The One Solution to Renewable Energy's Fatal Flaw

We often talk about the race for the world’s next energy source. And while wind and solar power present amazing opportunities for the world-at-large, they also have drawbacks – some major ones. Jim Nelson explores the renewable energy debate – and provides a possible solution to the energy problems of tomorrow.

"The foundation is being laid for the emergence of both wind and solar cells as cornerstones of the new energy economy."
– Lester A. Brown, Michael Renner and Brian Halweil, Vital Signs 1999

There is no doubt about it. The growth of renewable energies over the past decade is something rarely seen.

Take wind energy for instance…

The wind energy industry added 20 gigawatts of capacity last year. That’s 31% more than the year before and 176% more than just five years ago. Europe already proved that this growth is steady, and both China and the U.S are finally jumping on board. Not even the NIMBY’s can stop it.

(NIMBY – meaning "Not in My Backyard" – refers to those who reject projects around them even if it benefits them. NIMBY-ism is the main reason why certain proposals for wind farms are rejected.)

Solar power has also presented amazing opportunities. The sale of solar cells increased upwards of 40% last year alone. It’s even made investors big money in the stock market. One of the biggest winners last year was a solar company named First Solar, Inc. If you would have sank just $1,000 into this company at the beginning of 2007, you would’ve walked away with $8,854.

There is only a certain amount of time during the day when windmills can produce energy – their "capacity factor." The average capacity factor for wind power is about 30%. The rest of the time, these windmills sit like giant statues waiting for the next gust of wind. During that period – the "energy time gap" – no new electricity is going onto the power grids.

The same goes for solar power…

The sun doesn’t shine 100% of the time. Even in the vast deserts of Southwest U.S., in the peak of summer, the sun is only up about 14 hours a day. When it is up, there are problems with cloud coverage. The average capacity factor for solar power is around 25%.

So up until now, these renewable energies have been useless…

Without the ability to store the electricity that these renewables are producing, there’s no reason to build new wind farms, solar-power plants or any other "green" electricity producers.

Until now, batteries were the only choice. Batteries offer great energy storage, but take too long to charge. It takes anywhere from one to ten hours to charge batteries. Unfortunately, with a capacity factor for renewables under 30%, we don’t have that kind of time to wait for batteries to charge.

Today, we found the one solution for the energy problems of tomorrow, and one company with the technology that will solve renewable energy’s fatal flaw…

By using a special type of device called a supercapacitor, we have the solution to the fatal "energy time gap."

Batteries are chemical devices that use mass transfers over a certain period of time. Supercapacitors store ions, which can be stored and released very quickly. It’s like instant energy.

But, that’s not to say that it has to be one or the other. In fact, the two work very well together. Supercapacitors bring fast storage and release of instant power – which is crucial – and batteries use this to advance their storage and long-lasting energy release capabilities.

Changing batteries every few years at wind farms and solar plants, let alone hundreds of other battery-powered locations, becomes quite expensive and time-consuming. These supercapacitors last between 1,000 and 10,000 times as long. In fact, there is a company already manufacturing and selling these products for use in windmills.

But, supercapacitors’ advantages don’t stop here…

When a car brakes, or a crane drops, energy is released. And until now, that energy isn’t recaptured. It’s wasted. Supercapacitors can actually capture that energy and use it again for other purposes. Using the crane example for a minute…

When a crane drops its massive arms to pick something up or unload something, there is a large amount of natural energy (gravity) released. Batteries cannot charge in the time that the crane is dropping, but supercapacitors can. That energy is then stored in the supercapacitor. When the crane needs raised up again, that stored energy is used. Hundreds of different industries can apply this principle to their own energy needs.

Take transportation for instance…

Supercapacitors can collect energy as a vehicle brakes, then release it when the vehicle accelerates, giving a nice boost of energy without any emissions. Every single time someone pulls up to a stop sign or red light the vehicle wastes energy. That energy can save massive amounts of gasoline every second of the day, all over the world. And, both countries and manufacturers are starting to pay attention…

China has an enormous pollution problem. With the 2008 Beijing Olympics coming up, the country is desperately trying to turn its public transportation "green." So, the time is right for one company to cash in.

This company recently declared two contracts with Chinese hybrid bus makers for the use of the company’s supercapacitor technology. With the rush to have it done by the opening ceremony in August, we should see a rush to buy up as many of these as possible between now and then.

The company is also working with plug-in hybrid electric vehicles (PHEVs) here in the United States. The U.S. Advanced Battery Consortium has already arranged deals with the company for use of its patented supercapacitors, in combination with Lithium-Ion batteries, in next-generation hybrids.

In fact, news has already started to show up in this field. In January this year, the company announced that one of the leading automotive electronics suppliers has designed a was to use its supercapacitors in a major automaker’s electrical system, and it will go into full-scale production in the second half of next year.

