September 30, 2008

What Happened in Congress and What Should They do? - Plus Explaining the "Bailout"

It is a sad day we live in when our elected representatives to Congress cannot vote "appropriately" to help our country. As educators, I would hope that this could be a good lesson for your students.

When you are in a leadership position, you sometimes need to put the organization in front of yourself. The problem that I see with Congress (or at least the House of Representatives) is the constant need to put their reelection efforts in front of the country's interest. Not advocating anyone here, but isn't one of McCain's slogans "Country First"? Shouldn't the entire House of Representatives think about this?

I watched most of the debate this morning on C-Span prior to the vote on the financial bill, and I could not have been more embarrassed. Most of the Democrats came to the podium for their two minutes of face time to complain about the Bush administration, and the Republicans followed suit by complaining about the bill the Democrats had brought forward. Luckily, there were a few from both sides of the aisle that actually asked everyone to vote for the bill. They explained that it was not perfect, but the bill was much better than doing nothing.

Unfortunately, our Speaker of the House, Nancy Pelosi, decided this was a great time to rant against the Bush administration and the Republicans...not the right time if you ask me. The Republicans are not without blame though, as 2/3 of them voted no. Final Tally - 205 to 228. Is this really the time to take a stand on principles?

I do understand wanting to defend your constituents and make sure that you are doing the right thing, but did the 777 point fall on the Dow maybe wake you up?

My Plan

My quick and easy plan is this...

  1. Get all the Representatives and Senators in one room - no media, no cameras, no recordings
  2. Explain it all - get to the basics - forget the extras - hammer out the details
  3. Write the bill - it could not be more than 10-15 pages
  4. Take it to the floor of the House, forget the debate, call a vote
  6. Take it immediately to the Senate
  7. No debate, call a vote
  9. Send it to the President and have it signed immediately

Man, look at that... From a bill to an act in just a few short steps. One to two days to get the whole thing done. I can just imagine the "I'm Just a Bill" song playing in the background.

If every single Representative and Senator votes "yea" for the bill, how are they really going to be chastised at home at reelection? "I put the good of the country first. There were 534 other members that also voted yes from all states and both parties. It may not be popular, but it was the right thing for the good of the country."

How is this so easy that they cannot understand it?

How the Bill Works

The absolute basic principle of the plan is simple. Here is a quick example using eBay -

I have $100 to spend. I go on-line to eBay searching for a baseball card. There are ten of the cards I want, and I buy the lowest priced one for $100 (the guy I pay can now go buy more cards). I get the card, and I contact 5 card dealers.

Option 1 - The highest price I get is $85. I just decide to hold it. Five years later, the guy is going in the Hall of Fame, and I sell it for $130. Now I made $30...

Option 2 - The highest price I get is $85. I need the cash, so I sell it. I lost $15, but I did get the $85.

This whole thing about how we are just adding $700 billion to the debt is ridiculous. Do you think we are going to buy $700 billion in mortgages that are backed by real property and not recover anything? The housing market will recover, the percentage of loans that default will remain low, and assets will appreciate.

I do not like the thought of "big government", but if it is for the good of the nation and economy, I can support it. I simply hold on to the historic principles of our founding fathers and believe that putting country before self is necessary.

Our elected officials promised us leadership and accountability in Congress - where is it?

September 27, 2008

Alternative Energy - Part 4 of 4 - A Look At Four Different Options

With the rise in the price of conventional fuels (namely oil and natural gas) earlier this year, there was a shift to look at different energy alternatives. Many people have pointed to the need for green energy, while others have talked about the U.S. dependency on foreign countries for oil. Whatever the reasons may be, alternative energy sources are going to become a growing part of our lives.

Today's post will be the fourth in a series of four posts discussing different alternative energy sources - nuclear, solar, wind, and ethanol. While none of these sources to be discussed are new, the importance of each over the next 10+ years should grow.

We have already discussed nuclear power, solar energy, and wind power, so this week will be ethanol.


This is the one alternative fuel that has drawn the most interest during this series. I have received more e-mails and calls about discussing ethanol than anything else, so I have tried to address many of the questions and concerns that were asked.

