Problems for the Pickens' Plan

It is a relatively cool, overcast day here in Cambridge, MA, a little damp and after yesterday being chased up the New York Thruway by a storm carrying hail and cutting visibility to yards, (and the Fusion getting 41.6 mpg), only the occasional tree moved in an almost still day. Which is to suggest that it is not a good day for the prime candidates promoted as the sustainable fuels of tomorrow, here in the North East. That does not stop the tourists, however, and I noted as we came back to the hotel earlier this evening, that it was full and turning folk away. (Though it was easier for us to get rooms this year than last, and it is now offering a premium for those that stay over a weekend, and is giving away Internet services, neither of which held true last year).

The larger blow to the sustainable energy story today, however, is not the chill of an autumn day in July in Massachusetts, but rather the colder stillness of the lack of movement by Boone Pickens on his wind farm in Texas. The reasons for the turn around depend on who you read. The Wall Street Journal notes

Mr. Pickens, who has spent the last year pushing his "Pickens Plan" to reduce the nation's dependence on foreign oil, said the wind farm project was scuttled in part because of the lack of adequate transmission lines to carry the electricity from remote locations to cities. He had hoped to build new transmission lines but ultimately was unable to secure financing.

while Daily Finance noted the problems of raising money

Pickens, 81, was undaunted declaring at press conference on Capitol Hill, "I didn't cancel it ...Financing is tough right now and so it's going to be delayed a year or two."

"Cancel" may not be the right word. How about review? Pickens, who gained fame as a corporate raider in the 1980s, was planning to build the world's largest wind facility, at a site in the windy, flatlands near Pampa, Texas, which would generate enough electricity to power about 1.2 million homes.

The initial problem that Mr Pickens faces is that he has ordered the turbines and “like I said, my garage won't hold them," the legendary Texas oilman said. "They've got to go someplace."

There are 687 turbines involved, each to produce 1.5 MW of power and the question of where to put them, given that there are problems with the initial siting due to the need for connection to the grid, is likely to be a challenge. The problems have been visible for some time. Back in November there were signs that the credit crunch was hurting the program, and the drop in natural gas prices (which were the other half of the coin) has meant that there is no rationale for changing from natural gas to wind at the present time.

On the other hand, back this time last year the Texas legislature approved putting in the connections to bring the wind power into the grid.

Texas regulators have approved a $4.93 billion wind-power transmission project, providing a major lift to the development of wind energy in the state.

The planned web of transmission lines will carry electricity from remote western parts of the state to major population centers like Dallas, Houston, Austin and San Antonio. The lines can handle 18,500 megawatts of power, enough for 3.7 million homes on a hot day when air-conditioners are running.

The project will ease a bottleneck that has become a major obstacle to development of the wind-rich Texas Panhandle and other areas suitable for wind generation.

The transmission lines are needed since, at present, there is more capacity than can be delivered through the existing grid.

"When the amount of generation exceeds the export capacity, you have to start turning off wind generators" to keep things in balance, said Hunter Armistead, head of the renewable energy division in North America at Babcock & Brown, a large wind developer and transmission provider. "We've reached that point in West Texas."

Unfortunately that plan, shortly thereafter, ran into the Justice Department. The initial idea had been to integrate a water pipeline into the right-of-way so that Mr Pickens could also pipe water to Dallas and the water-short folk in East Texas from his holdings in West Texas.

At the time, Mesa General Counsel Bobby Stillwell said the company "got too clever."

Said Stillwell: "We had thought that doing them jointly would be a convenience and maybe even a cost savings to us and the landowners. There were two things that we misjudged. To do that we would have to acquire a 250-foot right of way instead of just a 150-foot one for electricity. That was enough difference to the landowners," he said. "Secondly, they were criticizing the whole project, both water and electricity, when they were really concerned about water. We didn't want both to be subject to the same criticism."

And so, last September, the water pipeline idea was scrapped, then the plan to use the wind power to displace natural gas was also put aside, and now the idea of the large wind farm itself has had to be laid aside.
But

Pickens continues to buy up water rights and says he expects to build smaller wind farms in Texas, as well as in Oklahoma, Kansas, and Wisconsin. He's still hopeful about his hedge funds, too.

This is occurring just as the President is sending out a team to encourage rural America to become involved in sustainable energy. It is not the best juxtaposition of events to see the sales pitch for wind included in their statements.

