Looser Underwriting Standards

News reports indicate that major banks in the U.S., including J.P. Morgan Chase and Wells Fargo, have begun lowering their underwriting standards for one-to-four family homes. The reason: continued decline in new mortgages in January, a Mortgage Bankers Association projection that total originations will decline to $1.116 trillion from approximately $1.755 trillion during 2013, and a preliminary estimate from Inside Mortgage Finance showing that single-family-mortgage-backed securities by Fannie Mae, Freddie Mac and Ginnie Mae were 10% down from December 2013, the lowest since January 2009.

This is an ominous indicator that needed to be nipped in the bud. Here’s why. Moderate, stable demand from “able” first-time buyers is the lifeblood or real estate, particularly when refinancing activity is practically non-existent. When demand declines, sellers are forced to either drop their asking prices or pull their properties off the market until it picks up again. But for everyone except the top 1%, current incomes do not support higher prices. Furthermore, going forward there is no reason to believe this situation will improve since most jobs being created are in the service sector and pay way below what’s required to buy a home at today’s prices. Banks lend because, with few exceptions, they have historically made money when they have done so. Simply stated, if they don’t lend, their profits drop, and if that happens their shareholders are unhappy, especially when their stock begins to decline. And then there’s the awful possibility that if the demand is allowed to continue to decline unabated it may result in another wave of foreclosures, one which, given the government’s many commitments and accumulated debt, would test its ability to neutralize.

Until recently, banks had focused on lending to low-risk wealthy individuals. But they account for only a small percentage of the population, and confining lending activity to that group necessarily results in a correspondingly low volume of originations. Since banks nominally compete with each other for market share, the only way for them to grow beyond that safe sector is to dramatically expand their activity to the less affluent.

Enter Wells Fargo, the largest originator. It is now originating FHA-insured loans to non-super prime borrowers, another way of saying not-so-affluent. These loans are attractive to the extent that most of the risk of default is transferred to the government and the banks can easily sell them in the secondary market, collect substantial fees, and quickly recover their capital to do the same all over again.

In the end, whatever compensatory action the Federal Reserve and its member banks take, whether to keep interest rates low indefinitely or lower originating standards, will prove insufficient unless the economic fundamental that caused the need for this action improves: the steep decline in the purchasing power of the middle class, formerly the largest demographic group. It is irrational to expect these good people to pay high prices for homes without the required supporting income and job security for a 30-year (or longer) commitment. In other words, going forward the only true fix is to create an entirely new mechanism for a far more equitable distribution of future income and wealth. We can have either low wages or high real estate prices, but we can’t have both.

The Appraisal Menace

Background

The origin of the concept of land as an asset is lost in the mists of time. Ancient Greece adhered to it, and the 8th century Franks featured fiefs and personal vassalage which bound the vassal to their king. In 1066 the Normans took the system with them when they invaded England. As the concept spread, governments, banks, sellers and buyers found it necessary to know its worth. Soon it became obvious, long before the advent of paper money in Europe, that measuring its value required specialized knowledge and experience.

The modern American concept of appraising property -including the methodology of determining value based on a history of like comparable sales in similar locations- descends from that feudal system. The first appraisal firms appeared in the late 1800s. During the Great Depression that followed the stock market crash of 1929, when the U.S. abandoned the gold standard, appraisal agencies began to self-regulate. The American Institute of Real Estate Appraisers and the Society of Real Estate Appraisals formed to create appraisal standards as well as certification standards for appraisers. Eventually they merged to form the Appraisal Institute.

A Schism

The creation of the Federal Deposit Insurance Corporation in 1933, which insured deposits (originally for $2,500 per person for each deposit category in each insured bank in 1934, now $250,000 as of 2010), and the Gold Reserve Act of 1934 were watershed events. The latter nationalized all gold and authorized the President to devalue the gold dollar by over 40%, from $20.67 to the troy ounce, to $35. Federal Reserve (the Fed) banks turned over their gold in exchange for gold certificates to be used as reserves against deposits and Federal Reserve notes.

