Special Report - Clean Energy Opportunities for Emerging Muslim World Markets
A case in point would be the edicts given by Chinese officials to run the Beijing Olympics without excessive air and water pollution for two weeks by shutting down factories and traffic for months before August of 2008. The final failure of the WTO trade talks this July underscores the East-West divide over energy and food security, issues which are inseparable in practice.
This article will take a dispassionate perspective on this very complex landscape and suggest some pragmatic avenues for developing nations (mostly in Africa and Asia), especially The Gulf, where desert conditions, soil erosion, water scarcity and little infrastructure is the norm. It will also address the issues of younger, rising populations which are just starting economic growth and consumption. Unluckily, there are no simple choices, but at least some prospects can be eliminated. So we will start with the worst and end with the most sensible ones.
What is Cleantech? Who needs it?
Cleantech implies mainly production of energy from net non-polluting sources, but it also involves storage and distribution of energy, either on its own; or in conjunction with traditional (mainly fossil) fuels, to provide efficiency and cost benefits in transition.
QUICK, CLEAN CA$H FOR DEVELOPING MARKETS
Under the Kyoto international protocol (or CDM, Clean Development Mechanism) there is an active exchange market for trading carbon (pollution) credits between clean and polluting companies; with a cash award as well. The World Bank estimates USD 64 billion trades in 2007. Developing countries have sought approval for more than 3,000 projects ranging from wind farms to landfill gas capture projects; 2000 are still pending, posing a challenge to mainly European polluters (US is not a signatory yet.) China captures 73% of this market, still with ample room for MENA, and Central-South-East Asian nations.
There are 3 main categories of clean fuel: solar, wind and bio-mass, in addition to hydroelectric and ocean/geo-thermal. Then there are the intertwined issues of clean water, and global warming from fossil pollution. All of these combined issues have created the need for conservation, clean fuels and greenhouse gas absorption to support transport, buildings, agriculture, and water sources.
From the Energy Information Administration (EIA) figure of projected fuel types, by 2030, renewables (including nuclear and hydroelectric) will make up about 15%, and natural gas about 25% of total supply. Natural gas thus demands a careful look as well.
Clean energy innovation: a field of many (bad) dreams
Compared to the 1970s when the West faced a supply shock but the world as a whole lacked consumption, the current situation sees consistently rising prices (and pollution costs) of fossil fuels which in turn create a critical need to find alternative (“cleantech”) sources. New Energy Finance figures show that investment in clean energy worldwide in 2007 reached USD 150 billion, up 60% from the previous year.
A June 2008 joint study with Heidrick & Struggles states that the MENA region faces a cleantech talent shortage, especially in terms of experienced business leaders.
Unfortunately, a new rush towards such innovation claims have become common in recent times. Most failed projects from the 1970s crunch are being recycled with multi-billion dollar public-private partnership budgets (e.g. corn ethanol, algae biomass, ocean-thermal, coal liquefaction, nuclear.) New-fangled development hype about more novel technologies (e.g. nanotech, hydrogen fuel cells, carbon sequestration) has captured the public imagination in hopes of finding solutions to a growing crisis.
Silicon Valley, USA, aka Solar Valley since 2003, has latched onto cleantech as the “Next Big Thing.” In 2007 alone it invested more than USD 1 billion of venture capital in start-ups, which is more than the total invested in 1998-99 for Internet-related companies [New York Times, July 2008]. However, Europe, with its huge government subsidy programs, has been a leader in cleantech R&D.
Sadly, the basic science, let alone commercialization potential, is simply lacking in many cases.
Take the hydrogen “fuel cell” mantra for example: Scientifically, creating hydrogen requires more energy than what it releases, making this process a nonsensical approach. Hydrogen derived from natural gas entails a 60% loss, so will always be more expensive than straight-burning natural gas. Given the explosive nature of hydrogen, liquefying and transporting it requires enormous investments. Today, a 15-gallon gas tank equivalent to hydrogen would cost USD 400 to fill a 60-gallon high security tank! According to Joseph Romm, former Acting Assistant Secretary of the US Dept of Energy (“The Hype about Hydrogen”), this country is still 30-50 years away from commercialization.
