Purchasing and Negotiation Training

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

A recent story authored by Kelly Barner drew my attention.  It appeared in Professional Purchasing, a publication of the American Purchasing Society.  Kelly is the Managing Editor of Buyers Meeting Point, an online resource for procurement and purchasing professionals.  She has some education and experience chops in the profession so I always read her material. 

Kelly writes that that interest in supply chain visibility is on the rise.  She cites an Aberdeen Group study published in 2013 which found” 63% of companies surveyed see visibility as a high priority activity.” The drivers were documented to be “operational benefits such as resource efficiency and cost reduction.”    

So what is supply chain visibility? 

According to Jeff Dobbs, Global Sector Chair, Diversified Industrials and a partner with KPMG, “obtaining real-time visibility across all tiers in the supply chain can significantly increase speed to market, reduce capital expenditures and manage risk.”  

Well, this is not a definition.  Indeed, definitions of this relatively new concept vary wildly.  I see divergent concepts in virtually all of my consulting clients.  Here is another one.  The track-ability of products in transit from the contributing suppliers at all tiers to the end customer.  It follows that visibility encompasses the increase of available data that can be analyzed to make recommendations, determine strategies, reduce costs, and drive risk out of the supply chain. 

Most supply chain pros seem to agree on these three goals, if not a definition. 

1. Reduce business and supply chain risk
2. Improve lead times and performance
3. Identify shortage and quality problems along the supply chain 

We will be hearing much more about supply chain visibility going forward so let’s learn about the three concepts that will accompany any visibility initiative. 

1. Processes – No matter the process (supplier evaluation, tracking until delivery, SO&P, to name but a few), it must be more collaboratively discharged with internal and external customers.  Organizations need to develop specific data requirements that can be shared between internal and external customers to improve demand planning.  Especially for overseas suppliers, mitigating supply disruptions must become a priority. 
2. Information and Data – Both must be shared and available across the supply chain and with customers.  This will generate more “Partnering” relationships, which in itself, is a good result. 
3. Technology – This is always an evolving problem.  Disparate information systems must be homogenized.  Cloud computing, data collection, and analysis software will make it easier for partners to cooperate and literally have the visibility they need. 

Write to me with how you see visibility.

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

One of the benefits of a long tenure in our profession is the uncanny ability to spot gimmickry.  This approach is not new to the purchasing and procurement world.  About 20 years ago, an egregious negotiation marketer touted his concept of Win-win negotiation, where the capital ‘W’ indicated that the Winner would do better than the winner.  Clear?  It was hokey and flamed out soon as it had not substance. 

In similar fashion, a recent blog post from a self-promoter in the purchasing world grabbed my attention because he tried to make the point that “value” was to this decade what Total Cost of Ownership (TCO)  was to the 1990s.  The distinction is bogus because value has always been an important factor in the procurement decision.  

He used the example of buying a car for a corporate exec and swiftly blew off the price only argument.  So far, so good.  He then he took on the TCO argument, correctly pointing out how gas mileage, maintenance, consumables, etc. factor into the TCO decision.  

But his value argument goes off the rails when he brings the Chevy Spark into the analysis.  Clearly, a Chevy Spark would be an inappropriate choice for a corporate exec but because it goes to the price argument, not value.  Yeah, the Spark is inexpensive at an average price paid at less than $11,500 for a 2014 model but it also lacks the basics, let alone the luxuries.   

In this and many, indeed the majority of other cases, the concept of value is elusive and subjective.  While this truth is acknowledged in the blog post, it is also diminished.  Further, the author goes on to explain that it is usually difficult if not impossible to identify the best value without resort to subjective factors. 

HUH? 

Of course value is subjective.  In this case, consultation with the end user, the corporate exec, will determine value.  Does he want a roomy upscale sedan to ferry around prospects?  Does he fear ostentation and prefer a plain Jane car?  Is an SUV more appropriate?  The price difference among all of these is not likely to be substantial but will be about triple the bargain basement price of the Spark.   

The lesson here is an old and proven principle.  Consult with the end user.  Other, it is impossible to provide what he wants, let alone price, TCO, or value.  This fact is still true:

Best Value is defined as the lowest TCO. 

