square meter per solar panel.

Last year the Department of Energy reported that solar energy achieved a new record in efficiency performance. The news release, New World Record Achieved in Solar Cell Technology. suggesting that solar concentrators and multi-junction PV cells could surpass the Shockley-Queisser single-junction solar efficiency limit of approximately 31% for single layer solar cell. The multi-junction, concentrator solar cell produced by Boeing-Spectrolab (a Boeing company BA) achieved a world-record conversion efficiency of 40.7% in lab experiments while commercial products operate at 26.5%-to-28.3% efficiency range.

The DOE believes breakthroughs in solar efficiency such as these may lead to systems with an installation cost of only $3 per watt, which translates into a cost of $0.15/KWH. In addition, solar PV cell suppliers are diligently working to reduce production costs. SunPower is targeting a 23% solar efficiency as a goal to reduce its solar energy system cost by 50% by 2012. Semiconductor solar cells benefit from economies of scale, which could reduce cost by 20% for each doubling of production. These solar initiatives should act to reduce solar energy costs.

Meanwhile, as energy costs rise with oil at $84/barrel, the cost of gasoline is expected to increase. If gasoline at the local filling station rises to $6.00/gallon, its cost in KWH jumps to $0.16/KWH. At that price gasoline would be above those achievable through solar energy advancements of $0.15/KWH.

Figure 1 Photovoltaic Device: Efficiency/Cost

With pricing on PV cells falling below $3.00/watt (or $0.15/ kilowatt-hour), solar energy will be close to parity with conventional hydrocarbons. If the cost of gasoline rises to $6.00 a gallon, it would cost $0.16/KWH while current cost of electric is about $0.11/KWH because of the low cost of coal. The bottom line is innovative research initiatives have the potential to deliver disruptive technologies that significantly changes the economics of delivering an energy solutions to all nations.

Further review:
Please see research at California Institute of Technology’s division of Chemical and Chemical Engineering at The Lewis Group.
Imperial College, Jenny Nelson’s Third generation Solar Cells.
DOE’s National Renewable Energy Lab (NREL) Third Generation Solar Photon Conversion (Exceeding the 32% Shockley(Exceeding the 32% Shockley—Queisser Limit)
Solar Energy Market Data Solarbuzz

My September electric bill arrived the other day and I was interested in comparing my energy savings after swapping 60 and 100-watt light bulbs for Compact Fluorescent Light bulbs (CFL), as recommended by the U.S. Department of Energy (DOE). Our progress in migrating to solar and wind energy is moving slower than expected. The CFL bulbs were a cheap investment so last year 12 standard light bulbs (two 100-watt and ten 60-watt) for ten 60-watt and two 100-watt CFL bulbs.

The results are impressive with improving energy reductions and money savings. Energy usage as measured by kilowatt-hours (KWH) is down an average of 30% from last and attributable to CFL, outdoor solar lighting as well as electric conservation efforts. However, the savings attributable to the CFL bulbs, of nearly $8 per month equate to an impressive return on investment of over 190% in one year.

While our initial calculations suggested energy savings (for lighting) called for reductions of over 70% when switching to CFL bulbs, the electric bill reduction was not that dramatic because large appliance usage account for a larger portion of electric power bill. However, when measuring the return on investment for a fast, cheap, and easy step to lower your electric bill, the CFL produces real savings,

The CFL bulbs cost around $4.00 for either a 100-watt or 60-watt equivalent light bulb. GE’s compact fluorescent lights were installed in August 2006 at a total cost of $48.00 (12 times $4.00 a light). According to GE the 60-watt CFL used 15-watts of power and the 100-watt CFL used approximately 26-to-29 watts of power. So theoretically, energy use, assuming lights were in operation for 4 hours per day, would save about 71 KWH a month. Our electric rates are currently at $0.108 per KWH which is at par with the U.S. average rate of Electricity Prices for Households $0.104 per KWH in 2006. Therefore, the CFL bulbs are saving about $7.71 per month from our electric bill amounting to $92.50 in savings over a year. That yields an investment return of 193% on a $48 investment in CFL bulbs.

Figure 1 CFL Energy Savings

Now of course, power usage varies by household, including the diligent habits of our children, so savings will vary. The bottom line is little steps sometimes produce big results – CFL bulbs do help reduce your electric bill with a small investment and also help the environment as each 1.3 KWH reduction in power use reduces carbon dioxide (CO2) emissions by 1 pound. Coal generates about half the electric power in the U.S. and produces roughly ¾ of a pound of CO2 for every KWH of electric. That means for every 1.3 KWH of electricity used (a 100-watt light used for 13.3 hours) produces one pound of CO2. CFL help reduce CO2 emissions by approximately 1.4 pounds per bulb based on light usage of just 1-hour/day a month.

Oil prices remain at historically high levels and threaten our economy with higher home heating and transportation costs. With a lot of rhetoric over Peak Oil as well as claims that Tar Sands offer a viable substitute for oil, let’s examine a couple of facts to determine the feasibility and sustainability of supplementing our current demand for oil with tar sands.

According to Bureau of Land Management’s on line resource for Oil Shale and Tar Sands, tar sands are a mixture of clay, sand, water, and bitumen, which is liquid hydrocarbon oil like substance. Tar sands consist of about 10%-to-15% liquid hydrocarbon and an 80%-to-85% mixture of mineral water, clay, and sand, and 4%-to-6% water. It takes about two tons of tar sands, which are extracted, mainly through strip mining, and processed to produce one barrel of oil.

