Fossil Fuel

Fossil fuels have been an oldest source of energy for mankind. Fossil fuels, as its name suggest, were formed from the organic remains of prehistoric plants and animals which got buried under the earth’s surface millions of years ago. A major portion of world’s electric power is generated using them. Since 1900, the world’s consumption of fossil fuels has nearly doubled every 20 years.

The utilization of fossil fuels has enabled large-scale industrial development and largely supplanted water-driven mills, as well as the combustion of wood or peat for heat. The modern world greatly owes its technological and mechanical progress to fossil fuels. However, the irrational consumption of fossil fuels has led to several problems all over the world.

Though fossil fuels were present in abundance under the earth surface in three forms: Coal , Petroleum and Natural Gas, but over the last few decades, the over using of fossil fuels has led to diminishing their reserve.

Also, the burning of fossil fuels causes environmental pollution. This has been a major concern with the usage of fossil fuels worldwide. Many environmental protagonists think burning of fossil fuels posses’ serious threat to environment.

In this article, we have taken an overview of the various advantages and disadvantages of fossil fuels.

Advantages of Fossil Fuels

Due to their abundance and ease of using fossil fuels are far superior to any other method of generating electricity. The various advantages of using fossil fuels are :

  • High Calorific Value: Fossil Fuels have very high calorific value. Thus, burning 1 gm of fossil fuel releases tremendous amount of energy. Therefore the energy produced by fossil fuels is greater than that produced by an equivalent amount of other energy resource.
  • Ease of availability: The reservoirs of fossil fuels are pretty easy to locate with the help of advanced equipment and technology.
  • Lower Cost: Since fossil fuel like coal are found in abundance. They are used in most power plants as it reduces the production cost to a great extent. Petroleum is the most predominantly used form of fossil fuels for all types of vehicles.
  • Ease of Extraction: Fossil fuels are easier to extract and process, hence are cheaper than the non-conventional forms of energy like solar power.
  • Ease of Transportation: Transportation of fossil fuels that are in liquid or gaseous forms is very easy. They are simply transported through pipes.
  • Construction of power plants that work on fossil fuels is also easy. Power Plants that make use of fossil fuel can be constructed in almost any location. This is possible  as large quantities of fuel can be easily transported to the power plants.

Disadvantages of Fossil Fuels

Although fossil fuels have been preferred source of energy till now, but there over usage and other issues with burning of fossil fuels raises a question about the prolonged use of fossil fuels. Here are some disadvantages of Fossil fuels:

  • Diminishing Reserves: Although, oil, natural gas and coal are found in abundance in nature, the alarming rate at which they are being consumed has resulted in depletion of their reserves. Also, it takes millions of years for the hydrocarbon chains to form from organic remains. So it is impossible to replenish them.
  • Presence of GreenHouse Gases: The burning of fossil fuels release greenhouse gases, such as methane, carbon dioxide etc., which are capable of damaging the ozone layer.
  • Emissions of Harmful Gases: Harmful gases such as carbon monoxide, sulfur dioxide and nitrous oxides are produces sue to burning of fossil fuels. These gases are responsible for acid rain, which has spelled disaster for the ecology.
  • Ecological Imbalance: The zealous over-exploitation of fossil fuels has endangered the environmental balance in some areas. The hunt for newer reserves has led to the destruction of the natural habitat of certain flora and fauna. Also mass scale of coal mining has jeopardized the lives of several mine workers.
  • Rising Cost: The depletion of reservoirs has made the extraction of fossil fuels an expensive affair. The fuel prices are likely to rise in the near future.
  • Risks involves in transportation:  Leakage of some fossil fuels, such as natural gas, crude oil can lead to severe hazards. Hence, transportation of these fuels is very risky. The British Petroleum (BP) oil spill of 2010 in the Gulf area caused extensive damage to marine and wildlife habitats and to the Gulf’s fishing and tourism industries.
  • Global Warming: Fossil fuels have contributed in more than one way for global warming; this has led to many environmental activist and thinkers continuously opposing its usage.