The sophistry of the value argument is about as worthy of consideration as the specious Win-win publicity stunt.

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

In 2012, a consulting client hired me for the purpose of professionalizing their purchasing department.  Except for capital expenditure (CAPEX) authority exercised by executive management, there was no purchasing structure – everyone and anyone bought anything they wanted, irrespective of authority so the result was an expensive mess.  Predictably, a disaster developed involving an unqualified supplier that cost them a major customer and millions in losses. 

The client was a profitable $1 Billion (US$) a maritime services company with a maritime oil field services unit.  It competed with giants in the industry who were also clients so while I was familiar with the challenges of their industry.  One of their initial questions concerned the difference between “purchasing” and “procurement”.  Since they were only remotely acquainted with the purchasing profession and their customers were demanding compliance with their systems, the matter required immediate attention. 

Definitions from various authorities yield almost as many definitions as authorities.  Most insist that procurement is an overarching term encompassing sourcing, negotiation, contract & supplier management.  While this is generally true in current practice, there is no hard rule. In the manufacturing sector, epitomized by Toyota  procurement refers to direct spend for manufactured items and purchasing encompasses all indirect spend. 

In the oil & gas sector, the definitions are opposite those of manufacturing.  Purchasing traditionally refers to goods and services consumed in exploration and production of wells.  This practice follows the U.S. tax code which allows 100% deduction of all goods and services in the year consumed.  This means labor, fracking fluids , cement and steel casings, rig rental, fuels and utilities, mud logging, consulting fees, and so forth.  Procurement refers to CAPEX items such as well heads, line heaters, tanks, and other items that are not consumed and generally available for resale and reuse.  These items can be depreciated under the tax code, not deducted. 

So what is the purchasing/procurement professional supposed to believe? 

I advise most clients to use the terms interchangeably unless their customers have definitions they demand be propagated down throughout the tiers of suppliers.  As we have seen, industry standards vary, so advice in these sectors is to follow the conventions of that industry. 

 There is no uniformity and you can find varying definitions but these definitions are in common usage. 

Procurement                        Procurement is the overarching function encompassing the activities and processes to acquire goods and services.  In some cases, related activities such as strategic sourcing and supply intelligence are included in the definition.  Many definers see purchasing as a subset of procurement.  Others exclude Sourcing but include the short and medium term issues of supplier management.  The in vogue trend is to use the term Procurement to cover all supplier management activities. 

Purchasing                Purchasing encompasses the process of ordering and receiving goods and services. It is a subset of the wider procurement process. Generally, purchasing refers to the process involved in ordering goods such as request, approval, and creation of purchase order documents.  In common practice, purchasing includes sourcing, negotiation, and supplier/contract management.  It necessarily involves supplier qualification and evaluation systems. 

Sourcing                    Sourcing is the strategic management of external resources, which necessarily includes sources.  It is often envisioned as the strategic management of the supply chain to ensure adequacy of resources and quality of sources for the long term.   

So that settles the question, right?

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

A November post (link) cited Rail Cars, Energy Independence, and American Entrepreneurship.  Building upon that foundation, let us add gas flaring into the mix.  In a November 11, 2014 post in Oil Pro authored by Chris Faulkner, Chief Executive Officer at Breitling Energy Corporation, hardly an uninterested party, presented a persuasive argument about why building pipelines is more environmentally friendly than carrying hydrocarbons in rails cars.  His rational argument has few substantial counter arguments.   

According to Faulkner, “Almost 40 percent of the natural gas recovered in the U.S. is currently flared off.”  That is a stunning waste of energy, but why? 

According to the Energy Information Administration (EIA)  , North Dakota’s Bakken Formation accounts for 22 percent of all the natural gas flared in oil and gas operations throughout the US.  At today’s prices, that amounts to about $3.6 million per day wasted. Texas is close behind, flaring 20 percent of the natural gas.

Why flaring?

Good flaring is a safety measure.  It relieves pressures and allows safe gas removal in case of equipment failure.  Regrettably and shamefully, most flaring is due to lack of pipelines, refineries and other transportation technologies necessary for getting natural gas to market.