Coal liquefaction (CTL, or “clean coal”) ) too, is unproven. Its champion, SASOL of South Africa, ran a USD 12-18 billion project in Northwest China, and recently announced that awards of multi-billion dollar projects are not feasible owing to its intellectual property concerns. But none of the projects thus far have produced any results. IEM, a California cleantech outfit with 45 years of experience, says that South Africa successfully concealed its major oil imports during the 1980s apartheid embargo, making it seem as if SASOL had a highly successful operation.
Just like cellulosic ethanol (corn, switch-grass, woodchips), algae biomass fantasies haven’t delivered much after 40 years of R&D. The idea is attractive: algae can be produced from solar and fossil fuel as inputs, and consequently they absorb carbon dioxide, a harmful greenhouse gas. The algae can then be converted into bio-fuel, electricity, protein feed, or go in landfills. In practice, selecting algae species is a major headache, as for example a host of technical problems has led high exposure start-ups like GreenFuel to cut down on staff by half in July 2007 while facing a South Africa scam (see, its Wikipedia entry). Multi-billion dollar bio-diesel production plans are now suspended in Indonesia and Malaysia owing to high palm oil costs, but could restart if oil remains above USD 115 a barrel.
The Mirage of the Promised Land(s)
A long term example from the Middle East itself is Israel’s Negev/Naqab desert’s “bloom” environmental failure. Even though drip irrigation is a useful technique, after 50 years and USD 50 billion in direct investment, the Promised Land is still a mirage. Half of Israel’s clean water goes into agriculture (only 2% of its GDP), which is strangling the Dead Sea. A kilogram of wheat export consumes 1000 liters of water; the total equaling Israel’s entire desalinated output! (Newsweek, July 7-14, 2008.)
Corn ethanol is another wasteful program that has only resulted in skyrocketing food prices, as 30% of the US corn crop is now mandated to produce perhaps 3% of US fuel. Corn, USD 2 a bushel in 2004, is now about USD 6. It has also negative net energy, and its environmental impact is unclear. The mandate was a politically motivated deal between key politicians and highly influential Silicon Valley VCs like Vinod Khosla. The rush was tagged “national energy security;” and mimicked Brazil’s successful sugar ethanol program from abundant crop, in place since the 1980s as response to the 1970s oil crisis.
Initially touted, corn ethanol now is lamented by the same media pundits (e.g. New York Times, Wall Street Journal, Financial Times, and others.) See “Texas Timeout on Bio-Fuels”, in WSJ, May 24th, 2008.
So what can work so far?
From a major MIT study conducted in 2003 (“The Future of Nuclear Power”), it was ascertained that nuclear plants were considered clean, safe and cost-competitive with coal/natural gas in deregulated markets; however faces concerns about waste disposal and proliferation.
Recent estimates are USD 5-12 billion per plant, which is double to quadruple earlier estimates (WSJ, May 12th, 2008.) Nuclear energy is still attractive for large nations like China, who are building about 100 new plants, and today deriving 2% of current needs (with France deriving 80% of its supply.) This will offset high-pollution coal plants and develop technology. Most US plants (built between 1966-1996) are now profitable. Recently, Saudi Arabia has talked about nuclear power, but its acquisition of uranium fuel given inadequate global supplies and rampant political issues, is questionable.
Today, hydropower dams account for 90% of all renewable power generation, and have considerable growth potential for developing markets, but not in the GCC where water resource conflicts will be much exacerbated because of such dams. The same can be said about geothermal and ocean energy, and also co-generation (CHP) which all require very long term plans (20-30 years.)
Large scale energy storage is also a riddle: as weather changes and the sun sets or winds slow, or perhaps hydroelectric power competes with water availability, energy must be stored. There are a number of long term R&D projects with molten salt and ocean waves for scale applications. A promising avenue is new types of high efficiency electric batteries (e.g. Lithium Ion) that, apart from appliance and building backup use, can be put in electric vehicles for a 100 mile range, without the worry of recharging until later. Another medium is new electronic inverters.
Conservation is a must.