According to Alberta Energy, sand oil production was at 966,000 barrels per day (bbl/d) in 2005 and is expected to reach 3 million bbl/d by 2020 and possibly even 5 million bbl/d by 2030. Alberta’s sand oil reserves at 1,704 million barrels, but proven and extractable using current technology, the estimate is 175 billion barrels which is second to Saudi Arabia’s 260 billion according to CBS 60 Minutes

However, with productions level of Alberta’s sand oil at 3 or even 5 million barrels per day, it represents just 4%-to-6% of the world’s oil needs. The U.S. consumed an average of approximately 20.5 million bbl/d in 2006 as indicated by the Energy Information Administration.

If it takes two tons of tar sand to produce one barrel of oil, the ability to increase production to 3 million barrels per day would amount to mining of 2.1 billion tons of tar sand. Total coal mining in the U.S. for 2006 was 1.1 billion tons according to EIA Coal Data At 5 million barrels per day, equivalent to about 6% of the world oil production in 2006, would amount to 3.6 billion tons of tar sand. That would be significantly larger than the 1.3 billion tons total world production of Iron ore in 2005 Info Comm. That appears to be a lot of mining for a 6% increase of oil on the world market. The added tar sand oil would make a significant contribution to U.S. oil needs.

According to the Canadian Association of Petroleum Producers capital investment in Alberta’s oil sands amounted to $10.4 billion in 2005. That’s not a bad investment considering that even with production levels of 1 million barrels a day, revenue potential could be $29 billion a year with oil over $80 per barrel.

Figure 1 U.S. Oil Supply and Demand

Given the that tar sands only provide a fraction of our energy requirements and is burdened by carbon emission even during extraction, a commitment to solar energy fuel cells may offer a better return on investment. The bottom line is oil derived from tar sand is only a supplement to our energy demands, it’s non-renewable, adds to carbon emissions, requires extensive processing, and must be mined.

With rising energy prices and growing concern over global warming, will advances in solar and alternative energies enable the development of affordable and efficient energy solutions. Caltech research on the energy conversion process may offer some insight.

Energy conversion, ways of converting sunlight to electric and chemical energy, offers promising advancements to make solar and hydrogen energies more practical and affordable. On the forefront of energy conversion research, the framework of developing disruptive energy technologies, is The Lewis Group, that is part of the California Institute of Technology’s division of Chemical and Chemical Engineering. The Lewis Group is working in several research areas some geared towards to better understanding of energy capture, conversion of light into electrical and chemical energy, and energy storage. These research projects include photo-electrochemical, which focuses on the chemistry of semiconductors and materials, surface modification of semiconductors to improve electrical properties, and nanocrystalline titanium dioxide that could potentially lead to significantly lower cost for converting sunlight to electrical energy. The Lewis Group research projects are much more than improving photovoltaic devices; they are also exploring ways to convert sunlight into stored fuel energy.

While we are providing a brief and very oversimplified view of the solar energy research, it is important to understand the dynamics of energy conversion because the conversion process impacts the efficiency and the production cost of photovoltaic (PV) devices and fuels cells. The Lewis Group has an interesting PowerPoint presentation available for download providing an overview of energy from consequences of CO2 emissions to the latest in new technologies to improve alternative energies. Of particular interest are the historical efficiency trends for various materials used in crystalline and thin-film solar cells, energy conversion strategies of turning light to fuel and electric, and the cost/efficiency tradeoff in photovoltaic devices.

Cost/Efficiency Tradeoff
Photovoltaic devices are limited in their practical efficiencies governed by the thermodynamic limits and production costs that involve tradeoffs in materials, production processes, and PV device packaging. The Lewis Group provides a thorough illustration of the efficiency trends for various PV devices materials such as crystalline silicon used in semiconductors as well as the new approaches to thin film PV including amorphous silicon, cadmium telluride (CdTe), copper indium deselenide (CIS) and copper indium gallium deselenide materials (CIGS). These thin film material could offer substantial PV devices price reductions as a result of higher efficiency or lower production costs.

Figure 1 Cost/Efficiency Tradeoff

There is a tradeoff between improving the efficiency of a PV device, that is the amount of electric energy per solar panel, and the cost to produce the PV device. The average efficiency for a PV device is between 15%-to-16% and the average cost between $100-to-$350 a square meter. The cost per square meter and PV efficiency measured in watts per square meter can equate to a cost per watt, which ranges from $1.25/watt to $2.00/watt. SunPower (SPWR), offers the leading PV single junction device efficiency of 22% employing crystalline silicon and is expected to reach 500 megawatts (MW) production capacity by late 2009 from 330 MW in 2007. First Solar (FSLR) is ramping its thin film cadmium telluride (CdTe) solar technology by leveraging its low cost advantage with high volume production with its 75 MW in operations Ohio and 100 MW coming online in Germany. Startup Nanosolar is focusing on thin film solar PVs with a blend of copper indium gallium deselenide (CIGS) materials along with a manufacturing process much like printing, by placing the material blend upon metal foil. Evergreen Solar (ESLR) employs an integrated manufacturing process from wafers to cells and panels based on its proprietary String Ribbon Wafer technology with production levels at 118 MW in 2007.

There is presently a practical limit to solar efficiencies of approximately 30% and a thermodynamic limit of about 83%. The Shockley-Queisser limit at 30% for single junction solar cell efficiency is a function photon absorption in a material. “Detailed Balance Limit of Efficiency of p-n Junction Solar Cells” (W Shockley and HJ Queisser, Journal of Applied Physics, 1961) found that photons delivering excitation energy above a threshold (the band gap) for charge carrier electrons is lost to heating, meaning excess photon energy generates heat and not electric current. Photons with energy levels below the band gap pass through the material and photons above the threshold are absorbed. The absorbed photons transfer their energy to excite the electrons in the material and create pairs of negative electrons and positive charges that, because of their repulsion, travel to opposite ends thereby generating electric current.