For the first time in four decades, a new oil refinery is being built in this country in the ND Bakken formation.  Even though pipeline is the cheapest, safest, and most efficient way of moving petroleum products, ND has little existing pipeline infrastructure. The oil and gas industry has invested $6 billion in the Bakken formation alone in building the infrastructure required to move natural gas from drilling locations to domestic and foreign markets.

That’s great, but it’s a tiny fraction of what it’s going to take to eliminate the flaring of natural gas that has nowhere to go: according to a study by ICF International, an industry consulting firm, natural gas infrastructure in the US will require about $30 billion a year for the next 20 years. The ICF study estimated that the industry will need about “35,000 miles of new transmission pipeline and more than 300,000 miles of gathering lines”. 

Obstacles and solutions 

According to Faulkner, the (Oil & Gas) “industry has submitted 26 applications to build new export terminals. Those applications sit, stuck in the bureaucratic thicket that is the Department of Energy’s approval channel. Some have been pending for almost 3 years.  Worse still, the Environmental Protection Agency drags out the approval process for new gas pipelines. The average pipeline application now takes up to 18 months to get finalized.”

Faulkner’s statements as to bureaucratic resistance and damage to our economy and environment are fair and accurate.  Producers must flare gas, burning billions in natural resources, and millions in the loss of good paying jobs.  The ICF study concluded that midstream infrastructure spending could generate more than 400,000 jobs and $300 billion in tax revenues.

Faulkner claims that, “flaring in North Dakota alone creates 1 million cars’ worth of emissions every year.”  No matter the exact figure, this waste is shocking.

Enter the railcar industry.  The lack of pipeline creates a booming opportunity for railcar transportation, the only other realistic alternative.  Companies owned or controlled by Warren Buffet, (of BNSF fame), Union Tankcar and Carl Icahn’s American Railcar Industries, Inc. are rolling in good times and surging orders.  Bloomberg  reported that the backlog last quarter reached an all-time high of 42,900 freight and tank cars, the most in the 27 year history of data compiled by Bloomberg.

Railcar production will take time, time which should be used to build pipelines.  Even if car production catches up, pending so-called environmental regulation may force 80,000 units out of service for “safety reasons.  Most will be too expensive to retrofit so the estimate is that 50,000 will be scrapped. With the rail car shortage extending into construction materials (cement, sand & gravel), grain, chemicals, auto mobiles, and other areas, the best solution is clear.

Build more pipelines.

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

A November post  discussed the technologies of storing electric energy.   With 26.4 million people, Texas is twice the population of 40 years ago.  Just in 2013, 1.3 million people migrated to Texas, a population greater than that of eight individual states.  Such growth creates voracious demands for infrastructure, most notably transportation, water, and electric energy.  While the public sector addresses the first two, private industry is working on electricity. 

The rationale 

As a strategy to meet the demand, Oncor, the state’s largest transmission operator has placed a bet on batteries.   Oncor announced a $2 billion investment to store electricity in batteries utilizing thousands of batteries ranging from closet to kitchen sized batteries starting in 2018.  Interestingly, these batteries will be dispersed over North and West Texas locations like shopping malls, housing developments, and manufacturing sites. 

Two problems associated with batteries are short term storage and frequent replacement after frequent charge/discharge cycles.  However, these detriments may be minor in the long run.  Certainly, the reliability of electric batteries is much greater than that of solar and wind which are weather dependent.  The plan is to store the lower cost electricity generated at night, when demand is low, to store in batteries.  The next day, when demand is high, energy would first be discharged from the batteries, thus reducing the demand on the grid.   

With Tesla,  the electric car company, now jumping into utility scale batteries, Oncor believes that the price will fall and reliability  will rise with the use of batteries. 

Oncor proposes to install 5,000 megawatts of batteries, a claimed equivalent of four nuclear plants with a capacity of 81,999 megawatts.  According to the University of Texas at Austin Energy Institute, “   we use our power plants 24 percent of the time.  They run really hard during the day and sit idle at night.  That’s a trillion dollars of power plants sitting idle.”  That is stunning, is it not?  Could better and more high tech batteries save so much money in terms of generation, fuels, and the environment?  

