Sunday, July 19, 2009

OPEC Reaction to Energy Storage Systems

In the Grand Game of global energy supplies and technology (which I describe here), OPEC is of course a key player. OPEC has some control over a few things, chief among which is the production rate of oil under their member states' control. In general, when OPEC increases production, oil prices fall, and vice versa. A key result of lower oil prices, and a major part of the Grand Game, is that the economic incentive for renewable energy decreases. For example, if a consumer is considering the purchase of a new car, either conventional engine or hybrid engine, he must pay more for the hybrid engine vehicle. However, the hybrid engine vehicle will use less gasoline and thus have reduced operating costs. The price of gasoline is a key variable in the calculations. If a sufficient number of consumers purchase the hybrid cars, gasoline demand will be lower than otherwise, and OPEC must reduce production to maintain the price of oil. However, if economies and populations are growing rapidly, the decreased oil demand may merely mean that OPEC is not required to invest in additional production capacity.

In the electric power side of the Grand Game, OPEC is not quite as directly involved, while others are key players. The big debate in the electric power side is renewable energy vs fossil-fired energy vs nuclear energy. OPEC is involved because the price of electric power influences, to some extent, the economic attractiveness of electric vehicles or plug-in electric hybrid vehicles. Electric vehicles that draw power from the grid compete directly with gasoline vehicles, and thus the connection to OPEC.

The renewable energy group includes solar, wind, wave, ocean current, hydroelectric, geothermal, municipal solid waste, and some forms of methane such as bio-gas and landfill gas. This discussion is about producing electric power, thus bio-fuels such as bio-diesel and bio-ethanol are not discussed. The great drawback to many of the renewable energy production technologies is their intermittent nature: the wind is highly variable, the sun shines only for a few hours each day at strengths suitable for power generation, and not at all when clouds or rain block the sun, and waves are variable. The intermittent nature of these renewables can be mitigated with an electricity storage system (ESS), or some other form of storage that consumes renewable electric power and reproduces that power later and upon demand.

Direct storage of electricity is possible, as batteries and ultra-capacitors have shown. The cost per kWh delivered is very high, however. Other ESS include high-speed flywheels, pumped storage hydroelectric, compressed air energy storage, high-pressure hydraulic storage, and a few others. A key breakthrough in flywheel ESS was announced a few days ago, for a large, grid-scale ESS that is to store 30 GW of power, and release power in MW quantities upon demand.

It will be interesting to observe OPEC's reaction to this flywheel ESS. The rules of the Grand Game require that OPEC do what it can to maintain the demand for oil, and the price of oil at a relatively high price. This maximizes OPEC revenue and ensures their survival. The flywheel ESS, if it indeed works as advertised, will release a flood of new renewable power projects in wind, solar, and wave technologies. This may reduce electric power prices, depending on the cost to build and operate the flywheel ESS. If the electric power prices are reduced sufficiently, plug-in hybrid cars or pure electric cars will become very attractive, thus reducing the demand for OPEC oil and the gasoline refined from it.

Therefore, it may be expected that OPEC will increase oil production, decreasing the price of oil and thus the cost to consumers of gasoline. It remains to be seen whether OPEC can increase oil production sufficiently to compete with the new reality of cheap, essentially unlimited electric power.

One interesting outcome could be that OPEC reduces output to create a spike in oil prices, thus increasing their revenue. This would be a short-lived situation, but it could increase OPEC's revenue for the few years remaining until the flywheel ESS are built and integrated into the grid, and intermittent renewable power plants are built in great numbers.

Of course, the flywheel ESS may allow power production at such a low price that nuclear power plants are no longer even considered as candidates for electric production. Nuclear power plants cost many billions of dollars to construct and require a decade-long construction period. The cost of electric power from a nuclear power plant is on the order of 30 to 40 cents per kWh. Renewable-based electricity with flywheel ESS will very likely produce electric power reliably and cheaply, at far less than a nuclear power plant. This is good news for everyone, as there will no longer be an excuse to build toxic, radioactive, ultrazhazardous nuclear power plants that poison the planet with plutonium and other deadly nucleotides for centuries.

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