8 March 2011 - Are governments smarter than a 5th grader?

Colleagues,

My daughter is in Grade 5.  The Ontario Ministry of Education Grade 5 curriculum includes “conservation of energy” as a topic, and last week she came home with a project called “Energy Home Audit.”  The goal of this project, according to the printed evaluation rubric that accompanied it, is to examine potential areas of waste and try to define ways to use energy more efficiently – including through upgrading equipment in the home.

This is a laudable goal, to be sure, and it’s an area where my wife and I have more than a little expertise.  When I went through our house with my daughter to tot up where we’ve made energy-saving alterations in the past 18 months, the results were a little startling.  We had:

·         installed an Energy Star washer, dryer and refrigerator;

·         completed an EcoEnergy audit to identify potential problem areas with the house (happily there were very few);

·         replaced a contractor-grade (that’s industry code for “lousy”) natural gas furnace with a high-efficiency condensing industrial boiler driving two hydronic air handlers (a triple-zoned air handler for the main living areas and a single-zone air handler for the basement) controlled by programmable web-enabled thermostats;

·         replaced a rented natural gas hot water heater with a hot water storage tank driven by the boiler;

·         installed several thousand square feet of radiant in-floor heating (again, driven by the boiler); and,

·         installed four sealed evacuated solar panels driving a 120-gallon storage tank and a PEX-limestone heat sink under the garage floor to provide auxiliary heat to augment the boiler.

In addition to this, we’ve gotten rid of the contractor-grade (i.e., lousy) 4-ton air conditioner that came with the house, and later this spring we will be installing an experimental cold-climate air-source heat pump driven by a digital modulating scroll compressor that will handle our cooling needs, and that should operate down to -25ºC in heating mode.  Oh, and I’m slowly replacing conventional incandescent bulbs in high-usage areas with LED bulbs – although at $35 a pop for 50W-equivalent spotlights, this is a long-term project.

So there was a lot for my daughter to report on.  What annoyed me about the project instructions, though, was this line from paragraph four: “Imagine that cost is not a problem.”  My daughter’s response to this brilliant piece of pedagogical direction was, “That doesn’t make any sense!” 

No, it certainly doesn’t, and there's something amusing in the fact that a 5th grader can understand this but a load of Education Ministry pedagogues don't.  But we shouldn't be surprised; after all, failure to understand the need to integrate conversion costs over equipment lifetime is a depressingly pervasive theme where alternative energy is concerned.  As you can imagine from that list above – hell, as you can imagine from the LED bulbs alone! – cost is very much a problem.  For the average home-owner, it’s the single most important problem.  After all, the cheapest thing for me to do would have been to leave the old furnace and air conditioner in place and simply tolerate the lack of comfort and functionality and the higher fuel and electricity bills that come with older technology.  Determining whether an upgrade makes sense requires performing a cost-benefit analysis, which in turn requires knowing something about basic arithmetic.  This is something that seems to be unfamiliar to many homeowners.  Regrettably, it also seems to be something that is entirely foreign to governments – and unfortunately, government decision-makers seem all too ready to adopt the Education Ministry’s advice to “imagine that cost is not a problem.”

What it all boils down to is this: will your investment in alternative energy pay off over the life expectancy of the equipment?  LED light bulbs are an excellent example.  I recently purchased four LED spotlights for my office to replace the 65-watt incandescent spotlights previously in place.  The packaging on the LED bulbs states that I will save “over $100” in electricity over their expected lifespan.  That’s easy enough to check.  My office lights are on in the mornings from 0400-0800, and in the evenings from 1700-2300.  That’s 40 off-peak hours and 30 mid-peak hours per week in the summer, and in the winter, 35 off-peak hours, 10 mid-peak hours, and 25 on-peak hours.(Note E)  With 4 x 65 Watt incandescent bulbs, the office lighting load was 260 Watts, or 0.26 kW; with 4 x Philips PAR38 13-Watt LED bulbs, the aggregate load is 52 Watts, or 0.052 kW.(Note F) 

Table 1 – Bulbous Comparisons

INCANDESCENT BULBS
	LOAD	Summer	Winter	Summer	Winter	$/kWh	COST
Off-peak	0.26	40	35	270.4	236.6	0.051	$   12.07
Mid-peak	0.26	30	10	202.8	67.6	0.081	$    5.48
On-peak	0.26		25	0	169	0.099	$   16.73
ANNUAL TOTAL							$   34.27
LED BULBS
	LOAD	Summer	Winter	Summer	Winter	$/kWh	COST
Off-peak	0.052	40	35	54.08	47.32	0.051	$    2.41
Mid-peak	0.052	30	10	40.56	13.52	0.081	$    1.10
On-peak	0.052		25	0	33.8	0.099	$    3.35
ANNUAL TOTAL							$    6.85