Daunting problems 

With favorable physics, engineering and economics, what could possibly be a problem?  In this case, the problems are legal and legislative.  Under deregulation in the early 2000s, energy producers must operate separately from transmission companies, such as Oncor.  Batteries are considered power generation because they discharge electricity.   

Power generators see batteries as a threat that would result in the closure of some plants.  For the most part, these plants are old and inefficient, and only operate when demand challenges capacity, such as furnace hot Texas summer days.   

Let’s get behind the battery solution to our energy needs.

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Editor’s Note: the source data for this blog post first appeared in Oilpro , an oil & gas industry voice of advocacy.  A Houston Chronicle story about research at the Colorado School of Mines  was also consulted. The accompanying commentary elaborates on the story.

Hydraulic fracturing  is the most popular technique used today to extract petroleum from underground rock formations, particularly oil shale.  So-called “environmentalists” have raised claims about the large volumes of water diverted from domestic consumption, especially during the protracted drought in Texas, the largest production state in the U.S.  This water based fracking fluid becomes contaminated with one time use and thus disposal is an environmental challenge.  Both the diversion and disposal claims are not frivolous.  Indeed, the recycling of fracking water  is growing as a “green” alternative.  Water depletion and disposal due to fracking is cited as primary reasons form more than 400 ballot measures nationwide in the November 2014 elections seeking to limit or reduce fracking.  Since any restriction is likely to induce a ferocious backlash as mineral rights owners or controllers sue to regain their rights, the free markets are always on the lookout for solutions.

The free market always finds solutions 

Recycling of fracking water is a great idea but others are emerging.  One of these solutions is found in cryogenics.   The Oil & Gas industry has dabbled in alternative fracking technologies, particularly cryogenics, since the 1970s.  Liquid nitrogen or carbon dioxide (liquid propane and other fluids have also been used) is created by cooling to very low temperatures (below minus 300 degrees F).  Instead of water, these super cooled fluids are injected into the wells at high pressure.

When the fracking fluid contacts the relatively warm shale, it cracks open the pressurized shale (millions of tons of overburden).  To envision this fracking process, imagine boiling water being poured onto frozen glass.  The glass cracks into pieces.  The same happens to the shale.  The cracks and fissures liberate the hydrocarbon substances.

Advantages 

1. Unlike hydraulic fracking, the cryogenic fluid need not be recovered, cleansed, disposed or recycled.  The liquid nitrogen evaporates underground.  It will take some live testing to determine is the evaporated nitrogen is as benign to the terrain as it appears so far.
2. This cryogenic fracking techniques seems to create larger fissures, which makes it easier and more efficient to extract the hydrocarbon harvest.
3. On the more technical front, this process may solve problems with water-sensitive formations or those with an unwanted amount of clay. Hydraulic fracking can cause water saturation around the fracture and clay swelling (clay is one of the few soils that expand with water), which makes extraction more difficult and expensive.

Disadvantages

1. Critics claim nitrogen does not have sufficient viscosity to carry proppant efficiently
2. The fluid cost be too expensive for producers but this disadvamtage may be offset or eliminated by the ease and efficiency of the larger fissures
3. Special piping and equipment requirements add cost and availability problems, at least initially

The choice is clear – try cryogenic fracturing.

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Editor’s Note: A September post extoled the value of the Keystone XL Pipeline .  Since this interconnected economic world never operates in a vacuum, we will examine some of the predictable consequences of our decisions as Americans.

In 2010, the business genius Warren Buffet, the Oracle of Omaha, made a major investment in Burlington Northern Santa Fe Railways (BNSF).  According to InvestmentU.com, Buffet foresaw the expansion of rail demand Buffett and slowly and built his stock in BNSF since 2006 until he bought full control.

Why did Buffet choose the railroad?

Prior to his investment, the rail industry had seen its overall volumes decrease. And most considered railroads behind the times, slow innovators, and in an industry that had little power to increase profit margins.

