Archive for January, 2007

This Paper Bugs Bugs

I follow several forestry products companies because I beleive that investing in these companies is one of the safest ways to invest incellulosic ethanol: you’re investing in the feedstock, not the technology, so you do not need to pick the winning technology in a developing field (always a risky proposition.)  We are starting to see the advantages of owning the feedstock over the means of processing today with corn ethanol.  (also see VentureBeat; thanks for the link, Gav)

The forestry/paper I follow are the ones who are the most devoted to getting their forests certified by the Forest Stewardship Council (which I see as a good proxy for environmental responsibility in forestry. )  I’ve written about this before in Peak Oil Review.

One of the companies I follow, Domtar has just launched an antimicrobial office paper.   A great gift for the germ-phobe writer in your life.  Or, more practically, for use in hospitals.   I thought it was worth blogging, even if it’s a bit off topic.  Anything that can reduce hospital infections is a wonderful idea, since microbes in hospitals are often immune to antibiotics.

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Banking decisions: Returns or Environmental Responsibility?

Follow-up on my 1/15/07 blog entry

I heard back within an hour when I emailed New Resource Bank… I still have not heard back from Eco-Bank, two days later, so they are out of the running for my business. 

I have to admit, I’m leaning against going with New Resource anyway, and looking into local banks so that I have the added convenience of local ATMs.   I believe that it is good to put our money where our morals are, but that we should not pay too much to do so…  If I go with New Resource, I effectively tie up $4000 of my money at zero interest, vs. $1000 tied up at the local credit union. 

If I go with the local credit union, the $3000 difference will naturally be invested in projects that help the environment AND are likely to earn good returns, but $1000 is tied up, possibly financing someone else’s Hummer. 

If I go with New Resource, my $4000 minimum earns no returns, but is still invested in projects that help the environment.  Is the loss of earnings on the $3000 worth the fact that the other $1000 will be invested in an environmentally sound manner?

I think I’ve talked myself out of using New Resource… For me, my money is better deployed elsewhere.  For you, the calculation could easily be different: my job is to find investments that are both good for the environment and good for the pocketbook… so I always have more environmentally sound opportunities than I have money to put into them.  

For most people, the opposite is true.   Finding sound investments is extremely difficult (and usually harder than it seems), but complicating things with the added requirement that the investments also be environmentally sound moves the task totally out of reach.  So, given that you are probably not a green investment professional, you will be giving up less potential earnings on the account minimums, and using them for your banking needs is an easy way to ensure that your money is being used responsibly.

Keep in mind, this entire discussion is based on the requirements of New Resource’s Business Checking accounts…. the account minimums are much lower for their personal checking accounts, and so the trade-offs there are not so dire.  Unfortunately for New Resource, I am not in the market for personal banking services… I have an excellent deal through my broker (a deal which they are unfortunately unable to extend to my business account.)

See comments for a response from Peter Liu, New Resource VP & Founder.

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Trees and Carbon Offsets

There’s an article in the Christian Science Monitor by  Moises Velasquez-Manoff discussing attempts to standardize the quality of carbon offsets.  Carbon offsets are a big concern to me, especially when a lot of the offsetting is in the future, as is the case with planting trees.  From the box at the end of the article:

And unless a forest is permanent (and who can guarantee that?), trees only temporarily sequester atmospheric carbon. When they burn or decompose, the carbon they contain is released back into the atmosphere. In tropical countries, where trees are most effective as a cooling agent, they’re often up against poverty and political instability. “Does some guy wake up and say, ‘Now I’m the dictator of the country. I want a golf course?’ ” says Michael Dorsey, a professor of environmental studies at Dartmouth College in Hanover, N.H. “There’s the big issue.”

Another issue is that trees may e like the old saw about the insurers: someone who lends you an umbrella, but takes it away when it starts to rain.   In the Western US and Canada (as well as many other parts of hte world,) our forests are rapidly dying due to a bark beetle infestation brought on by persistent drought and not enough frost… which makes the ultimate cause of the dieback Global Warming.

My worry is this: you plant a bunch of trees, that are supposed to suck up CO2 and thus slow global warming.  But not enough people are planting trees, etc., so Global Warming continues and the trees die and catch fire due to temperature rises and persistent drought caused by global warming, realeasing any CO2 they have absorbed back into the atmostphere, and compounding the problem.  By counting on trees, we are unintentionally creating a positive feedback loop that could end up accellerating climate change rather than stopping it.

