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Eamon Keane has an undergraduate degree in Mechanical Engineering and a master's degree in Energy Systems, graduating both with first class honours. He has received the Institute of Mechanical Engineers Best Student Certificate, a Veolia Environment research scholarship and two IBM PhD... More
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  • Energy Storage is Not Needed for Renewables Integration
    There is a debate as to whether storage is required to integrate renewables. An understanding of the necessity for storage is important for investors in the storage space. Some protagonists for and against are:

    No need for storage
    "[Electrical Energy Storage] is not needed with current levels of renewable generation nor with renewable generation levels projected in the near term"
    Energy Storage FactSheet, Pew Climate TechBook (May 2009)
    “..even in this aggressive scenario, the model did not build new storage until 2024, when there were already 200GW of wind capacity on the grid supplying 15% of the nation's energy."
    “ storage is not needed to integrate wind energy with the electric grid..”
     “[Renewable Targets] can only be reached if renewables are smoothed and made dispatchable by energy storage.”
     “The need for storage to integrate solar and wind cannot be over emphasized.”
    NanoMarkets: Batteries and Ultra-Capacitors for the Smart Power Grid: Market Opportunities 2009-2016 (August 2009)

    "Alternative energy storage is an investment tsunami"
    John Petersen, Seeking Alpha (November 2008)

    Yes or No?
     On balance it is clear to me that energy storage is not needed for the foreseeable future. Storage can be broken into two types: large scale for bulk storage of renewables and small scale storage for intra-hourly changes. The main arguments promulgated by proponents of large scale storage suggest it is required to:
    • Smooth renewable output (make renewable energy dispatchable)
    • Reduce wasteful spending on transmission
    • Prevent the pollution from backup power plants
    Large Scale
    Smooth renewable output
    The argument goes that wind often blows heavily at night and is wasted. Thus we need to store it and make it dispatchable at times of peak demand. It is true that wind is variable however forecasts are reasonably accurate and wind output tends to only change gradually. This allows for the other power plants to be adapted to accommodate the changing wind so that very little wind energy is wasted, even at night.
    A 2008 GE Energy study for the Electric Reliability Council of Texas (ERCOT) showed that if Texas had 15,000 MW (presently ~8,000MW) of wind that a 30-minute drop of 2,400 MW would only occur once a year and that such occurrences can be addressed by existing technology and operational attention”. Existing conventional coal and gas power plants regularly abruptly stop generating for mechanical and other reasons and this is handled by the current system.
    The current capacity factor of American power plants is approximately 40% and demand across the year varies by a factor of three from the low point to the high point. The variability inherent with wind and solar is not foreign to the current system and it is not a prerequisite that renewables be made dispatchable. Storage is not needed to manage this variability.
    Reduce wasteful spending on transmission
    The argument goes that building a 1,000 MW transmission line to link up a 1,000 MW wind farm from, say, the windy midlands to the load centres is wasteful because the wind only blows at the rated capacity a small percentage of the time. Better to build a smaller transmission line and use storage to store the wind energy when it blows heavily and produce a constant, dispatchable output from the wind farm.
    This issue was thoroughly investigated by NREL in a just published paper. It was assumed that the wind owner paid for transmission. Wind and storage were operated as one entity to maximise revenue using real marginal prices from different electricity markets. The storage was Compressed Air Energy Storage (CAES) priced at $750/kW. Limited storage was found to make sense when transmission was priced above roughly $350/MW-km. Transmission line prices using this MW-km metric have been highly variable in the past, with more above $350 than below. However the authors note that transmission costs are “extremely lumpy”, meaning the marginal cost to go from 800MW to 1,000MW will not be a proportionate increase due to the significant portion of costs that goes into siting a transmission line. Further discussion of transmission costs may be found here. At any rate, pumped hydro and CAES are the only technologies that offer the required scale in terms of kW and kWh.
    It is true that storage can defer the need for transmission upgrades by reducing congestion. However that is akin to putting a band-aid on the transmission line. Capital is all upfront for storage systems and the payback period is measured in several years, within which time an upgrade would most likely have been built. This can alter the economics of this type of storage.
    Prevent the pollution from backup power plants
    This is frankly a canard. Apart from the case of wind and storage being co-located to reduce transmission, storage is not just used to store wind or solar energy. It stores whatever energy is cheapest. Frequently this is coal and storage allows coal plants to operate at a higher level through the night than they otherwise would. The flip side is that wind and solar need to have backup natural gas plants ramp up and down which reduces fuel efficiency. However this efficiency penalty is only between 0.5-1.5%. A Netherlands and a forthcoming Irish study have both shown that all things considered, storage actually increases net system CO2 emissions.
    Small Scale
    Small scale storage can be divided into second to second smoothing (regulation/load following) and spinning reserve (responsive reserve).
    Second to second smoothing is not dramatically altered by renewables. Supply and demand of electricity must be almost instantaneously balanced. While wind and solar vary, the second to second variations are not dramatic, particularly when aggregated over a large geographic area. Furthermore the demand also varies as people switch lights on and off, for example. There is no need, and in fact it is counterproductive, for every single wind or solar farm to try and produce a constant output. Oftentimes an instantaneous decrease in wind will cancel out with an instantaneous decrease in demand. This leads to a fundamental principle that: “it is the net system load that needs to be balanced, not an individual load or generation source in isolation”.
    That being said, wind will increase the amount of regulation reserve required. The same GE study showed that 100 MW (a 20% increase) of extra regulation reserve would be required at the 15,000 MW wind penetration level in the ERCOT grid.
    There is the suggestion that the new storage technologies such as flywheels and batteries that can provide very fast responses are required. The CAISO  stated in February 2009: “based on analyses prepared by the CAISO thus far, [fast regulation products] are not [needed]”. CAISO were advised to take a technology neutral approach to regulation and to not pilot alternative energy storage devices.
    Following on from the second to second there is spinning reserve which can quickly be ramped up quickly and sustained for longer periods. At present both second to second and spinning reserve is predominantly provided by natural gas and hydro plants. These are capable of providing these ancillary services as renewable penetrations increase. There is no inevitability that other technologies need to be used.
    Alternative storage technologies such as batteries and flywheels will compete on a purely economic basis. The rules governing these non generating technologies are still being set. It should be noted that utilities are notably conservative when it comes to new technologies and that many of these have not proven themselves. In a follow up I’ll discuss the relative merits of the alternative storage options and the potential for storage in other areas. Investors in these storage companies should, however, not assume that storage is needed for renewables integration. Comments to the contrary are welcomed.