Also Read about:

Coal Advantages and Disadvantages

Advantages of Biofuels

Electric Vehicles

Electric Vehicles as an Industry is having severe growing pains with a number of EV producers like Think, Smith and others running into severe financial problems. Battery makers like A123 Systems, Valence Technology are facing survival questions as well, as their main customers the EV producers fail to generate significant volumes. Now Battery Swapping Business Better Place too is in danger as its chief Shai Agassi has resigned as CEO and Board Member. Note Better Place had managed to get good momentum signing deals with governments in Denmark and Netherlands. They had also roped in big automakers as partners. However the huge amounts of capital needed to build in battery swapping stations required big pockets and staying power. For a startup that was always going to be difficult given that returns from Electric Vehicles were going to be far into the future. Shai Agassi had built up a brand based on his own networking and charm somewhat similar to Elon Musk of Tesla. When such a high flying founder leaves a startup, the chances of success become quite dim.

Green Industry in Upheaval

These days the only thing you hear about in the Green Industry is Bankruptcy or companies on the verge of insolvency. The problem is not related to the only sector, but afflicts the entire Green Industry with companies across Solar Energy, Wind Power, Energy Storage, Biofuels going out of business. The reasons are common and the results are also the same. In fact most of the stories related to massive job losses and how the companies have lost hundreds and millions of public and private money, led to ultimate failure. While the A123 , the most well known energy storage company is staring at a liquidity drought and desperately trying to survive, another company Valance Technology operating in the same sector has filed for bankruptcy. Valence develops rechargeable batteries based on lithium ion and polymer technology, has suddenly declared bankruptcy unable to weather the severe industry downturn.

Another energy storage company Beacon Power which used an innovative flywheel technology to store electricity had gone bankrupt earlier in the year. In fact the famous green investor, Vinod Khosla had said that he did not expect A123 Technologies to survive.

Guardian

Shai Agassi, the pioneer of electric vehicles, has severed his connections with Better Place, the company he founded, casting a pall over the prospects for the green technology.The Israeli entrepreneur was said to be involved in a dispute with Better Place, which specialises in the charging infrastructure for electric cars. He has now stepped down from the board after resigning his chief executive role last week. Evan Thornley, formerly head of Better Place’s Australian operations, has replaced Agassi as chief executive. Idan Ofer, the chairman, said it was “a natural point in the company’s evolution to realign for the second chapter”.

Also Read about  Solar Power Charging Stations and Electric Cars – A Complete Green Transport Solution on GWI.

Food prices have increased rapidly in the last 5 years after a long secular decline in food prices relative to world income. Not only have prices of essentials increased but heightened volatility is also being witnessed as stocks have started to run low. Now major organizations like the United Nations and Goldman Sachs are warning that the trend in food prices will keep on showing an upwards bias due to various secular factors coming into play.

Also Read about how Effects of Globalization of Agriculture are leading to Hunger Riots.

Why are Food Prices Increasing

The increase in Food Prices can be attributed to many reasons both fundamental and technical. Global Population growth is a significant driver along with food becoming an asset class for global funds.

1) Rise of Food Commodity as as Asset Class – Various Funds launched by Investment Banks have led to higher prices of agricultural products. Fund Managers are increasingly using these funds based on derivatives of corn, wheat, rice etc as a long only investment. While earlier food prices were determined by current supply and demand curves, nowadays future demand/supply perceptions are increasing affecting these prices mostly on the upside.

2) Growth of Chinese and Indian Middle Class – India and China have seen increasing prosperity over the last several years driven by strong economic growth. The rise in the Middle Class of these countries have led to increasing food consumption. The shift in food preferences towards meat has led to more grain consumption as meat consumption require more energy and grain usage, than plain vegetarian consumption.

3) Increased Usage of Crops for  Biofuel – Countries like US and Brazil have mandated increased usage of biofuel as a substitute for  petroleum based fuel for Transportation. Large amounts of crops like Corn are being diverted towards the manufacture of biofuels. Land which was meant for other crops is also being converted for usage of biofuel based crops. While the Global Financial Crisis has somewhat cooled the Corn prices, the return of economic growth is sure to put pressure on crop prices again. Note Biofuels as a solution to Climate Change and Global Warming is a small niche one at best.

Johann Hari: How Goldman gambled on starvation – Independent

At the end of 2006, food prices across the world started to rise, suddenly and stratospherically. Within a year, the price of wheat had shot up by 80 per cent, maize by 90 per cent, rice by 320 per cent. In a global jolt of hunger, 200 million people – mostly children – couldn’t afford to get food any more, and sank into malnutrition or starvation. There were riots in more than 30 countries, and at least one government was violently overthrown. Then, in spring 2008, prices just as mysteriously fell back to their previous level. Jean Ziegler, the UN Special Rapporteur on the Right to Food, calls it “a silent mass murder”, entirely due to “man-made actions.