Prior to these events, banks actually feared the consequences of making unsafe loans. Accurate appraisals –and appraiser independence- were considered essential components of risk management that reassured depositors and encouraged mortgage investors not to withdraw funds from the market, for without them the system would collapse.

Though urgent and necessary to combat the Depression, the new laws had unintended consequences. The FDIC did succeed in stopping bank runs, however it also tempted some banks to make riskier but more profitable loans. It made sense; if the banks failed, its executives would not have to answer to thousands, in some cases millions of irate depositors; the government would refund their losses, and the central bank, now off the gold standard and free to create money at will, could and would loan however much it wished to its member banks and/or buy government bonds should tax receipts be insufficient to meet the latter’s needs. The dangers inherent to this nascent symbiotic relationship between the banks, the Fed and the government –known to President Roosevelt- paled in comparison to the distractions of the time: the Depression, World War II, and his own death. But the damage was done. Each and every bank with federally insured deposits became a latent federal liability.

After the war, the destruction of much of Europe, Japan, Russia and China and the abysmal weakness of the rest of the world left the U.S. dollar, by default, the undisputed global reserve currency. Oil was cheap and abundant, the factories hummed, construction boomed, excess capital was plentiful, and the overwhelmingly white American middle class prospered.

The Clouds Gather

The building boom after World War II led to the formation of a large number of lending institutions known as savings and loan associations, or S&Ls. These institutions competed fiercely in all-out “rate wars” by raising rates paid on savings to lure deposits. Alarmed, in 1966 the U.S. Congress took the unusual step to set limits on savings rates for both commercial banks and S&Ls. During the mid 1970s, the economy descended into “stagflation” – slow growth, high interest rates and inflation- a toxic environment for long-term lending funded by short term deposits. In 1979 the doubling of oil prices exacerbated the situation. In response, Congress enacted the Depository Institutions Deregulation and Monetary Control Act of 1980, signed by President Carter, a Democrat, and the Garn-St. Germain Depository Institutions Act of 1982, signed by President Reagan, a Republican. Combined, they allowed thrifts to offer a wider array of savings products and deregulated the industry, which invited fraud.

A Storm

Sure enough, many thrifts embarked into imprudent lending and fraudulent schemes, epitomized by the Lincoln Savings tragedy that wiped out the life savings of over 20,000 mostly elderly people. Thrifts had been chartered to make long-term loans at fixed interest rates funded with short-term money at variable interest rates. When rates increased, they found themselves paying more to their depositors than they received from the loans they had made, an unsustainable situation; soon, unable to attract additional capital, many became insolvent. But rather than admit to insolvency, some CEOs turned their businesses into Ponzi schemes. To do so, they required inflated values; they got them by pressuring appraisers.

All told, by the late 1980s 1,043 out of 3,234 S&Ls in the United States had failed. The Federal Savings and Loan Insurance Corporation (FSLIC) closed 296 institutions and repaid all the depositors whose money was lost, and the Resolution Trust Corporation (a U.S. government-owned asset management company charged with liquidating assets, established in 1989 by the Financial Institutions Reform Recovery and Enforcement Act (FIRREA) and overhauled in 1991) closed 747 additional S&Ls at a cost to the taxpayers of $341 billion. FIRREA ended self-regulation for appraisers and their efforts to create a path leading to college level degrees. Instead, it established the Appraisal Subcommittee (ASC) within the Federal Financial Institutions Examinations Council.

Henceforth, lenders would control every aspect of appraisals and appraisers even though it was they, not the appraisers, who created the crisis that resulted in FIRREA.