According to the Lewis Group, other factors that limit PV cell efficiency include reflective loss of approximately10% for a material like silicon and a fill factor constraint that peaks at 83%. The fill factor restraint is attributable to the current-voltage characteristics of a PV cell that deals with matching the photocurrent density and voltage.

NREL (DOE lab) and Spectrolab (a Boeing company BA) using a multijunction semiconductor approach along with solar concentrators have achieved solar cell efficiencies of 40.7% in lab experiments while commercial products operate at 26.5%-to-28.3% efficiency range. Solar cell suppliers could reduce costs through production improvements or improve PV efficiencies without adding to costs. PV cell suppliers should benefit from economies of scale to reduce production costs while advances in technology improve PV efficiencies.

Research conducted by the Lewis Group at Caltech indicates that materials selected for PV devices have unique properties in their ability to absorb sunlight and generate electricity. In their analysis of semiconductor materials, the Lewis Group research found two parameters, determined by the physical properties of the material, that influence the PV’s efficiency. One is the thickness of the material, measured in microns, required to absorb enough sunlight to bring particular atoms in the material to an excited state, thereby freeing the electron to generate an electric current. The second parameter in the PV material is length of time the excited electrons last before recombining to generate heat instead of electric. Some materials such as silicon require material thickness of 100 microns while gallium arsenide (GaAs) only 1-to-3 microns.

Energy Conversion
Conversion of energy into electric or fuel is advancing through research in photoelectrochemical materials for solid and liquid fuels. Improvements in efficiencies for PV devices and fuel cells offer tremendous potential for transportation and home electric use.

Figure 2 Efficiency of Photovoltaic Devices

From figure 2, it seams quite apparent that PV efficiency has improved substantially since the 1950’s. Please see the Department of Energy (DOE) Basic Research Needs for Solar Energy Utilization for detailed analysis of solar energy. Further progress in PV and fuel cell technologies is predicated upon successful funding of further research. The bottom line is that only through innovative research will a truly disruptive technology be developed that has the ability of changing the economics to deliver an energy solutions to all nations.

With oil prices over $80 per barrel, the National Energy Assistance Directors’ Association in its press release today Record Home Heating Prices for Heating is expecting the average home heating cost for the ’08-’08 season to rise 9.9%. For homeowners using oil heat, heating costs are expected to increase 28% and for homes using propane, a 30% increase is expected.

With rising energy costs driven by costly oil extraction, the potential impact from carbon emissions with our continuing use of oil on climate change and rising sea levels, as well as the potential for fuel supply disruptions, could exacerbate our tenuous relationship with energy.

Eventually, as price rise dramatically, alternative energy becomes more compelling. The problem is our economy is so inextricably link to oil, that our energy security is based on securing foreign oil.

Figure 1 Oil Prices and Home Heating Costs

Without support and research on alternative energies such as solar and fuel cell technologies, we are hostage to oil. The U.S. economy is facing one of the most crises since the Oil Embargo of the 1973. Inflation driven by escalating oil prices is impacting the cost of home heating, transportation, production, materials, and food, particularly as corn is diverted to ethanol production. The housing market is in turmoil with falling home values, rising foreclosures, and a credit crisis that is making it more difficult to secure a mortgage may lead to slower consumer spending. With rising inflation and slower growth we may find ourselves in an economic world described as stagflation that was coined in the ’70’s to describe the bleak environment when gas stations rationed fuel, unemployment grew and the Federal Reserve raised rates dramatically to quell inflation.If we could limit our dependence on foreign oil through investment into solar energy and fuel cell technologies, we would not be impacted by the exogenous events in oil producing nations.

We believe there are a number of catalyst that could serve to dramatically lower the cost of alternative energies. It takes initiatives from all of us to change the balance. After all, oil is becoming more costly to extract, new oil discoveries are in difficult and challenging environments, and oil will eventually run out – it is finite. If we wait to long, our ability to make a difference may not be available.

Without greater investment into solar and hydrogen energies, we are held hostage to rising oil prices. Alternative energies such as solar and hydrogen fuel cells offer tremendous potential to provide energy independence and energy security. The dependence of the U.S. upon imported foreign oil raises inflation, weakens our currency, exacerbates the trade deficit, and forces consumers to pay higher prices for home heating and transportation. With oil exceeding $80 a barrel in late September 2007, the only beneficiaries are countries exporting oil and oil conglomerates. I guess when countries such as Dubai, after accumulating a large trade surplus based on inflated oil prices, decides to diversify away from oil and buy a non-voting stake in the NASDAQ market, it’s a wake-up call.

To better understand the potential of alternative energy, we should try to understand two basic concepts of energy: Specific Energy and Energy Density. Without digressing into chemistry 101, (Molecular Weight Calculator) the specific energy of a fuel relates the inherent energy of the fuel relative to its weight. Typically, specific energy is measured in kilo-joules (kj) per gram. A joule is a measure of kinetic energy – one joule is the amount of energy needed to move two kilograms at a velocity of one meter per second. Or a kilo-joule equals one kilowatt-second meaning one kilowatt-hour (KWH) equals to 3,600 kilo-joules. Your local electric utility bills you by the KWH, which according to the US Department of Energy Average Retail Price of Electricity in 2007 is approximately $0.11 per KWH.