This means that by replacing my office lights with LED bulbs, my electricity savings should be $27.42 per year.  Since four of those bulbs cost $35.00 each plus tax, the total installation cost was $158.20.  This means that the payback period for the bulbs is 5.77 years.  If the bulbs burn out before that point, I’ve lost money; if they burn out after that point, I get to start saving money.  This is a critical point to remember – nobody “saves” any money on alternative energy until after the cost of conversion has been recovered.

Now we come to the question of life expectancy.  According to the manufacturer, the bulbs are supposed to be good for 45,000 hours.  Since I’m using them for 70 hours per week, 52 weeks per year (a total of 3640 hours per annum), they should – in theory – last for 12.36 years.  This means that I will begin saving money after the payback period ends and until the bulbs’ life expectancy expires, or for an expected total of 6.59 years.  At an annual savings of $27.42, I should save $180, or about $45 per bulb over their expected lifespan.  Not quite the >$100 savings claimed on the packaging, but I suppose that if I used them more during peak periods (e.g. if they were left on in an office through the whole of a 10-hour active day), or if we lived in an area with higher overall electricity rates, the savings would be correspondingly greater.

So - fingers crossed - they ought to be a good deal.  Now, let’s look at a larger-scale example – the case of “Wind One”, a 1.65 MW wind turbine recently installed in Falmouth, Massachusetts.(Note A)  The article on the turbine originally caught my eye because of complaints by nearby residents of physical and psychological symptoms resulting from living within a quarter-mile of the thing.  I can sympathize; in 2009 my family and I stopped for a lunch break in the middle of a western Jutland turbine field, and let me tell you, I know what the residents of Falmouth are talking about.  The Heathrow tarmac is more restful than a large wind farm.  But what really caught my attention in the article was this line:

Wind One is expected to save the town about $375,000 a year in electricity. Heather Harper, Falmouth’s acting town manager, says Falmouth owes about $5 million on the 1.65-megawatt turbine.

“Payback Period” is the amount you owe divided by your annual savings.  On the face of it, the payback period for Wind One is 13.33 years.  Except that it’s not, because the chances that the town of Falmouth paid cash for the thing are precisely zero; at an interest rate of 7%, it’s more like 17 years before the thing is paid off and the town of Falmouth starts “saving” any money.

According to the US Energy Information Administration, the weighted average wholesale price for electricity in New England for the past month has ranged from a low of $40.23/MWh to a high of $102.85/MWh (dividing by a thousand gives you the price per kWh, naturally, so this ranges from $0.04023 to $0.10285, which shows that even at the highest power purchase rate, given an average US electricity price of $0.11-$0.12/kWh, the companies are still making money).(Note B)  In order to “save” Falmouth $375,000 per year, therefore, Wind One needs to generate 375000/40.23 = 9321 MWh per annum.  If the turbine ran at its rated capacity of 1.65 MW for 24 hours a day, 7 days a week, 52 weeks a year, it would generate 39.6 MWh/day, or 14,454 MWh per annum.  In order to save $375,000 per year, as the article claims, the turbine would therefore have to run at a capacity factor of 9321/14,454 or 64.48%.  The maximum demonstrated capacity factor for large wind turbines, though, is only ~25%.(Note G)

It is impossible for Wind One to offer the kind of savings claimed in the article – and even if it could, the savings wouldn’t begin until the installation costs had been recouped, 17 years from now.

Turn the arithmetic around.  At the average capacity factor of 25%, Wind One can generate 14,454 x 0.25 = 3613.5 MWh per year.  In order to “save” $375,000 per year at that generation rate, the average price of electricity therefore has to be $103.77 per MWh or higher throughout the whole year.  But according to EIA statistics, the wholesale price of electricity in New England only reached a maximum weighted average of $102.85/MWh, and that was only for a single 3-day period out of the last month.  At a capacity factor of 25% and at the median price of $71.54/MWh for that period, the annual “savings” offered by Wind One amount to 3613.5MWh*$71.54/MWh or $258,509.79 – a third less than the city manager suggested.  At that rate, the payback period for the turbine is closer to 25 years once amortization is taken into consideration.  And remember, “savings” do not begin until you’ve paid off the installation cost.