Here’s how it happened. In 2006, financial speculators like Goldmans pulled out of the collapsing US real estate market. They reckoned food prices would stay steady or rise while the rest of the economy tanked, so they switched their funds there. Suddenly, the world’s frightened investors stampeded on to this ground.

So while the supply and demand of food stayed pretty much the same, the supply and demand for derivatives based on food massively rose – which meant the all-rolled-into-one price shot up, and the starvation began. The bubble only burst in March 2008 when the situation got so bad in the US that the speculators had to slash their spending to cover their losses back home.

Food Security Map

A Food Security Risk map from Maplecroft shows the most vulnerable regions in the world in terms of food security are South Asia and Africa. The only low risk countries are USA, Australia and Western Europe with the other geographic regions falling into the middle risk category.

Source http://maplecroft.com/

FAO

According to the Food and Agriculture Organisation (FAO) in Rome, global wheat production is expected to fall 5.2% in 2012 and yields from many other crops grown to feed animals could be 10% down on last year.

“Populations are growing but production is not keeping up with consumption. Prices for wheat have already risen 25% in 2012, maize 13% and dairy prices rose 7% just last month. Food reserves, [held to provide a buffer against rising prices] are at a critical low level.

Goldman Sachs

As Goldman notes, food inflation has been one of the most significant sources of headline inflation variation in emerging markets (EM) over the past few years. Since June, international prices for agricultural commodities have risen almost 30%, increasing the risk of fresh, food-related increases to EM headline inflation. We, like Goldman, expect EM headline inflation to start to reflect the relevant pressures more broadly

Solar Stocks have performed terribly in the past couple of years and have been a very painful experience for long term solar investors. The bad performance has not been restricted to the solar industry but also to other green sectors like wind energy, biofuels, energy storage etc. Only Energy Efficiency has performed relatively better thanks to acquisitions by big industrial and electrical conglomerates looking to expand their offerings.

Solar City Corp is a major US solar installer/integrator that is offering around $200 million of shares to the public for an estimated 13% stake in the company valuing the solar system integrator for around $1.5 billion.

Solar City Business Model

Solar City is the business of installing solar systems for residential and commercial customers either outright or through leases in partnership with financial and other companies (Citi, Google, U.S. Bancorp). The company has diversified into providing energy audits and retrofits as well.

The company’s investors include Draper Fisher Jurvetson, DBL Investors, and Generation Investment Management. Tesla Motors’ CEO Elon Musk also is an investor and is SolarCity’s board chairman.

Solar City Pros

1) One of the largest solar installers in the US with presence in 14 states and a topline growth of 84% in 2011.

2) Solar integration is a growth industry with falling solar system prices making solar energy increasingly affordable to a greater size of the population.

3) Elon Musk is a major figure in the Green Industry being the CEO of Tesla Motors which is the only successful independent Electric Vehicle company in the industry currently.

4) Company benefits from solar panel prices selling for below cost as it is in the business of installing solar systems and not manufacturing them.

Solar City Cons

a) The company has made losses for the last 5 years.

b) Other listed US solar system installers like Real Goods Solar and Akeena Solar have proven to be terrible investments.

c) Solar Installer Industry has low barriers of entry and very low margins.

d) Valuation does not look cheap for the company considering that the largest solar panel manufacturer can be bought for less than $200 million. First Solar which is not only one of the biggest solar panel manufacturer but also a bigger solar developer and installer has a market cap of less than $2 billion and is much more profitable.

e) Its not a great business to be in. Some of the top German solar installers like Conergy and Phoenix have lost huge amounts of money as the solar shakeout has affected them badly as well.These companies lost money on falling prices of solar panels inventory and diversifying into solar panel production.

Solar City Buy or Sell

Given the above facts, it makes no sense to buy Solar City at the above valuation and considering the hugely competitive nature of the solar installer industry. It is very hard to make money in green investing and Solar City does not possess any competitive advantage that would justify buying it at the price that is being talked about. 5 years of annual losses does not augur well despite a growing topline. The business of installing solar panels systems is a low margin business.

Solar City Competitor Analysis

Here are a list of Top US Installers/System Integrators. Note the list will keep expanding in the coming years as the size of the US Solar Energy Market Grows.