First, ethanol is probably the alternative fuel that touches the most Americans since it is a common additive in gasoline. The blended fuel (gasoline and ethanol) has similar combustion characteristics to pure gasoline, so as a fuel it is really nothing more than something to reduce the use of oil.


Since the 1850's, ethanol has been used as a fuel. In the beginning, it was used primarily for lamps, but that changed when taxes on it increased (Civil War liquor tax). Suddenly, kerosene and methanol were substituted.

In 1896, Henry Ford built his first automobile, the quadricycle, to run on pure ethanol. In 1906, the liquor tax was repealed, and Ford declared ethanol the fuel of the future. Ford designed his Model T to run on a mixture of gasoline and ethanol.

From there it seemed that ethanol would continue to be used, but the need for harvest foods due to World War I, the Great Depression, and World War II led to a decline in ethanol. Finally its use decreased even more with the realization that cheap oil made gasoline less expensive than ethanol.

It was not until the 1970's that ethanol started to be revitalized again after oil prices shot up but then faded away again. Over the last few years, as the green movement started to grow, ethanol once again became more important. With the rise in oil this year, it started drawing even more interest.


There are several ways to make ethanol from crops. One process uses yeast to ferment the sugars and starch in crops like corn, barley, wheat, rice, sorghum, sunflower, potatoes, sugar cane and sugar beets.

Since ethanol is created by fermenting sugar, sugar crops are the easiest ingredients to convert into ethanol. Brazil, the world's largest producer of ethanol, makes most of its ethanol from sugar cane. Many cars in Brazil are engineered to operate entirely on ethanol made from sugar cane.

Comparisons to Gasoline

Unlike gasoline, ethanol is biodegradable. It quickly breaks down into harmless substances if spilled. When small amounts of ethanol are added to gasoline, usually less than 10 percent, there are many advantages. Ethanol reduces the emissions of carbon monoxide and other toxic pollution. It keeps engines running smoothly without the need for lead or other chemical additives. Because ethanol is made from crops that absorb carbon dioxide and give off oxygen, it helps reduce the total volume of greenhouse gas emissions.

Ethanol does not get even close to being as efficient as gasoline. A study focused on the new flex fuel 2007 Chevy Tahoe SUV. The Tahoe can either run on gasoline or e85 ethanol, which is a blend of 85% ethanol and 15% gasoline. The report found that the Tahoe averaged 14 mpg on gasoline and only 10 mpg on ethanol - 29% less. This decrease in mpg is expected because ethanol contains less energy than gasoline. This means that using e85 fuel will cause drivers to refuel more often than gasoline.

Beyond just the mpg issue, there is the fact that you must find a gas station that will sell e85 (only 1,500 nationwide). Plus each time you fill up, you pay the same gas taxes. There is also a wide range of prices for e85. In some states, there is more than a 30% difference between e85 and gasoline, but in other states, the difference is only 2%.


Overall, the basics of ethanol sound like a viable alternative, but unless it becomes easier to produce, more readily available, the auto manufacturers accept it, and ultimately cheaper, it will not be a long term solution.

The production issues are being researched. There is currently a study analyzing "cellulosic ethanol" that can be produced from trees, grasses, and crop waste. The grass (switchgrass) is the most interesting item. Since it seeds itself, is perennial, and can grow on marginal land, it looks to be a very, very cost efficient alternative to corn, wheat, etc. If the process can become efficient, this could drive down ethanol prices and drive up production.

The distribution and auto manufacturing issues will be the last to fall. Gas stations must see a demand, and without a number of flex fuel vehicles, there will not be much demand. There are vehicles (approximately 2 million) that are flex fuel vehicles on the road, but how many of their drivers take advantage? How many owners live in states where the difference in price does not make it economically beneficial to use ethanol?

In a search around my house (Norcross), I found 8 gas stations within 20 miles that sold e85 gas. The price difference between e85 and regular gasoline was only about 13%. This is a nice, environmental option, but it is not economically feasible for most people especially when prices are so high.

In the end, if the issues raised can be solved, it could definitely be a good solution. Will they be solved and when?

