We can’t spend money after it is burned
About 70 million of our tax dollars went up the smokestack in the form of wasted heat. This article explains how some of our tax dollars are being incinerated. It is aimed at you the taxpayer and the policy makers to expose this calamity and offers ways to stop it.
Although CUC is mentioned here, there is no fault directed toward this company. CUC is very good at what it does and I am thankful every time I enter an air-conditioned space or flip a light switch. I do not take them for granted and offer some insights as to how the current systems work and what can be done to improve the overall contribution to our economy by both Government and CUC.
CUC’s 2010 Annual Report states concern that electrical consumption declined while the number of customers increased by 3%. This was partially explained by empty rental units still hooked up but not in use. Additionally, it is likely that the existing customers are making a concerted effort to use less power because of the high cost of electricity.
In July 2010, government increased the duty on a gallon (imperial gallon) of diesel fuel from 50 cents to 75 cents. Government collected about 20 million dollars in tax by my calculations.
Here’s where the waste begins. A gallon of diesel fuel represents 40.64 kilowatt hours of power. In a perfect world CUC would produce 40.64 kwh for each gallon used. But there are losses due to heat and machine inefficiencies and transmission line losses in the wires coming to your home that result in an overall efficiency of about 36%. This means that although we are paying for 40 kwh worth of diesel we are actually getting at most about 24 kwh per gallon. The remaining 64% of energy is lost along the way. It is not criminal, it is science and the way electrical generation works. Of course electrical producers strive to attain maximum efficiency in order to maximize profits.
The financial impact of this fact is painful. Of the 110 million dollars we spent for CUC fuel in 2010; about 70 million dollars of it went up the smokestack in the form of wasted heat.
I will address a real world solution to reclaim some of this lost energy and turn it into electricity and more net profit for CUC but first I want to address a bigger problem. The problem is that government is placing a tax on this fuel. Therefore it follows that 64% of the money we spend on this tax is being burned up and wasted in the process of creating electricity. If government collected about 20 million dollars in this fuel tax then this means 64% or $12,800,000 of our taxes went up the chimney as waste heat. We did not get the bang for our buck we just got a lot of smoke. The most damaging thing in this scenario is that these 12 million dollars will not be used ever again to purchase goods or services that would generate more revenue for government in the form of duties and other fees and taxes. This is 12 million dollars we won’t have to put gasoline in our cars to provide government with gasoline tax revenue. (This burns money too). This money is gone and cannot come back.
As was pointed out in an earlier article I read, lowering electrical costs to the consumer result in growth to the gross domestic product of a country. I submit that when consumers are presented with extra money due to lower electrical costs that their spending power increases by much more than the amount saved since the prices of goods and services will also become less expensive. Therefore, an extra $10 in the pocket of the consumer could purchase more goods than before since they are now less expensive. Increased consumer spending causes more goods to be imported and more revenue for government. Electricity costs less so people use more and CUC realizes greater revenue and profits to shareholders.
The 2010 report also shows that over the 5 year period ending 2010 that an investment in CUC common stock returned only 3% while the Standard & Poors utility index produced a 48% return. Expensive electricity stifles economic growth and profits to shareholders. Our kwh cost to the customer is about 33 cents as compared to about 10 cents for the companies represented by the S&P index. Higher prices do not make for higher net profit.
By the way, the 20 million dollars in net profit earned by CUC represents 12% of their income for 2010. This does seem a bit excessive when banks are paying less than 1% in interest on savings. Reducing slightly this figure and passing the savings on to the customer would create more consumption and more return on investment than current levels. It truly is all about efficiency. It should also be noted that CUC pays the duty on fuel to Government even when customers fail to pay their bills. This creates a further financial burden on the company which was 6.5 million dollars billed that has not been collected at the end of 2010.
