Rare Earths Not So Rare?

• The bankruptcy of the main US producer of "rare earth" materials signals the end of a multi-year crisis over their global supply and cost.

The announced Chapter 11 filing of US-based rare earths mining and refining company Molycorp effectively marks the end of a crisis that managed to escape the notice of most people. Rare earths are elements of low abundance, compared to the ores of metals like iron and copper. Despite their relative scarcity, they have proved extremely useful in industrial applications including renewable energy technologies. Five years ago it appeared that China had cornered the market on rare earths and was exercising its market power to, among other aims, lure businesses reliant on these minerals to shift their operations to China.

Molycorp's modernization of its rare earth mine in California and subsequent expansion into other aspects of the business were responses to a perceived global crisis. China's restrictions on rare earth exports threatened the economic competitiveness of hybrid and electric cars, wind turbines, non-silicon solar cells, compact fluorescent lighting (CFL), and other devices of interest to energy markets and policy makers.

The situation also raised concerns in the defense industry, due to the importance of rare earth metals and alloys in the manufacture of missile components, radar and sonar equipment, and other military hardware. Governments created or expanded strategic stockpiles for these materials, and took other steps to manage their reliance on supplies from China.

However, as reported by the Council on Foreign Relations last fall, the effectiveness of efforts by the Chinese government to leverage their control of rare earth supplies was short-lived. Its policies led to mostly market-based responses, involving both supply and demand, that undermined China's near-monopoly and ultimately contributed to Molycorp's present financial difficulties.

Molycorp wasn't the only company to bring new supplies into production, or the only one to struggle as the crisis unwound. New supplies were already in the pipeline at the time China restricted its exports, in reaction to price spikes that preceded the policy as global demand bumped up against the output of China's mines and processing facilities. Nor was government control of China's fragmented rare earth industry sufficient to prevent continued exports exploiting loopholes of the restrictions.

Finally, and probably most importantly for both China-based and non-China-based producers, innovators in the industries using these materials found ways to make do with lower proportions of rare earths in permanent magnet motors and generators, or to do without them altogether.

The upshot from an energy perspective is that if anything will slow the expansion of wind and solar power, hybrid cars and EVs, and other alternative energy and energy-saving technologies, it is unlikely to be a shortage of rare earths. They may be rare relative to other industrial commodities, but in the small proportions used it seems they are not rare enough to pose more than a temporary bottleneck.

Plug and Pay

Yesterday's photo-op at an Indiana RV factory for the purpose of announcing more federal assistance for the electric vehicle industry came just a few days after Nissan debuted its Leaf electric car, which might become the first mass-market EV in the world. Cars powered by batteries alone or a combination of batteries and conventional engines look like one of the most promising long-term solutions to the dual problems of energy security and climate change. But precisely because of their potential to have such a large impact, it's vital that the economic arrangements for their energy consumption are put on the right basis from the start. Among other things, that means avoiding the temptation to provide free public recharging for them. If we get this wrong, we risk negating much of the energy and greenhouse gas benefit these cars offer. We could also inadvertently deter the substantial private investment in recharging infrastructure that would be needed to make EVs fully competitive with cars running on liquid fuels.

Against the backdrop of $2.4 billion in new subsidies for EV and battery manufacturers and federal electric vehicle tax credits ranging up to $7,500 per car, my concerns about collecting for the electricity actually used by the first few mass-production EVs might seem disproportionate or even eccentric. After all, how much juice can a few battery cars use, compared to our factories, office buildings, and billions of home appliances? Initially, very little and eventually still less than you might imagine. If every vehicle-mile traveled in the US were driven in an EV averaging 3 miles per kilowatt-hour (kWh), US electricity consumption would only increase by about 27%. The impact on emissions is much harder to assess, however, since it depends heavily on which generating technologies deliver the power used by EVs, and that in turn depends to a large degree on the time of day when they are recharged. Charge up at 3 AM, and you might be getting zero-emission wind power that would otherwise go to waste. Charge up at 3 PM, and you are almost certainly going to be drawing on a gas turbine somewhere--probably a fairly inefficient "peaking" unit--or a coal power plant. To put that in perspective, let's look at the emissions from two comparable cars, under both scenarios.