Sources: Consumer Reports, GM, Oklahoma Cooperative Extension Service, Oklahoma Department of Agriculture, Food and Forestry, Oklahoma State Department of Education,

September 25, 2008

How Main Street Will Profit - Another Take on the "Bailout"

Since we are all somewhat stuck hearing about the big "bailout", I thought it was relevant to post this blog because it affects all of us - Main Street to Wall Street.

On Wednesday in my normal blog, The Rollins Financial Blog, my firm wanted our post to accurately describe the "bailout" that has been proposed by Treasury Secretary Paulson and backed by Fed Chairman Bernanke. We are obviously not the only ones trying to explain the "bailout" to everyone.

Also on Wednesday, William (Bill) H. Gross the chief investment officer and founder of the investment management firm PIMCO went to the airwaves and print media to explain his view. In case you have not heard of him before, Gross manages the $133 billion Pimco Total Return Fund and helps oversee the more than $812 billion in assets at Pimco. Below is his opinion piece from Wednesday's Washington Post:

How Main Street Will Profit

By William H. Gross
Wednesday, September 24, 2008; A23

Capitalism is a delicate balance between production and finance. Today, our seemingly guaranteed living standard is threatened, much like it has been in previous recessions or, some would say, the Depression. Finance has run amok because of oversecuritization, poor regulation and the excessively exuberant spirits of investors; the delicate balance has once again been disrupted; production, and with it jobs and our national standard of living, is declining.

If this were a textbook recession, policy prescriptions would recommend two aspirin and bed rest -- a healthy dose of interest rate cuts and a fiscal package that mildly expanded the deficit. That, of course, has been the attempted remedy over the past 12 months. But recent events have made it apparent that this downturn differs from recessions past. Today's housing bubble, unlike that of the stock market's before it, was financed with excessive and poorly regulated mortgage debt, and as housing prices began to tumble from the peak, the delinquencies and foreclosures have led to a downward spiral of debt liquidation that in turn led to even lower prices and more foreclosures.

And so, instead of mild medication and rest, it became apparent that quadruple bypass surgery is necessary. The extreme measures are extended government guarantees and the formation of an RTC-like holding company housed within the Treasury. Critics call this a bailout of Wall Street; in fact, it is anything but. I estimate the average price of distressed mortgages that pass from "troubled financial institutions" to the Treasury at auction will be 65 cents on the dollar, representing a loss of one-third of the original purchase price to the seller, and a prospective yield of 10 to 15 percent to the Treasury. Financed at 3 to 4 percent via the sale of Treasury bonds, the Treasury will therefore be in a position to earn a positive carry or yield spread of at least 7 to 8 percent. Calls for appropriate oversight of this auction process are more than justified. There are disinterested firms, some not even based on Wall Street, with the expertise to evaluate these complicated pools of mortgages and other assets to assure taxpayers that their money is being wisely invested. My estimate of double-digit returns assumes lengthy ownership of the assets and is in turn dependent on the level of home foreclosures, but this program is, in fact, directed to prevent just that.

In effect, the Treasury will have the fate of the American taxpayer in its hands. The Resolution Trust Corp., created in the late 1980s to deal with the savings and loan crisis, dealt with previously purchased real estate, which was flushed into government hands with a "best efforts" future liquidation. Today, the purchase of junk mortgages, securitized credit card receivables and even student loans will be bought at prices significantly below "par" or cost, and prospectively at levels allowing for capital gains. This is a Wall Street-friendly package only to the extent that it frees up funds for future loans and economic growth. Politicians afraid of parallels to legislation that enabled the Iraq war are raising concerns about a rush to judgment, but the need for speed is clear. In this case, there really are weapons of mass destruction -- financial derivatives -- that threaten to destroy our system from within. Move quickly, Washington, with appropriate safeguards.

The Treasury proposal will not be a bailout of Wall Street but a rescue of Main Street, as lending capacity and confidence is restored to our banks and the delicate balance between production and finance is given a chance to work its magic. Democratic Party earmarks mandating forbearance on home mortgage foreclosures will be critical as well. If this program is successful, however, it is obvious that the free market and Wild West capitalism of recent decades will be forever changed. Future economic textbooks are likely to teach that while capitalism is the most dynamic and productive system ever conceived, it is most efficient over the long term when there is another delicate balance -- between private incentive and government oversight.