    Disclosure: No positions
    Aug 26 9:38 AM | Link | 17 Comments
  • Neodymium Magnets Provide Key to Understanding Rare Earth Trends

    Rare metals are "the lifeline of industry"
    Japanese Rare Metals Task Force

    For an excellent primer on rare earth (NYSE:RE) metals read this article. They are present in small quantities in almost every technological device from TVs to electric windows. However with the world turning to technology to ameliorate our energy crisis, the demand for REs is set to ramp up. Are there enough REs to go around?

    The current state of REs may be summarised by a couple of graphs (Source USGS):

    Despite having just 30% of RE reserves, China has a virtual monopoly on the production of REs. The reasons for this are that China's RE mines are relatively high grade and low cost, which led to a collapse in production in the US. To analyse the situation going forward I'm going to drill down into the use of Neodymium-Iron-Boron magnets (NdFeB).


    "The global market demands for rare earth resources can be satisfied if the demand for the NdFeB industry is satisfied"
    Prof. Feng Hong: CEO, China Rare Earth Office

    This is true because REs always occur together and thus if Neodymium is going to be extracted, the others will be also. NdFeB magnets are the fastest growing segment of the rare earths.

    The US government studied the supply of REs and published a criticality index:

    Tonnage of NdFeB magnets is growing at 16% per year:

    What this graph shows is that the majority of NdFeB magnets are now made in China (77% based on the above graph) and this share is growing. The three emerging big users of NdFeB magnets are electric bicycles, hybrid cars and wind turbines.