In spite of 3% more customers and less consumption, CUC managed to grow its income for 2010 by 8% through cost cutting and efficiency measures. Placing any tax on fuel used by CUC is a very inefficient use of our money and spending power. Many ask how Government would make up for this shortfall in revenue if they were to remove the fuel taxes. First of all, this year’s budget provides 10 million dollars for Nation Building. I recommend using that to offset the immediate shortfall. That leaves 10 million left to account for. Much of this money will go to subsidize things that are costing the country millions like the Turtle Farm, Pedro Castle etc.
Although I am a proponent of no government involvement in the retail private sector, we are currently saddled with these debt producers. Taxes could be raised by taxing unhealthy food items in order to reduce the cost of healthcare. There are many other areas where taxes could be increased or implemented that allow the money to still exist and be used again and again rather than have 64% of it vanish up the smokestack. As demand for goods and services grow, more revenue will flow to government immediately as these goods are brought back in. Demand for jobs will follow as economic growth begins. As the once unemployed now have income, they too will spend and contribute to the overall growth. Growth feeds on itself and continues when unimpeded by the wrong kinds of taxes or excessive taxation. As the economy grows, crimes related to tough economic times will diminish which will mean decreasing Police, Court and Prison costs.
One very cost effective remedy: Many are familiar with OTEC (Ocean Thermal Energy Conversion). This is an alternative energy device that utilizes the difference between cooler deep ocean water and warm surface water to boil a gas like ammonia which has a low boiling point in order to propel a turbine in a closed loop system. This is the most efficient device to date and its efficiency rivals that of the Carnot Engine (Sterling Engine) also known asthe Sterling Cycle Engine. The efficiency averages in the range of 65% to 75% in converting heat to power. It is a means of capturing energy from heat. It has been studied here in Cayman because of our deep water.
I propose that such a device is not warranted or affordable. Rather, use the concept of the system to utilize the waste heat from the power plant and the nearby water of the North Sound to create the temperature differential needed to boil and condense a suitable gas like ammonia to drive turbines for electrical production. This is a large amount of potential power that could be reclaimed for the purpose of further lowering cost to the consumer and further increasing gross income and net profit to CUC. The benefits to the economy as a whole are increased immeasurably.
The above makes it clear that although we need taxes for government to run, this tax is highly detrimental to the country as a whole. There is one guiding premise that must always be remembered: energy is money and money is energy. They are one to one identical. Anything that wastes energy also wastes money. We cannot afford this waste any longer.
Category: Viewpoint
Just opened my June CUC bill. 13% of if it was for Gov't fuel tax or $66.
I now see what you're saying. Of the $66 I paid in tax, $46.20 of it was consumed in the process of burning diesel to run the generators at CUC and only $19.80 actually turned into the electricity that I used.
Although the Gov't got $66 of my money, I only got the use of about $20 worth of the fuel tax. Now Gov't will use my $66 as part of someone's pay and they will use part their pay to pay their electric bill which means more money disappears forever.
I agree that this is a wasteful form of tax and it should be removed for many reasons as well as the fuel tax on gasoline for the same reason.
If CUC can't or won't take measures to use our hard earned money more efficiently, then the tax should be removed and placed elsewhere on things that allow the tax dollars to recirculate through the economy. This would have a secondary benefit of giving people more money to spend in these hard times.
Great stuff Paul, a lot to think about, I think we as a country thru the private sector needs to get into the renewables game.
Burning diesel to make electricity must be the most expensive way to make it. There must be a good business case now, in Cayman, to be made for re-newables. I am wrong ??
The trouble is we do not have access to renewable energy which will provide reliable power (and therefore replace diesel-generated power) given the present technologies. OTEC has not yet been proven. If we could only exploit the tremendously high temperatures from the erupting water fro volcanic vents in the Cayman trench all of our energy problems would be solved.
http://www.sciencedaily.com/releases/2010/04/100411214117.htm
We pay duty on a six pack of cola or beer. But if you were only allowed to drink two of the cans and were told to throw the remaining 4 cans away, you would stop buying it. Paying tax on a six pack of diesel fuel is exactly like this. The problem is that we do not have the option of not buying it because it is a necessity that we depend on to live.