Table 1 Specific Energy and Energy Density

The specific energy of a fuel tells us how much energy can be derived from a measured amount fuel by weight. By ranking each fuel by its specific energy, one can determine how efficient each fuel is. Specific energy and fuel density are often proportional to the ratio of carbon and hydrogen atoms in the fuel. A reference to the specific energy and energy values of most fuels can be found at Hydrogen Properties

Figure 1 Specific Energy
Figure 1 illustrates how fuels compare according to their specific energy. As we can see, hydrogen, because it’s extremely light, has the highest specific energy in comparison to hydrocarbon fuels.

This however, is not the full story because volume or energy storage requirement becomes a significant factor for gaseous fuels. Specific energy is important to analyze fuel efficiency by weight, but for hydrogen that must be pressurized and cooled to bring to a liquid state, the energy density become more relevant to fuel efficiency.

Figure 2 Energy Density: KWH per Gallon

Figure 2 illustrates how fuels compare according to their energy density, that is, energy relative the container size. As we can see from figure 2, hydrogen, because it is so light, requires 15.9 times the container volume to provide the energy of diesel or oil. In comparison to diesel, ethanol requires 1.6x the container size for the same amount of energy.

The container size becomes a significant detriment for housing hydrogen. Energy density is usually measured in kilo-joules per cubic meter (kj/m3). As kilo-joules are readily translated into KWH by multiplying by the number of seconds in an hour (3,600) and the College of the Deserts’ computation into gallons, we are converting the data into KWH per gallon for those of us in the U.S.

Hydrogen fares poorly relative to energy density. However, technology offers an approach to enhance the benefits of hydrogen with fuel cells. Fuel cell enable hydrogen molecules to interact with oxygen through a membrane that allows transmission in only one direction to convert H2 into an electric current to power your automobile. Fuel Cell Basics Fuel cells often capture the hydrogen electron from hydrocarbon fuel such as methane allow convention fuels to generate hydrogen for electric generation.

In a hydrogen-based economy, solar energy can provide electric to generate hydrogen through electrolysis and vice versa. Jeremy Rifkin’s The Hydrogen Economy eloquently illustrated the hydrogen economy where fuel cell act as mini power plants and the electric network resembles the Internet where cars plug into an electrical grid supplemented by solar cells at your home and work. Electric power generation moves from large utility generation to a distributed generation – everyone plugged in can generate power to the grid. The key benefit of hydrogen is that it democratizes the energy economy bringing power to all countries in the world.

An interesting technical analysis of hydrogen energy is provided by Ulf Bossel and Baldur Eliasson Energy and the Hydrogen Economy The bottom line is that solar and hydrogen energies offer tremendous potential to low long-term fuel costs and improve our environment and climate. More research is required to lower costs and improve feasibility.

There is considerable variance in calculating the cost of solar energy. Using U.S. Solar Radiation Resource Maps from the National Solar Radiation Data BaseThe (NSRDB) we found the amount of kilowatt-hours (KWH) per days of solar radiation per square-meter varies from less than two for Northern Alaska to six KWH/m2 per day for parts of Arizona. Using these maps we found that the cost of solar varies from $0.23-to-$0.68 per KWH with a mean of approximately $0.45 per KWH. The cost of $0.23 per KWH equates to Arizona and $0.68 per KWH reflects the cost of the lower solar radiation in Anchorage, Alaska. These cost are based on data from solar photovoltaic (PV) supplies before tax benefits or rebates. Please see SunPower (SPWR) and Sharp Solar.

Green Econometrics provided a normalized solar energy cost per KWH of $0.38-to-$0.57 with a mean cost of $0.45 as reference for what most of the U.S. would expect for solar energy. We have referred to the Lewis Group at Caltech which has provided estimates of $0.25-to-$0.50 per KWH for the cost of electric production from solar with a mean of $0.38 per KWH. According to Solarbuzz the average price of solar electric is approximately $0.38 per KWH. The Solarbuzz index is based upon an average of 5.5 hours of sunshine per day over a year, which relates to locations such as the US Sunbelt, Latin America, Africa, the Middle East, India and Australia. With large U.S. populations still residing in the North, we would still expect the average home in the U.S. to be paying closer to $0.45 per KWH.

There are a number of factors to consider such as total system cost, the use of concentrators and tracking systems to align the solar panel to be perpendicular with the sun during the day and the property location. There are factors to consider with property location such as whether the roof is facing south or towards the east or west. If the system rests on the ground, shading from building or trees becomes a factor. Other considerations include latitude, climate, weather, and time of day, season, local landscape, and temperature. The Department of Energy provides some information for home owners considering a solar energy system Small Solar Electric Systems

The cost for solar energy systems refers to the average efficiency of solar photovoltaic (PV) panels. The average efficiency for PV devices is between 15%-to-16%. According to SunPower, which has the leading PV device efficiency of 22% there is a practical limit to solar efficiencies of approximately 30%. SunPower is targeting a 23% solar efficiency as a goal to reduce its solar energy system cost by 50% by 2012. Sanyo is second with solar efficiency of 18%. SunPower claims to have patented solar PV architecture and production processes that enable the company to command a lead in solar efficiency.

