Magna Proposes Plug-in Hybrid

An article by George Keenan in the Globe and Mail has revealed that Magna International Inc., the huge Canadian automobile parts manufacturer, is proposing to build a plug-in hybrid vehicle by 2010. The owner, Frank Stronach, was interviewed by Keenan and stated,

New technologies such as hybrids offer a great market for Magna's parts and its ability to build complete vehicles, Mr. Stronach said in an interview, noting that cars with Magna-developed hybrid engines are already being tested in Europe. "You don't have to be a great scientist to know that we're going to be out of oil sooner or later," Mr. Stronach said.

The effort is being fronted by Magna Steyr in Austria. Steyr actually builds complete vehicles that are badged under other manufacturers. Magna is budgeting $30 million for the effort, which is hardly insignificant when you consider it's only over two years, even for corporate research (i.e. no cheap graduate student labour). Overall I think that their project will be late, however, unless their goal is simply 'proof of principal'. That said, Magna claims to already be working on the project, so who knows how long they've kept this under wraps. Magna is also involved with the Tesla Roadster.

My personal suspicion is that Magna is looking to get into the hybrid parts business, and developing a complete vehicle is a way for them to achieve this. Magna has previously stated that they think hybrid sales will top 1.7 million a year by 2013. Right now Ford's hybrid efforts are stymied by the fact that most of their supply chain is Japanese. GM will have similar issues with the Volt.

This project is largely simply good business practice by Magna in the face of increasing fuel costs. The article makes clear that the viability of a plug-in hybrid is a function of the difference between the price of oil and the price of gasoline. Fortunately, plug-in hybrid technology can be rolled out in small increments, gaining market share first from the early adopters and then through economic advantage as the price of batteries declines and gasoline increases.

I did take a look at the comments in the article (probably a mistake), and I was a little annoyed to see that people were suggesting that we didn't have the electricity or power would be supplied by "Ohio coal plants." Practically, all the early adopters of plug-in cars can be recharged by the idle capacity that exists and night-time. Giant thermal plants aren't easily throttled down, so there is typically a surfeit of power that is otherwise wasted at night. In the future, plug-ins can be aggregated to act as 'deferrable demand' for the power utilities, smoothing out the intermittency of solar and wind power, and allowing greater market penetration from those technologies.

Recycled Steam

So I'm in the process of moving (yet again), which has put the brakes on me producing another technical post. So, in lo of that, I think I'll beat on a journalist. Yeah I know, it's like killing kittens, they're just so cute and helpless, but hey, if it helps me vent some frustrations, it's all good.

So I recently read in The Atlantic (home of the esteemed James Fallows) an article by Lisa Margonelli on combined heat and power. In general, this article is fairly good, especially the second half. However, I still saw some paragraphs that rankled. Let's dive in, shall we?

The U.S. economy wastes 55 percent of the energy it consumes, and while American companies have ruthlessly wrung out other forms of inefficiency, that figure hasn’t changed much in recent decades.

and, later,

For the better part of a century, we’ve gotten electricity from large, central generators, which waste nearly 70 percent of the energy they burn.

A ha! Yes, the ever popular confusion regarding the difference between useful work and waste heat. Once is forgivable as editorial discretion, but twice is a pattern. Let's take nice, high-pressure and hot steam and pass it through a steam turbine. Surprise, we lose heat and pressure from the steam in order to run the Rankin cycle. You can take that steam and pass it through another turbine, but the 2nd cycle will get a lot less electricity out for the same capital costs. The final potential use then is to take the latent heat from the low-quality steam and dump it somewhere: process heat for drying , heating the factory floor, or speeding up some chemical reaction.

Ok, so definition time: this article is about combined heat-and-power (CHP), but you won't see those words in this article. In fact, the article only talks about the other way around — capturing waste heat to make electricity.

