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[As big solar technology capable of producing many megawatts of energy prepares to hit the market, Mike Kane takes a look at the real-world limitations of Concentrated Solar Power (CSP) installations and the devastating impact that rising commodity prices and energy scarcity will have on the renewable energy industry. This is not an indictment of the technology itself, which may be poised to take the #2 spot for viable large-scale renewable energy projects after wind farms. But with the peak of world hydrocarbon production looming the critical question to analyze is whether this technology is capable of mitigating the decline of oil and gas reserves to sustain the destruction known as “economic growth.” The good news is that the answer is no: the bad news is that the answer is no. – FTW] Renewables PART 4 BIG SOLAR: Scarcity, Rising Commodity Prices and Reality by Michael Kane © Copyright 2006, From The Wilderness Publications, www.fromthewilderness.com. All Rights Reserved. This story may NOT be posted on any Internet web site without express written permission. Contact admin@copvcia.com. May be circulated, distributed or transmitted for non-profit purposes only. March 4, 2006 0700 PST (FTW) - S tirling Energy Systems (SES) working in partnership with Boeing has perfected their Concentrated Solar Power (CSP) technology at Sandia National Laboratories – a Department of Energy lab located in New Mexico operated by Lockheed Martin. At Sandia, six prototypes of the Stirling solar dish currently produce an average of 270 kilowatts (kW) peaking at 900 kW under perfect conditions. President Bush visited this installation last year.1 The first commercial CSP installation from SES will be installed on 4,500 acres (four square miles) in the Mojave Desert near Victorville, California, feeding electricity to Los Angeles. Construction will begin in 2007 and is scheduled for completion by 2012. If successful, 20,000 dishes will be producing an average of 150 megawatts of energy for Los Angeles. You may have read claims in the press that this installation will be producing 500 megawatts by 2012, but that is only during peak output. The Stirling solar dish operates at 30% efficiency2 (averaging 150 MW). This first installation should be enough to supply an average of 75,000 homes with electricity if successfully completed.3 Is a mere 150 MW by 2012 going to displace much, or any, of the natural gas currently consumed to produce electricity for Los Angeles? Hardly. The state of California consumes nearly 60,000 MW of energy during peak demand and that number grows exponentially every year.4 California has an aggressive plan in place attempting to produce 20% of its energy from renewable sources by 2010 and 33% by 2020.5 Whether this goal is achievable in terms of real energy or only on paper remains to be seen. The state of California may be talking in terms of peak output, not average output; the same misrepresentation SES is committing in their press releases. But what is certain is that renewable projects in the Southwest – and throughout the country – are designed to keep up with increased demand as opposed to replacing or phasing out consumption of hydrocarbons. Stirling’s website states this explicitly under Why do we need renewable energy? 6 To have even a minor impact on Peak Oil and Gas without a Powerdown strategy of massive conservation, there would need to be dozens upon dozens of gigantic CSP installations in America. But that can’t happen because CSP technology can only produce massive megawatts in desert conditions where there is plenty of sun and open land to sustain the process. SES boasts that it would take one CSP installation of 100 square miles to produce all of the electricity consumed in the United States, but that is nothing more than wishful thinking used as a public relations tool. This hypothetical installation – which could never possibly exist – would need to be operating constantly at peak output to produce such massive amounts of energy. Since CSP operates at 30% efficiency, this imaginary project could only be counted on for 30% of America’s electricity production. What would such a mammoth installation do to the ecosystem of whatever desert it was installed upon? How would you transport energy from the desert throughout the entire U.S.? The longer the transmission lines transporting the energy, the more energy lost in accordance with the laws of thermodynamics. So there goes CSP’s 30% efficiency down the tubes. Whether or not CSP technology will make a significant dent in the energy market is questionable, but the limitations of this technology make it impossible to mitigate the coming energy crisis of Peak Oil even when considered in conjunction with the largest renewable energy source available today, wind turbines.7 CSP may offer a “benefit” to the Southwest since there is plenty of arid desert land, but if we consider the growing problems this area already has with available fresh water supplies CSP may be a Trojan horse! Should we continue to supplement over-consumption and exponential growth in a region that is destined for water wars with neighbors? Increasing available energy in the Southwest