For solar energy systems below 5 kilowatts, the cost of the inverters represents a substantial part of the system cost. An inverter is used to convert the direct current (DC) from the solar panels to alternating current (AC) used in your home. Inverters can cost from $400-to-$700 per 1000 watt adding to the total cost of deploying small solar energy systems. See Wholesale Solar

How long will it take before solar energy is at parity with hydrocarbon fuels? In terms of cost per Kilowatt-Hour (KWH), solar energy is four-to-ten times the cost of hydrocarbon fuels. Green Econometrics’ research estimates that solar energy cost about $0.38-to-$0.53 per KWH. (See Understanding the Cost of Solar Energy ) There are two significant market factors that should help reduce the cost of solar energy: strong market demand for solar energy driven by rapidly rising oil prices that should lead to new product developments and the economies of scale derived from experience curves in the production of solar panels.

With oil harder to find and more costly to extract, energy prices should continue to rise. In the U.S. oil production continues to decline despite increased drilling activity. (See How vulnerable are we to energy shocks? ) These market factors should continue to drive demand for solar energy. With strong market growth rates we wanted to assess various solar energy cost assumptions for different experience curves found in the semiconductor industry.

The productions of solar photovoltaic cells are similar to semiconductors and enjoy cost reduction as production increases. We briefly mentioned experience curves, the production cost reductions associated with doubling production of semiconductors in our last post from an article from the Lockwood group TECHNOLOGY TRANSFER: A PERSPECTIVE. These experience curves translate into cost reductions of 10%-to-30% as production volume doubles.

Our analysis attempts to develop a what-if scenario for the solar energy market by comparing energy costs for different experience curves and market growth rates. Research into new materials or processes could significantly reduce the cost of solar energy. Of course the funding of solar R&D is limited, but there are programs that appear promising such as The Lewis Group at Caltech

Figure 1 Cost per Kilowatt-Hour

Figure 1 illustrates the cost disparity between solar energy and hydrocarbon fuels. Our what-if scenario provides a framework to measure the number of years it will take before solar energy cost are at parity to oil and electric. Our assumptions are solar energy market growth rates of 40%-to-60% and experience curve of 10%-to-30%. Current growth rates for domestic solar suppliers such as SunPower (SPWR), First Solar (FSLR) and Evergreen Solar (ESLR) are current enjoying revenue growth rates of over 100%.

Figure 2 Solar Parity

Oil and electric prices are assumed to increase at a modest 2.6% per annum for electric and 3.3% for oil. In the most optimistic scenario of market growth of 60% and experience curve of 30%, suggest that it would take until 2014 or seven years before solar energy is equal to the price of electric. With 10% experience curve and 40% market growth it could take 20 years before parity. Increased funding into solar energy research and higher energy prices shorten the time.

The bottom line is that as solar energy reaches parity with hydrocarbon fuels, energy security is achieved for all countries.

The U.S. Department of Energy (DOE)’s $23.6 Billion Spending Plan for FY’07 calls for $1.5 billion for the Office of Energy Efficiency and Renewable Energy where spending includes $28 million in solar, $16 million for thin-film photovoltaic manufacturing equipment to reduce the cost of solar panels, $23 million for researching ethanol, and $100 million for carbon sequestration research. However, more than half of the DOE spending is targeted towards research on weapons, defense, and security. Perhaps our national security would be better served if the U.S. were not dependent on foreign oil. Investment into alternative energies like solar and fuel cells could provide us with energy independence with less concern over protecting oil in foreign lands.

Solar energy is significantly more expensive than conventional hydrocarbon fuels. In Green Econometrics’ prior analysis of fuel efficiencies and costs, we found solar energy cost approximately $0.38-to-$0.53 per Kilowatt-Hour (KWH). See Understanding the Cost of Solar Energy
There is considerable variance in the cost of solar energy because sunlight availability varies by geography and climate. With limited sunlight solar costs could be over $1.00 per KWH. In terms of cost per KWH, solar energy is four-to-ten times the cost of hydrocarbon fuels.

Figure 1 Cost per Kilowatt-Hour

For solar energy to be at parity with conventional fuels solar energy needs to be subsidized through tax incentives, utility rebates, and research funding. Research is perhaps the most important aspect of improving the economics of solar energy because through research companies could dramatically lower production costs. The disconnect in solar energy research is limited funding. Funding is required to incubate ideas and new approaches to solar energy in order to develop a roadmap for commercialized products that in turn, could be embraced by venture capital.

The DOE’s research funding for solar is just a drop in the bucket or barrel that better correlates the magnitude disparity. Electric utilities companies are providing electric power generated mainly through coal, which contributes heavily to CO2 emissions, and yet they don’t spend on research and development towards alternative energies. Large energy companies like Exxon Mobil (XOM) don’t have R&D budgets like pharmaceutical or technology companies that spend 14%-to-20% of their revenues on R&D. Merck (MRK) and Genentech (DNA) spent 17% and 20%, respectively on R&D while Microsoft (MSFT) and Google (GOOG) spent 15% and 14%, respectively on R&D in 2006.

If Exxon Mobil were spending 10% of its 2006 revenues of $377.6 billion towards R&D to develop alternative energies, it would amount to over $37 billion, a figure that is larger than the DOE budget of $23.6 billion. DOE spending on solar energy research is approximately $28 million. According to the DOE, U.S. energy expenditures in 2004 were over $869 billion. So with that amount of money being spent on energy, how much should be spent to avoid dependence on foreign oil?