For our baseline, consider a Prius-type hybrid that gets all of its energy from the fuel that goes into its tank. At 50 mpg, its emissions from gasoline amount to roughly 40 lb. of CO2 per 100 miles. For an EV getting 4 miles per kWh and recharged with wind power, they would be essentially zero. However, the same car recharging during mid-peak or peak electricity demand would trigger power plant emissions between 35 lb. ("peaker" turbine @ 12,000 BTU/kWh on natural gas) and 53 lb. (average US coal plant) for every 100 miles. In other words, while the hidden emissions from an EV would in the worst case still be lower than those of the average car in America today (around 80 lb. CO2/100 mi.), they could be substantially higher than from an ordinary hybrid that never plugs in. So if we want EVs to repay the substantial national investment we're making in them by reducing our fossil fuel consumption and greenhouse gas emissions, we will want them to recharge as little as possible during daylight hours, particularly in the late afternoon, at least until wind, solar and geothermal power account for a much higher share of our annual electricity generation than the 1.6% they contributed last year.

Paying for the electricity to recharge plug-in electric vehicles involves major cultural and behavioral shifts. The price of gasoline is one of the most visible, ubiquitous and transparent prices in our society. You stand at the pump and see the dollars going into your tank. But when you recharge an EV at home, unless you have a separate electric meter, you're going to have to sift through a power bill with a welter of distribution, fuel and non-fuel supply charges plus various state and local taxes and fees to see what it actually cost. At the current national average rate of around $0.11/kWh, a typical driver might only see an extra $27 a month, a big savings compared to the typical gasoline bill even at the current $2.55/gal. The extra power cost could easily get lost in seasonal usage fluctuations and rate changes. The impact would likely be more noticeable for utility customers in places with sharply graduated rate structures or time-of-use rates. For many people, however, even if they don't charge up using someone else's electricity--their employer's, their town's, or the local Starbucks'--it could look nearly free.

That would have implications for companies that are building vehicle recharging infrastructure that would need to recoup their investment on a per-kWh basis or, like Better Place, charges per mile of usage in a manner similar to cellphone service contracts. Those investments won't happen and the companies involved will go out of business if consumers regard the electricity for their new plug-in vehicles as effectively free and resist paying as they now do for fuel.

How this will all turn out is anyone's guess at this point, and I emphasize "guess." Until there are at least hundreds of thousands of these vehicles on the road, in the hands of many ordinary consumers and not just unrepresentative deep-green or "gear-head" early adopters, we can only make assumptions about how they will really be used. Still, it seems safe to predict that recharging that was free or regarded as free would get used more, resulting in more trips, more miles traveled, and eventually more energy consumption and emissions.

NIMBY vs. TANSTAAFL

It is encouraging that our reaction to the current energy crisis has reached the stage at which we are beginning to see concrete plans for addressing it systematically, rather than via the grab-bag approach employed in last year's energy bill. The same applies to the related, but not quite parallel problem of climate change. But whether voters ultimately gravitate towards the Pickens Plan or to Mr. Gore's more dramatic goal of eliminating fossil fuels, such approaches are likely to run afoul of the same factors that have hampered the ability of the US conventional energy sector to keep pace with demand. Real progress in this area will require us to confront the collision between our desire for abundant energy and our distaste for the means of providing it.

The current debate over offshore drilling exemplifies many of the same obstacles that renewable energy sources will face, as we attempt to scale them up to a level that can compete with oil, gas and coal. Too many advocates of alternative energy cite our inability to drill our way out of this energy crisis--kicking a dead dog, if there ever was one--without realizing that the sensibility that opposes oil exploration off our coasts or in Alaska is not so different from the one raising lawsuits against the transmission of concentrated solar power from the desert to coastal markets.

Whether we are talking about oil wells, refineries, wind farms, or uranium mines, most Americans would prefer them to be far enough away from us that we can't see, hear or smell them. Until recently, it has been just barely possible to satisfy both our demand for energy and our state of denial about its origins, because the energy sources we have relied on are so concentrated. One mid-sized offshore oil platform contributes as much net energy production as the entire US ethanol program did in 2006. But as we shift toward renewable energy, it will become increasingly difficult to shield our sources of energy from our view. Generating the electricity necessary to displace natural gas from the power sector into transportation, as Mr. Pickens suggests, would require between 90,000 and 200,000 wind turbines, using current technology. In order the make that a reality, the viewscapes of millions more Americans must include either wind turbines or the new transmission lines necessary to bring their output to market.

Breaking this tension between NIMBY and TANSTAAFL--the popular acronym about free lunches that restates the Laws of Thermodynamics--will require a willingness to set clear national priorities and make the compromises necessary to turn them into practical reality. Does our desire to become energy independent, or at least reduce our reliance on unstable oil suppliers and the financial drain that accompanies it, exceed our preference for keeping big, ugly infrastructure out of sight and out of mind? Does our concern about the potential consequences of climate change trump the ability of small, vocal minorities to block essentially any project that doesn't fit their vision? Or has this energy crisis finally become painful enough to force us to grapple pragmatically with the consequences of solving it?