A Hurricane

The lessons of the savings and loan crisis were not heeded. Over-speculation and fraud ran rampant again in the first decade of the 21st Century, leading yet again to government bailouts, bank mergers, and the worst financial crisis since the Great Depression. Suffice it to say that in January 2011, after a two-year investigation that amassed 56 million pages of memos and documents, the Financial Crisis Inquiry Commission –headed by Senators Carl Levin and Tom Coburn- issued a report on it. In an interview, Senator Levin noted that “The overwhelming evidence is that those institutions deceived their clients and deceived the public, and they were aided and abetted by deferential regulators and credit ratings agencies who had conflicts of interest.” The Commission found that lenders sold and securitized high-risk, complex home loans, practiced sub par underwriting, and preyed on unqualified buyers to maximize profits. This activity was exacerbated by federal securities regulators who failed to take action to enforce sound lending and risk management by lenders and allowed investors to use credit default swaps to bet on the failure of the very financial products that they then sold to their own clients. Their collusion led to the rise of a gigantic bubble of securities; when the scheme finally collapsed the entire global financial system incurred unprecedented losses.

How did appraisers fare with these “high-risk, complex home loans?” The device fraudulent lenders typically used to ensure the endemic inflation of appraised values was to blacklist honest appraisers. These lenders took what had once been a very good practice and perverted it into an instrument of extortion and fraud by blacklisting and not using appraisers who refused to aid their fraud schemes by inflating appraisals. The root cause of it is that the first line of defense against loan fraud consists of individuals who are either commission-based or salaried with supplemental bonuses and quotas they must meet on pain of losing their jobs. As a result, sales agents, brokers and loan originators are under great pressure to get appraisals with values that make a deal work, and so the pressure is passed on to the appraisers. Fraudulent lenders, of course, do not have to successfully suborn every appraiser or even most appraisers.  A fairly small minority of suborned appraisers can provide all the inflated appraisals required. In contrast, many honest appraisers lose a great deal of income and are forced out of business.

There have been plenty of warnings.

•    In September 2004, the FBI official charged with responsibility for mortgage fraud began warning publicly that an “epidemic” of mortgage fraud was developing and predicted that it would cause a financial “crisis” if it were not contained.

•    An official from the Appraisal Institute stated in a letter to federal regulators, “For years- and more so recently- our members have reported the loss of appraiser independence when they are directed to provide predetermined opinions of value to help facilitate transactions. Failure to adhere to such requests from loan officers, mortgage brokers, and others has resulted in honest and ethical appraisers being placed on an exclusionary or “do-not-use” list.”

•    From 2000 to 2007, a public petition signed by 11,000 appraisers was delivered to Washington officials charging lenders were pressuring them to place artificially high prices on properties. According to the petition, lenders were ‘blacklisting honest appraisers’ and instead assigning business only to appraisers who would hit the desired price targets” (FCIC 2011: 18).

•    Former chief appraisers of appraisal management companies wholly or partially owned by dishonest lenders have written detailing how their bosses attempted to force them to go along with their fraudulent procedures, yet no law enforcement agency has taken any action against the lenders or individuals concerned.

Of course, not all lenders are dishonest. Honest mortgage lenders have known for decades how to prevent appraisals fraud. They create the proper financial incentives for the appraisers and they use review appraisers to ensure competence and honest appraisals. They refuse to hire appraisers who are incompetent or unethical. But the competition for a shrinking pool of qualified borrowers is brutal, and too often honest lenders must face a choice of going out of business or emulating their dishonest piers. To this day, not a single controlling bank executive has been charged with extorting appraisers to inflate appraisals.

Laws

In response to the two crises, two laws addressing appraisal issues were passed: Title XI of Financial Institutions Recovery, Reform, and Enforcement Act of 1989 (FIRREA), and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank). As noted, neither law prevents lenders from blacklisting appraisers.