    Electric Bicycles

    There are 100 million electric bicycles (EBs) on the road in China today; they outnumber cars 4:1. Of the 23 million EBs sold worldwide last year, 21 million were sold in China. The following graph delineates this (Source):

    These EBs contain lightweight, compact, NdFeB magnets for their miniature motors. They use approximately 350grams of NdFeB per bicycle. The chemical formula is (Nd-2-Fe-14-B) so this yields 86g Nd/EB. In 2007, EBs accounted for 5800 tons NdFeB or 13% of the worldwide total. I don't have figures for the neodymium produced in 2008 but if it was the same as 2007, the share would have increased to 18%. The average growth rate for the past 8 years was 35%. If this continues then by 2014 Chinese demand would be 100 million/year or 35000 tons NdFeB.

    There does not appear to be an alternative to NdFeB in bicycles due to space and weight considerations. The price of NdFeB magnets are about $40/kg so the bicycle contains $14 of magnets and $1.70 of Nd @ current $20/kg.Nd. EBs retail @ $290 and neodymium represents 0.6% of that.

    Hybrid Cars

    Hybrid electric vehicles (HEVs), plug-in hybrids (PHEVs) and pure electric (EVs) all require an electric motor. At present the vast preponderance of HEVs, including the Prius, use a Permanent Magnet Brushless Direct Current (PMDC) motor. These contain NdFeB magnets and there is no alternative (you could argue Sm-11.2%-Co-53.3%-Fe-27.5% (wt%) but the high reliance on cobalt is an Achilles' heel). The best performance one is a sintered magnet of composition Nd-31%-Dy-4.5%-Co-2%-Fe-61.5%-B-1% (wt%). Dysprosium is critical in this application to give resistance to demagnetization at high temperatures as the magnet reaches service temperatures of 160C.

    A motor can be up to 100kW although 55kW is a reasonable figure. For a 55kW motor 0.65kg of Nd-Dy-Co-Fe-B is required which gives 200g Nd/Motor (3.6g/kW) and 30g Dy/Motor (0.55g/kW). A 25kW generator is typically required to recoup braking energy so for analysis purposes a hybrid vehicle contains 288g Nd and 44g Dy. At $20/kg a car contains $5.76 worth of Nd and at $110/kg Dy a car contains $4.84 worth of Dy. At $10.60 worth of REs per car and a selling price of, say, $20,000, REs represent 0.05% of sticker price.

    If you accept John Petersen's analysis that binding targets on fuel standards imply an impending widespread adoption of hybrid technology then it is clear use of motors is set to take off. The current use of hybrids is very small (1m Priuses sold to date). If, for example, half of the EU's 15million new cars were hybrids in 2012; 2160 tons Nd (8802 tons NdFeB) and 330 tons Dy (390 tons Dysprosium oxide). Thus 20% extra Neodymium would have to be produced and 25% more Dysprosium (based on 2005 prodution of 1400 tons).

    Dysprosium is especially rare and Dysprosium reserves are almost entirely located in China. Japan is painfully aware of this fact and is scouring the globe looking for Dy deposits while also trying to develop magnets without Dy.

    This seems like a good point to stop. There is an alternative to PMDC motors - AC induction motors - which I'll discuss in a follow-up if there's any interest. I'll furthermore analyse the use of NdFeB in wind turbines.

    RE miners and investors can judge the direction of the industry if they understand the dynamics of NdFeB. My interim observation is that magnets represent a very small proportion of the sticker price of EBs and cars in particular. This would indicate that they are capable of absorbing a higher Neodymium price and manufacturers would be prepared to accept this for diversity and security of supply. This may make production of REs in the US and elsewhere more economic.

    USGS: [1],[2]
    Jack Lifton: [1],[2], [3], [4], [5],[6],[7],[8],[9],[10],[11],[12]
    GWMG: [1], [2]
    Hard Assets Investor: [1],[2],[3]
    NdFeB: [1]

    Disclosure: I don't own any stocks and never have

    Jun 23 6:58 PM | Link | 7 Comments
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