Disclaimer. After nearly 40 years managing money for some of the largest life offices and investment managers in the world, I think I have something to offer. These days I'm retired, and I can't by law give you advice. While I do make mistakes, I try hard to do my analysis thoroughly, and to make sure my data are correct (old habits die hard!) Also, don't ask me why I called it "Volewica". It's too late, now.

BTW, clicking on most charts will produce the original-sized, i.e., bigger version.

Saturday, July 21, 2018

Tesla bet the shop

Source: Teslarati

Tesla bet the shop on the Model 3, and it's looks very likely that that bet has succeeded.  From Teslarati:

True to the CEO’s prediction, the 5,000/week milestone that the company achieved at the end of Q2 2018 seemed to have ushered in a new standard for the production of the electric car. Prior to the end of Q2, Tesla was still struggling to build the Model 3 according to its self-imposed targets. Despite doubts from Wall St. that the 5,000/week pace for the Model 3 was unsustainable, signs have emerged since the beginning of July suggesting that the production ramp of the vehicle this Q3 2018 would be better than what critics expect.

Tesla’s journey to reach this point, however, has been painful. In an interview earlier this month with Bloomberg, Elon Musk admitted that his Model 3 gamble came at a high price. Musk noted that while he believes that the Model 3’s production hell is about to end, the whole ordeal has caused him to develop some “permanent mental scar tissue.” In the same interview, Musk also mentioned that he is optimistic about the next few months, and that he would let Tesla’s results speak for themselves.

These results are starting to emerge in a steady stream now. Since the beginning of July, Tesla does not appear to have relaxed its push to deliver as many Model 3 as possible. Test drive programs were started, more than 19,000 new Model 3 VINs were filed in half a month, a new 5-minute Sign & Drive delivery system was adopted, and the Fremont factory appears to be as busy as ever.

Reports have also emerged that Tesla Senior Director of Investor Relations Aaron Chew recently met with investors and analysts, where he reportedly revealed that Tesla is targeting a sustained production rate of 5,000-6,000 Model 3 per week for the third quarter. To support this continued ramp, Tesla seems to be optimizing its workforce once more. Since July started, the electric car maker’s hiring activity has jumped 19%. On July 1, Tesla had 1,662 job openings, and by July 16, the company had 1,974 open positions. Among these, openings for sales and deliveries, such as Customer Experience Specialists and Delivery Experience Specialists were many. Openings for Field Service Associates, which would be assigned to Tesla Energy, have also shown a rise since the beginning of the month.

Perhaps Tesla’s biggest vote of confidence for the Model 3, recently came in the form of Sandy Munro of Munro & Associates, who recently completed his teardown and analysis of the electric car. While initially critical of the Model 3 due to its build quality, Munro ultimately admitted in a recent Autoline Network segment that he had to “eat crow” with regards to the electric car, adding that the vehicle, particularly its battery and electronics, were a “symphony of engineering.” Munro also concluded that based on his company’s teardown and analysis, the Model 3’s Long Range RWD variant could give Tesla a 36% profit. The Detroit veteran further noted that even the base Model 3, which costs $35,000, can give Tesla a profit of 18%.

[Read more here]

California reaches emissions target early

From The San Francisco Chronicle:

In a major win for California’s fight against global warming, the state appears to have hit its first target for cutting greenhouse gases — and it reached the goal early.

Data released Wednesday by the California Air Resources Board show that the state’s greenhouse gas emissions dropped 2.7 percent in 2016 — the latest year available — to 429.4 million metric tons.

That’s slightly below the 431 million metric tons the state produced in 1990. And California law requires that the state’s emissions, which peaked in 2004, return to 1990 levels by 2020.

Since the peak, emissions have dropped 13 percent. The 2008 financial crisis helped, cutting the number of miles Californians drove and the amount of freight moving through the state’s ports, railways and roads. But emissions have continued falling in recent years even as the state’s economy has expanded.