And now life expectancy comes into the equation.  Most suppliers of large wind turbines (and most proponents of alternative energy) deem turbine life expectancy to be 20 years or more.(Note C)  These figures are not supported by data because the large-scale wind industry is less than 20 years old; and they do not take into consideration the requirement for heavy maintenance due to the unusually enormous stresses on large turbines due to the size of the equipment and the impact of wind speed variability on gearboxes, the Achilles’ Heel of large turbines.  Gas turbines do not experience this problem because operational speed is not variable.  Engineering studies by the National Renewable Energy Laboratory in the US have identified high gearbox failure rates as a significant contributor to the cost of wind power – and the failure problems are endemic, not specific to individual designs or models, and are not related to poor materials or manufacturing practices (if you’re interested in a copy of this report, let me know).  Not to put too fine a point on it, but designing a gearbox to derive useful electrical power from an 8-tonne turbine the size of a football field spinning at 300 km/hr and facing a massive range of temperature and weather conditions, including unpredictable wind velocity changes, is a non-trivial engineering challenge.

A good measure of equipment reliability is whether manufacturers will put their money where their mouth is.  The large scroll compressors used in ground-source heat pumps, for example, are extremely reliable, and often carry 10-20 year warranties.  Manufacturer warranties on large wind turbines tend to be good for only two years.(Note D)  If you’re looking at alternative energy from a genuinely rational cost-benefit perspective, that ought to tell you something.  Would you buy a new car if the engine and drive train only had a two-year warranty?

What it all boils down to is this: contrary to the instructions on my daughter’s “home energy audit” project, and contrary to the demonstrated behaviour of governments that have invested in “green energy” projects, cost is in fact a major problem.  “Imagining” otherwise – as Spain, the UK, Germany, and other countries that have invested heavily in wind and solar projects have discovered to the dismay and impoverishment of their taxpayers – is the road to ruin. Honest, realistic cost-benefit analyses lie at the heart of alternative energy decision-making for homeowners, and if they don’t, then you end up paying through the nose for an awfully long time for something that doesn’t perform as promised.  You end up out of pocket.  The same principle holds true for governments.

And you only need to be as smart as a 5^th grader to figure that out.

Cheers,

//Don//

P.S.  There's a funny coda to this story.  After months of complaints from nearby residents about adverse health effects, the Wind One turbine in Falmouth was shut down on 9 November 2011.  Wind Two, the follow-on turbine, was going to be operated for two months to determine whether it had adverse health effects on residents, and then shut down.  According to the Town of Falmouth's own cost estimate to remove the turbines, building them in the first place cost $9,857,000 and $2,983,000 in interest payments to date.  That's $12,8400,000, which comes to $6.47M per turbine.  So a realistic estimate for the payback period would be pushing 30 years - well beyond the expected lifespan of the equipment even if it weren't shut down in response to residents' complaints.

But hey - "assume that cost is not a factor." That's definitely what we should be teaching our 5th graders.

Notes

A) [http://climatide.wgbh.org/2011/03/the-falmouth-experience-life-under-the-blades/]

B) [http://www.eia.gov/cneaf/electricity/wholesale/wholesale.html]
C) e.g., [http://www.nationalwind.com/files/NationalWindTurbineFacts.pdf], [http://www.ehow.com/facts_5957998_life-wind-turbine_.html]
D) [http://www.powergenworldwide.com/index/display/articledisplay/337582/articles/power-engineering/volume-112/issue-8/features/keeping-wind-turbines-spinning.html]
E) Time of use rates for Ontario Hydro can be found here: [http://www.hydroottawa.com/residential/index.cfm?lang=e&template_id=156]
F) [http://www.ecat.lighting.philips.com/l/catalog/catalog.jsp?userLanguage=en&userCountry=us&catalogType=LP_PROF_ATG&_dyncharset=UTF-8&categoryid=LP_CF_S_LEPR38_EU_FA_US_LP_PROF_ATG&productid=929000171002_NA_US_LP_PROF_ATG&title=EnduraLED%2013W%203000K%20120V%20PAR38&ctn=929000171002_NA]
G)  According to the US EIA, the installed wind generation capacity in the US in 2008 was 24,651 MW, for a maximal annual total potential capacity of 215,942,760 MWh.  The total wind generated power in the US in 2008 was 55,363,100 MWh. This gives a capacity factor of 25.6%.  Data available at [http://www.eia.gov/renewable/data.cfm#wind]