Shaky economics of wind power

Royal Dutch Shell PLC said it will sell its stake in the world’s largest planned offshore wind-power station by generating capacity, illustrating the shaky economics of wind power.

The project, known as the London Array, involves Shell, E.On U.K. and Denmark’s Dong Energy A/S, with each holding a one-third stake. It plans to put 341 large wind turbines in the River Thames Estuary to generate 1,000 megawatts, or enough electricity to power as many as a quarter of the homes in the greater London area.

Commenting on the decision, Paul Colby, chief executive of E.On U.K. said: “The current economics of the project are marginal at best, with rising steel prices, bottlenecks in turbine supply…”.

The cost of the project is estimated at between £2 billion and £3 billion. The current cost of an offshore wind project is three to four times as much as building a gas-fired power plant, according to Centrica PLC.

Source: WSJ, 02-04/05/08

Africa's fraying power grid

Africa has the capacity to generate about 63 gigawatts of power for roughly 770 million people – about what Spain produces for its population of 40 million. Accordingly, just a quarter of Sub-Saharan Africa’s population has access to electricity.

In recent years, the situation has worsened because of the global commodities boom. With the power-hungry mining sector booming, and the economy humming along, the strain on an already fraying electricity grid has intensified.

Diamond mines in Botswana, a big diamond producer, are sucking up roughly half of the country’s overall electricity consumption. In South Africa, the mining industry, responsible for 7% of the country’s economic output, draws 17% of the country’s electricity production.

According to the World Bank, power outages plague 35 of Sub-Saharan Africa’s 53 countries and outages are costing African economies as much as 2% of their gross domestic product. Also at risk are government-funded electrification efforts aimed at bringing power to the countryside.

Source: WSJ, 18-20/04/08

U.S. GHG emissions stabilisation

On 16 April 16 2008, U.S. President George Bush pledged to halt the growth of greenhouse-gas emissions in the U.S. by 2025. In contrast, the EU is aiming to cut emissions 20% by 2020 compared with 1990 levels; the cut would go to 30% if other rich countries do the same.

The U.S. goal to halt emissions growth by 2025 is far below what the IPCC has said is needed to stop rising global temperature from causing massive damage to the environment. The IPCC estimates that carbon emissions must start to fall within the next 15 years and be cut by 50% by 2050 from 1990 levels to prevent the most severe impacts of climate change.

Source: WSJ, 18-20/04/08

IMF cost of emission reductions

In its semi-annual World Economic Outlook released on 3 April 2008, the International Monetary Fund forecast that sharply reducing greenhouse-gas emissions would slow global growth, but only minimally provided that policies are well designed.

The policies needed to reduce emissions by 60% from 2002 would leave the global economy about 2.6% smaller than it otherwise would be in 2040. Even so, the global economy would grow to about 2.3 times its current size between 2007 and 2040.

The IMF study said that all countries need to agree to climate-change mitigation policies because a large percentage of emissions will come from big developing countries.

A global price for emissions should be set, the IMF said. The study didn't choose between a cap-and-trade system and a carbon tax, arguing that the effects of both are similar - they raise the price of carbon emissions. The pricing policies must be “long-term and credible” in order to convince businesses to make necessary investments.

Source: WSJ, 04-06/04/08