"The more I find out, the less I know."

Fri - May 5, 2006 at 04:58 PM in

Fuel is not Fungible

I've been writing about energy so much lately, that I figured it finally deserved a category of its own. So I'm kicking off this new category with a brief analysis showing that fuel is not fungible.

Fungible is just a fancy word that means you can easily replace one source or form with another. For example, an entrepreneur considering several different funding sources for his company might say that "money is fungible," meaning that a dollar from once venture capitalist is just as good as a dollar from a different VC.

People often assume that energy is energy, and you can easily substitute one form for another. Running out of oil? Switch to coal. Or natural gas. Or wind. Or hydroelectric.

The reality is that different forms of energy have very different characteristics in how portable, usable, and efficient they are. The most dramatic proof is in the different costs of different energy forms:

Natural Gas: $10/million BTU (at $1.00/therm)

Gasoline: $24/million BTU (at $3.00/gallon)

Electricity: $27/million BTU (at $0.10/kWh)

Coal: $0.82/million BTU (at $14.40/ton of low-BTU Powder River Basin coal)

Firewood: $8/million BTU (at $200/cord of oak firewood, delivered and stacked)

There is a factor of about 30 difference in cost between the cheapest form of energy and the most expensive. If fuel was fungible, this price difference could not exist because people would switch from the expensive sources of energy like gasoline and electricity to the cheapest forms. But very few people want to heat their homes with coal--the required emission controls alone would destroy the cost advantage in a small application--and the natural gas-powered plasma TV has not yet been invented.

We pay more for gasoline and electricity because those forms of energy are the most practical for many of the things we want to do everyday.

But there are a couple of other wrinkles. First, most firewood is used recreationally, and the price is basically the labor to split, dry, deliver, and stack the wood. In many places, raw firewood is a waste product available for the taking by anyone willing to haul it off. This very week, in fact, I got about a hundred million BTUs of oak firewood (four cords) just for the effort of removing it from someone's back yard.

The more interesting wrinkle is that electricity is not like other sources of energy. Coal, wood, gasoline, and natural gas can be consumed at over 90% efficiency if you just want their heat value, but if you want to use the energy for something like fueling a car or a train, you are stuck around 20% efficiency. Electricity, on the other hand, can be converted directly into motion at over 90% efficiency.

That means that for things like powering an electric car, the effective cost of electricity is more like $5 or $6 per million BTU, a fraction of the cost of gasoline. That's before you even start thinking about technologies like regenerative braking, recharging the car's batteries when you step on the brakes.

Despite that cost advantage, electric vehicles have generally failed in the marketplace except for niche applications like golf carts and light rail. It has been too hard to store enough electricity in a small enough space to be practical for a car that is expected to travel 300 miles before refueling.

(As an aside, it is a bit of a mystery to me why city busses aren't battery powered. Given that a typical bus has considerable storage space for batteries, can be recharged overnight, and doesn't need to go hundreds of miles each day, it seems like a natural application for battery-powered vehicles.)

It is possible to change energy from one form to another, but usually at a significant cost in terms of efficiency. The most common use of coal is burning it to generate electricity (losing 60% to 80% of the energy in the process), but it can also be liquefied to make a gasoline substitute. The holy grail of energy would be some form of energy which is as portable as gasoline, as clean and efficient as electricity, and as cheap as coal.

Hydrogen is promoted as this magic bullet, and while hydrogen is as clean and nearly as efficient as electricity, with present technology it is far more expensive than gasoline and harder to transport than coal or natural gas. Right now there is no universal fuel source, and no immediate prospects of finding one.

Posted at 04:58 PM | Permalink | | |

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