To Clarify, imagine that Gov't has put a tax on 100% of your house but you are only entitled to use 30% of your house. Two of the three bedrooms can never be furnished or slept in. Your two car garage will only be allowed one car etc. 70% of your house sits empty and unused. You would not think this is very fair and you wouldobject since you paid tax on the whole house. Well, this the same with paying tax on a gallon of diesel fuel and only getting the use out of 30% of it or paying tax on a gallon of gasoline and only using 30% of it because 70% turns to wasted heat. Try touching the exhaust pipe of your car after driving it. 70% of the gasoline in your tank will go toward heating up your engine and exhaust pipe rather than moving the car forward.
If you read the article, it is not proposing OTEC here. It is suggesting the use of the Rankine Cycle to capture the waste heat from the diesel generators. They currently produce enough heat to produce steam from water and more than enough to boil ammonia which has a much lower boiling point than water. We have an ample supply of heat right here at CUC and are not harnessing it. Do a Google search on “waste heat recovery” and see how many countries and companies are currently using it to capture the wasted energy.
The point of the article is that any tax on such a wasteful process equally wastes the tax.
I looked up the Rankine Cycle you refered to in your article. It appears that there are working Organic Rankine Cycle engines in production and available for home use and smaller scale needs. Who knows, maybe we will have such machines in our backyards soon and won't need CUC at all.
Interesting perspective. I know my electricity cost is high here but I never gave any thought to the utter waste that is taking place at CUC. I have made efforts to conserve energy at home to cut down on my bill with good success. I can't imagine what the electric bills must be like for the supermarkets. I do know from my grocery bill that they too are passing on their electrical cost to us.
Everything eventually trickles down to the consumer to pick up the tab. Unlike President Ronald Reagan who claimed that wealth tickles down. It appears that wealth trickles up and expenses trickle down.
I know that cruise ships have systems on board that recover the heat from their engines to produce electricity for the ship. Why doesn't CUC have something like this to reduce our bills? Are their directors so overpaid and inept that it doesn't matter to them? Maybe we should do a protest march on CUC for them to get their act together. I know they are somewhat bound by the electrical regulatatory agency but nothing is stopping them from making their facility more efficient.
For many many decades ships have used the "waste" heat from their diesel engines to produce drinking water from sea water.
In order to develop and energy policy, the leaders need to be competent and comfortable with such.
By the way, how many times did the people leading have to take their electrical journeyman exams before they passed?
Only one problem – OTEC doesn't work.
It is very odd that the writer should ignore more obvious sources of power – wind and solar energy – and advocate a system that CUC themselves were pushing very hard back in 2007. In fact this reads very like a CUC policy document from about 4 years ago and makes about as much sense.
The bottom line with OTEC is that it is relatively expensive, complex and very vulnerable to adverse weather – things like hurricanes. It also hasn't yet performed at anything like the efficiency levels claimed.
If we are going down this road there is a very simple solution to the Cayman Islands' electricity needs for the foreseeable future – nuclear power. As long as you keep everything inside the reactor it is clean, once the initial investment is covered it costs very little and the reactor will run for years on one fuel fill.
I have one word for you: Japan. They clearly shared your optimism about nuclear power. Now they are battling nuclear contamination following the unexpected earthquake and tsunami earlier this year.
And take a good hard look at Haiti before you say such a natual devastation couldn't possibly happen here in Cayman.
Dear HMMMMM. Who said anything about nuclear?????
The sytem I described is a natural not poluting environmentally friendly form of capturing waste heat. There is nothing nuclear about it. For a fuller description you may wish to examine Wikipedia for Rankine Cycle and OTEC so that you may better understand the principle here. All combustions engines produce enormous amounts of wasted heat. That's just a fact when fuels combust. There is no need to let this heat go to waste.
