ERMUSR MISC 01-10-2006 - Laserfiche WebLink

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A substantial tax credit for wind power generation will help this industry grow by leaps and bounds. Con- gress extended the credit, which was due to expire at the end of 2005, to make any project completed by the end of 2007 eligible. Sharp increases in natural gas prices have also made wind power more attrac- tive. But capital costs of wind projects are climbing, reflecting higher prices for metals and shipping. The price tag for a typical 2- megawatt unit is at least $2.4 million, a rise of 10% in the past two years. A new type of system making use of solar power will give this alternative energy source a big boost. Concentrators that boil water to run generators are three times as efficient as the solar cell arrays now used to convert the sun's rays to power. Stirling Energy Systems' sun-pow- ered plant will generate about 100 megawatts of electricity by 2007-about the same as the output from anatural-gas fired plant. By decade's end, solar power generation systems will produce about 500 megawatts, equal to the output of many coal- fired plants. This special letter is accom- panied by a two-page pre- holiday roundup. There will be no letter published next week. Our next missive to you will be on Dec. 30. sumers shouldn't take this as a sign that the energy picture is improving. Indeed, the relatively low energy costs seen in the late 1980s and the 1990s led to a false sense of well-being about the outlook for fuel supplies. The next two decades wilt be critical for the U.S., which will continue to rely on oil and natural gas for about two-thirds of its energy needs. A two-pronged energy strategy is likely to take shape: First, maximizing output of oil, gas and other available ener- gy sources over the next few decades. Second, investing enough in successor sources such as fuel cells and hydrogen so that they can fulfill their potential in the second half of this century. It will require a monumental effort on a global scale, funded by businesses and governments, to drum up the hun- dreds of billions of dollars necessary for investment in alternative energy sources, new technologies and distribu- tion networks. Liquids will be the short-term focus. The critical economic role played by oil- derived fuels such as gasoline, diesel and heating oil makes expanding their avail- ability ahigh priority. Enhanced recovery from oil wells could add 3 million barrels a day to sup- plies by 2025. The prospect of continued strong demand for oil will prompt energy companies to expand their use of horizon- tal drilling techniques and the injection of carbon dioxide gas into older wells to liquefy hard-to-extract heavy oils. These methods can increase the output of old wells by about 7%. Turning gases into liquid fuel could provide an additional 2 million barrels a day. Natural gas, propane and other gases are treated chemically and with heat to yield motor fuels. Gases theoretically could produce far more liquid fuels, but there will be stiff competition for natural gas for use in various industrial products and to generate electricity. Transforming coal into liquid fuel through pulverization and other processes will probably add 5 million more barrels a day to supplies within 20 years. Oil sands are a potential bonanza. Located mainly in Canada and Venezuela, they could yield about 8 million barrels a day of liquid fuels. An estimated 3 trillion barrels of oil are locked up in these sands, which are in fact heavy thick oils mixed with earth. But as with many other sources, transforming them into usable crude depends upon having reliable sup- plies of natural gas. Improving auto efficiency will be an essential ingredient in the recipe for a better supply/demand balance. Expect the U.S. and other governments to pro- vide more-generous incentives for the production and purchase of hybrid and diesel-powered vehicles, beyond exist- ing tax breaks for buying hybrids. Incentives will also be expanded to stan- dard gasoline-powered vehicles equipped with cylinder deactivation technology that greatly reduces fuel con- sumption. These incentives will help slice about 3 million barrels a day from global gasoline demand. Expanding use of nuclear power by electric utilities will help to moderate growth in demand for natural gas. By 2025, 120 to 125 nuclear plants in the U.S. will probably be supplying about 25% of the country's electricity, up from 20% now. Wind and solar will raise their share of domestic electricity production as well to about 10% in 2025 and 15% in 2050. They generate less than 1 % now. Oil shale won't help short term. With an estimated 1 trillion to 3 trillion barrels of oil lurking inside these porous rocks in the U.S. alone, they have huge potential. But it will take many decades to figure out how to extract the oil economi- cally, given the 900-degree temperatures and the huge amounts of water required to turn this material into usable fuel. Biofuels are attracting attention, but production on a large scale is still about 15 years down the road. The big bottleneck is the huge quantities of organic materials needed to produce ethanol, the primary bio- fuel. Even if the entire nation's cropland were planted in corn, that wouldn't yield enough feedstock to meet U.S. demand for motor fuels. At some point well after 2025, turning organic waste--cornstallcs, wood chips, etc.-into ethanol could offset around 15% of gasoline usage. Expanded use of coal for electricity is likely to receive a fillip early next decade, when the first plant with clean coal 2 THE KIPLINGER LETTER KIPLINGERFORECASTS