This is why, rather than buying carbon offsets, I prefer to give away CFLs, and I only count the energy saved in real time as offsetting my own carbon emissions… I may have already given away enough CFLs to reduce future electricity consumption over the next decade or two by 72 GWh, but the number I focus on (and I encourage others to focus on as well) is how many kWhs or tons of carbon emissions you have prevented today not how much you may be responsible in the future.  I can’t just give away a 25W CFL with a rated life of 12,000 hours and say I’ve reduced total electricity used emissions by 900 kWh.  If the person I give it to uses the bulb for only 15 minutes a day, it’s going to take 134 years for that bulb to prevent the use of that much electricity… and long before then, we should be operating on electricity that’s mostly renewable based anyway.   Not to mention that within 10-20 years, I expect that the incandescent lightbulb will be only available in antique shops, so if the bulb I give away is still in use 20 years from now, it’s probably just replacing another CFL, for no net energy savings.

In short, carbon credits are a good thing, but an offset that pervents carbon from entering the atmosphere is better than one that takes it out and stores it for some unknown period of time, and it’s much better to prevent carbon today than a year from now.  All in all, buying offsets is a good thing, but we shouldn’t be fooled that it’s nearly as good as reducing our own carbon emissions today.

Further reading:

Green Wombat: Buyer Beware

Celias: Carbon Offset Certification

AutoBlogGreen: REEEP reduces uncertainty

IREA Voices on IREA’s green tag program

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EcoBanking

Article PhotoOn Friday’s Marketplace program from American Public Media, I heard a story about a new bank , New Resource Bank, which specializes in making loans to clean energy companies.   The Denver NPR station does not actually carry Marketplace, but I often listen to the podcast.

I’ve been looking for a new bank anyway… until now I’ve been using a brokerage account as my business account, but I am finding that the inability to wire funds makes it awkward. 

On a financial level, their offerings seem uninspiring (in terms of interest earned on accounts.)  For a business checking account like I am considering, I would need to maintain a balance of $4000 vs. a more normal $1000 to avoid monthly fees.  That amounts to an annual cost in lost interest compared to the brokerage account I currently use of about $150-$200 a year (I keep excess cash in brokerage CDs earning around 5%), in exchange for the added convenience of ACH (Automated Clearing House) and EFT (Electronic Funds Transfer.)   I also get the benefit of knowing my money is financing clean energy projects… certainly worth something.  One thing I will have to ask them is if I can keep money in CDs with them that might count towards the $4000 minimum balance.  [Note: I heard back from them on this: CDs do not count towards the $4000 minimum balance for their small business checking account… although they do for their heigher service account with a $20,000 minimum balance (to avoid fees). ]

If you’re looking for a banking services, from mortgages to CDs to savings or checking accounts, I always reccommend people do some comparison shopping at www.BankRate.com, but if you’re looking for a bank that will put your money to good use, you might also consider New Resource.    I personally have lots of other green investments to put my money into, but for the money I leave in cash to run my business, New Resource seems like a good idea.

Other blogs: EcoTalk, WordChanging (where I found out about www.eco-bank.com which has similar services… I’ve asked both for information.) and EquityGreen

I apparently also missed Joel Makower’s article in October. 

(And Preston at Jetson Green points out I missed his… Now that I see it, I think I remember reading it… all I can say is it was a very busy week.)

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My Thoughts on Analysts: Doug Casey

I first encountered Doug Casey at the 2004 World Gold, PGM, & Diamond Conference in Vancouver.  Around a year before, I became convinced that we were in the early stages of a Gold bull market, partly based on the arguments of Richard Russell, and partly based on my own conviction that people would come to see the world as an increasingly uncertain place in the years to come (a process which, in my opinion, has much farther to go.)  I was dissatisfied with Russell’s picks (his top pick for a gold mining company was Newmont, based on the fact that it was the largest gold company at the time.  NEM has risen about 20% in the three and a half years since Russell first brought it to my attention, which is an uninspiring performance, considering that gold has risen about 70% over the same period.  As I’ve said before, Russell isn’t much of a stock picker… he just has an incredible feel for market and sector moves.) 

I also have some serious reservations about Gold mining, because of its serious environmental impacts.  This was before it was possible to buy precious metals in the form of ETFs such as IAU, GLD, or SLV, and so I was looking for an analyst who understood mining companies, and might also be able to point me towards companies that mine precious metals relatively responsibly.  No one at the conference was talking about environmental responsibility, but two of the analysts whose talks I attended stood out as having an understanding of how mining companies and the precious metals industry work.  Those two were Paul van Eeden and Doug Casey.  