September 24, 2008

What Should I Do If I Leave Education?

I had a visitor to the site ask me about leaving education. Specifically, they asked me about their 403(b) and their pension.

As an advisor, I look at each one separately when it comes to what to do after you leave education. During your time in education though, I would view them together with the pension as a fixed income investment and the 403(b) as an equity investment.


As I stated in my last post, many times the annuity based 403(b) vehicles sold by AIG-VALIC, Jefferson National, Lincoln National, etc. have additional "hidden" fees called mortality fees which are typically about 1% of the account per year. This fee is charged in addition to mutual fund fees, the quarterly statement fee, plus anything else they tack on. They would like for you to leave the assets where they are so they can continue to receive these fees for as long as you hold the account. The interesting thing is the fees do not give you any additional benefits.

The short answer is roll the 403(b) over into an IRA.

A quick example - My firm would also charge you 1% to manage those assets, but the difference is, we would continually review the holdings, make changes as the market and economy dictate, and discuss the various options with you. That's not all though - we would also help you with any other financial issues you have. Refinancing, purchasing a house, pension options, student loans, estate planning, etc., etc. All for the same 1% fee. No hidden fees, no hidden service charges, no compensation paid to us by anyone but our clients.

The annuity firms would charge you their fees (described above), and if you wanted to make an appointment, you could go sit down and talk to a representative about your account. They would make some recommendations, then you would most likely not hear from them again.

We have a service business for our clients, and they have a holding business for your assets.


If you are truly sure you will never go back to education, then the issue is are you vested? In Georgia, if you were an educator for 10 years or more, then please do not let anyone talk you into rolling over your pension! It may not seem like much, but you will receive 20% of your salary forever once you reach age 60 if you taught just 10 years - 30% for 15 years - 40% for 20 years - 50% for 25 years - 60% for 30+ years.

A guaranteed income stream is a good deal, and the additional item is if you do roll it over, you only receive the funds that you contributed - not your funds plus the state funds they contributed for you.

If you are not vested (less than 10 years), then please rollover the balance into an IRA. Only do this though if you are sure you are not going back to education. If you go back, you will need to repurchase those "lost years" later to receive the pension for it.

Just last week I met with a potential client that asked me what to do. They could either take a pension as a lump sum ($100,000), or they could have a salary for life of $8,500. Since I am bound to look at the best interest of the client, I literally had to convince them that the annual pension was the best idea. They finally agreed, but it was only after I found out they wanted to take the lump sum to pay a few small debts off first. Pay a few small debts, lose a lifetime pension... not a good idea.

If you have a specific question(s), always feel free to e-mail me. I am happy to help you, and it may just save you from making a huge mistake.

September 19, 2008

403(b) Investing - Choice of Firms and Investments

There was a huge response to the blog from yesterday regarding AIG VALIC and the safety of your account. From everything I have continued to read, the accounts do in fact seem to be safe with no issues. I would personally recommend not using VALIC due to fees, investment choices, etc.

In regards to the ability to choose a firm to use for your 403(b), most counties have more than one firm to choose from. In Gwinnett, you actually have the ability to choose between four firms - AIG VALIC, Lincoln National, Jefferson National, and Fidelity. It is probably obvious which one I would recommend - Fidelity.

Fees, investment choices, ability to roll it over later without fees, customer service, ease of use, etc. Fidelity pretty much is on the ball here.


I have received several questions over the last few days about investments and continuing to make contributions when the market is rough. First, on the investments, you should always try to make sure that you are well diversified. This does not mean choosing every fund, but looking at all of the funds, and selecting the best funds from a variety of categories - large cap, mid cap, small cap, international, etc. The amount you allocate to each also matters.

Personally, since you have a secure pension, I believe in allocating little to nothing in bonds in a 403(b). This is more aggressive, but considering, the bulk of your assets are already in fixed income (your pension), you are not making anywhere near the "bets" that business people make with their 401(k)'s. Everyone is different though, and the closer you get to retirement, the more you might want to see about having more bonds. The key is to be diversified and really understand what it is you are invested in.