The Large Vertically Integrated Solar Panel Installers

1) SunEdison/MEMC – US Polysilicon and Wafer Producer MEMC bought SunEdison which was one of the largest solar installers in 2008. Now MEMC is strongly expanding the system installation business not only in the US but other parts of the world like India, Europe, Korea, Canada and other places. The company recently installed one of the biggest solar plants in the world in Rovigo, Italy.

2) Sunpower – Sunpower is a vertically integrated solar energy company known more for its highest efficiency solar panels. The company bought Powerlight a few years ago to enter the solar systems market and has bolstered the business constantly to become a major global installer. Sunpower is present in all 3 segments of the solar system business namely a) residential, b) commercial and c) utility. It is one of the largest US installers and has recently won a number of large utility contracts for building solar farms.

3) First Solar – First Solar is the largest producer of solar panels in the world using its proprietary thin film technology. The company is also one of the biggest utility solar system developer in the world focusing mainly on the North American Market.The company has built and sold the world’s largest solar farms in Sarnia, Ontario.The company has beefed up its solar installation business by buying project development teams and pipelines from Ausra, OptiSolar Turner etc.

4) Sharp/Recurrent Energy – Sharp recently bought Recurrent Energy one of the large independent solar power developers and system integrator in the US.Sharp already had a big presence in the California market where it is now facing increasing competition from the low cost Chinese players like Trina Solar, Yingli etc.

5) REC Solar – The Norwegian based Solar Company REC has started it solar system in the US a year or two ago and has managed to win some contracts. It is targeting all the 3 segments and is present in the major solar states of the US like New Jersey and Californa. It claims to be the largest residential solar installer in California with 17 MW of installations in 2010.

6) Solarworld – Another European company like REC,S olarworld is mainly targeting the utility and big commercial market recently winning a 11.6 MW order from LADWP. The company has a big manufacturing facility in Oregon and has aggressive expansion plans in the US as its domestic German market slows down.

7) Mitsui/Sunwize – Mitsui, the giant Japanese tradings house bought Sunwize in 2006 to enter the solar system market in the US. Note Mitsui is not a big solar panel producer like Sharp, Panasonic and others. The company sells mainly in Oregon and California and targets all the 3 segments of the market.

The Solar Financing/Leasing Companies

8 ) Sungevity – Sungevity is a California company targeting the residential market through a solar leasing plan. It extensively uses the Internet to design the system and has a JV with US Bank to provide financing to its customers.

9) SolarCity – SolarCity is a full-service solar provider for commercial and residential customers and does solar power system design, financing, installation and monitoring services from a single source.SolarCity is introduced a new solar lease option, called SolarLease. It also has other options like PPA .The company’s footprint extends to Arizona, California, Colorado, Maryland, Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Texas and Washington D.C.

10) SunRun – SunRun is one of the newer solar installation and solar financing companies that target the residential market mainly. The company is present mainly in the Western part of USA operating in 7 states Arizona, California, Colorado, Hawaii, Massachusetts, New Jersey, and Pennsylvania. The company uses a PPA model to sell solar systems and has partnered with a number of pure play solar installers.

The Solar EPC/Installation Companies

11) Akeena/Westinghouse Solar (WEST) – The first US Solar Installer to list on the US Stock Exchange,the company’s operations are based mainly in California. The company also sells solar system through retail outlets which was a first. The company also has a unique solar system which reduces solar installation costs called Mandalay.

12) Real Goods Solar (RSOL) – The second US Solar Installer to list on the Stock exchange, Real Goods Solar is present in California and Colorado and it targets the residential and commercial segments of the market.

13) Verengo Solar – The company also provides solar financing solutions and is present in the California market.

14) Borrego Solar – The company is similar to Verengo Solar but mainly concentrates on the commercial market. The company signed a deal with Chinese solar panel producer Yingli for procuring solar panels. The company is headquartered in California like most others.

Summary

The US Solar EPC Market has a good mix of large vertically integrated solar companies as well as independent solar installers. The leasing and PPA companies have added another dimension to the Solar System Market by making it easier for customer adoption of solar energy. There a a large number of solar system installers in the US and its tough to include most as most of them remain private companies.

More Reading

Solar City gets sued by Sunpower

Bankrupt Green Energy Companies

These days the only thing you hear about in the Green Industry is Bankruptcy or companies on the verge of insolvency. The problem is not related to the only sector, but afflicts the entire Green Industry with companies across Solar Energy, Wind Power, Energy Storage, Biofuels going out of business. The reasons are common and the results are also the same. In fact most of the stories related to massive job losses and how the companies have lost hundreds and millions of public and private money, led to ultimate failure. While the A123 , the most well known energy storage company is staring at a liquidity drought and desperately trying to survive, another company Valance Technology operating in the same sector has filed for bankruptcy. Valence develops rechargeable batteries based on lithium ion and polymer technology, has suddenly declared bankruptcy unable to weather the severe industry downturn.