A Man, A Plan

T. Boone Pickens, well-known oilman and corporate raider, has a plan for reducing America's reliance in imported oil by more than one-third within a decade or so. When I opened the morning paper, I found a full-page ad heralding the Pickens Plan and directing my attention to http://www.pickensplan.org/ for the details. The idea behind the plan is simple and appealing: ramp up wind power to displace natural gas from power generation, and then use the natural gas to fuel vehicles, backing out gasoline and diesel fuel. The net result of this shift would reduce US expenditures on imported petroleum by perhaps $250 billion per year at current prices. Although the plan appears feasible, its implementation would face serious obstacles. More importantly, its key provisions appear to conflict with other solutions that offer bigger efficiency improvements and greenhouse gas reductions. Perhaps its largest benefit is in laying out a clear set of choices for discussion, in contrast to the wonkish complexity of most energy policy proposals.

The essentials of the Pickens Plan involve boosting US wind power to 20% of our electric generation mix, equal to the net generation currently derived from natural gas. This element of the plan draws on the DOE's recently released feasibility scenario for 20% wind, about which I blogged in May. That would free up the nearly 7 trillion cubic feet per year of natural gas supplied to the electricity sector for direct use in transportation. The energy content of that gas is equivalent to 4 million barrels per day of gasoline, 44% of our 2007 consumption. This would also save the 200,000 barrels per day of ethanol currently blended into that gasoline, for use elsewhere. Ignoring the impact of these drastic changes on refinery yields, the net result would displace at least 34% of our net 12 million barrel per day petroleum imports. Thus, as one would expect from someone with Mr. Pickens's background and resources, the math behind his plan works.

Of course, achieving all this would require more than just determination. If you accept that the necessary technical and logistical hurdles identified in the DOE's 20% wind scenario can be overcome promptly, including increasing the average on-line capacity factor of wind farms by 50% and installing enough new high-voltage transmission lines to move all this wind power from the central-US "wind corridor" to its ultimate markets, then the current wind power sector must grow by a factor of 18 within 10 years, and 44% of our vehicle fleet--over a hundred million cars and SUVs--must be built or converted to run on natural gas within the same interval, along with an enormous expansion of natural gas refueling infrastructure. In the process, existing natural gas-fired turbine generating capacity worth on the order of $400 billion would essentially be abandoned--generators that, by the way, account for much of the idle overnight capacity that would otherwise be available to recharge plug-in hybrids and electric cars. This gets to the crux of the hard choices inherent in the Pickens Plan.

Our national energy mix is better thought of as an "energy diet." In a diet, not all calories are alike, and the same is true for BTUs and kilowatt-hours. The power derived from natural gas provides much of the mid- and peak-load capacity in many US power markets. This is dispatchable, on-demand power that can shift rapidly to meet changes in the load. Without expensive energy storage, wind power is intermittent and unreliable--the opposite of dispatchability. Although some of this problem can be overcome by a sort of portfolio effect from widely-dispersed wind farms, the drastic shift suggested by Mr. Pickens would abandon the natural synergies between wind and gas-fired power, including the interesting option of compressed-air power storage.

The impact of the Pickens Plan on US greenhouse gas emissions must also be evaluated carefully. Mr. Pickens is certainly correct that natural gas vehicles emit fewer local pollutants and less CO2 than conventional cars, but for a change on this scale, we must consider the bigger picture. If wind power can grow to 20% of net generation and somehow overcome its intermittency problem, what is the best use of those green electrons? Is it in displacing one of our lower-emitting sources of electricity, in order to replace a fuel emitting 20 lb. of CO2 per gallon with one that emits 14 lb. of CO2 per energy-equivalent gallon? Or should we use that zero-emission electricity to back out coal-fired power producing 2 lb. of CO2 per kWh, contributing in aggregate over one-third of total US emissions? A similar argument can be made, based on the relative energy-conversion efficiencies of gas turbines vs. internal combustion engines.

Because of its scale, the Pickens Plan would affect other efforts to make the US vehicle fleet more efficient. Although the market is certainly large enough to accommodate both natural gas cars and plug-in hybrids, idling our natural gas turbine generating capacity and tying wind power to the demand that gas currently satisfies would make the adoption of electrified vehicles more challenging. It is also hard to imagine conducting two fleet turnovers on the scale required to have a meaningful impact, simultaneously. In other words, at least at first blush, adopting Mr. Pickens's approach might result in electric vehicles being pushed off for another decade or more.