I know that when the market gets rough it is tough to think that you may be losing money on day one when you contribute, but the main point here is that no one can predict the bottom of the market. When the market is low, you are buying more shares of the funds you own with every paycheck. As the market turns and trends higher, your next paycheck will actually buy less shares. This is called "dollar cost averaging".

By investing this way, study after study has shown this to be the most effective and efficient way to maximize your return. Since you are contributing every month, sometimes you will buy when it is high and sometimes you will buy when it is low. Just continue making the contributions, and you will win over the long term. Just remember to diversify...

Let me know if you have any questions - just e-mail me.

September 18, 2008

Is My Retirement Safe? Is My 403(b) Safe?

Update 2 - March 3, 2009 - To read the latest happenings on AIG/VALIC please click here.

Update 1 - To read Part 2 of this post, discussing the recent market activities since this original post, please click here.

September 18, 2008

As a husband to an educator and friend to many educators, I have been asked continually over the past few days about the safety of their retirement. Below I will break apart each part of an educator's retirement so there is little confusion. First, your TRS pension, and then the 403(b) account - VALIC specifically.

Pension - Teachers Retirement System of Georgia (TRS)

The cornerstone of any educator's retirement is their pension from TRS. There is a clear basic formula as to what your benefit will be, and it does not change unless by law. The current formula is 2% for each year of service (30 is max) of the average of your highest two consecutive years' salaries. Thus, if I make $55,000 my 29th year and $60,000 my 30th year, I should receive a benefit pretty close to the following:

$55,000 + $60,000 = $115,000 / 2 = $57,500 average of 2 highest consecutive years

30 years X 2% per year = 60% benefit

60% X $57,500 = $34,500 per year

Additionally, you do receive a Cost Of Living Adjustment (COLA) of 1.5% every 6 months.

As the TRS website says:
TRS administers the fund from which teachers in the state’s public schools, many employees of the University System of Georgia, and certain other designated employees in educational-related work environments receive retirement benefits. TRS offers a defined benefit plan, guaranteeing a monthly benefit – based on a member’s final average salary and service – which is payable for the life of the member, and when applicable, transferable to a member’s spouse or beneficiary(ies).

A defined benefit retirement plan (401A) relieves its members of the burden of making investment decisions and assuming the risk associated with those decisions. TRS assumes this risk for its members. Therefore, the retirement benefit offered by TRS is secure. Unlike an IRA or 401K account, a TRS retirement benefit is not impacted by stock market performance. The State of Georgia guarantees TRS members will receive retirement income for life. Also, depending on the plan of retirement chosen, a TRS retirement benefit can be passed to a beneficiary at a member’s death, and the beneficiary continues to receive this income until his or her death.

TRS manages the retirement accounts of approximately 272,000 non-retired (active) members, and pays a monthly benefit to approximately 75,000 retired members and survivors. TRS retiree payroll is in excess of 2.2 billion dollars per year.

TRS benefits are administered and paid in accordance with laws enacted by the Georgia Legislature.

403(b) Accounts

Since the most pressing issue is the safety of the assets in 403(b) accounts, I will discuss them today. Tomorrow, I will discuss the investing, but today it is important to understand how safe your account is.

The parent company of VALIC is AIG, and they have been in the news with the threat of bankruptcy. Tuesday night, AIG was given a loan by the Federal Reserve for $85 billion, but if you have a VALIC 403(b), your assets are NOT going to be effected by AIG per the information they have provided..

According to a press release from AIG Retirement,

  • VALIC underwrites, issues and guarantees our annuity products. VALIC is financial strong with $3.4 billion in adjusted capital and surplus as of 6/30/08. Adjusted capital and surplus means that VALIC is able to meet its obligations (such as the fixed account options and fixed annuity contracts). VALIC's capital and surplus is completely separate from our ultimate parent, AIG.
  • FIXED ANNUITY: VALIC client assets in the guaranteed fixed investment options are protected by Texas state insurance regulations. The fixed options provide fixed rate earnings and a guarantee of principal. This guarantee is backed by the claims-paying ability of VALIC, which supports only the obligations of VALIC, not any obligations of AIG.
  • VARIABLE ASSETS: Client assets in the mutual funds or variable annuity account options are invested in mutual funds regulated by the SEC. A mutual fund's assets are owned by its shareholders and managed by a professional portfolio manager; thus, such funds are not affected by business actions involving AIG or AIG Retirement.