There are 150,000 miles of track in the United States. As an industry, it generates around $40 billion in annual revenues.  Railroads transport most of the nation’s coal, which provides more than half of the nation’s electricity. But as energy demand shifts away from coal and toward oil & gas, Buffet saw the opportunity for a major railroad investment.

Trains are an extremely efficient form of transportation for high bulk commodities such as grain, automobiles, sand & gravel, and cement, to cite a few.  Popular radio ads tout the statistic that one gallon of fuel is enough to power one ton of freight for more than 400 miles.  Just one standard railcar holds up to 100 tons of freight, the equivalent of four standard tractor-trailers.  Rail is so efficient, that many trucking companies use rail, so called “intermodal” freight.  UPS and FedEx are two of the rail industry’s largest customers.

In the U.S., coal has lost its luster, due in part to crushing environmental overregulation, but it is in voracious demand overseas to fuel the Asian economies, particularly India and China.  The U.S. Department of Transportation  predicts freight rail tonnage will increase 90% by 2035. New track, facilities, terminals and tunnels totaling $10 billion in capital improvements are under construction.  The greatest demand for rail cars is concentrated around the oil & gas fields of the Bakken Formation,  principally in North Dakota, Montana, and Saskatchewan.

The demand is so great that the International Business Times reported in an August 28, 2014 story, “The increase reflects rising U.S. crude oil production, which hit about 8.5 million barrels a day in June for the first time since July 1986.”

The story further noted that crude oil has consumed a higher number of rail cars from January through July 2014. “More than half of the nearly 460,000 rail carloads moving petroleum liquids were carrying crude, up from around 3 percent in 2009, according to the Association of American Railroads.” 

With inadequate pipeline capacity, the burden falls to railroads to move petroleum products. The proposed Canada-to-Texas Keystone XL could alleviate some of that glut, but the fringe so-called environmentalist movements and allies in the Obama administration are frustrating all efforts to build this essential pipeline.  Pipeline is the most efficient and safest mode of oil & gas products.  But, about 70% of the 1 million plus barrels per day of oil produced in North Dakota is transported year to date in 2014, according to the North Dakota Pipeline Authority.

Rail transportation of petroleum products is not without risks.  Derailments and serious accidents have caused major environmental damage and deaths.  In July 2013, an oil train in Lac-Megantic, Quebec, exploded and killed 47 people.  The U.S. Department of Transportation has proposed new safety rules that would phase out older railcars and replace them with less vulnerable units, as well as reducing operating speeds and upgrading braking systems.

Consequential damages 

The growth in crude production and subsequent “sidetracking” of rail railcars is negatively impacting other sectors of the economy, particularly in the upper mid-west region.  Farmers claim that grain shipments have been held up by oil, leading to lost revenue and profitability and reduced production amongst major players in the food industry.  Agricultural officials said they are worried that record crops of wheat and soybeans this month will be left to rot on the farms.

Just build the damn Keystone XL Pipeline!

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

In September, after a multi-year competition, NASA  has selected SpaceX  and Boeing  for contracts to ferry astronauts to the International Space Station  again from the U.S. by 2017.  One goal is to minimize reliance on Russia for servicing the orbiting space station, the only option since 2011.  The round trip price tag for the Russian space taxi service now exceeds $70 million per seat!  SpaceX and Boeing are splitting NASA’s $6.8 billion Commercial Crew Transportation Capability award, or CCTCap, the latest in a series of contracts set up in 2010 to encourage the development of private American manned spaceships. SpaceX will get $2.6 billion and Boeing will receive $4.2 billion.

In Brownsville, TX, abutting the Mexico border, entrepreneur Elon Musk, the South African born, Canadian/American co-founder of PayPal, Tesla principal and CFO/CTO of SpaceX announced that commercial rocket launches could begin by 2016 and could lead to humans traveling to Mars.  Ambitious, no doubt, but serial entrepreneur Musk has already earned billions starting PayPal, Tesla, and now SpaceX.