We have put a dollar amount in valuing the waste heat by virtue of our fuel factor costs.
No Bias involved. I am not associated with CUC and have no alterior motive other than to increase efficiency of the existing system and produce more profit and lower electricity prices.
Don't tell Hawaii that OTEC doesn't work. They are producing electricity with it. I understand your misconception of what I meant. I am not proposing anOTEC plant here. The cost per kwh would not be justified. I am proposing the use of the Rankine cycle which is the basis for OTEC that uses low pressure turbines in a closed loop system. We have the tremendous heat (which we pay for) and the cooler waters of North Sound which create a huge temperature differiential which is perfect for the Rankine cycle.
Look at it in another way. If 70 million dollars of our fuel factor money is wasted in the form of heat (which it is) and we are able to harness just half of it, we just made 35 million dollars in savings which would easily pay for the simple setup I propose. And it runs 24 hours per day.
Wind is not dependable enough and solar photo volatics are not cost effective yet. Solar thermal plants work day and night but the cost of a small plant as the ones operating in Spain would be close to 500 million to build. We will have solar here someday but I think it would be easer and much less expensive to use the existing technology to capture and use our wasted heat before looking further. The money saved throuout the economy could partially be used to dip our toe into the areas of alternative enery.
And what about the thermal effects of OTEC the shallow waters of the North Sound?
Thanks for Asking. I did not want to include a review of the basic science principles in my article in order to keep it somewhat brief. The laws of thermodynamics state that energy cannot be created or destroyed. It can only be transformed from one form of energy to another. As I pointed out, CUC transforms about 30% of the fuel we purchase for them into electricity. The remaining 70% converts to heat and is not being used for anything except to heat the atmosphere. There are also emissions being expelled into the air that contribute to global warming and ozone damage. This is what burning fossil fuels does.
The system I am proposing returns unheated water to the North Sound. There is no thermal damage to the environment. Most of the heat in this system converts to electricity not to hot water. Any hot water that results is allowed to cool before returning to the North Sound. I may also point out that several years ago, a heat exchanger was used with success at CUC to harness the waste heat to produce distilled drinking water for Cayman. No thermal damage occured to the North Sound using this system.
And one more thing I failed to show in the article. CUC produced 67 million dollars in sales revenue using only 30% of the fuel we purchased for them. If they had been able to use another 30% from the capture of their waste heat energy, they could have produced either twice as much power or cut the consumerbills in half. And since the fuel was already paid for, there would be no further fuel factor or duty expense attached in generating this power. It is conceivable that our bills could be reduced to one forth of their present value with absolutely no decline in profits to shareholders or revenues to CUC.
It would be nice if CUC could review this and respond with a detailed opinion on this matter. One thing that becomes very clear is that taxing fuels is a huge waste of our hard earned money and permanently destroys our spending power as a country. There should be NO TAX on fuels of any kind. Tax things like yachts and large SUV's and other extravagant luxuries. Also tax things that harm society like foods with unhealthy levels of sugar and saturated fat. Tax heavily the "Boom Boxes" people put in their cars to play music at unreasonalbe and disturbing levels. Tax bad behavior and reward good behavior but do not tax fuels that burn our money. Once the money is burned we lose it forever.
a heat exchanger was used with success at CUC to harness the waste heat to produce distilled drinking water for Cayman.
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That facility was a failure.
Makes sense!
Very well written and presented!
Unfortunately it will most suredly take a miracle (and overseas consultants and investors) for our Govt. to even consider it!
Both UDP and PPM have failed miserably with dealing effectively with Cayman's energy needs!
The latest from the current Govt. is "for" an Oil Refinery….go figure!
I disagree that it will take overseas interest or big outside investors to make this work. CUC has the financial ability to undertake such a project. It would pay for itself in the first year of operation. The shareholders and Directors alike should be eager to look into the feasability for the sake of increasing revenue and shareholder profit. We the customers would equally welcome more spending money to help build our economy.
