By Dr Ahmad Ibrahim

The world crude oil price has just gone past USD130 per barrel. This may have been unbelievable a year or so ago. But it is now very real. Experts believe there is a good chance it will touch USD200 in the coming months. It is history in the making. Never before has crude oil price reached such dizzying heights in so short a time. Writings on the issue attribute the runaway price escalation to a combination of factors. Many agree it is not due to one single factor. Supply and demand is of course one element fueling the rise. But many believe speculative forces are very much behind the increase. They in fact make it worse. The reality is that it is quite natural for speculators to seize upon opportunities created through any imbalance in the fundamentals. This happens all the time. It is the name of the game. As they say, strike when the market is confused!

Since oil is a strategic cost in all products and services, the price explosion is bound to impose serious implications on economies worldwide. Transportation costs will rise. Electricity costs will increase if their generation uses oil as fuel. Heating costs will also go up. Manufacturers will have to deal with cost increases. The only way for the costs not to be directly felt by consumers is through some kind of subsidy by the government. This means the government will have to bear the entire price increase. But lately subsidy is a bad word everywhere. They say subsidy breeds inefficiency and kills productivity. The problem is that, as the oil price continues to go up, the more the government has to spend on subsidies. In Malaysia, as in many Asian countries, fuel subsidy is common practice. It has been reported that this year alone Malaysia may have to spend RM55 billion on fuel subsidies. This equates to more than RM8,000 per family of four.

Malaysia is not alone. Both India and China also subsidise their fuel consumption. Both are net importers of fuel. Indonesia’s subsidy is expected to touch more than RM45 billion this year. Is this sustainable? It has already been announced that Indonesia will raise fuel prices by 30%. Malaysia has also raised the fuel price by over 70 sen a litre. India is contemplating similar move. China may do it later once the sufferings from the Sichuan earthquake is behind them. Admittedly it is not easy to abruptly remove all forms of subsidy. It can generate social unrest as has happened in Indonesia in the past. Like it or not they will have to be phased out in stages. Though many would not like to say it, deep down everyone agrees that in the long run fuel subsidy is not good for the economy.

The next question is, does fuel subsidy have a role in driving up world demand and therefore motivating the price increase? It has been reported that developing countries of Asia now account for only 20 percent of global oil consumption. But the more telling statistic is that Asian countries account for about two-thirds of the annual increase in global oil demand. In fact they account for an even bigger increase inworld oil imports. Is this because since price of fuel is comparatively cheaper, people do not value it as much? There is a tendency to waste. Malaysia is still a net exporter. But we are not far away from the time when we will have to depend on import like they do in Indonesia, India, China and many other developing Asian countries. Experts predict that by as early as 2014, Malaysia may well be a net importer of fuel.

With the crude oil prices moving North, reevaluating the many renewable energy options has begun. What are the options? How can they be made more commercialisable? Understandably there are a number of options. Among the renewables, hydropower is the one which is most established. There has also been an increase in the investment for wind power. Some say biomass may suit the traditional power companies better since it uses similar technology to that used to burn fossils. Supporters of solar, though still an expensive option, are still optimistic that the technology will eventually be able to offer competitively priced electricity. Nuclear, though viewed unfavourably on its safety aspects, is being seriously evaluated by some as another possible option. It is another energy technology where carbon dioxide generation is not an issue. But its use would very much depend on whether the industry can overcome the fears associated with problems associated with the technology and the problems concerning radioactive waste disposal.

HYDROPOWER

The global installed capacity for hydropower is estimated at around 700,000MW. It may be responsible for about 18% of the global electricity generation. Europe has the largest installed capacity with 214,400MW, followed by Asia with 174,100 MW and North America with 160,100 MW. Africa, by comparison, has only 20,100 MW. It has been estimated by the 1990s, Europe has exploited around 65% of its technically exploitable potential, and North America 55%. In contrast, Asia has only exploited around 18% of its total and Africa 6%. Large hydro schemes range in size from 25MW to 10,000 MW and more. There are much smaller projects but these are generally classified under the heading of small hydro. Small hydro schemes are usually less than 10MW and may be as small as 1kW.

Though hydropower plants do not produce any carbon dioxide during operation they do have other environmental effects. When a dam is built and a large reservoir created, habitats are completely destroyed. This often results in the massive displacement of people, loss of cultural sites and sometimes rare species of flora and fauna. Furthermore, if the land clearing is not managed properly, then the left over plants can release methane, an even more damaging greenhouse effect. This happens when large forest areas are drowned and the wood is left to rot underwater. In terms of greenhouse gas emission, it may even be worse than a coalfired power station.

Hydropower projects are also capital intensive and most of the finance is required at the outset. The Three Gorges scheme on China’s Yangtse river is expected to cost around USD15 billion or USD800/kW. With a capacity of 18,200 MW, it is the world’s largest. Small hydropower plants are considerably cheaper and easier to finance. However, their unit cost can be higher. Typically the unit cost ranges from USD800 to USD6000/kW. One 36MW plant in Nepal, for example, costs USD98 million or around USD2,700/kW. But the cost of electricity generated is competitive. For example, the cost of electricity generated by a plant where loans are being repaid over 10-20 years is in the range of $0.04/kWh to $0.08/kWh.

