Written on: January 1, 2020 by John Huber
Editors: In 1931, Aldous Huxley wrote A Brave New World, a critical and satirical look at a technological utopia. Today, environmentalists and liberals are proposing a utopian carbon-free world. However, for some, it will be a dystopia. This article lays out the path for our industry to stay on “the right side of history.”
Over the years, the industry has had a number of challenges, each of which have in some ways undermined the strength and ability of the industry to grow. These challenges include periodic price increases, inroads made by the gas industry, and negative publicity from environmental issues. Fortunately, the industry has found a way through and has been able to maintain itself as an important source of fuel for U.S. consumers.
However, as we move into the 2020s, the challenge of global warming has come to the fore. Essentially, many of the States where oilheat has a significant share have decided that the only response to global warming is to move to a carbon-free economy where heating oil, natural gas, propane and coal have seen their heyday.
Technology has made both wind and solar more attractive options than they were a decade ago.
Reports have indicated that wind power may be able to be produced at two cents a kilowatt per hour. At that price, the equivalent price for heating oil would need to be $.86. The two cents does not include the cost of distributing and transmitting that electricity, which may end up being the most important cost factor.
Transmission and distribution could add approximately $.05 according to the U.S. Environmental Protection Agency (EPA). This would be an equivalent price of about $3 per gallon. I am skeptical that these marginal costs will hold as the grid itself changes radically based on how and where the power is generated, as nearly every part of the electrical grid will need to be rebuilt, expanded and improved.
Perhaps the greatest uncertainty is how to store electricity. Wind is not 100% reliable and solar obviously does not work at night or when covered with snow. Plus, its efficacy is greatly reduced in the winter.
So, how does a carbon-free grid manage itself if the power producers are not meeting demand? That is where batteries come in and they will be a whole new cost for the grid. Unfortunately, battery technology, while having improved greatly, is still far short of what we need as a society. Thus, to go to an all renewable-based electrical future will require tremendous investments in storage of electricity and a vast overbuild of the infrastructure making the power.
Therefore, oilheat and its pricing has a good chance of being competitive on a price basis with electricity in the future.
Despite the concerns and costs associated with a reliable electric future, many of the States are moving forward. From our vantage point, perhaps the biggest concern is the movement to encourage the installation of heat pumps in all of our markets.
The States are incentivizing their use by providing subsidies for their installation and, in some markets, considering a tax on heating oil to develop a fund to pay for their installation.
The National Oilheat Research Alliance (NORA) and many others are skeptical that heat pump technology will be able to meet the needs of homeowners.
On a cold day, the efficiency of heat pumps falls dramatically. In some cases, this may mean that the house will not be able to maintain a comfortable temperature (for more information on heat pumps, see the Connecticut Energy Marketers’Association [CEMA] website learnaboutheatpumps.com).
Additionally, in all cases, when the temperature goes down the demand for electricity will grow dramatically. As the demand grows, the efficiency of the heating system falls.
As the weather gets colder, the ability to have enough electricity becomes increasingly difficult. The “hope” is that we have enough supply in the system to match the increased demand and not create a life-threatening emergency. However, to do that will require a tremendous over-build of production (windmills), storage (batteries) and distribution (wires).
While we are skeptical of the ability for this system to succeed, we are currently facing the prospect of government resources being used to reduce our share of the market.
However, does it have to be this way–are we like Ebenezer Scrooge in “A Christmas Carol,” sentenced to a miserable fate?
No. Over the past 20 years, NORA and many others have worked to establish new technologies and alternative fuels.
Liquid fuels have the amazing ability to store energy far better than a battery. Our ability to store fuel in large tanks at terminals and at homes provides our industry and society a way to smooth demand. Plus, we have a proven record of succeeding in difficult circumstances. In fact, we are often called to bail out the gas and electricity industry at peak demand periods.
As we meet the challenge of electrification, we will need to rethink who we are. We currently describe ourselves as selling oilheat—and while for nearly a century it has been a petroleum-based product, it does not have to be.
Converting our petroleum-based product to an alternative liquid can be done, and our greenhouse gas profile can be sharply reduced to zero, or perhaps made negative. Biodiesel has the best potential to accomplish these goals. It is made from a number of waste streams such as soy oil after the beans have been crushed to provide animal feed, or the grease from restaurants.
Each of these oils can be easily converted to biodiesel– a fuel that is designed to blend into heating oil and not disrupt equipment that currently uses petroleum distillates.
Currently, The American Society for Testing & Materials (ASTM) has indicated that using a blend of 95% heating oil and 5% biodiesel is the same as using heating oil. It has also established for a fuel that is 20% biodiesel and 80% heating oil. This fuel is available and is being used widely. In fact, many dealers are currently selling fuels at much higher levels of biodiesel.
To achieve the reductions in carbon emissions, the States are considering requiring us to blend at 50% by 2030 and 100% in 2050. Essentially, meeting societal goals will require the industry to move from a fuel derived from fossil fuel reserves to a fuel that comes from plant material.
How hard will this be?
The current biodiesel may be incompatible with some of the seal materials currently used. It may also be harder to detect by the automatic light-sensing controls. Thus, at worst, we may need to change some soft materials in the home and possibly either adjust the cad cell or change light-sensing technology. This is easy, well-known, and within the capabilities of the industry.
Additionally, because of cold flow issues, it may also be necessary to heat outdoor tanks.
At the dealer or wholesale level, it may require tanks to be insulated and heated. Trucks may also require heating. While these will carry an expense, they are feasible.
While these changes may be costly, the alternative is to ignore what customers/voters/government officials are demanding. Thus, we are in the situation of adapt or perish.
Most importantly, we know how to achieve these goals, and we know how to achieve them cost-effectively. I am not sure that can be said for our competitors, which means that if we are willing to seize the advantage, we can succeed. ICM