Figure 2 Historic Energy Spending

Solar energy and fuel cell technologies have the potential to ameliorate our energy dilemma of foreign oil dependence and risk of climate change from carbon emissions. While it’s hard to measure the economic impact of climate change, our dependence on foreign oil leaves us with growing $450 billion debt for our presence in Iraq and our national security vulnerable to vagaries of oil prices. The Cost of Iraq War The $450 billion the U.S. is spending in Iraq is almost enough money to equip the 124.5 million homes in the U.S. with a 1 KW solar energy system. The U.S. housing units rose to 126.7 million in 2006. Of course that may not cover your total electric usage that averages about 10,760 KWH per household according to data from the Energy Information Administration Electric Power Annual 2005 – State Data Tables

Can higher R&D spending on solar energy help?
Even some of the leading domestic solar photovoltaic cell suppliers are light on R&D spending. SunPower (SPWR) and First Solar (FSLR) are budgeting their R&D spending towards the single digits as a percentage of revenues. Despite relatively low R&D spending levels, SunPower intends to lower solar panels cost by 50% by 2012. Solar photovoltaic cells undergo the same production processes as semiconductors. Experience curves associated with semiconductor production indicate a 20%-to-30% cost reduction with doubling of production. See The experience curve or cost-volume curve article from the Lockwood group TECHNOLOGY TRANSFER: A PERSPECTIVE The solar energy market is expected to grow at 80% over the next five years according to Rhone Resch, president of the Solar Energy Industries Association Solar Leader Expects >80% Market Growth Even without new advances in photovoltaic materials, with a solar energy market growth of 25% and an experience curve of 30%, solar cost could decline by 30% every three years from about $8.90 a watt ($0.45 a KWH) to $2.14 a watt or $0.11 a KWH in 15 years equal to the current price of electricity. The bottom line is that faster market growth and/or increased funding of solar energy research could significantly improve the economics of solar energy and give the U.S. greater security and energy independence.

Solar and alternative energies represent a very small percentage of our total expenditures on energy. Energy Price and Expenditure Estimates by Source
So a substantial reduction of solar energy costs, assuming somewhat elastic demand, we should see significant growth in solar energy. In addition, if we tax hydrocarbon fuels by their respective carbon emissions, we might begin to see level energy playing field.

Figure 3 Energy Spending

Funding solar energy should be views as a strategic imperative at par with national surety. Energy security should equate to national security and alternative renewable energies should provide us with the means to our energy independence.

There are several studies evaluating ethanol as fuel for transportation that offer both positive and negative impacts from ethanol. On the positive side there is less CO2 emitted from ethanol than conventional hydrocarbon fuels, domestic producers gain economic value from employment and purchasing power, and there is less dependence on foreign oil. Other studies have concluded less efficiencies from ethanol such as negative energy values because of the fertilizers and energy used to produce ethanol is larger than the amount of energy produced, CO2 is released during the fermentation and combustion process, and it still must be blended with hydrocarbon fuels leaving us dependent on foreign oil.

Ethanol is alcohol-based fuel made from crops. Fermenting and distilling starch crops, typically corn, into simple sugars produce ethanol. Chemically ethanol is similar to hydrocarbon fuels in that they both contain carbon and hydrogen atoms.

To understand the economics, let’s compare ethanol to hydrocarbon fuels by efficiency and costs. The first step is to convert the BTU (British Thermal Unit) value of ethanol into Kilowatt-Hours (KWH) in order to have a common measure of energy. Remember the KWH is a useful measure of energy because we can equate KWH to engine horsepower performance and compare hydrocarbon fuels to alternative energies like solar and wind and compare these energy costs on a common level.

Our fuel energy conversion links Energy Units and Conversions KEEP, and Fuel BTUs provide some useful measures to evaluate ethanol in comparison to hydrocarbon fuels like diesel and gasoline.

One KWH equals 3,413 BTUs so we divide the BTU value for each fuel by 3,413 to arrive at its corresponding KWH energy value.

Energy Comparison
1 gallon of ethanol = 84,400 BTUs = 24.7 KWH
1 gallon of diesel = 138,690 BTUs = 40.6 KWH
1 gallon of gasoline = 125,000 BTUs = 36.6 KWH
1 gallon of oil = 138,095 BTUs = 40.5 KWH

Figure 1 Kilowatt-Hours per Gallon

As seen from figure 1, ethanol is not the most efficient fuel because of its low BTU value in comparison to hydrocarbon fuels. However, ethanol is a form of renewable energy because the crops can be grown to generate more fuel.

Energy Economics

To compare the energy cost of ethanol to hydrocarbon fuels we convert each fuel into a cost per KWH. Our prices are quarterly average U.S. energy prices by fuel type: Ethanol Prices, , and Oil Prices

Figure 2 Cost per Kilowatt-Hours

On a cost per KWH basis, ethanol is similar to hydrocarbon fuels. So depending on current fuel cost, which varies by location, ethanol could be higher or lower than diesel or gasoline.

On the production of ethanol a bushel of corn produces about 2.76 gallons of ethanol according a study by AgUnited . According to U.S. Department of Agriculture it takes 57,476 BTUs of energy to produce one bushel of corn Energy Balance of Corn Ethanol therefore, for BTU of energy used to produce ethanol there are 4 BTUs of energy gained from the ethanol for transportation.Carbon EconomicsEthanol is produced from fermentation of starch to sugars and is represented by the equation C6H12O6 = 2 CH3CH2OH + 2 CO2 according to University of Wisconsin Chemistry Professor Bassam Z. Shakhashiri The two CO2 molecules given off from the fermentation process of ethanol does add to CO2 emissions, but the growing process and biomass also extract CO2 from the atmosphere.

Emission of CO2 from hydrocarbon fuels depends on the carbon content and hydrogen-carbon ratio. When a hydrocarbon fuel burns, the carbon and hydrogen atoms separate. Hydrogen (H) combines with oxygen (O) to form water (H2O), and carbon (C) combines with oxygen to form carbon dioxide (CO2). How can a gallon of gas produce 20 pounds of CO2 To measure the amount of CO2 produced from a hydrocarbon fuel, the weight of the carbon in the fuel is multiplied by (44 divided 12) or 3.67. For ethanol we compared its basic structure to gasoline, diesel, and crude oil.