will bring economic growth, which inevitably intensifies stress on fresh water supplies that are already being utilized at unsustainable rates. Population continues to rise in this region due to over-zealous real estate investors interested solely in the bottom line. Rising Commodity Costs It took between 4,920 and 6,000 lbs of aluminum to produce the six dishes currently operating at Sandia National Labs in addition to many other essential commodities. To install 20,000 dishes in the Mojave Desert by 2012, 8,500 to 10,000 tons of aluminum will be needed.8 Aluminum, along with many other commodities, has continued to rise in price despite a few short-term losses caused from big money moves by hedge funds.9 Gold isn’t the only metal skyrocketing in value. Deutsche Bank’s chief metals economist, Peter Richardson, recently stated that zinc and aluminum prices are poised to post the largest gains of all the base metals in 2006.10 China’s demand for aluminum continues to soar which has forced them to announce restrictions on their exports of the metal. They have also cut down their aluminum production to save energy that is needed elsewhere in their economy.11 Demand for oil and gas differs from demand for aluminum in that the latter may be replaceable by a different commodity if necessary. This is rarely the case for hydrocarbons. According to Bob Liden, Vice President and General Manager of SES, the company is looking into using a synthetic polymer in place of aluminum when their solar dishes are commercially deployed. But they are uncertain if this is a realistic solution to high aluminum prices. Synthetic materials are made from oil. This is not a sound solution in a world of rising oil prices.12 Those paying attention to Peak Oil have always maintained that it is when demand for hydrocarbons begins to outstrip supply that we will see real problems unfold regardless of when the exact date of Global Peak Oil occurs. There are many real-world factors that can cause oil supply shortages in addition to the geological reality of Peak Oil. An invasion of Iran, Venezuelan disruptions, or another intense hurricane season could do to America what the Soviet Union’s collapse did to Cuba.13 There is plenty of aluminum in the earth’s crust but it is conjoined with many other sediments and minerals making the smelting process extremely energy intensive. Currently there are worries that aluminum smelters will go out of business as they see their profits eroded by high energy costs.14 If this happens demand for aluminum will outstrip the available supply not because the world is running out of aluminum but because we are running out of cheap energy to refine it. Venezuela has just announced it will not export even one pound of aluminum by 2012.15 Chavez seems to fully understand what Peak Oil will mean for his country. Building infrastructure to smelt aluminum at home is a form of re-localization for Venezuela and recognition that globalization will die with the coming peak in global hydrocarbon production. Chavez can’t be the only world leader to realize this. If other heads of state follow through with similar declarations, global commodity markets will see even higher prices. The global supply of aluminum has been extremely tight and as energy prices rise it is unlikely that there will be a glut of this metal anytime soon. FTW has previously reported on China’s commodity buying binge over the last two years. Ultimately Peak Oil is going to send commodities on a seemingly endless climb upward: real goods will gain value while paper wealth such as stocks, bonds, and fiat currencies lose value. A similar point was recently raised by The NY Times regarding commodities: "We're going through a long-term recovery from stupid oversold levels," said Fred Sturm, who manages the Ivy Global Natural Resources fund. "Prices of many of these commodities were unsustainably low." In the late 1990's and early 2000's, he pointed out, gold and oil traded at nearly 20-year lows after having fallen by more than two-thirds. The depressed prices helped to force commodity producers to merge — Alcoa and Reynolds in aluminum, for example, and Exxon and Mobil in energy — and to take other steps to improve their finances. That drove the first move in what he expects to be a three-stage rally in commodity markets. The last stage, he predicted, will be "a true scarcity phase when Mother Nature slaps us in the face and grabs our attention and tells us we're running out of commodities like oil when people keep wanting more." But that's well in the future, Mr. Sturm said.16 [emphasis added] How close are we to a “true scarcity phase” for commodities? The answer to that is directly correlated to the scarcity of the most important commodity of all, oil, which Fred Strum seams to believe is “way off in the future” despite substantial amounts of data that suggests otherwise. To produce, process and refine commodities you need abundant and ever-growing reserves of energy. Once those reserves stop growing (Peak Oil and Gas) demand will outstrip supply, energy prices will rise, and the cost of all other commodities will follow upward. Ironically it is this phenomenon that has sparked the recent boom in renewable energy. Rising