[Read more here]

In absolute terms, the cuts required from now on are indeed significant.  But, actually, achieving those goals is feasible.  Assuming emissions continue to fall by 2.7% per annum, emissions will have fallen to 300 metric tonnes, which misses the 2030 target.  It is likely, though, that the fall in emissions will accelerate, as EVs and PHEVs gain market share, and as gas and gas peaker plants are replaced by solar plus storage.  At a decline of 3.6% per year, just 1 percent per annum more than California achieved in 2016, the 2030 target will be achieved.  From 2030 to 2050, the decline in emissions would have to increase to 5.4% per annum (the absolute decline year to year will be 17.2 million tonnes a year vs 13.1 million tonnes per year between 2016 and 2030) to achieve their 2050 target, and again, this seems feasible.

Reminder:  Between 2004 and 2016, California's real GDP rose 26%.  Proving conclusively -- if we needed such proof -- that we can cut emissions while maintaining economic growth.  California, the world's 6th largest economy, is showing us how it can be done.

The tiny nation hosting a new space race

Luxembourg.  Source: BBC

I talked here about how SpaceX with its BFR will cut the cost of launching a kilogram of cargo into space from $22,000 to $180, a decline of more than 2 orders of magnitude.  Tony Seba says that if you get a cost decline of one order of magnitude, that will lead to "disruption", where a new technology replaces an older one, and leads to whole new industries emerging.  Think of mobile phones and the internet and the new industries these created (Uber, Amazon, Google, Netflix, blogging .....)  It's tempting to think, yeah, yeah, but that's all years away.  And yet the BFS (the upper stage of SpaceX's new giant rocket/spaceship combination) will be performing short "hops" in the first half of next year, before doing orbital launches in 2020.  Meanwhile, in one European country, space industries already make up 2% of GDP:

As a new space race gathers pace, many tech executives have sold Mars as humankind’s off-Earth destiny. But they may be looking too far afield. Our most immediate chance for life-beyond-Earth lies much closer, a path likely to be blazed by far lesser-known companies.

Building colonies on the Moon will “provide a blueprint to Mars”, Nasa scientists say. The men and women who will found these lunar settlements will in all likelihood be employed by small private mining companies, not tech tycoons. Many of these companies are connected to the tiny EU nation of Luxembourg.

Amazingly, Nasa believes such Moon colonies could be established within the next four years.

Takeshi Hakamada is one of those trying to boldly return to where humanity has set foot. This time, however, there is a much more commercial dream in mind: to scour the Moon for profitable mineral and gaseous resources, as well as life-sustaining lunar water.

Hakamada is the CEO of ispace, a private space exploration company based in Tokyo, which also has a presence in Luxembourg. It plans to complete a lunar orbit in 2020, and then attempt a soft lunar landing in 2021.

“Our first two missions will act as a demonstration of our technology. From there, we will begin to establish a high-frequency transportation service to bring customer payloads to the moon,” he says. “If we find water resources on the Moon, we can develop a whole new resource industry in space.” The discovery of a frozen water basin would be a monumental moment for our species, as it would allow humans to stay off Earth for longer periods.

Hakamada is far from alone in his cosmic ambitions. There now are 10 space-mining companies (including ispace) legally domiciled in Luxembourg since the launch of the country’s space resources law in February 2016. This was fuelled by a fund worth $223m (200m euros/£176m). For these space ventures, the Moon is one of two primary targets being considered; commercial ventures also are eyeing near-Earth asteroids for mining metallic resources (as covered in this recent story on BBC Future). Between the Moon and an estimated 16,000 near-Earth asteroids, the resources available could be rich enough to produce the world’s first trillionaire, some experts – including renowned astrophysicist Neil deGrasse Tyson – have said.

[Read more here]

Friday, July 20, 2018

Life after coal

Port Augusta, South Australia (Source: Wikipedia)

The largest solar farm in the southern hemisphere lies on arid land at the foot of the Flinders Ranges, more than 300km north of Adelaide. If that sounds remote, it doesn’t do justice to how removed local residents feel from what currently qualifies as debate in Canberra.