Musk plans to invest $100 million in the world’s first commercial orbital spaceport during the next three to four years.  “The long-term goal is to create technology necessary to take humanity beyond Earth,” Musk said. “To take humanity to Mars and establish a base on Mars. So it could very well be that the first person that departs for another planet will depart from this location.”

Musk said he expects the spaceport to handle at least 12 rocket launches per year beginning 3Q2016.  TX Gov. Rick Perry has announced a $4.4 million grant from the Texas Emerging Technology Fund to the University of Texas at Brownsville.  The Texas Enterprise Fund  will provide $2.3 million toward the spaceport and an additional $13 million from the Spaceport Trust Fund.

SpaceX is expected to create 300 jobs at the site and other companies to settle there to supply and support SpaceX in its resupply missions for the International Space Station  with its unmanned Dragon capsule.

Why does this matter?

If nothing else, it proves that Americans do not need to government involved, be it subsidy, regulation, or other meddling.  Neither Steve Jobs  and Steve Wozniak  at Apple , nor Bill Gates and Paul Allen  at Microsoft needled anything from the U.S. government to fundamentally change the world.  Elon Musk and all the rest of us do not need it either.  Get out of the way and let free American markets lead the world once again.

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Since Spindletop  in 1901 Texas has been the greatest petroleum producer in the U.S.  According to a story in the Dallas Morning News  Texas now produces more than 3 million barrels of oil a day, double what it produced three years ago and more than all but seven countries in the world. 

But did you know it is a major player in the renewables world?  According to the American Wind Energy Association  (AWEA) as of 10 April 2014, “Texas is the national leader in wind energy – with more installed capacity, more wind turbines and more jobs than any other state. The wind energy industry in Texas has created thousands of jobs and provided billions of dollars in economic benefits.”  See the statistics below taken from the AWEA website. 

With wind as well as solar growing so rapidly in Texas, it would seem that the rodeo is on between the fossil fuel electricity producers and renewable producers. 

Setting the table 

Wind power began ramping up in the 1990s in west Texas.  T. Boone Pickens, of Mesa Petroleum  fame, was the prime mover behind the wind movement.  Boone chose west Texas because of its ample wind supply.  In fact, the wind blows more at night, which creates an oversupply of electricity, which in turn reducing prices by as much as half.  This should create problems for fossil generators. 

Enter the Texas Public Utility Commission.  It is considering a proposal to charge wind and solar higher fees because renewables are inherently variable and in need of greater backup.  Interestingly, two of the state’s largest utilities, Exelon and Luminant have taken the side of renewables in opposing shifting costs to the renewables.   

In a recent report, Texas State Comptroller, Susan Combs questioned a $7 billion project to connect renewable sources in west Texas to the big cities in central, north, and east Texas customers.  She was particularly critical of the federal tax credits benefitting wind farms.  She contends that “It is time for wind to stand on its own two feet.”  The odd imagery aside, the “billions of dollars of tax credits and property tax limitations… helped grow the (wind) industry.  But today, they give it an unfair advantage over other power sources.”

She is right!  

Wind and solar production has doubled in 2014 from 2008 levels, accounting now for 10% of the Texas grid.  Further, large scale solar generation projects are underway in the state which may exceed the capacity of California.  The cost of new transmission lines will ultimately be borne by customers.  Moreover, the competition between fossil and renewables should be market driven, not artificially influenced by government.  We need only look to the billions of losses foolishly wasted by federal forays of folly into solar energy over the past six years.  

Smart investors are much better equipped than bureaucrats to manage our energy future.

************************************************************************************************************************************** 

Wind Projects in Texas

• Installed Wind Capacity: 12,755 MW. Ranks 1st for total MW installed.
• Number of Wind Turbines: 7,986 turbines. Ranks 2nd for number of utility-scale wind turbines.
• Wind Projects Online: 117: Texas is home to 6 of the 10 largest wind farms in the U.S.
• Wind Capacity Added in 2013: 141.1 MW
• Wind Capacity Added in 2012: 1825.9 MW  Ranks 1st for 2012 installations.
• Wind Capacity Under Construction at end of 2013: over 7,000 MW Current Wind Generation