The Menace

Whether by design or coincidence, the appraisal profession is threatened with extinction. Here’s a partial account of how it’s being done:

  • Coercion is alive and well. Dodd-Frank allows government sponsored enterprises (Fannie Mae, Freddie Mac [GSEs] which purchase most new loans), lenders and appraisal management companies, whether affiliated with, or that own or are owned in whole or in part, by a lender or lender-affiliate or a franchise of lenders, to blacklist appraisers at their sole discretion without the due process that almost anyone else is normally entitled to. Since most lenders sell most of their loans to the GSEs, blacklisted appraisers are effectively put out of business, even if their state-issued licenses remain in good standing. This is akin to having a state-issued driver’s license (the norm in the United States) and not being able to drive because a federal agency (in practice, GSEs are currently owned by the Federal Government) decides otherwise and denies the driver the right to defend him/herself.
  • Not content with proprietary blacklists, lenders use a shared database of sanctioned individuals (including appraisers) and companies in financial services, the Mortgage Asset Research Institute (MARI). Anyone in the database, for any reason, is in effect simultaneously blacklisted by some or all subscribers. Here’s a question/answer article with MARI’s National Manager of Business Development detailing how it works.
  • Lenders have in effect forced appraisers to fund their appraisal quality control operations by appropriating, directly or through their agents (which include but are not limited to appraisal management companies) 50% or more of the appraisal fees they collect from borrowers (who pay for, but do not own the appraisal report) on behalf of the lenders, not the appraisers. In addition, Dodd-Frank allows them to add as many “client-specific” requirements (known as mission creep) as they wish without compensating appraisers for the significant extra time it takes, in the aggregate, to comply with them.
  • There are four levels of licenses, in increasing level of expertise: trainee, licensed, certified residential and certified general. The Federal Housing Administration (FHA) and most lenders do not accept work from the first two. As a result, experienced appraisers are leaving the profession in droves and there is no incentive for younger people to replace them. Since most appraisers are at or near retirement age, it does not take rocket science to extrapolate the precise year when the number of active appraisers will be too small to protect the public, and by extension, the entire economy.
  • Universities and colleges determine the curriculum that lawyers, accountants, engineers, architects, doctors, and mathematicians must follow to earn a degree and become proficient in their fields. The government and the banks use the services of these as well as other specialists in many other disciplines but they make no attempt to dictate the scope of training. Appraisers are the exception; the government and lenders do control every aspect of the appraisal profession. Imagine for a moment what would happen, for example, if plaintiffs or defendants were to dictate to attorneys, who among other things write almost all our laws, the scope and depth of their training.

Already Dodd-Frank permits the use of computer-generated automated valuation models, which are not appraisals, to determine the value of property up to $250,000. Studies show that about 70% of loans prior to the last crisis were under that threshold; therefore 70% of the collapse can be traced to them. The FHA and the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, did require appraisals for their loans, therefore the vast majority of the loans included appraisals. The collapse occurred to a large extent because some lenders were able to extort inflated values from some appraisers. The question is, what would have happened had there not been any appraisals at all?

Why Everyone Should Care

It is clear that each financial crisis originated with fraudulent lenders, and that:

  • With a few exceptions, none of the guilty executives went to jail.
  • The government bailed them out.
  • Trillions of dollars were added to the national debt as a result of high unemployment and underemployment attributable to the crisis.
  • The government’s risk exposure from real estate loans stands at 90%.
  • The same conditions that caused the crises remain in place.
  • The impoverishment of the middle class continues unabated.
  • The wealthy stand to lose far more in absolute dollars than those who have nothing to begin with if the economy collapses.

Consider: the Fed has had to inject $85 billion per month to keep it liquid because the country has a deficit of private capital flowing into it. The Fed now holds in its balance sheet trillions of dollars in bonds it has purchased that will need to be sold to investors -easier said than done since they’re presently not buying nearly as much as they used to- and the government’s deficit now stands at $14 trillion and counting to the tune of at least $600 billion per year (approximately the entire Pentagon’s budget) with no end in sight. Furthermore, just talk of “tapering off” the program impacts interest rates and reduces the number of domestic qualified first-time buyers (wealthy foreigners do not have the same problem and help keep prices high), particularly college graduates who have a hard time finding well-paying jobs. Despite this, the obvious trend is to eliminate the one profession that protects borrowers, investors, and ultimately, the entire economy.