oil and gas prices have made renewable energy competitive with traditional energy sources, but that does not change the fact that renewable infrastructure requires oil and gas to be produced, shipped, built and maintained. Whether we like it or not, oil and gas are fundamental to renewable energy. Hedge Funds But the economics does not end there – enter the casino. Hedge Funds are a way to leverage money or protect money within the never-ending growth paradigm of global capitalism. February saw drops in commodity prices because many hedge funds pulled out of their long positions to liquidate profits.17 Let’s use one commodity as an example: gold. In the first week of February gold hit $570 an oz. before funds pulled out of the yellow metal,18 bringing the price down as low as $540 for a short time before bouncing up to $563 by the end of the month. When funds buy and sell commodities they are trading paper securities, not the physical commodity itself (such transactions are known as derivatives). And when they buy large amounts of these securities it has a big impact that blurs the true fundamentals of the market by increasing volatility. Fund managers love market volatility since they can make fast money on both rising and falling prices. What is truly amazing is that most of these funds are fully automated, requiring no human input when making the decision to buy or sell. The automated systems detected market signals that triggered a massive sell-off in gold. Once one system started to sell many more funds joined in simultaneously. This trend in-and-of itself was enough to cause gold to drop in price, and thus we saw $570 drop to $540. But the drop was only temporary. In today’s gold market it was seen as nothing more than a momentary blip on the radar screen. When these macro funds sold their holdings in gold, traders (real, live people) who buy and sell based on market fundamentals bought gold at the depressed price because demand for gold is insatiable. This set off another set of market signals that caused the very same automated funds to start buying the commodity they just sold. As gold rises higher in value we will see more of this volatility with quicker turnaround.19 In “The Big Dipper,” Dan Norcini does an excellent job of describing how this phenomenon is triggered and what it looks like in the rearview mirror for both gold (a precious metal) and copper (a base metal).20 When big funds move big money they send waves throughout the market making it difficult to see what trends will be long or short term. But most analysts agree that there is money to be made by investing in commodities this year and beyond.21 Catherine Austin Fitts, former Secretary of HUD during the George H. W. Bush administration and resident FTW economic guru, has said, “2006 will be a good year for commodities.” But she cautions that those who don’t know what they’re doing could be taken for suckers if they carelessly throw their money into the casino. Market volatility performs a unique magic trick with the novice investor’s money – now you see your money, now you don’t. Regardless of what happens within the casino this year the bottom line is clear: exponential growth cannot continue in a finite world racing toward Peak Oil. Once the demand for hydrocarbons starts to outstrip supply we will see long-term price increases in all real goods (commodities) as paper wealth decreases. A quick review of the mainstream news reports referenced in the endnotes of this report shows this trend is happening now. Securing commodities for massive renewable energy projects will be competitive and expensive and may not be profitable. In such a reality, how many CSP installations will be built? The American military-industrial-complex may ultimately have the final say in the matter since they have funded much of the R&D. These installations hold absolutely no hope of mitigating the coming energy crisis. There is no free lunch – over-consumption cannot continue and we need to stop desperately praying that it can. To continue doing so is delusional, dangerous, destructive and gluttonously selfish. Renewable energy works very nicely within sustainable systems, but not within a suicide-economy of exponential growth and over-consumption. *Special thanks to Dmitry Podborits for inspiring the research into aluminum and commodities as they relate to renewable infrastructure. Good call! 1 http://stirlingenergy.com/breaking_news_photos.htm Scroll down to see pictures of President Bush being shown the CSP prototypes at Sandia National Laboratories. 2 Will Wade, “Huge Solar Plants Bloom in the Desert,” Wired, November 15, 2005 http://www.wired.com/news/planet/0,2782,69528,00.html 3 Paul Sharke, “Sun Rises on Big Solar,” Design News, January 1, 2006 http://stirlingenergy.com/news/Stirling_Energy_Joyce_Design%20News.pdf This report says the first CSP installation from SES will provide 250,000 homes with electricity when operating at peak capacity of 500 MW. Since the technology operates at 30% efficiency, it is far more accurate to state that the installation should provide 75,000 homes with electricity on average. 