Wind energy offers rural landowners a new cash crop. Although leasing arrangements vary widely, royalties are typically around $2,000 per year for a 750-kilowatt wind turbine or 2% to 3% of the project's gross revenues. Given typical wind turbine spacing requirements, a 250-acre farm could increase annual farm income by $14,000 per year, or more than $55 per acre. In a good year, that same plot of land might yield $90 worth of corn, $40 worth of wheat, and $5 worth of beef." (Original Blogger's note: This report and its numbers are 5 years old. I've heard of lease payments of $5,000 per turbine.)

So just as I thought that wind was taking the commanding lead in the alternate energy stakes, we have days like today. Such events are bound to slow the growth of alternative fuels to the fossil fuels we now use, which makes the ongoing concern about the long-term viability of supply of those fuels ( worrisomely summarized by Sam Foucher at TOD) that much grimmer news.
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P33. Pick Points

Half-a-dozen or so stories of interest:

Checking in on CERAweek first –IHS Director of Political Risk Terry Hallmark is predicting that crude oil will average $43 a barrel in 2009. (IHS purchased CERA in 2004) . The meeting was opened with Representative Edward Markey telling delegates that $147 a barrel oil was a cause of the current global recession. He is the new chairman of the House Energy and Commerce Subcommittee on Energy and Environment, and the legislation on the Administration program will have to go through him.

Legislators are bent on pushing though greenhouse gas legislation, promoting a cap-and-trade system for limiting carbon dioxide emissions, and looking at ways to diversify away from imported oil wherever possible.

Turns out he is a T. Boone Pickens fan.

OPEC, recognizing the impact of the fall in oil prices is delaying 35 of the 150 planned oil drilling projects by at least 4 years. Dates for the others may also well slip, as OPEC anticipates a 50% cut in income this year. However with oil now apparently stabilized at around $40 a barrel the likelihood of further cuts is growing less. It did however drop below $40 today. If the price drops further Saudi Arabia may lead the move to lower production. Algeria thinks the price will rebound to $60 this year, though Angola would like the price to rise to $75. In the meanwhile Venezuela has been making cuts of around 210,000 b/d (Bloomberg estimate) or 364,000 bd (Venezuela claim) as part of the OPEC cuts. Cuts have now reached around 4.2 mbd and these collective moves make it unlikely that the OPEC will be able to increase capacity by 5 mbd by 2012. However the current cuts have swelled the unproduced capacity of OPEC to an eight-year high.

The cuts in oil company profits will also impact their charitable giving, even to prestigious places such as the Bolshoi. And just as Germany has subsidized car loans to improve their economy, Russia is now moving to try the same, even though sales in Germany have yet to pick up, though they are expected to do so, with the incentive being to replace cars older than 9 years. The Russian economy is still growing, albeit now at only 1.1%. Russia will get into the LNG business next month when the first cargo leaves Sakhalin Island for Japan. Incidentally there is an extensive review of the Nord Stream pipeline project.

Platts is taking a closer look at wind energy since this energy source is looming larger and larger as the renewable energy source. To meet EU requirements the industry will need another roughly 125 GW installed (or more than double current capacity) by 2020. But there are problems since the larger the industry grows the less economic the necessary base load and backup power generation becomes. Jerome argues that the route forward should include wind, though there may be some problems this year.

One of the problems has been in transmission of power from the wind site to the user and ITC is now addressing this with a planned “Green Power Express” to carry 12,000 MW of power from the Dakotas to the MidWest. Texas remains on schedule with the installation of new transmission lines to feed future sites. But as wind farms grow, there are concerns over their impact on wild life, particularly in the East.

While CERA meets in Houston, in Europe it is Sustainable Energy Week, introduced by the Commissioner. Registration for the meeting is now closed, but there are video recordings and live internet broadcasts, which can be reached through the Website. The opening speech has already been posted. The Danes have provided a wind map for Europe. It is slightly different in format to that of the Department of Energy for the USA.

As more drilling occurs in the Arctic regions, there will be a need for more collaboration with the indigenous peoples, one such agreement just having been signed in Russia. Yet there is likely to be more strain between the countries seeking the energy. Russia is looking into adding a new refinery in the region.

For more stories see The Energy Bulletin or Drumbeat at The Oil Drum