A Solution

Given the symbiotic relationship between the government and the banks, the appraisal profession should be completely independent and fully insulated from both. Only thus would they fulfill their role as guardians of public trust and the economy at large. Here is a list of steps that might do so.

1)    Statutory recognition that appraisals of any type of asset, including but not limited to real estate, are written, formal judgments of value prepared by qualified licensed professionals.

2)    Have accredited colleges and universities create programs leading to degrees in appraising, the same as any other profession, with a curriculum designed by qualified, experienced appraisers with advisory input from the government, lenders, and other users.

3)   Recognize statutorily that the entire fee paid by anyone for an appraisal, at any time and for any purpose, is the sole exclusive property of the appraiser(s), not the lenders’ or their agents.

4)  Have appraisals statutorily classified as intellectual property, entitled to copyright protection, and, as with software producers, to license their product.

5)  Create a Federal Court of Value directly under the Supreme Court of the United States to provide swift due process and resolve complaints from appraisers as well as users of appraisals. From time to time, and in a manner akin to FHA’s asset management program, the Court would award contracts to local appraisal management companies that would be responsible for quality control and final delivery to authorized end users. The system would be supported by fees paid by lenders, insurance companies and other institutional end users for the (licensed) right to use copyrighted appraisals.

6)    Contracted AMCs would collect the appraisal fees on behalf of appraisers, not lenders, and assign cases on a rotating basis within well defined geographical areas.

7)    Anyone, including members of the public, brokers and agents would be entitled to order (and pay for) an appraisal from a Court-designated AMC but without the right to request or select a specific appraiser.

8)    Portability of appraisals prepared by duly licensed/certified, Court-recognized, unsanctioned appraisers to be mandatory for the GSEs and lenders.

9)    Automated valuation models are computer-generated products which can be controlled or altered at will and are therefore a portal to fraud; for that reason they would be banned for new originations.

10)  The GSEs, lenders, or any other end users to be statutorily required to accept reports prepared and signed by trainees and/or licensed appraisers but signed by supervisory appraisers, as needed, who would be equally responsible for the reports. That would renovate the appraiser pool by attracting honest young people who currently have absolutely no incentive to enter the profession, create a mechanism to allow them to acquire real-world experience that cannot be taught in classrooms, and minimize errors.

Ultimately, the people of this country will decide what to do; after all, that’s how a democracy works.

Scientists’ Warnings 12/04/2013

On December 3, 2013, a group of world renowned scientists in a wide array of disciplines issued a comprehensive report detailing the frightening consequences that will follow if global warming is not halted and reversed.  Meeting in Columbia University’s Low Library, they discussed their study and their –so far- unsuccessful effort to create a universally acceptable global plan to reduce emissions of carbon dioxide and other greenhouse gases. They also pointed out that the internationally agreed upon target to limit global warming to 2 degrees Celsius is in fact a “prescription for long-term disaster.”

The study makes it crystal clear what the costs of the current trajectory are, and that to combat the trend, a level of global cooperation entirely different from our current approach will be required.

Advanced Hydrogen Turbine

Background

Siemens Energy, along with numerous partners, has an ongoing U.S. Department of Energy (DOE) program to develop hydrogen turbines for coal-based integrated gasification combined cycle (IGCC) power generation that will improve efficiency, reduce emissions, lower costs, and allow for carbon capture and storage (CCS). Siemens Energy is expanding this program for industrial applications such as cement, chemical, steel, and aluminum plants, refineries, manufacturing facilities, etc., under the American Recovery and Reinvestment Act (ARRA). ARRA funding will be utilized to facilitate a set of gas turbine technology advancements that will improve the efficiency, emissions, and cost performance of turbines for industrial CCS. ARRA industrial technology acceleration, application, and adaptation will also benefit advanced hydrogen turbine development and existing machines in typical utility applications.