Another energy storage company Beacon Power which used an innovative flywheel technology to store electricity had gone bankrupt earlier in the year. In fact the famous green investor, Vinod Khosla had said that he did not expect A123 Technologies to survive. Given the current fundamentals of A123, it does not look like he will be wrong. Centrotherm which was the third largest solar equipment manufacturers has become insolvent as well this week, as massive solar panel glut has made solar equipment makers compete with their own products being sold at 1/10th of the price.

Greenworldinvestor

Solar equipment companies are now feeling the heat as almost every company has stopped expanding capacity and there exists a large number of companies willing to sell almost new equipment for pennies to the dollar. Centrotherm which was the second largest seller of solar equipment with revenues of more than $800 million is facing a credit crunch. The company’s bank are refusing to renew credit lines or give it shipment finance. Hyundai had earlier bought solar cell equipment from Centrotherm as far back as 2008. Hyundai Solar Panel & Solar Cell factory, the  largest South Korean manufacturer is a 600 MW unit.

 WSJ

Valence Technology Inc. filed for voluntary Chapter 11 bankruptcy as the battery maker looks to boost liquidity and focus on its core business.

Valence develops rechargeable batteries based on lithium ion and polymer technology licensed from Telcordia Technologies. It also has research and development pacts with Delphi Automotive Systems, which holds the license to sell its batteries outside the U.S.

Valence, which had a market value of $110 million as of Wednesday’s close, has posted losses as it struggles to control costs.

 

India gives billions of dollars in misdirected subsidies to the fuel and fertilizer sectors which goes into the pockets of middlemen and profiteers. It is a known fact, that India’s fuel subsidies has engendered a huge mafia which makes billions of dollars each year. What is less known is that the fertilizer subsidy too, has grown its own pet corruption industry with subsidized urea being used by textile and plywood resin manufacturers. India gives a whopping 50-75% subsidy to urea which is used in agriculture as a fertilizer. However this huge discount on the actual cost has led to its leakage and bizarre usage in industry. Misdirected incentives and subsidies are the root cause of this wastage. The Indian Government instead of changing the structure of the delivery mechanism is trying to stop leakage through enforcement which has always failed. Instead of trying to focus the subsidy through targeted cash transfers, it continues to fuel wastage through ham handed broad subsidies. Note India’s fertilizer subsidy is distorted in other ways, with some types of fertilizers like urea getting subsidies, while others like DAP not getting the government largesse. This results in overuse of urea and under-use of DAP leading to soil degradation.

Read more about Pros & Cons of Biofuels & Pros & Cons of Renewable Energy.

India’s Misguided Fossil Fuel Subsidy root cause of Mafia Growth

India’s Fossil Fuel Subsidies have led to a massive growth of the petrol and diesel mafia in the country. India gives subsidies on diesel, kerosene and cooking gas through its state owned petro/gas companies like BPCL, IOCL, HPCL etc. These subsidies have been given for a long time and have led to the growth of a parallel black economy in these products. They not only lead to capital misallocation but also to the massive illegal profits for a few. It is a well known fact that all petroleum pump owners adulterate petroleum (which power most of the cars) with subsidized diesel and kerosene. This massive racket earns millions of dollars (if not billions) for a network of company officials, pump owners, government bureaucrats and politicians. The mafia is so strong and powerful that it thinks nothing of burning alive a senior police official. The racketeers are so rich and well connected that despite common knowledge nothing gets done about it.

ET

Irked by misuse of subsidy, the Centre has directed state governments to take firm steps to curb illegal diversion of fertilizers like urea to non-farm sectors. It is estimated that about 2 million tonnes of soil nutrients, especially urea, is being smuggled out for use by plywood resin manufacturers, textiles and other industries every year.

The official said, “We have received complaints of such incidents rampant in Gujarat, Maharashtra and Haryana. We have asked states to take serious action as central subsidy on fertilizers is being misused.” Urea, whose price is still controlled by the government, is selling at a subsidized rate of Rs 5,310 per tonne as against the production cost of Rs 13,000-23,000 per tonne.