Casey in particular caught my attention because he was a big proponent of a type of company he refers to as “Land Banks:” these are companies which do not have any actual mining operations, but rather buy up mineral rights that have already proven.  They hold these mineral rights, doing only exploratory drilling to further prove out their reserves as a speculation on rising prices.  While the intent is always that they will eventually sell the mineral rights to other mining companies, since they are not engaging in current mining operations, they are less harmful to the environment than companies that actually dig the stuff out of the ground.  Silver Standard, SSRI was the company that invented this model buy buying up cheap rights to silver deposits when the metal was cheap in the late 1980s and 1990s, while Vista Gold, VGZ is following in SSRI’s footsteps by investing in gold deposits.  Robert Quartermain, the president of Silver Standard serves on Vista’s board.  (Note: I and some of my clients hold substantial positions in both stocks.)

Casey is not interested in the land banks because his is an environmentalist (quite the opposite, see below), but because he recognizes that, if you believe that gold (and silver) are “Going to the moon” as he says, then the built in leverage of owning metal in the ground can make more sense than digging the metal up and selling it while the price is still rising.

After the conference, I bought a 2 year subscription to Casey’sInternational Speculator newsletter (for $299… I note that the price has since risen along with gold.)   Here are a few of my conclusions:

  • He knows the world of junior mining companies backwards and forwards.   Small start up companies are always the most fertile ground for a company analyst, because less is known about them, and because few investors are paying attention, it is much easier to find information or come to conclusions about a company that are not widely recognized by the investing public.  His picks among the large and medium cap companies don’t seem any better than anyone else’s, but his picks among the small and medium cap miners have been excellent.
  • His 7 P’s framework for evaluating resource stocks is an excellent framework for organizing the relevant information about a company.  I have adopted a modified version which I use to evaluate renewable energy and energy efficiency companies.
  • He takes libertarianism to an extreme.  “Wacko” is a word that comes to mind.  But being crazy and being intelligent are not mutually exclusive; in fact, they often seem to go hand in hand.  In my opinion, that’s the case with Casey. 
  • Enough people follow his newsletter that it often was not a good idea to buy a stock right after he recommended it.  I had my best results by waiting a while and buying them a month or two later, if they had not just kept on rising.  For big spenders who want to seriously speculate in resource stocks, the Casey Investment Alert would likely be worth the money, given that they had a few hundred thousand dollars with which to speculate.  For myself, I’m very tight with my money, and I was more interested in understanding his methods than following his advice.  Of the stocks I did buy on pullbacks after he had recommended them, about half have more than doubled, another third are roughly flat, and the rest are down… which works out to be excellent average returns.
  • The only stock of his (other than Vista and Silver Standard) that I made a large investment in was Nevada Geothermal (which I still own… I even bought some more recently, and have recommended it to clients.)  It’s only up slightly since I first bought it, but since it is a renewable energy company, I’m happy to hold it for the long haul.  I’ve also heard some good things about it from other sources.

I did not renew my Speculator subscription when it lapsed last summer, mainly because I feel that while the precious metals bull market is likely to continue, the risks are much greater than they were when I first started allocating money to the sector.  I am currently slowly reducing my exposure to precious metals, although I still recommend small investments in precious metals (via the GLD, SLV, VGZ, and SSRI) to my less conservative clients.  I also like Rio Tinto for a general exposure to metals, because, in my opinion, RTP the most environmentally responsible miner out there.   I note that the main page of their website says “Rio Tinto supports the main conclusions of the UK’s Stern Review on the economics of climate change.”  (Again, some clients and I have positions in RTP.)

Back to Casey, after my International Speculator subscription lapsed, I signed up for his free newsletter What We Now Know (WWNK).  Naturally, there aren’t stock tips in WWNK, but I wanted to keep an eye on what Casey thought about the markets and world events in general.  WWNK is a lot more of a political tract than the Speculator (although he often had some rather scathing things to say about the US government, and I could not help but be amused at the way he refers to US citizens as Boobus Americanus.) 