WIND

Modern wind technology dates from the oil crises of the 1970s. It became popular in California in the early 1980s but did not appear to be economically viable without subsidies until the late 1990s. Since then the technology has bcome well established particularly in Europe where the total installed capacity was 40,500 MW at the end of 2005. Global capacity at the end of 2005 was over 51,000 MW. The prediction is that it may reach 95,000 MW by 2008 and 194,000 MW by 2013. In 2005, Germany was the leader with 18,400 MW followed by Spain with 10,000 MW.

Those days virtually all wind farms were built onshore. However, in recent years, a number of offshore installations has materialised. The advantages of offshore facilities include the fact that the wind blows more strongly, steadily and more frequently. Offshore farms can therefore generate more power. They are also more environmentally acceptable. The largest offshore farms are now in the UK where there are three farms operating with a combined capacity of 124 MW. The main environmental problem with wind turbine is their perceived unsightliness. Other factors such as noise have largely been overcome with modern technology.

As in most renewable energy technologies, the capital cost of installation and the cost of finance needed to purchase the wind turbines has the largest effect on the eventual cost of electricity. Operation and maintenance costs are small andmodern wind turbines should have lives of 20-30 years. The cost of installing an onshore wind turbine in Europe is Euro700-1000/kW with offshore prices 40-100% higher. As for the cost of power, the British Wind Energy Association has suggested that the cost from an onshore facility could be as low as 0.022-0.032Pounds/kWh in 2004.

HYDROGEN

Hydrogen is often put forward as an alternative to fossil fuels for power generation. It is quite obvious that hydrogen can easily be burnt in the type of plant currently used to burn coal, oil or natural gas. However, currently the only economical source of hydrogen today is those same fossil fuels. Therefore it does not make much sense for hydrogen to be considered as a replacement furel. It is possible to make hydrogen from renewable energy sources by using electricity generated to convert water into hydrogen and oxygen. But this is still uneconomical today.

BIOMASS

Biomass is another major source of renewable energy around the world today. It accounts for around 14% of primary energy consumption. Most are consumed in the developing world where wood fuels are used for cooking and heating but some biomass is used to generate electricity. It has been reported that the global biomass generating capacity is estimated to be around 20,000 MW. The advantage of biomass from a greenhouse perspective is that while the combustion of biomass releases carbon dioxide in exactly the same way as the combustion of fossil fuel, when the fuel is regrown it absorbs the same amount of carbon dioxide from the atmosphere. Therefore the net release is zero. And if the biomass plant is fitted with carbon dioxide capture technology, then the net result would be the removal of carbon dioxide from the atmosphere.

The cheapest and hence the most popular source of biomass is agricultural wastes, wood and forestry residues and urban waste. Though wastes provide a cheap source, their quantities can sometimes be limited. Attempts are underway to grow energy crops including prairie grass and fast growing willows. The only worry is that the growing of energy crops could displace food production in terms of land use.The cost of contructing a biomass fired power plant is in the range of $1,275/kW to $2000/kW, a bit higher than the cost of a coal fired plant. Environmentally biomass offers another advantage over coal. This has to do with their much lower sulphur content and therefore almost negligible sulphur emissions.

SOLAR

A discussion on renewable energy would some how not be complete without reference to solar power. Solar power can be exploited directly in two ways; solar thermal and solar photovoltaic. Solar thermal uses the sun as a heat source where by the heat is collected, concentrated and used to raise the temperature of a fluid which can be used to drive a thermodynamic engine. Three solar thermal systems have been developed. The first is called solar tower. This uses a field of mirrors tilted to direct the sun impinging on it towards a central heat receiver. The receiver absorbs the heat and uses it to raise the temperature of a special fluid to around 550°C. The hot fluid is stored in a high temperature reservoir until needed. When needed it is pumped through a heat exchanger and used to raise steam to drive a steam turbine. Demonstration plants of up to 10 MW have been built.

In the second type of solar thermal, the tower is replaced with parabolic troughs with pipes running along their lengths. The hot fluid in the pipes is used directly to raise steam and drive a turbine to produce electricity. In California, nine such plants have been built. The largest has a capacity of 80 MW. All are still operating to this day. The final solar thermal system is the solar dish. This involves a small parabolic dish of about 10m with a heat engine at its focus. Sunlight striking the dish is directed to the engine’s heat collector where the heat it generates drives the engine. Capacities can range from 5kWto 50kW.

The second major group is the solar photovoltaic or the solar cells. The system converts sunlight directly into electricity by capturing individual light photons within the structure of a semiconductor. Most use silicon as their material as in microchips. New materials which are more efficient and cheaper are being developed. Solar cell production has witnessed significant growth in recent years. In 2004, total global production was 1,194 MW, up from 742 MW in the previous year. Cumulatively total capacity has exceeded 5000 MW. Most are in countries such as Japan, Germany and the USA where the push came mainly from governments. Both solar systems are expensive to build. Solar thermal costs range from $2400 to $2900/kW, while solar cells are even more exorbitant.

It is obvious renewable energy offers a number of options. Some are costly to build. However, all demonstrate better environmental performance than fossils. No doubt the many years of R&D have realised much improvement to the renewables. But the only way to see bigger improvements in renewables would be through their full commercial use. This is where the governments have an important role to play.