In the combustion process, ethanol produces CO2 at a rate that is below that of gasoline. The equation for ethanol combustion is C2H5OH + 3 O2 –> 3 H2O + 2 CO2. Ethanol Combustion In our simple example, the carbon weight in ethanol (two carbon with a combined atomic weight of 24 to a total weight of 46 for the molecule of C2H5OH) is multiplied by 3.67 to determine the amount of CO2 produced from ethanol. We then compared the output of CO2 to the amount of energy produced to arrive at pounds of CO2 per KWH. Bottom line is that ethanol emits 11% less CO2 than gasoline and is a renewable fuel.

Figure 3 Pounds of CO2 by Fuel Type

There are several studies on ethanol with the majority indicating benefits. Some of these include: High-level ethanol blends reduce nitrogen oxide emissions by up to 20% and ethanol can reduce net carbon dioxide emissions by up to 100% on a full life-cycle basis. Ethanol Benefits and Clean Cities While ethanol produces less CO2 than gasoline, it still emits CO2 and keeps us dependant upon hydrocarbon fuels.

For further information on fuel combustion Combustion Equations and for Energy to Produce Ethanol Ethanol Production

The second category 5 hurricane to hit Caribbean in two weeks leaves uncertainty in the energy market as oil prices head higher. While it is hard to draw the direct correlation between global warming and hurricanes strength, the fact is the oil production in the Gulf of Mexico accounts for 32% of our total oil production. In addition, the Gulf of Mexico is one the most productive oil and gas region as the U.S. faces declining petroleum product production despite significant increase in the number of oilrigs. The increasing likelihood of a weather related energy supply disruptions particularly from the Gulf area could dramatically increases to energy prices similar to Hurricane Katrina’s impact in 2005.

Higher oil prices have driven demand for energy exploration and investment into oil and gas drilling rigs. Since 1999, the number of drilling rigs has increased 112%. In the U.S., rig count is up 181% with 1,749 rigs in operation in 2007 from 622 in 1999 according to Baker Hughes. Worldwide Rig Count
According to RigZone there are 278 offshore drilling rigs in the Gulf of Mexico RigZone

Figure 1 Worldwide Rig Count

Figure 1 provides the rig count for the U.S. and the world. The U.S. accounts for over half the world oil drilling rigs yet our production is less than 10% of total global production. The Gulf of Mexico with 278 drilling rigs produces 32% of our oil with only 16% of the rigs. Hurricane Impacts on the U.S. Oil and Natural Gas Markets The rigs in the Gulf of Mexico are more productive and therefore any weather related disruption in the Gulf leaves us more vulnerable to energy shocks.

Figure 2 US Rig Count and Oil Production

While the U.S. rig count is up 118% from 1999, petroleum production is actually down 7%. On a global basis, oil and petroleum product production increased 13% since 1999 and this includes a 60% increase in the number of drilling rigs excluding the U.S. The bottom line is the U.S. and the rest of the world is experience diminishing returns on investments in oil production.

With diminishing returns on investment into oil, would it not be better to invest into alternative energy such as solar or wind. The truth is the cost of solar and wind are still dramatically higher than hydrocarbon fuels. The cost of solar on a kilowatt-hour (KWH) basis is approximately $0.38 per KWH in comparison to oil at $0.05 per KWH.

Figure 3 Cost per Kilowatt-Hours

Initiatives such as the trading of carbon credits leave little economic incentive to invest into alternative energy. A survey last year by TreeHugger found carbon credits trading for $5.50 to $13 per metric ton of carbon dioxide. Survey of Carbon offsets A metric ton of carbon dioxide equates to about 110 gallons of gasoline and at these prices, the carbon emission amounts to about $0.05-to-$0.12 to a gallon of gasoline. The carbon penalty does not even come close to bringing solar or wind energy on the same playing filed with hydrocarbon fuels. The Carbonfund organization offers a means to offset your carbon emissions with tax-deductible contributions

The cost of carbon emissions is not reflected in the market for energy. In addition, the market is unable to establish a fair price for carbon because there is no market force used to establish the value of carbon credits. We need a mechanism to bring solar energy at par with hydrocarbon fuels to limit our vulnerability to energy shocks and supply disruptions.

To measure the efficiency of conventional hydrocarbon fuels, we need a common measure of energy. The Kilowatt-Hours (KWH), the billing quantity of electric usage, serves as a useful measure of energy because we can equate KWH to engine horsepower performance, heat energy of a fuel, and compare energy costs on a common level. KWH can be used to determine which fuel is most efficient by measuring the heat output of each fuel.

A BTU is the amount of heat necessary to raise one pound of water by one degree Fahrenheit and each fuel has its own BTU measure. For example, one ton of coal produces about 21.1 million BTUs, which would equate to 6,182 KWH. One KWH equals 3,413 BTUs.

A framework to measure energy costs is to convert each fuel type into KWH of energy. Some helpful links to common fuel conversions Energy Units and Conversions KEEP, BTU by Tree, and Fuel BTUs

We want to establish common energy measure to evaluate home heating fuel efficiency for each fuel type. Our first step is to measure the BTU value for each fuel type. The next step is to divide the BTU value for each fuel by 3,413 to arrive at its corresponding KWH energy value.