This project is managed by the DOE’s National Energy Technology Laboratory (NETL). NETL is researching advanced turbine technology with the goal of producing reliable, affordable, and environmentally friendly electric power in response to the nation’s increasing energy challenges. With the Hydrogen Turbine Program, NETL is leading the research, development, and demonstration of these technologies to achieve power production from high hydrogen content fuels derived from coal that is clean, efficient, and cost-effective, minimizes carbon dioxide (CO2) emissions, and will help maintain the nation’s leadership in the export of gas turbine equipment.

Project Description

Siemens Turbine

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Under the ARRA funded program, Siemens Energy will focus on advancing state-of-the art large natural gas fired turbine technology to produce turbines specifically designed for operation on hydrogen and syngas fuels derived from industrial processes that capture a large percentage of CO2. Advanced technologies and concepts will be evaluated, down selected, and validated. The advanced technologies, component designs, and manufacturing processes will be developed and verified in sub-scale and full-scale tests and process verifications to demonstrate that the program goals can be achieved. Some of the key enabling technologies needed are as follows:

• Fuel-flexible, ultra low NOX, long-life combustion system operating at the increased firing temperatures needed to achieve high efficiency. Siemens will work to develop a premixed combustion system capable of operating on hydrogen fuel at high temperatures with minimal dilution flow. As part of this development, modeling tools for thermal acoustics and computational fluid dynamics will be adapted for hydrogen fuels and validated with test data. The primary path for the hydrogen combustor is a modification of the current Siemens premixed natural gas burner to operate on hydrogen. In addition, as risk mitigation, several alternative combustion technologies will be evaluated to determine if they can provide an improvement for high-temperature hydrogen operation.

• Development and optimization of higher temperature material system (base alloy, bond coat, and thermal barrier coatings [TBCs]) capabilities that allow operation in challenging environments, thus ensuring that the turbine components achieve high reliability and long life.

• Advanced manufacturing processes and techniques essential to producing the novel turbine cooling schemes that are being pursued in this program. Siemens will be producing full-sized engine parts using advanced core making technology, performing investment casting trials, conducting destructive and non-destructive evaluations, machining prototype parts using a proposed production process and conducting full-scale engine testing on final products.

• New sensors and diagnostics to allow more efficient, fuel-flexible, and safe gas turbine operation. Customer interviews determined key sensing needs and sensor specifications for these needs. Based on these results, Siemens will work with sensor vendors to design, develop, and validate sensor designs for engine validation or use in on-line control.

Goals/Objectives

The objective of the ARRA activity is to identify a set of gas turbine technology advancements that will improve the efficiency, emissions, and cost performance of gas turbines for industrial applications with CCS. This extension will accelerate the key technologies needed to significantly improve the efficiency of gas turbines in industrial applications, apply these technologies to the advanced hydrogen turbine, and adapt to existing turbine frames as applicable.

Government funding for this project is provided in whole or in part through the American Recovery and Reinvestment Act.

AWARD NUMBER: DE-FC26-05NT42644

Mass Exodus From The U.S. Workforce – Nov. 2013

The unemployment rate has been declining, but so has labor force participation. Media attention tends to focus on the former and to ignore the latter; as a result, some people wrongly assume that the employment situation is improving and that it’s only a matter of time before things get back to “normal.” Here are some sobering facts.

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The November 2013 Labor Department report shows a clear decline in both unemployment and labor participation. While the economy added more jobs than expected –incidentally, largely in the low-wage retail and leisure sectors- more people dropped out of the workforce altogether. In all, 91.5 million people of working age –37.2% of the labor force- are not working. At this rate, they will surpass the number of workers in about four years.