CHP usually aims to take an industrial activity where you burn a fossil fuel for process heat, and run the fuel through an electricity generation process first and use the waste heat for the process. Margonelli, on the other hand, provides an example where electricity is used for heating. This isn't common, because electricity is still far more expensive than natural gas on a pure dollar per Joule basis. In fact, it's only used when you need either extremely high purity or extremely high temperatures. Such as,

Heat, which in some industrial kilns reaches 7,000F, can be used to produce more steam.

tungsten tool making for one. Needless to say, most industrial activity isn't involved in the manufacture of refractory materials, zone-refined silicon, etc. This is my major problem with the article. The example provided isn't very representative of industrial uses of heat. What can be economic for a specialty steel refiner probably isn't for an ethanol plant or oil refinery.

TANSTAAFL (There Ain't No Such Thing As A Free Lunch) applies here as much as anywhere. For some plants, better insulation may be a better buy.

In some industries, investments in energy efficiency also suffer because of the nature of the business cycle. When demand is strong, managers tend to invest first in new capacity; but when demand is weak, they withhold investment for fear that plants will be closed. The timing just never seems to work out. McKinsey found that three-quarters of American companies will not invest in efficiency upgrades that take just two years to pay for themselves.

This says a lot more about business leaders' acumen than the particulars of a efficiency upgrade. If you can't generate some cash flow to invest in capital equipment (and that is what we are discussing here — a gain in productivity) during a boom you probably aren't going to survive the inevitable bust. Why the emphasis on capacity growth? Are the CEOs really that concerned about losing market share? Or is this just an example of knee-jerk brownian attitudes? Or are executives just really dumb? (Don't answer that.)

The other giant impediment to CHP the article sort of dances around but never really addresses. In the giant race to the bottom of labour costs (i.e. off-shoring), it is a pretty big gamble for a power plant to setup for combined heat and power and then hope that their customer will still be around in five years. Low-grade steam isn't something you can pump around the state to find a new customer because you'll simply bleed it all off as parasitic losses to the pipeline. So I think the emphasis on Free Trade which has introduced such volatility in the cost of labour is probably a big part of the general failure of CHP to have a big impact on our energy economy.

The other reason CHP hasn't really taken off is that natural gas hasn't turned out to be as cheap or as fungible as expected, and it's the only fossil fuel that's really clean enough to run with decentralized power and easily pipelined. Coal isn't.

Boom and Bust Stifles Non-resource Economic Activities

Canada is, by in large, a resource-based economy. There's significant manufacturing in Ontario and Quebec, but most of the country operates on the principle of collecting natural resources and selling them to more populous countries. Basically we take advantage of our low population density relative to the fact that we're the 2nd largest country in the world. Being a resource economy comes with the drawback that you live at the mercy of the large economies of the world.

One often heard complaint is that we don't process our raw materials to add value to them, to any significant degree. In British Columbia in the 1990s the cry was over raw logs being exported to Japan without any milling.

The Globe and Mail's Inside Energy Blog had a post up recently on how the provincial and federal governments were showing no interest in pushing bitumen producers towards upgrading the product to synthetic crude in Alberta. Rather, they pipeline the bitumen (and presumably some solvent) South to the terminals around Chicago so that it can be upgraded there. The obvious complaint by unionized workers is that it should be done locally.

Technically, upgrading the bitumen elsewhere makes Alberta's carbon dioxide emissions look just a little better, but the net addition to the atmosphere is still going to be the same. The reason the corporations might want to do this is pretty obvious: labour is very expensive in Alberta, and much cheaper in the American Midwest.

The problem with this whole concept of trying to encourage a "value-added" industry is that it simply cannot survive the boom-and-bust resource cycle. To put it simply, if you are a manufacturer, would you want to put your operation in Alberta with the knowledge that in a boom all your costs would inflate like crazy and your employees decamp for the oil patch? And in a bust, the USA is likely in a recession, so you hurt then too. It seems like a no-win situation.

Peter Lougheed (famous ex-premier) is well known for wanting to develop a plastics industry in the province, but I simply don't see it happening without a radical change in the royalty structure. The development of "value-added" industry would require provincial governments to apply a brake to resource development when commodity prices are high, something they generally don't have the discipline to do.