Casey does not write much of WWNK, but I’m confident that the people who do are on the same wavelength.  The underlying message is that any sort of regulation is evil, an attitude which is unsurprising in an investor in mining companies.  As Jared Diamond outlines in his excellent book Collapse, gold mining companies usually leave environmental problems behind them that are much more costly to clean up than all the profits they ever make from selling their product.  Since Casey primarily analyzes and invests in mining companies, it’s no real surprise that he’s hostile to regulation, since real regulation would bankrupt most of his babies.

Unlike my previous entries in this series, I was prompted to write this entry in response to an article in WWNKDoug Hornig wrote a diatribe in an attempt to contradict the arguments for global warming.  It’s the usual stuff… “temperatures have not gone up that much”  “there have been previous periods of warming” “evidence for past temperatures is all indirect”… all attempts to muddy the waters, and no mention at all of the massive increase in the main driver of global warming: atmospheric CO2.  I’m not going to bother to deal with all his points… it’s not really a serious fact-based argument, rather a litany of the reasons (some real, some imagined) why there is some doubt about the reality or consequences of global warming, and, as such, just an exercise in obfuscation. 

It’s unfortunate, but people who want to believe that global warming isn’t happening gravitate towards arguments like these.  It’s not really a logical argument, but rather just people seeking to justify belief in what they want to believe.  I think it’s better perhaps to just make a meta-argument: if global warming is just a figment of liberal’s imaginations, why aren’t there a lot of wackos out there trying to muddy the waters by casting doubt on “the scientific theory of global temperature stability or cooling.”   No one is trying to cast doubt on the theory of “global temperature stability” because there is no such theory… and no evidence that our climate is stable.  It’s getting hotter, and it’s likely to get a lot hotter unless we get serious and do something (actually a lot of somethings) about it. 

In conclusion, Doug is a great analyst of resource companies, and if you’re interested in investing in those companies, you will do well by giving him a read.  But he also has a political agenda, and his belief that government is always bad is, simply put, wrong.  I wish he and his buddies would stick to their knitting.

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Bill Ritter Inaugural address

Colorado’s new Democratic Governor, Bill Ritter was sworn in today.  For environmentalists, it is a moment of rejoicing.  Sticking to his themes from the campaign, Ritter outlined his agenda, and the very first item was:

“Let’s start by being bolder than any other state when it comes to renewable energy. Let’s commit right now to making Colorado a national leader … a world leader … in renewable energy. Let’s create a New Energy Economy right here in Colorado.”

I couldn’t ask for anything more. 

He also had some other quite sensible agenda items, such as health care for all Coloradans, something that I think is worth paying for, but which I simply hope does not end up exhausting his political capital.

Here’s to a breath of fresh air (in more ways than one!)   

The full text of his inaugural address follows the break.

Read the rest of this entry »

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Secrets of the Utility Mind

I feel that many of us renewable energy activists do not understand how utility planners think.  To us, we see wind as cheap electricity, but to them it is the Predator (of movie fame), something that looks benign and friendly, but at any moment will wreak havoc on their grid by turning off unpredictably.

In order to have a constructive conversation with utility planners, I think it is important to understand their point of view.  This is my attempt to do that, with the hope by doing so, we will be able to engage with them more productively.

These are what I see as the underlying principles that shape the utility planning process:

There is no God but Reliability, and Least-Cost is his prophet.

Or, put another way,

The Holy Trinity of electric resource planning: The Baseload, The Cost, and the Holy Reliability.

I use the religious references to make a point: reliability is a religion for utility planners, and people become defensive and angry when you threaten their religion.   If we want to work with the utilities, we need to address their real concerns about intermittent renewable resources such as wind and solar.  And we have to work with utilities if we are going to modernize the way we get and use electricity. 

How do we deal with people committed to this religion?  By taking their concerns seriously, and helping them find solutions.   In short, when we hear “Wind is so unreliable,” we should say “That’s true.   Here are some ways we can take advantage of the benefits of wind without compromising the integrity of the grid.  We can be allies in getting regulators to approve rates that allow utilities to get a fair rate of return on these measures that improve reliability, while also allowing more wind onto the grid without impacting reliability.”

Why do we expect them to listen?  Because they already have and have to work to deal with a problem that is very similar to unpredictable generation from wind: unpredictable loads.  People and companies turn appliances and whole factories on and off unpredictably, and never once do they think about calling up the utility first to let them know that they should have the necessary capacity ready at the appropriate time.  Instead, we as consumers just flip a switch, and never expect that the lights won’t come on because there is not enough capacity.  If they don’t we get angry.