4 California’s Electricity Situation: Summer 2005, Prepared by the staff of the: California Energy Commission, California Public Utilities Commission, California Independent System Operator, February 22, 2005 http://www.energy.ca.gov/electricity/2005_summer_forecast/2005-02-22 _SENATE_PRESENTATION.PDF 5 Energy Action Plan II, IMPLEMENTATION ROADMAP FOR ENERGY POLICIES California Energy Commission, California Public Utilities Commission, September 21, 2005 http://www.energy.ca.gov/energy_action_plan/2005-09-21 _EAP2_FINAL.PDF 6 http://stirlingenergy.com/why_do_we_need.htm 7 Michael Kane, “Renewables Part 1,” FTW, March 18, 2005 http://www.fromthewilderness.com/free/ww3/031805_kane_renewables.shtml FTW will soon be publishing more on the reality of wind turbines, but little has changed in the past year: part 1 remains valid and cogent. 8 These numbers come from a brief phone interview with Bob Liden, VP and General Manager of SES, who said each individual dish uses over 8,000 lbs of aluminum but “no more than 1000 lbs.” When asked how much aluminum went into each dish, Liden’s first response was, “That’s a good question.” 9 Chanyaporn Chanjaroen, “Commodities: Hedge funds ditch aluminum, dragging metals down,” Bloomberg News, February 16, 2006 http://www.iht.com/articles/2006/02/15/bloomberg/bxcom.php 10 Tan Hwee Ann, “Commodity Strategists: Zinc, Aluminum to Gain, Deutsche Says,” Bloomberg News, January 19, 2006 http://www.bloomberg.com/apps/news?pid=10000100&sid=aoyVkeTrD4yU&refer=germany 11 Xiao Yu, “Aluminum May Rise as China Seeks to Cut Power Demand,” Bloomberg News, December 8, 2006 http://quote.bloomberg.com/apps/news?pid=10000006& sid=aQVgLHMrbCuU&refer=home 12 When I attended the second Renewable Energy Finance Forum last year (REFF – Wall St.) the rising cost of wind turbines was discussed repeatedly. While an increase in demand was one factor driving up prices, so was the rising cost of commodities that went into producing the turbines. As commodities increase in value the renewable energy industry as a whole will feel the pressure. 13 Cuba experienced their own Peak Oil when the Soviet Union collapsed drastically cutting Cuba’s oil supply. But Cuba is a shining light of hope for what the world could look like Post-Peak if local communities so choose. Will American choose as wisely when our turn comes? See: Cuba – A Hope, by Dale Allen Pfeiffer for detailed information on Cuba’s inspiring transition: http://www.fromthewilderness.com/free/ww3/120103_korea_2.html 14 Jon Nones, “Aluminum Prices Continue to Rally,” Resource Investor, February 3, 2006 http://www.resourceinvestor.com/pebble.asp?relid=16737 15 “Venezuela to phase out aluminum exports,” Associated Press, February 1, 2006 http://www.businessweek.com/ap/financialnews/D8FGGNAO1.htm?campaign_id =apn_home_down&chan=db 16 Conrad De Aenlle, “Have Commodities Become the New Tech Stocks?” New York Times, February 5, 2006 http://www.nytimes.com/2006/02/05/business/yourmoney/05comm.html re-published here: http://www.smh.com.au/news/business/markets-ride-commodities -to-the-top/2006/02/10/1139542404904.html 17 Kevin Andrusiak, “Hedge fund hijinks play havoc with base metal prices,” The Australian, February 11, 2006 http://www.theaustralian.news.com.au/common/story_page/0,5744, 18106846%255E643,00.html James Regan, “Commodities markets sink as funds cut positions,” Reuters, February 13, 2006, http://za.today.reuters.com/news/NewsArticle.aspx?type=businessNews&storyID =2006-02-13T070736Z_01_ALL325710_RTRIDST_0_OZABS-MARKETS- COMMODITIES-20060213.XML Martin Hayes, “Metals battered as speculators cash in profits,” Reuters, February 13, 2006, http://abcnews.go.com/Business/wireStory?id=1612003 18 Ibid endnote 9: “It may well be that the stalling in the gold price rally over the last few days reflects a slowing in inflows into the various exchange-traded funds," said Alan Williamson at HSBC in London. Gold for April delivery fell $6.20 to $542.70 on the New York Mercantile Exchange. "There is some classic, typical profit-taking going on," said Christoph Eibl at Tiberius Asset Management in Zug, Switzerland. http://www.iht.com/articles/2006/02/15/bloomberg/bxcom.php 19 Increased market volatility in this form is precisely what occurs before a market collapse, as pointed out in a recent University of Tokyo study. http://www.fromthewilderness.com/free/ww3/022006_world_stories.shtml#2 http://www.world-science.net/othernews/060215_stockfrm.htm 20 Dan Norcini, “The Big Dipper,” Gold-Eagle.com, February 10, 2006 http://www.gold-eagle.com/editorials_05/norcini021006.html 21 Meagan Rees, “Commodities the new hedge funds – Credit Suisse,” IPE.com, February 16, 2006 http://www.ipe.com/article_default.asp?article=20292 Nick Baker, “Big U.S. investors keep the faith in commodities,” Bloomberg News, February 14, 2006 http://www.theglobeandmail.com/servlet/Page/document/v4/sub/MarketingPage?user _URL= http://www.theglobeandmail.com%2Fservlet%2Fstory%2FLAC.20060214.RWIEN14 %2FTPStory%2FBusiness&ord=1141348595138&brand=theglobeandmail&force_login=true Jim Rogers, who co-founded the Quantum hedge fund with George Soros, is bullish on commodities even as funds were pulling out their money in mid-February. Rogers added that shares (stocks) of raw material producers are overvalued. “Don’t buy the stocks, buy the stuff itself,” says Rogers.