It can be safely said that the primary steps towards any form of clean energy solution would be energy conservation. By making better appliances (low-watt fridges, microwaves and bulbs), building “green” (better insulation, design and tariff structure) buildings, and making vehicles more fuel efficient (50 mpg), McKinsey Global Institute estimates that the world can keep the demand level between now and 2020. Conservation also dramatically cuts down on pollution and thus global warming, which is already destroying crops and eradicating clean water reservoirs. However, increasingly vast public awareness efforts and a capital input of USD 170 billion globally would be required in the same period. Developing countries certainly can start on this path now as they have a lower embedded base; a younger population that is used to rapid change and income constraints that favor conservation.
And the Winners are …
This last point brings us to a few slam dunk winners for the GCC and the surrounding regions. Solar systems, both in photovoltaic and thermal formats, and wind power have made significant enough strides over the last 10 years that they are becoming cost-competitive with fossil fuels (even though today there are big subsidies in the West.) Given the vast expanse in the GCC and other deserts, all-year intense sun and ample wind, coupled with the willingness of the GCC to invest both domestically and cross-border in Asia and Africa, solar/wind power is ’The Next Big Thing’ for these markets.
Indeed, Asia has already the biggest solar and wind power firms (e.g. SolarFun Power in China.) Worldwide installation of solar capacity exceeded 2.8 gigawatts in 2007, according to Solarbuzz, up from 1.7 gigawatts in 2006, lifting the shares of solar-cell companies an average of 300% last year. Scientific American published a scheme late last year for producing 69% of U.S. electricity from solar by 2050, a nearly untapped USD 1 trillion market. Clearly, Asia has a much bigger environmental advantage.
To achieve grid-parity, that is, producing electricity at the same cost as from coal, oil and gas (about 9c /kWH in the US on average), solar systems, with current total costs of USD 8-10per week will need a 20-25 year breakeven. With improvements like thin film and new supplies of polysilicon material on line in 3 years, photo solar will drop in cost to one third, thus making it finally competitive. Today, solar thermal costs are 10-15 c/ kWH but dropping. Already, the city of Houston, TX, has in place a 5-year contract to buy wind power at 7.5c / kWH, 20% cheaper than fossil power; and about 4% of total power needs (WSJ, July 2nd, 2008.) Wind power still requires subsidies for electric cables carrying power from remote wind farms to urban centers. But realistically, in the desert situation or cheap labor scenarios, with infrastructure construction already in progress, costs are tractable.
Another promising clean (bio-mass) technology for water conservation, carbon mitigation cash credits, and electricity generation while eliminating municipal waste is Landfill Gas Bio-Reactors (LFGs), already commercial in the US and Europe. LFGs take in municipal waste, and process methane (natural gas) which then drives an electric turbine. There have been recent advances that make LFGs suitable for harsh desert conditions as well.
Lastly, it is critical to note that fossil fuels are here to stay for decades: the trick is to use cleaner versions. Liquefied Natural Gas (LNG) is a perfect fit, given its Gulf abundance (Qatar and Iran have #2 and #3 global reservoirs), less pollution and half oil cost. Already 30-50% of some Asian auto fleets have converted from oil to natural gas.
The GCC is taking major initiatives in this arena, like Masdar City, Abu Dhabi or the several Saudi Economic Cities. The Qatar Science & Technology Park recently launched a $75m carbon sequestration R&D study under the veteran Deputy PM, Abdullah bin Hamad al-Atiyah. The aim is to build cleantech industries of the future with job and expertise growth, while addressing domestic environments. It will be important to differentiate the real from the hype, and scale projects effectively after careful feasibility reviews. Hopefully, the errors of the 1970s will be redeemed this time.
Athar Mian is a 16-year technology business development veteran. He has mostly worked in the US and Canada both with big and small companies. His first Silicon Valley mobile telecoms venture was in 2000, and is now with a clean energy venture for GCC markets. He obtained his MBA and an MS in Engineering from Columbia University, and his BSc from UET in Lahore, Pakistan. He has been featured in The New York Times and The Wall Street Journal. Email: firstname.lastname@example.org
This article first appeared in the November 3rd issue of the Dinar-Standard, and is reproduced in GLOBE-Net with the kind permission of the author and the publishers of the Dinar-Standard.