• Percentage of Texas’ electricity provided by wind in 2013: 8.3 percent. On ERCOT, the main Texas grid, wind energy provided 9.9% of 2013 electricity.
• Equivalent number of homes Texas wind farms now power: over 3.3 million average American homes.
• On May 2, 2013 wind generation hit a record 9,674 MW or 28% of ERCOT’s load. Wind Generation Potential

• According to data from the National Renewable Energy Laboratory, Texas’ onshore wind potential at 80 meters hub height is 1,901,530 MW. Texas has the best wind resource in the U.S.
• This means that wind power is capable of meeting more than 18 times the state’s current electricity needs. Jobs & Economic Benefits

  An investment in wind power is an investment in jobs, including jobs in operations and maintenance, construction, manufacturing, and many other support sectors. In addition, wind power projects produce lease payments for landowners and increase the tax base of communities.

• Total direct and indirect jobs support in 2013: 8,001-9,000. State Rank: Texas ranks 1st for number of wind-related jobs.
• Capital investment: approximately $23.2 billion have been invested in Texas wind projects.
• Annual land lease payments: over $38 million. Wind-Related Manufacturing

  The wind industry has over 550 manufacturing facilities producing products for the wind industry that range from blade, tower and turbine nacelle assembly facilities to raw component suppliers including fiberglass and steel.

• Number of manufacturing facilities in Texas: 45 facilities.
• The state is home to turbine manufacturers DeWind and Alstom, blade manufacturer Molded Fiber Glass and several tower manufactures in addition to numerous component suppliers. Environmental Benefits of Wind Power

  Generating wind power creates no emissions and uses virtually no water.

• The water consumption savings from wind projects in Texas total more than 7.8 billion gallons of water a year
• The wind power installed in Texas will avoid 23,103,000 million metric tons of carbon dioxide emissions a year, the equivalent of taking 4,075,000 cars off the road. State Policy 

  Texas established a renewable portfolio standard (RPS) in 1999 and it was amended in 2005. The current RPS provisions require 5,880 MW of renewable energy by 2015. The state also has a target of reaching 10,000 MW of renewable capacity by 2025, a target that the wind energy industry met in 2010.

  SOURCE: AWEA website

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

North Americans and Europeans are so inured to reliability of electricity energy supply that only a small fraction of us worry about it.  As the world increasingly explores alternative forms of electricity generation such as wind and solar, the crucial issue of “energy storage” rises to the top of problems to be solved.

First, let’s clarify the mystery enshrouding electricity.  We cannot see it, but accept it in our lives, the same way we do piped water systems.  Since the days of Thomas Edison, electricity has been generated the instant it is demanded.  Until recently, the electrical energy could not be easily, efficiently, or cheaply stored.

To simplify electricity, resort to Ohm’s Law, the basis for engineers and physicists.

Ohm’s Law    E = IR, where

• ·              E is voltage
• ·              I is current
• ·              R is resistance of a system

An interesting development proceeds from Ohm’s Law that will help you understand the tangible relationship amongst voltage, amperage, and resistance.  In a simplified system, power is equal to voltage multiplied by amperage.  The product (answer to the multiplication) is expressed as wattage or Watts.

Applying Ohm’s law, a 120 W light bulb attached to a 120 volt (house) circuit draws 1 Amp.

• E x  I = Watts
• Substituting      E @ 120 V and Watts at 120W,
• Solving for I = 120/120 = 1 Amp

How to visualize the concept of electric energy

To visualize electricity, compare it to the more familiar water system.

•               Voltage      (Electromotive force or EMF) is equivalent to the pressure driving water      and is measured by Volts
•               Amperage      (current or electron flow) is equivalent to the flow of the water and is      measured by Amperes or Amps
•               Resistance      Conductor size and material (copper,      aluminum, etc.) resist electron flow just as pipe size and material      (concrete, metal, plastic, etc.) does in a water system.  It is measured in Ohms.

What does it mean to store electricity and how is it done?