The role of supercapacitors in the transportation industry is limitless, let alone renewable energies and industrial applications. It’s certainly something to keep on eye out for…

Sincerely,

Jim Nelson
for The Daily Reckoning
February 27, 2008

P.S. Unfortunately, this company is still tiny. Its market capitalization is still under $200 million. But, you don’t have to miss out on it…we’ve included it in our latest Penny Stock Fortunes issue.

Jim Nelson is the managing editor of Penny Sleuth, a daily small-cap e-letter with more than 160,000 subscribers. Jim has been playing the stock market since he was 14, always with a preference toward smaller companies.

The news is both good and bad, depending on how you look at it.

As to the good news, the Dow rose 114 points yesterday and long bonds have been going down. They may be looking ahead to growth and prosperity…or just to inflation. We don’t know. Yields on long-dated Treasury bonds, for example, have been going up (which is what happens when prices go down). Curiously, or perhaps tellingly, they have been rising even as the Fed lowers short-term rates.

The feds are trying to keep the party going, of course, by refilling the punch bowl as fast as they can. The U.S. money supply is increasing about five times faster than the economy itself. Even this breakneck speed is merely trotting compared to money growth in some places. In Russia and China, for example, money supply growth is said to be multiples of the U.S. rate.

Our hypothesis is that this inflation will affect commodity, gold and consumer prices more than it boosts prices for stocks and property. We don’t know how the party will end, in other words. But if it just poops out into deflation, the big losers are going to be stock and property holders. Prices will collapse. On the other hand, if it burns out with higher and higher inflation rates, we judge it most likely that the highest prices will be realized in the oil, gold and commodity markets…not in the stock market. That is why we think gold is a better bet than stocks.

Yesterday, gold hit $948. It will probably go to $1,000 soon. And then to $2,000.

The dollar weakened further, yesterday, hitting an all-time low against the euro at $1.49/euro. A couple of years ago, we predicted that the buck would sink to $1.50/euro. With less than a penny to go, it’s probably time to think again. Stay tuned.

In the meantime, oil also hit a new record high yesterday – closing at $100.88.

All of this may be considered "good" news – in the sense that it signals a growing inflation threat…and maybe even a growing world economy.

The bad news is that inflation raises consumer prices – at the very time when U.S. consumers have less to spend.

Most of yesterday’s ‘bad’ news came from the property sector. But even there all the latest headlines were not depressing. It turns out that much of the United States is actually experiencing rising housing prices. Trouble is, it’s not the part that people live in.

Leading the nation is West Virginia, believe it or not, where house prices went up 19% last year. Even so, the median house in the mountain state sold for only $116,000. Robert Shiller, who is an expert on housing price trends, says the "back country cities" just never got into the "bubble picture." They’re still good buys.

Daily Reckoning readers might want to consider a trade: sell California, buy West Virginia. We like West Virginia, and can imagine ourselves living happily there. But most people find it a bit backward and depressing. Here in London, prices are so high that $116,000 would barely buy a parking space. Even a tiny row house in London…with only two bedrooms…and barely 1,200 square feet of space…in a modest part of town, well away from the center, is on offer for $1.7 million. People here can’t imagine being able to buy a whole house for $116,000. Then again, they’ve never been to West Virginia.

But in the rest of the nation, the housing picture is not so pretty.

"Foreclosures up 90% as mortgages reset," says a Bloomberg headline. The Case-Shiller Index revealed that the housing crisis is deepening. In the last quarter of ’07, prices of existing single-family houses fell 5.4%…up from a decline of barely 1% in the first quarter. Year to year, prices fell 8.9% in the fourth quarter of ’07…speeding up to 9.1% in the month of December.

California does everything to excess – even a housing decline. In the Golden State, house sales fell 29.8% in January (from the preceding year), with prices down 21.9%.

A government housing index, meanwhile, puts prices nationwide down at the steepest rate in 17 years.

"Housing in freefall until credit loosens," summarizes the International Herald Tribune.

Naturally, this puts consumers in a bad mood. Consumer confidence is at a five-year low…and headed down.

Housing is the average man’s major asset. When it goes down, he takes it hard. More below…

*** Americans have only three major sources of wealth, we pointed out yesterday. The "wealthy" have stocks – often in pension plans. The average fellow has a house – often heavily burdened with mortgage debt. And they all have the value of their own time.

When housing prices go down, it hits Americans’ #1 source of wealth. They’ve got about $20 trillion worth of houses. If house prices went down 9% last year, it represents a loss of ‘implied’ wealth of $1.8 trillion. We say ‘implied’ because the wealth was largely phony in the first place. A house is a house. It provides service, but it doesn’t provide any more service if it is quoted at $500,000 than if it is quoted at $300,000. Same roof. Same air-conditioning. Same everything. Except, when it is said to be worth more, two noxious things result. First, the homeowner can "take out" some of the equity and feel like he is still ahead of the game. He doesn’t worry about it when prices are rising; when the loan comes due, he can always take out a little more. Gradually, he gets deeper and deeper into debt. And then, inevitably, his house goes down in price and he’s in trouble.