As government MPs and national newspapers thundered over whether taxpayers should underwrite new coal-fired power, mauling advice from government agencies as they went, residents of South Australia’s Upper Spencer Gulf region have been left to ponder why decision-makers weren’t paying attention to what is happening in their backyard.

In mid 2016, this region was on the brink, hit by the closure and near collapse of coal and steel plants. Now it’s on the cusp of a wave of construction that investors and community leaders say should place the region at the vanguard of green innovation – not just in Australia but globally. There has been an explosion in investment, with $5bn spread over the next five years. There are 13 projects in various stages of development, with more than 3,000 construction and 200 ongoing jobs. The economy of this once-deflated region has been transformed and those who live here are starting to feel hopeful again.

The Port Augusta mayor, Sam Johnson, a 32-year-old former Liberal [in Oz, that means conservative] member, is continually surprised at how resistant some are to the idea that the energy environment has changed. “You might choose to ignore what’s happening here now because we’re out of sight, out of mind, but the reality is that what’s happening here is going to be happening on the eastern seaboard in the next 10 years,” he says.

In simple terms, the Upper Spencer Gulf transition story goes like this. Port Augusta was a coal town, home to the state’s only two lignite – or brown coal – plants, Playford B and Northern. Playford B, ageing and failing, was mothballed in 2012. Northern, the larger and younger of the two, closed in May 2016 when owner Alinta Energy decided it was no longer economically viable. The Leigh Creek mine that supplied it, by then offering up mostly low-quality coal, shut at the same time. About 400 workers at the plant and the mine lost their jobs. Roughly a third retired, a third found other employment locally and a third had to leave town to find work.

At the same time, further around the gulf, the steel town of Whyalla was teetering precipitously after the owner, Arrium, put the mill in voluntary administration facing debts of more than $4bn.

Two years on, the Port Augusta city council lists 13 projects at varying stages of development. And Whyalla has unearthed a potential saviour in British billionaire industrialist Sanjeev Gupta, who not only bought the steelworks but promised to expand it while also spending what will likely end up being $1.5bn in solar, hydro and batteries to make it viable.

Gupta says the logic behind his investment in solar and storage is simple: it’s now cheaper than coal.
If you have time, read the whole article.  The 13 projects include Australia's first concentrated solar power (CSP) plant, its first salt-water pumped-hydro storage system, a combined solar/wind/storage farm which will deliver baseload electricity, and the southern hemisphere's largest solar farm.  And by the way, all these projects will take South Australia's renewables as a per cent of its electricity demand to over 80%.  This will be the highest in the world for a region which has no hydro power.  Notice also in the table in the article that almost all the projects include storage of one kind of another, as you would expect with renewables penetration at this levels. 

The Labor Party in SA lost the last state election, and before the election, the Liberals [i.e., the conservatives] were very hostile to the energy transition that Labor had been pushing.  Now that they're in office, they have flipped, and are supporters of the shift.  They also support the construction of a a new high-voltage interconnector to NSW to sell SA's surplus power into the NSW electricity market, which is the largest in the country.

Thursday, July 19, 2018

Carbon Taxes won't hurt the economy.

From Dana Nuccitelli at The Guardian:

Eleven teams participated in a recent Stanford Energy Modeling Forum (EMF) project, examining the economic and environmental impacts of a carbon tax. The studies included “revenue recycling,” in which the funds generated from a carbon tax are returned to taxpayers either through regular household rebate checks (similar to the Citizens’ Climate Lobby [CCL] and Climate Leadership Council [CLC] proposals) or by offsetting income taxes (similar to the approach in British Columbia).

Among the eleven modeling teams the key findings were consistent. First, a carbon tax is effective at reducing carbon pollution, although the structure of the tax (the price and the rate at which it rises) are important. Second, this type of revenue-neutral carbon tax would have a very modest impact on the economy in terms of gross domestic product (GDP). In all likelihood it would slightly slow economic growth, but by an amount that would be more than offset by the benefits of cutting pollution and slowing global warming.