There are several reasons for this, all negative. While some baby boomers will have non-government income from retirement savings, that will require selling securities. If the number of sellers exceeds the number of buyers, asset prices may decline. If that happens some may be forced to sell even more, triggering a nightmarish cycle. And that’s not all. Generally, people on fixed incomes budget more and spend less, bad for local businesses –but not quite as crucial for multi national corporations- and the government, whose revenue stands to decline accordingly.

Speaking of taxes, safety-net programs such as welfare, food stamps and the new medical insurance program, as well as the military, need lots of taxation to support them; if tax receipts decline, the government will have to decide, gridlock permitting, whether to accelerate the rate of deficit spending, cut expenditures, increase tax rates, or some combination thereof. In any event, the trend does not herald better times ahead, particularly for working class people. We need a new, powerful incentive to get back to work.

Aquafacture Details

Characteristics

Basically, aquafacture is a process that uses a dedicated grid of solar-generated electricity and seawater to produce hydrogen. The hydrogen is then pumped up to a nearby mountaintop to a cluster of 5 or more power plants using Advanced Hydrogen Turbines (currently under development) that do not require fuel cells. The hydrogen is burned and its byproduct –pure water- is captured and condensed. The water is then pressurized and piped down using gravity exclusively to a series of terraced hydroelectric plants on the same mountain. Dams are unnecessary. Thus, the electricity generated by these additional hydro plants using the same manufactured water consecutively would not only recover the energy loss inherent in producing the hydrogen, together they would actually generate a surplus of energy proportional to the number of hydro generators and the volume of manufactured water.

Requirements

1) One natural below-sea-level depression in a desert near an ocean or mountains close to an ocean.

2) A sea-level canal to fill the depression by gravity.

3) Numerous dry lake beds near the depression adjacent to or surrounded by suitable mountains, to expand the system.

4) Absence of war or the threat of war.

Advantages

Unlike coal, a solid, aquafacture’s raw materials –seawater, solar energy and gravity- require no mining. Hydrogen can be transported by pipelines or tankers, depending on the destination. The process generates enough electricity and water to support an entire new economy anywhere regardless of drought. For the first time in recorded history, humans would be able to use renewable energy exclusively to “grow” their own water  anywhere and to make a profit from it.

Basics

Introduction

We are now in the 21st century, the age of weapons of mass destruction, computers, the internet, and interplanetary exploration. But when it comes to water, we still depend on natural precipitation to fill our reservoirs, lakes, rivers and aquifers, much like ancient civilizations did thousands of years ago. We may have learned how to cultivate our food, but we certainly have not yet figured out how to manufacture pure water cheaply and abundantly wherever and whenever we need and want it. That, of course is precisely what we need to make our deserts green and reduce carbon dioxide in our atmosphere, a step in the struggle to reverse global warming. It would also meet mankind’s current and future demand for water anywhere, and help prevent unnecessary wars and famine.

We live in a water world. 70% of the world’s surface is covered in water. Yet the vast majority of it – around 97% – is salt water. Another 2% is locked up in ice caps and glaciers. Only around 1% of the world’s water is fresh, and of that, humanity can only easily access about a tenth, or 0.1%. For decades, desalination and electrolysis have been considered deeply anti-environmental processes, primarily because they consume enormous amounts of energy and release huge amounts of greenhouse gases. Not necessarily.

The Concept

If we found a way to use solar energy exclusively to disassociate saltwater molecules to produce hydrogen at a profit, it would be possible to build a global infrastructure to burn the hydrogen and produce water anywhere in the world. The problem with that is that there is a net energy loss, and hence financial, associated with hydrogen production. The laws of energy conservation dictate that the total amount of energy recovered from the recombination of hydrogen and oxygen must always be less than the amount of energy required to split the original water molecule. We cannot remove this obstacle, but we can go around it by invoking other equally immutable laws:

1) Hydrogen is the lightest element in the periodic table, so light that in its gaseous form it quickly rises in the atmosphere and dissipates. This is extraordinarily useful because it means that the force required to pump gaseous hydrogen upward is minimal; it’s already headed that way.