The other awful consequence is that the cost of owning the house goes up. As the house becomes more "valuable," typically the costs of property taxes, insurance and upkeep mount. Thus, the net value, or net service, an owner gets from his house actually goes down. He has the same roof over his head, but it costs him more.

That is the trouble with inflation – even inflation in the housing markets. Ceteris paribus, inflation reduces the real value of both assets and time. Most Americans no longer have much in the way of assets. The big, post-Reagan boom, 1982-2007, discouraged saving. If people had equity in their houses, they tended to spend it. And the real value of stocks has gone down over the last decade. That leaves the nation of capitalists dependent on its own labor. The average man in American has no capital to work with…he only has his hands and his brain, such as it is.

Most Americans have to work; they depend on their earnings to live. Without the income from their labor, they’d be destitute in a matter of weeks.

But inflation reduces the value of wages. The gold-linked dollar was never a perfectly stable currency. It went up and down. But the dollar of 1930 was still worth about as much as the dollar from Washington’s era. Then, the link with gold was weakened; between ’30 and ’71, the greenback lost about 70% of its value. After 1971, there was no link to gold at all and the dollar fell even faster. If a dollar was worth 100 cents in 1930, by 1971 it was worth only 30 cents…and by 2007…only about 5 cents.

The decline of the dollar, along with the competition from low-cost Asian laborers, is why Americans have had no real wage increases in 30 years. For every gain they make, the dollar goes down in value to offset it. In the last 6 years alone, the dollar has lost 36% of its value – as measured against other currencies. Shops in New York are beginning to take euros, reports the Washington Post.

Of course, inflation can be useful. Asian wages are rising about 10% per year. U.S. wages are falling. Americans will never consent to pay cuts in order to make their own labor competitive with Asians. Inflation will make the cuts for them.

*** Occasionally we turn to the editorial pages. Perhaps we are feeling guilty about something and in need of punishment. Or maybe we are just looking for a laugh. On this latter quest, we are usually disappointed. We have not seen a column by Thomas L. Friedman for months.

But opening up yesterday’s International Herald Tribune we found a editorial by James Carroll of the Boston Globe. It is worth reading. Carroll describes America’s curious obsession with "national security." We have wondered about it too. America’s national security is the least endangered of any national security in the entire world. The United States has the world’s biggest military, by far…and has forward bases all over the world. It is protected by two immense oceans and the tightest border checks outside of North Korea. The security of individual Americans may be in danger…not much from foreign governments or freelance terrorists, but certainly from home-grown criminals…but the nation is as secure as any nation ever has been. It has no enemies capable of launching a substantial attack. The pentagon is clearly the goliath of modern armies; even if the whole world ganged up against it, it would only be an even fight.

While America’s own national security is safe, it regularly puts other nations’ security in danger, in the name of its own ‘national security.’ Why?

"Military power…functions in America the way state religion has functioned in other societies," writes Carroll. "The Pentagon is the temple of this religion. It has dogmas, rituals, high priesthood, saints, cults of sacrifice, sacred language and a justifying narrative…what theologians call "salvation history."

When John McCain warns of "taking a holiday from history" he is speaking the language of the pentagon and cultivating America’s delusion of danger, says Carroll, who finds the whole thing remarkable and depressing.

But here at The Daily Reckoning, we see it as just another sideshow in the Big Picture. America operates a huge empire. And an empire is essentially a military enterprise. It depends on the support of the masses, of course, who need to feel under constant threat of barbarian invasion to justify the huge expense of it.

Americans, as we pointed out in our book, Empire of Debt, never got the hang of empire. They send their centurions all over the world to provide stability and order, but they forget to charge for it. They do it at their own expense…which quickly becomes a losing proposition. Today, the pentagon’s imperial agenda is bankrupting America…but no candidate for the White House – save our invisible friend, Dr. Ron Paul – has bothered to even mention it.

Americans have great respect for their military power…and count on it to keep them on top of the world. The people feel proud, and believe their success – even their survival — depends on their military power, not their economic power.

"Yet ‘national security is bogus," writes Carroll, " – part ghost story with which the nation scares itself at bedtime, part nightly prayer with which it then goes to sleep."

He does not say so, but the empire is not bogus. It is real. And Americans are fearful because they are afraid it is peaking out. They are right. Old empires must die to make room for new ones. The world must turn. Change happens, whether you want it or not. And the military man, backed by the mob of half-wit voters, will want to fight it. That is when the bedtime dream becomes a nightmare.

Until tomorrow,

Bill Bonner
The Daily Reckoning