The current proposal by government involving the reduction of electrical cost to the residential sector does not fully solve the problem of lowering consumer prices. Their effort only addresses one half of the equation. The other half of the equation is to reduce rates to the commercial sector. Cost reduction to companies is powerful in economic terms. Applying reduced rates to all consumers including companies will double the desire effect of increasing consumer spending power and kick starting this economy as I outlined in the viewpoint.
The major components required are heat exchangers, condensers, turbines, generators and a shallow water irrigation system and a closed loop ammonia sytem. This is not rocket science. The devices are already on the market and could easily be used for the purpose of converting our wasted heat to electricity.
I was being sarcastic…. (in that "it will take a miracle and/or overseaes investors for the Govt. to consider it").
It's clear that as long as CI Govt. allows CUC a monopoly and guaranteed return (profit) they will most likely not persue change!
I agree completely with your suggestions!
Thanks for that. Although I agree with your observation about the lack of motivation on the part of Gov't to seek positive change, I believe that as a company dedicated first and foremost to its shareholders that it is in CUC's best interest financially to implement efficiency measures in order to increase profits. This alone will result in lower rates for consumers since their contract fixes a set dividend percentage. Excess revenue would have to go toward reducing rates. As I said earlier, reduced electrical prices will result in greater consumption and thus greater operating revenue and return for both shareholders and customers. It would be icing on the cake and a big boost to the economy if the Gov't could see the light but I hold little hope for that too. All we can do is make the best of the bad situation handed us by using the available technology.
If all the components are readily available and the system pays for itself within one year, surely there is a case study somewhere to show CUC that it has been done successfully elsewhere?
If you can't name two or three companies that have implemented your solution, then I am likely to assume that something has been overlooked and hold it in the same regard as the proposed oil refinery that is 100% pollution free.
CUC did do a study and bought similar equipment and used it for several years to produce distilled drinking water by using the waste heat. Youwould have to ask CUC the details about why the program was phased out. The waste heat could have and should have been used to generate more electricity since selling electricity returns much higher revenue than selling water. We don't always have to look for outside case studies in order to copycat some other ideas. Sometiimes it is ok to do the math ourselves and be the innovators and the one's that others look to as an example. We can and should be the "case study". Fortis (CUC's parent company) could develop and sell this system to other places using similar diesel generators for added profit. CUC's directors and engineers are very aware of the huge amount of money being burned and will eventually find a way to turn it into useable power. 70 million a year in waste is like a gold mine waiting to be tapped.
Additionally, your car uses only about 30% of the fuel for power. 70% turns into wasted heat. BMW has developed a device using the "Peltier Effect" (also known as the thermoelectric effect) to turn the exhaust heat of the car's engine directly into electricity to power the accessories in cars like lights, fans, stereos etc. It can also be used as a cooling device for refrigeration. It would serve you well to check it out on Wikipedia or Google it. It's been around since the early 1800's and is probably installed in your desktop computer to help cool your CPU.
I took your advice and Googled it. There are many companies already devoted to building and selling "Waste Heat Recovery Sytems". Countries and manufacturing companies alike around the world are using these systems on their diesel generator sets to recover heat and produce power. The higher the value of the electricity means greater return on investment and sooner payoff time. Gov't could force CUC to seek and implement such systems but it would be to CUC's benefit to do it sooner than later. The technology is proven and is in use.
I think the biggest problem is that CUC is a gov't supported monopoly. Their license allows them a profit based on their on the cost to operate. Lowering the cost to generate electricity does not suit their business model. Case at point: my home town burns coal to heat water to turn steam turbine generators. I was working at CUC about 13- 14 years ago as an outside contractor. There were also engineers from ABB there. I asked them what they were doing; they said dismantling the steam turbine generators. I asked why, they said they weren’t working here. Again I asked why, they said they didn’t know because this was the only place in the world that it did not.