The modeling teams examined four carbon tax scenarios, with starting prices of $25 or $50 per ton of carbon dioxide, rising at 1% or 5% per year. These are somewhat modest policy scenarios; CCL proposes a starting tax of $15 per ton rising at $10 per year, and the CLC proposes $40 per ton rising around 4% per year. The most aggressive policy considered by the Stanford EMF teams ($50 per ton rising 5% per year) falls in between these two proposals.

The modeling studies consistently found that for all four carbon tax policies considered, whether the revenue is returned via rebate checks or by offsetting income taxes, the direct economic impact is minimal:

In every policy scenario, in every model, the U.S. economy continues to grow at or near its long-term average baseline rate, deviating from reference growth by no more than about 0.1% points. We find robust evidence that even the most ambitious carbon tax is consistent with long-term positive economic growth, near baseline rates, not even counting the growth benefits of a less-disrupted climate or lower ambient air pollution

The last sentence is critical. The analyses consistently found that coal power plants would be the biggest losers if a carbon tax were implemented, and the costs associated with health impacts from other pollutants released by burning coal (e.g. soot and mercury) are substantial. Phasing out coal power plants results in significant health and economic benefits to society.

So does slowing global warming, of course. A working paper recently published by the Federal Reserve Bank of Richmond concluded that US economic growth would slow by an extra 0.2–0.5% per year if we stay on our current climate path (3–3.5°C global warming) than if we meet the 2°C Paris target. This compares favorably to a less than 0.1% per year slowing of the US economic growth rate under the carbon tax scenarios.

[Read more here]
In economics, it is a general principle that we need taxes to pay for collective goods like justice, police, local roads, etc.  We should therefore choose better taxes over worse taxes.  So we tax alcohol and cigarettes but not green veggies.  From that point of view, a carbon tax is a good tax, especially if it is introduced slowly so that the economy has time to get used to it, because it slows global warming and reduces pollution.  If the proceeds of the carbon tax are distributed to the populace via, say, a quarterly cheque, it will have no macro-economic effect and will in fact be slightly re-distributive, because the poor spend proportionately less (and therefore proportionately less on stuff made with fossil fuels) than the rich do, while the carbon tax "dividend" will be an equal amount per capita.  It also means that every member of the public can see their compensation for higher petrol and gas prices.

The carbon price each year 2020–2050 in proposals by Citizens’ Climate Lobby (blue), the Climate Leadership Council (red), and the four approaches modeled by the Stanford EMF teams (green). Illustration: Dana Nuccitelli

The new electric VW Kombi

The VW 'ID Buzz', alias 'The New Kombi'.  Source: Green Car Reports

After the massive diesel-testing scandal ("Dieselgate") VW entered full-on PR mode, promising it would do better, and that it would start switching its production to EVs.  Nearly 3 years later, and it's becoming clear that they really meant it--new humongous battery orders, and new "concept" models.  The one I like most is the replacement for the VW Kombi, an iconic vehicle from my youth.  And now, VW has announced that the new EV range will also be produced in Germany as well as the US, to ensure that demand can be satisfied, and to tweak the range for US tastes.  The new Kombi will go on sale in 2022.   Despite this late roll-out, it does look as if VW is genuinely making the shift to EVs.   It's not at all clear that the other large legacy car makers are, though Jaguar and Volvo also appear to be switching.

Volkswagen plans to build two of its upcoming electric cars in the United States.

VW's North American CEO, Hinrich Woebcken, told British magazine Autocar that the models will be built in the United States and sold domestically.

"For strong product momentum, they need to be produced in the USA," he said. "It’s not possible to come into a high-volume scenario with imported cars. We want to localize electric mobility in the U.S.”

After years of selling niche products imported from Germany that were too expensive and too small to compete with big sellers in the U.S., VW began designing separate models for the U.S. market and building them in Tennessee.

The Passat, built in Tennessee for sale in the U.S. and China, is significantly larger than the Passat sold in Europe. The Atlas was designed specifically for the U.S. as the largest SUV VW has ever made. It is now sold in Britain, too.  The company has had considerably more success selling the Passat and Atlas here since it designed the cars specifically for the U.S. Building them here makes it cost-effective, as well.