How do utilities accomplish this seemingly impossible feat of matching supply to capricious demand?  They do it with extensive load modelling, so that they can predict approximately how much  load will be on the system at any given time with a fair degree of accuracy, and by maintaining “Spinning reserves,” which are basically generators which are already up an running under very low power (hence “spinning”) and turning in synchronization with the current of the grid, like a non-hybrid car sitting at idle.

When there is a sudden increase in the necessary load, they can then increase the power produced from the spinning reserves almost instantaneously, like the motorist of our metaphor starting up when a light turns green.

There are many types of generation that can be used as spinning reserves, not only gas turbines.  Hydroelectric dams can work well this way, and can agreements with neighboring utilities to supply power when it is needed, on the theory that two different utilities will not have the same load patterns, and so both utilities can gain by trading power back and forth as needed.

There are many proposals circulating to increase grid reliability and ability to accept more intermittent resources.   As is usual in complex problems, there is no one solution, and in this case it will always be a combination of many of these (and some I don’t know about… please leave comments if you have ideas I’ve left out), and the mix will vary widely depending on the unique situation of any particular utility.

  1. More transmission.  Wind not only needs massive new transmission capacity to get the electricity from windy rural areas to the places that need power, but a more robust grid means that widely dispersed wind farms can all provide power to a single utility.  Since the weather varies in different places, this has the benefit of making the system as a whole a lot less variable.  Denmark sells power to Germany, Norway, and Sweden when their wind farms produce more power than they can use. 
  2. Moving to a national electricity system from the current system of regional grids would also ease the flow of wind power from one region to another.
  3. Time of Use/ time-based pricing.  Time of use pricing allows a utility to charge less or more for power depending on how much power is available at any given time.  Time of use pricing is currently a hodge-podge consisting of none at all for some utilities, and others that offer it (or even mandate it) for/to all customer classes.  Often time of use pricing simply consists of two prices: on- and off-peak, but the ideal goal for this is to actually have real time pricing, which will even depend on that day’s weather forecast (on windy days, electricity should be cheaper than otherwise.)  The ideal goal would be to eventually move all electricity customers to real-time or near real-time electricity pricing, so that customers who are willing to adjust their usage patterns are compensated for the service that they are providing to the system as a whole.
  4. Demand side management goes hand in hand with time of use pricing.  Demand side management involves giving customers incentives to keep their load from peaking too much at any one time.
  5. Dispatchable/Interruptible loads involve allowing the utility a certain amount of control over their customer’s energy use.  The classic example is installing a remote switch on an air conditioner, so that on a hot day, the utility can regulate it so that they don’t all come on a the same time, but rather take turns, lowering the peak demand on the grid.   Utilities typically pay their customers for this right for remote control.
  6. Large scale electricity storage: Pumped hydroelectric, flow batteries, hydrogen and stationary fuel cells, and compressed air energy storage are all ways to store large amounts of power when it is plentiful and cheap (on windy nights, for instance) until it is scarce and expensive (late afternoon and early evening.)
  7. Distributed energy storage, such as plug in hybrid or electric vehicles with vehicle to grid.  Vehicles which charge from the grid can be beneficial even if they are not capale of sending power back to the grid, simply because their owners can charge them only at non-peak times, a practice which is easy to incentivize with time of use pricing.
  8. New forms of generation that can serve as backup power.  Concentrating Solar with thermal storage, landfill gas turbines, and biomass gasification are all possibilities.  One often overlooked advantage of IGCC(“Clean Coal”) is that electric power from IGCC is generated by a gas turbine which burns the syngas product of the gasification step.  While it is quite possible that carbon capture and sequestration may never be made to work with IGCC, this is one reason (along with lower emissions of traditional pollutants and higher efficiency, which reduces carbon emissions for MWh generated) that renewable energy activists should prefer IGCC to old style pulverized coal plants.
  9. Increase energy efficiency, especially in appliances that are often used during peak times.  In most of the United States, peak load usually occurs on hot afternoons and evenings when air conditioners are running, so replacing an air conditioner with a more efficient one not only reduces overall energy use, it also reduced peak demand.  Once again, the institution of time of use pricing would give customers the incentive to upgrade the right appliances for energy efficiency first.   Here are two advances in efficient air conditioning I’m particularly excited about the Delphi HMX (formerly known as Coolerado), and thermally driven dessicant cooling.

For another well thought out perspective on energy storage, hop on over the the Ergosphere for the Engineer-Poet’s thoughts.

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