Kilowatt-Hour per Unit of Fuel
The energy value of a unit of fuel depends on its mass, carbon and hydrogen content, and the ratio of carbon to hydrogen. In general, hydrogen generates approximately 62,000 BTU per pound and carbon generates around 14,500 BTUs per pound. The combustion process is complex and while higher hydrogen content improves energy BTU levels, not all hydrogen goes to heat. Some hydrogen combines with oxygen to form water. Coal Combustion and Carbon Dioxide Emissions

Energy Comparison
1 pound of wood = 6,401 BTUs = 1.9 KWH
1 pound of coal = 13,000 BTUs = 3.8 KWH
1,000 cubic foot of natural gas = 1,000,021 BTUs = 299 KWH
1 gallon of oil = 138,095 BTUs = 40.5 KWH
1 gallon of propane = 91,500 BTUs 26.8 KWH

Figure 1a Kilowatt-Hours per Pound

As seen from figure 1, natural gas provides the highest efficiency level followed by oil. Wood offers the lowest efficiency per pound at 1.9 KWH/lb and is followed by coal with twice the efficiency at 3.8 KWH/lb. Oil offers almost a 70% efficiency improvement over coal and propane is just slightly more efficient than coal.

Fuel Energy Efficiency
Wood = 1.9 KWH per pound
Coal = 3.8 KWH per pound
Natural Gas = 6.9 KWH per pound (liquid and gas measures are calculated at 6.3 pounds per gallon)
Oil = 6.4 KWH per pound
Propane = 4.3 KWH per pound

This is not the full story. While the energy efficiency of the fuel is important, a lot depends on the fuel efficiency of the stove or furnace that is used to heat your home. The heating efficiency of your stove or furnace has a substantial impact on the overall efficiency of the fuel’s heat value. The adjusted KWH in figure 1 indicates the fuel efficiency adjusted for the efficiency of the heating system. There is also some variance in the fuel efficiency given impurities, temperature, and water presence.

Adjusted Fuel Energy Efficiency
Wood @ 1.9 KWH per pound and stove efficiency of 70% equals 1.3 KWH/lb
Coal @ 3.8 KWH /lb and stove efficiency of 70% = 2.7 KWH/lb
Natural Gas @ 6.9 KWH /lb and furnace efficiency of 95% = 6.5 KWH/lb
Oil @ 6.4 KWH /lb and furnace efficiency of 85% = 5.5 KWH/lb
Propane @ 4.3 KWH /lb and furnace efficiency of 95% = 4.0 KWH/lb

Figure 1b Kilowatt-Hours per Kilogram

Figure 1b proves the same fuel types measured by liters and kilograms. While the absolute numbers are different, the relative fuel efficiency among the fuels is the same.

Energy Economics

The final phase of our fuel efficiency exercise is to compare an economic measure of fuel cost. The market price of fuel will vary by location, usage amount, and market conditions. Our prices were quarterly average U.S. energy prices by fuel type:
Natural Gas Prices, , Oil Prices, and Propane Prices
Coal and wood prices were based on local residential delivery.

Figure 2 Cost per Kilowatt-Hours

Coal and wood are among the lowest priced fuels. However, coal and wood require extensive hands-on control and cleaning which are not factored into costs. Natural gas is offered in many urban areas and is currently priced below oil or propane. Natural gas offers higher energy efficiency and is priced lower than oil or propane, but is not available in all urban markets and very limited rural availability.

The trade off between oil and propane, which can be found in most markets, is operating efficiency and maintenance. Modern oil furnaces are demonstrating higher operating efficiencies, but cost significantly more than propane. Oil does offer higher efficiency than propane, but maintenance costs are higher for oil furnaces and that cost is not reflected in these fuel costs measures.

Electric heat in some markets where utility rates are below oil or gas may offer favorable economics, but electric rates might be going higher as utilities switch to lower carbon emission fuels. The challenge is to migrate electric utilities from lower-priced coal with high CO2 emissions to natural gas with lower carbon emissions. The cost to lower CO2 emissions from coal burning utilities could force natural gas prices to rise. The bottom line is that energy prices will continue to rise with natural gas tide to oil production. Even with higher fuel prices, there is still a tremendous disparity between conventional and alternative energies with the cost of solar near $0.38 per KWH and residential electric rates of $0.11 per KWH.

Carbon Economics

Emission of CO2 from hydrocarbon fuels depends on the carbon content and hydrogen-carbon ratio. When a hydrocarbon fuel burns, the carbon and hydrogen atoms separate. Hydrogen (H) combines with oxygen (O) to form water (H2O), and carbon (C) combines with oxygen to form carbon dioxide (CO2).
How can a gallon of gas produce 20 pounds of CO2

From this example, a carbon atom has an atomic weight of 12, combines with two oxygen atoms each with a weight of 16, to produce a single molecule of CO2 an atomic weight of 44. To measure the amount of CO2 produced from a hydrocarbon fuel, the weight of the carbon in the fuel is multiplied by (44 divided 12) or 3.67.

Wood has half the carbon content than coal, but coal is twice as efficient as wood and therefore both have nearly the same high level carbon footprint. Oil benefits from having higher energy efficiency than propane giving oil 30% lower CO2 emissions pound for pound.

Figure 3 Pounds of CO2 by Fuel Type

Natural gas, because of its low carbon content and high fuel efficiency, achieves lower CO2 emissions than oil, propane, or coal. Natural gas produces 46% less CO2 than coal and 10% less than oil. With coal relatively abundant and cheap in comparison to oil or natural gas, energy prices may increase as electric utilities switch to lower CO2 emission natural gas or invest into emission reduction processes that add to capital costs and operating expense.