    • Further, since VALIC is domiciled in the State of Texas, Texas state law requires insurance company separate accounts to be held apart from the rest of the company assets. Therefore, the variable annuity separate account assets in these mutual funds are held for the exclusive benefit of the clients and their beneficiaries. This insulation provides safety for each client, and ensures that the account is not subject to claims from any person or entity other than a contract owner, plan participant or beneficiary.
    • The mutual fund and variable account options change in value each business day. Retirement investments are long-term investments, and fluctuating values means that when redeemed, the investments can be worth more or less than its original cost. This also means that client investment returns depend on the performance of the individual investments the client selected and not on the performance of AIG, or any of the AIG Retirement companies.

I hope this helps you feel a bit better about your retirement, and tomorrow I will discuss the investing side of the 403(b) accounts.

Sources: Teachers Retirement System of Georgia, AIG Retirement/VALIC

September 17, 2008

Alternative Energy - Part 3 of 4 - A Look At Four Different Options

With the rise in the price of conventional fuels (namely oil and natural gas) earlier this year, there was a shift to look at different energy alternatives. Many people have pointed to the need for green energy, while others have talked about the U.S. dependency on foreign countries for oil. Whatever the reasons may be, alternative energy sources are going to become a growing part of our lives.

Today's post will be the third in a series of four posts discussing four different alternative energy sources - nuclear, solar, wind, and ethanol. While none of these sources to be discussed are new, the importance of each over the next 10+ years should grow.

We have already discussed nuclear and solar energy, so this week will be wind power.

Wind Power

Since the 1870's, the U.S. has been using wind power in some capacity. During that period, there were two companies producing windmills. They were used mostly in rural areas that allowed a farmer or rancher to pump groundwater to the surface for use. The windmill has been credited with helping to open the plains and west up for farmers and ranchers. In fact, one of those companies, Aermotor, is still making the exact same windmills today. However, on their website they have a disclaimer - "No. Water and electricity don't mix," so sorry no energy production.

Fast forward to today, and we have just started to realize exactly how abundant wind is as a resource. In the U.S., wind power accounts for 48 billion kWh of electricity a year which will serve approximately 4.5 million households. While that sounds very good, that is only about 1% of the current electricity demand in the U.S.

If we look around the globe, we begin to see how far behind we are in the utilization of wind power. In Denmark, over 22% of the nation's electricity comes from wind power. Germany and Spain come in second with both countries harnessing about 16% of their electricity from the wind. With only 1%, the U.S. has far to go to catch up.

Unless you have been sleeping the past two months, you have probably seen T. Boone Pickens in one of his many commercials talking about the "Pickens Plan". As a man that has literally amassed a huge fortune being an oil man, it is interesting seeing him switch to other forms of energy. His first comment on a current commercial is "Drill, Drill, Drill...(for oil)," and then he goes on to discuss wind and natural gas. His point, much like Joe's, is that we need to increase domestic oil production while moving toward alternatives. Of the alternatives, his favorite idea is wind.

His "Pickens Plan" proposes building wind facilities in the corridor that stretches from the Texas panhandle to North Dakota which is estimated to be able to produce at least 20% of the nation's electricity. Pickens has already started this move toward wind with Pickens' Mesa Power building the largest wind farm in the world in the Texas panhandle.

The huge windmills are actually now "wind turbines" and stand up to 410 feet tall with blades that stretch 148 feet in length. They are usually white, and if you have ever been near one, you hear the low "swoosh" of the blades as they turn.

The costs to move to wind power are not cheap. About 70% of the cost to harness wind power is the turbine. Over 75% of the market for turbines is effectively controlled by four companies (Vestas Wind Systems of Denmark, Gamesa of Spain, GE, and Siemens Power Generation of Denmark). Three of the four are from Europe which makes sense considering the capacity to which they currently use it.

