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Management Side
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Get Off the Grid…
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The 30 June 2008 edition of Forbes Magazine, page 38, has an article entitled “Brownout.” This article talks about the coming electricity shortage in the United States due to inadequate generation and transmission capabilities. The startling data the article cites is this: “…America uses just 15% more of it [oil] today than when the first modern energy crisis hit in October 1973. But electricity use is up 115% since then…”

We have a lot of people in the pulp and paper industry that long for the good old days and here is an opportunity to go there: get your facility off the grid and self-generate 100% of your own electricity. You can make money and help solve the so-called “energy crisis” (go to http://nipimpressions.org/mod/emarket/view.php?msg_id=77&email=Archives to see why I put “energy crisis” in quotes). This is where the pulp and paper industry was 120 years ago and why some old mills have an odd frequency, such as 50 Hz (not odd to you Europeans, but our “standard” frequency here is 60 Hz), 25 Hz, and so on. They were truly “power islands” using electrical motors before there was a grid or standards.

The Forbes article goes on to say that the United States currently has 760 gigawatts of power plants to meet current consumption needs. There are another 154 gigawatts to meet reserve needs, but essentially most of this is used to handle outages, planned, unplanned, and so forth, leaving, according to Forbes, only 10 gigawatts of truly excess capacity. The North American Electricity Reliability Corporation (NERC) estimates that the next decade will require 135 gigawatts of new capacity while only 57 gigawatts are in the planning stages. By 2016, excess capacity in our creaky old grid will drop from 13% to 7%. (All the data in this paragraph comes from the Forbes article.)

Meanwhile, the EIA (the Energy Information Agency) reports that the pulp and paper industry currently produces 27.25 gigawatts of electricity (about 3.5% of the total). Much of this is done with biomass fuels (aka “bark boilers”), a trend that started in the 1970s. Some mills are already net exporters of electricity. For competitive reasons, some pulp and paper companies are buying “green power” (windmills and solar) and “wheeling” it to their mills, so they can tell their customer base they are making “green” paper (Mohawk is an excellent example of this).

At the same time, there is an expropriation of our biomass resources by the general electrical power industry. This is coming from legislated mandates that they produce a portion of their power from “green” sources, the easiest (cheapest) way being through adding OUR biomass to THEIR coal pile (admittedly less of it is ours than used to be, since we sold much of our biomass to the TIMOS and REITS).

Hence, I propose the following plan of action:

1. Re-establish the pulp and paper industry as the long-standing experts on generating electricity from biomass, simply because of our most recent 30 year history. This can be done at the company level and at the American Forest & Paper Association (AF&PA) level.

2. Spend our scarce development dollars on incrementally improving our conventional biomass-to-electricity expertise, thus quickly helping our own bottom line and helping national policy by taking ourselves out of the national electrical energy demand equation. This isn’t a sexy path (like cellulosic ethanol), but it is a path of quick and assured success.

3. Establish an industry-wide “wheeling” program. This means if one pulp and paper mill produces excess electricity, another buys it over the grid (I know, idealistically it would be good to cut our lines to the grid as my title above suggests, but it may not be practical, at least not yet). Do all of this on our own pricing schedule, which means establishing our own, separate from the rest of the world, trading system. This may allow us to sell and purchase power amongst ourselves on a true cost-to-produce basis, providing a competitive edge to the U.S. pulp and paper industry and disassociating our electricity price from the rest of the nation’s (and keeping us out of the dilemma oil is in where speculative traders which neither produce nor consume set the world price). This is not completely without precedent — linerboard and medium producers trade product all the time, but usually on a one-on-one basis.

4. Here is the stepping on toes part: Attention AF&PA — get off the Agenda 2020 development program as it exists today (sorry, Ron) and divert funds to exploiting this sure thing — making electricity by conventional means from biomass. Get us tax breaks, subsidies, whatever you can get us. And, by the way, lobby Congress to let us keep our biomass sources and let us decide how we will best exploit them for the generation of electricity (read: power companies — keep your hands off).

One more issue, of a general nature, but related to this specific problem. We must start doing rate of return calculations and making go/no go decisions on all capital projects based on reasonable, expected future costs of alternatives. I see companies now making such decisions, in the energy sector for instance, based on the costs of energy today. Such a policy will always leave you behind the curve. Such calculations must be made, not only in energy projects, but in all projects, based on reasonably expected costs five or ten years out. If you base a large energy savings project on today’s energy price, you may find that when it comes on line in two or three years, it is already behind the reality of the day (unless the speculation bubble I believe we are in bursts first, see http://www.globalpapermoney.org/news.php?viewStory=2378). We have to take some reasonable risks if we ever hope to get ahead of the curve.

If you have a measured counterpoint to my arguments (not a rant), please send them to me at jthompson@taii.com and we will publish them in a future edition of PaperMoney®.

 
























 









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