Now, a cynic might suspect that the Pickens Plan has as much to do with promoting Mr. Pickens's investments in wind power as it does with addressing our national energy crisis. I prefer to give him the benefit of the doubt on this, and credit him with introducing an idea that merits further analysis and consideration. Discussing a proposal as concrete as this one might help frame our energy problems in a clearer context and prompt more action. Nor do I think the Pickens Plan must be considered as an all-or-nothing proposition. Natural gas could be an attractive vehicle fuel, if it didn't merely shift oil imports into LNG imports, or cannibalize a key part of our low-emission electricity portfolio. This prospect should increase our incentive to produce more gas in North America. At the same time, wind power should and will compete with gas power, but at the margin, not in its entirety, and all of this must take full account of the need to reduce US greenhouse gas emissions, a process that would be aided by putting a price tag on those emissions. On the whole, we should be grateful to Mr. Pickens for providing us with an interesting, non-partisan "straw man" proposal, to help us grapple with these complex issues.

How Much Wind?

Yesterday the Department of Energy released a major study on the potential of wind power in the US, suggesting that by 2030 it could supply 20% of our electricity needs, at little incremental investment over and above what would be necessary anyway, to keep up with the growth of demand. This is an encouraging result for those who see renewable energy as a vital component of any effort to reduce greenhouse gas emissions and improve our energy security. While I can't possibly do justice to a 200-page report in a brief posting based on a quick skim-through, several interesting assumptions and observations leaped out at me. While they don't necessarily undermine the headline results, they serve to emphasize that the report is a finding of feasibility, not a forecast.

To an engineer, the wealth of data contained in a document such as this is irresistible. My first instinct was to dig out my calculator and start comparing the numbers to each other, and to current actual data. The report states that the quantity of wind power capacity required to supply 20% of US electricity demand in 2030 is 305,000 MW, or 305 GW. That reflects an 18-fold expansion of 2007 year-end wind capacity, for a compound annual growth rate of 14% over the next 22 years. Compared to an average growth rate of 36% over the last three years, that figure seems modest, but then it will get progressively harder to sustain double-digit growth as the installed base grows larger. But that's not the most interesting figure. That honor goes to the report's assumption of a 50% improvement in the capacity factor for wind--representing the ratio of actual output to nameplate capacity--from roughly 30% today to 45% by 2030.

Although I eventually found the support for that assumption in Chapter 2 of the study, I backed into it by comparing the 1,200 terawatt-hours (1.2 trillion kWh) of generation required to cover 20% of US demand in 2030 to the 305 GW of wind capacity. Although the study describes how this improvement could be achieved through a combination of advanced turbine technology, increased turbine size, and aggregation of the output of many turbines across a wide area, it goes beyond the capabilities of current turbines and what I have read of the experience of high-penetration European wind operations, such as Denmark. The reason this is important is that, if this significant improvement fails to materialize, then either a much higher level of wind installations will be required to supply 20% of US electricity in 2030, or the 305 GW proposed here would only deliver 800 terawatt-hours per year, or about 20% of 2006 demand.

Another interesting aspect of that 1,200 terawatt-hr figure is that it highlights the report's assumption of a 50% expansion in US electricity demand over the next 22 years. That works out to 1.8% per year, which seems reasonable based on past experience, but might not be compatible with efforts to reduce US greenhouse gas emissions significantly in the same period, unless it also assumes that a significant portion of new electricity demand will come from displacing petroleum from transportation via electric vehicles. The only mention of such substitution that I found in a full-document search was of plug-in hybrid cars as a potential outlet for off-peak wind generation. If 20% market penetration represents a practical upper bound, and electricity growth were only 1.1%/year, then maximum wind capacity in 2030 would be 258 GW, instead of 305 GW, still 15 times today's level.

The report also includes a set of wind power supply curves, showing the levelized cost of tapping all potential US onshore and offshore wind resources, ranging from 6 cents per kWh to over 14 cents. If I've interpreted it correctly, the incremental cost of the last land-based portion of that 305 GW in 2030 would be about 8 cents/kWh, while the offshore component would run between 10 and 11 cents, in current dollars and excluding the Production Tax Credit (PTC) that is currently up for renewal. This doesn't quite live up to the suggestion of some wind power advocates that it will be cheaper than coal, unless the coal power in question is from advanced generating plants with carbon capture and storage, or paying a substantial cost to emit CO2. At a minimum, the supply curve suggests that wind power will continue to need assistance on the order of the current 2 cent per kWh PTC, to penetrate beyond a small number of sites with the best economics.

The idea that wind power might someday supply a fifth of US electricity demand won't startle anyone who believes that the experience of Denmark could be translated to a much larger country. However, rather than viewing the DOE's "20% Wind Energy by 2030" study as confirmation of this notion, it should be recognized as a detailed scenario describing what would be necessary to reach that threshold. It spells out in considerable detail the improvements in wind turbine technology, transmission capacity, and load management that would be required. Much hard work remains to be done, to turn feasibility into practical possibility.