The way utilities in Denmark, Spain, and Germany pay for the wind turbines is through government subsidy programs and wind power that is sold at above-market prices on the grid. The hope is the U.S. will be similar. If Congress will continue the wind generation subsidies, then the utilities will definitely see the advantages of moving toward the abundant resource.

Interestingly, due to the current utilization in European countries, the U.S. should be able to learn from those countries and make any transition easier. Also, since many countries do not have the space or wind that the U.S. has, the U.S. looks poised to be the next growth venue for wind power (30% per year over the past 6 years). There should be a pick up in manufacturing plants and electricity plants for wind power. This could spark renewed interest in rural America with rural cities suddenly growing.

It is not all positive for wind energy though. The sites must be suitable with a minimum and maximum amount of wind plus there are the environmental concerns (birds mainly), neighbors to worry about, and construction and transmission cost to get to the grid.

Also, wind does not exactly follow a supply/demand model. When the wind blows, the turbine turns. When it does not blow, the turbine doesn't move. Pretty easy to understand, but the wind does not pay attention to the energy demand as to whether or not it blows. Thus, someone will need to come up with ways to "store" the energy when the wind blows and the excess power is not needed.

I know T. Boone Pickens will be working on these issues...

Sources: The Pickens Plan, Janus

September 9, 2008

Alternative Energy - Part 2 of 4 - A Look At Four Different Options

With the rise in the price of conventional fuels (namely oil and natural gas) earlier this year, there was a shift to look at different energy alternatives. Many people have pointed to the need for green energy, while others have talked about the U.S. dependency on foreign countries for oil. Whatever the reasons may be, alternative energy sources are going to become a growing part of our lives.

Today's post will be the second in a series of four posts discussing four different alternative energy sources - nuclear, solar, wind, and ethanol. While none of these sources to be discussed are new, the importance of each over the next 10+ years should grow.

Solar Energy

Solar Energy has been around for decades, but many really do not know or understand the basics. Essentially, there are two ways to harness the sun's energy - solar thermal and photovoltaics.

Solar thermal is the lessor known and lessor used solar energy option, and it is generally used to heat swimming pools and water in residential homes. Solar thermal is also being used commercially by extremely large power plants. A plant generating energy via solar thermal uses literally acres of mirrors to focus the rays to create steam to drive turbines to create power. One plant, Nevada Solar One, uses more than 300 acres of mirrors to generate power for 14,000 homes around Las Vegas. One report by the Energy Information Administration of the U.S. Department of Energy believes that solar thermal systems will grow 23% in 2008 over 2007.

The solar energy we all know about though is photovoltaics or "PV". PV uses silicon to create solar cells that energize electrons and generate electricity. They can be used in something like that solar calculator we all have, or something much, much larger - say a home or store.

Solar cells are being used more and more, and the main issue for them is efficiency. The space that each solar cell has is finite, but the efficiency in which it can create electricity is the catch. The only real problem for solar cells (in a region that can utilize them effectively) is the start-up costs. The cells are not cheap, but current government tax subsidies and a push for green power have helped some businesses (retailers specifically) to look at them seriously.

Earlier this year, Wal-Mart (WMT) announced a pilot program in which they were installing solar cells on the roofs of 22 stores (Sam's and Wal-Marts) to study the efficiencies. SunPower is the maker of the cell that Wal-Mart is testing. The proprietary "SunPower T-10" solar roof tile tilts at a 10-degree angle to increase energy capture, and it is claimed to be 50 percent more efficient than conventional solar panels. The savings to Wal-Mart started on Day One...

Wal-Mart is not alone though as Kohl's, Safeway, and Whole Foods Markets have started their own programs. While none of these have more than 10% of their stores set up for solar power generation, if Congress will continue the solar subsidies, it is believed the popularity of solar cells for retailers would increase.

As the technology improves, the current solar cells that only allow 15-22% of the solar energy to be converted into usable energy will be replaced by much more efficient systems. As they improve and costs drop, do not be surprised to see them popping up on residential roofs and store roofs alike. The projection is for the use of solar cells to jump 50% from 2007 to 2010.

Sources: U.S. Department of Energy, Reuters, Janus