[Read more here]

One thing's for sure.  The new Kombi, with the powerful torque from an electric motor,  will have much better speed uphill than the old one! 

Wednesday, July 18, 2018

Energy poverty

There are some 1 billion people in the world without electricity.  If you have access to electricity, you take it for granted.  A press of a switch, and there's light, or warmth, or access to the outside world via phone or internet.  If you look at poor countries round the world, they correlate well with energy poverty.  The revolution that electricity has brought since the late 1880s is taken for granted by people in developed countries, yet it is perhaps one of the greatest inventions ever, and changed the world dramatically.  So closely were electricity output and industrial production intertwined that up until recently, growth in electricity production/demand was an excellent indicator of growth in overall industrial production.  And that close relationship between economic growth and electricity demand has only ended in recent years in developed countries because of the invention of things like LED light bulbs and more efficient white goods.

Bringing electricity to developing countries is complicated.  It's not just a question of building new power stations but also of building out the grid.  And those mammoth projects have to be funded.  We in developed countries take the grid for granted.  It's there, with wires on the street.  But it took decades to build out, and it costs.  A lot. 

In the wake of the Sustainable Development Goal conference underway this week at UN headquarters in New York, Bloomberg NEF has released an analysis on the potential for off-grid solar PV to meet clean energy demands of the estimated 1 billion people currently living without access to electricity.

According to the analysis there are five key factors that indicate off-grid solar PV is going to play a pivotal role in providing universal energy supply.

Chief among these factors is the cost of power grid expansion. The analysis stipulates that it could range between $266 and $2100 per household to establish a connection. In high-income areas, this is less of a problem, as households are equipped to pay additional energy prices. Additionally, energy prices would climb higher in low-income areas, as the grid operators have to amortize the installation with modest energy consumption.

Bloomberg NEF calculates that energy from solar home systems costs around $1.5/kWh and if sourced from microgrids would be $0.29-0.77/kWh. The report goes on to claim that the costs of electricity after a new connection would be $1/kWh, hence higher than the costs of energy if a microgrid is deployed.

[Read more here]

Micro-grids make a huge difference to economic output and productivity:

At a UN High-Level Forum on Sustainable Development Goals, global off-grid solar association, Gogla, released a new report evaluating the economic impacts of off-grid solar systems in East-Africa. The report, sourcing data from 2,300 households, indicates that the deployment of solar systems in the region has had a significant impact on the respondents’ lives.

The data shows that 58% of the households, which had recently installed an off-grid solar system, worked more or developed their enterprises, due to the availability of electricity. Additionally, 36% of the households reportedly ramped up their average income by an additional US$35 per month. In the region in question, this is equivalent to 50% of the average monthly GDP of a household.

Furthermore, because of electric lighting, the respondents reported that they could spend 44% more time at work or on chores. Previously, nightfall had prematurely interrupted these activities. This improvement generates income for the households and increases the economic activity of business owners, the report says.

With the possibilities of using technologies like smartphones more, 11% of the respondents reported that they had started a new business following electrification from off-grid solar systems. In 7% of the households, at least one member of the household reported having received a new job as a result of the solar energy deployment.

The report surveyed 2,300 people from Kenya, Mozambique, Rwanda, Tanzania, and Uganda. A range of companies delivered small-scale pay-as-you-go solar systems, which comprised a solar panel, battery, LED lighting and potentially other devices, depending on customer needs.

[Read more here]

The coal-loving Right argues that the best way to get rid of energy poverty is to build massive coal-fired power stations in developing countries.  Nope.  Aside from the fact that coal power stations need prodigious quantities of water, and produce pollution, they and the extensive national grids they require are too costly.  The best way to get electricity to poor communities in Africa, Asia and elsewhere is to build out tens of thousands of solar-powered micro-grids, in every village which is currently unconnected to an outside grid.  Our best foreign aid would be to fund such micro-grids, not giant projects like dams and power stations.  The good news is that poor countries tend to be located in places where insolation is the greatest.  This makes them perfectly suited to solar grids.

A micro-grid solar installation in Olturoto, Kenya.  Source: PV Magazine