Storing electrical energy in batteries is an old and familiar technology.  Four other technologies are also not new but gaining in popularity as an energy hungry world seeks new ways to feed the power demand.  The oldest and most efficient is Pumped Hydro.  In the 1890’s, the early days of utility scale power generation, hydro generation became popular, particularly in western North America.  During periods of high demand and cost, usually day time hours, hydro power is generated by conducting water from high levels, through turbines, and then discharged at the low end.  The quantity of energy created is a function of volume of water (called discharge or the flow volume per unit time) and the difference in high and low elevations, known as hydraulic head.  During periods of low demand and cost, usually night time hours, water is pumped to higher elevation reservoirs and the process is repeated the next day.  The cost differential between the high and low demand times is called arbitrage.

Each of the various means of electric energy storage has pros and cons.  Excepting Pumped Hydro, they are expensive and limited in application but enterprising companies are hard at work making these means less expensive and more efficient.  Let’s describe the five most popular storage technologies.

Pumped Hydro

Energy is sored in the potential form of hydraulic head, essentially a difference in elevation.  It enjoys low costs, long life, high efficiency, and is a mature technology.  On the down side, it needs some specialized  sites, and suffers from low energy density and low power density.

Compressed Air Energy Storage (CAES)

Energy is stored in compressed air in underground caverns or above ground tanks, and combined with LNG in turbines.  It enjoys the same pros as Pumped Hydro but often needs special siting, especially caverns, and suffers from low energy and power density.

Flywheels 

Electric energy is converted to kinetic energy in the form of a rotating mass.  This mature technology can be low cost, has long life, and good efficiency, but also suffers from low energy and power density, and is difficult to scale to utility size.

Batteries 

Energy is stored in reversible chemical processes in electrochemical cells.  Anyone with a flashlight is familiar with the concept of stored chemical energy being converted to electrical energy when a change in switch position produces a beam of light.  This mature technology enjoys the benefits of potentially low cost, long life, and good efficiency.  However, batteries are also low energy and power density, difficult to scale to utility size, and suffer some public relations problems over  well publicized failures of Lithium Ion batteries with respect to spontaneous fires and sustainability.

Capacitors

Capacitors store electrons, they do not produce them as do batteries.  They are potentially low cost, enjoy long life, and good efficiency.   On the down side, they suffer from low energy and power density, and are difficult to scale to utility size.

According to the U.S. Department of Energy, Pumped Hydro owns 95% of the energy storage market with 23,400 MW.  The other five technologies share the remaining 5%  or 1,200 MW.  The breakdown is

• Thermal storage 36% or 431 MW
• CAES 35% or 423 MW
• Batteries 26% or 304 MW
• Flywheels 3% and 40 MW

More on batteries 

In September, Tesla Motors  announced that it had chosen Nevada as the winner of a five state competition as the site of its $4 billion dollar 10 million square feet battery plant near Reno.  That would equate to a huge oversupply of automobile batteries for the foreseeable future if most of the plant’s capacity was not consumed by much larger storage batteries.

Market research firm IHS  predicts that the 2013 energy storage of 340 MW will grow to 6,000 MW by 2017, a stunning 1,746% in four years, and 40,000 MW by 2022, another astounding increase.  Tesla plans to produce about 50,000 MW hours of battery storage annually by 2020.  Lux Research LLC  agrees with Tesla’s claim of a 30% price reduction, from the current $274/kWh to $196/kWh with most of the price reduction in the early years due to overproduction.

Increasing the Reliability of wind and solar

Both wind and solar powered electricity generation are inherently unreliable.  Wind can be intermittent and in changeable vectors (quantities), solar is affected by shorter winter and cloudy days.  Hydro power is more dependable, but also affected by seasonal and climatological changes.  In the United Sates, reliability  is a function of supply, demand, and frequency of alternating current  at 60 Hz.  Electricity storage technologies are emerging as a solution.  Of the five technologies cited in Part 1 (link), batteries storage shows the greatest promise and is the fastest growing.

Capturing and storing energy created by the natural forces of wind and sunshine is crucial to taking these alternatives to utility scale production.  Rechargeable Lithium-Ion batteries is the favored technology of cutting edge companies like Tesla.  However, it is not an ideal solution.  Besides its energy and lower density problems, it is also a short term solution, usually less than two hours.