2) In any volume of water, the ratio of hydrogen atoms to 1 molecule of water is 2:1. The mass of a mole of water molecules is 18g on average, so 2 moles of hydrogen atoms are in 18g of water. There are 3785.4g of water in a gallon (assuming the water is 39.2 degrees F), so there are 3785.4/18 = 210.3 moles of water molecules in a gallon. For every water molecule there are two hydrogen atoms giving 2 x 210.3 = 420.6 moles of hydrogen in a gallon of water. A mole is 6.023 x 1023 atoms. So there are 420.6 x 6.023 x1023 = 2.533 x 1026 hydrogen atoms in a gallon of water. Since each mole of hydrogen atoms has a mass of 2g, there are 420.6g of hydrogen in every gallon of (rather cold) water.

In other words, 1 mole of water is 9 times heavier than 1 mole of hydrogen. It is this difference in mass that makes it possible to use gravity to not only recapture the energy loss but to actually generate a surplus, manufacture pure water, and make a profit -simultaneously. Currently, there are no known commercial facilities anywhere taking advantage of this fact.

Electrolysis

Principle

An electrical power source is connected to two electrodes, or two plates (typically made from some inert metal such as platinum or stainless steel) which are placed in the water. Hydrogen will appear at the cathode (the negatively charged electrode, where electrons enter the water), and oxygen will appear at the anode (the positively charged electrode). Assuming ideal faradaic efficiency, the amount of hydrogen generated is twice the number of moles of oxygen, and both are proportional to the total electrical charge conducted by the solution. However, in many cells competing side reactions dominate, resulting in different products and less than ideal faradaic efficiency.

Electrolysis of pure water requires excess energy in the form of overpotential to overcome various activation barriers. Without the excess energy the electrolysis of pure water occurs very slowly or not at all. This is in part due to the limited self-ionization of water. Seawater has an electrical conductivity about one million times more than pure water. Many electrolytic cells may also lack the requisite electrocatalysts. The efficacy of electrolysis is increased through the addition of an electrolyte (such as a salt, an acid or a base) and the use of electrocatalysts.

Currently the electrolytic process is rarely used in industrial applications since hydrogen can currently be produced more affordably from fossil fuels.

Solar Cells 44.7% Efficient

Press Release

September 23, 2013

The Fraunhofer Institute for Solar Energy Systems ISE, Soitec, CEA-Leti and the Helmholtz Center Berlin jointly announced today having achieved a new world record for the conversion of sunlight into electricity using a new solar cell structure with four solar subcells. Surpassing competition after only over three years of research, and entering the roadmap at world class level, a new record efficiency of 44.7% was measured at a concentration of 297 suns. This indicates that 44.7% of the solar spectrum’s energy, from ultraviolet through to the infrared, is converted into electrical energy. This is a major step towards reducing further the costs of solar electricity and continues to pave the way to the 50% efficiency roadmap.

Back in May 2013, the German-French team of Fraunhofer ISE, Soitec, CEA-Leti and the Helmholtz Center Berlin had already announced a solar cell with 43.6% efficiency. Building on this result, further intensive research work and optimization steps led to the present efficiency of 44.7%.

These solar cells are used in concentrator photovoltaics (CPV), a technology which achieves more than twice the efficiency of conventional PV power plants in sun-rich locations. The terrestrial use of so-called III-V multi-junction solar cells, which originally came from space technology, has prevailed to realize highest efficiencies for the conversion of sunlight to electricity. In this multi-junction solar cell, several cells made out of different III-V semiconductor materials are stacked on top of each other. The single subcells absorb different wavelength ranges of the solar spectrum.

“We are incredibly proud of our team which has been working now for three years on this four-junction solar cell,” says Frank Dimroth, Department Head and Project Leader in charge of this development work at Fraunhofer ISE. “This four-junction solar cell contains our collected expertise in this area over many years. Besides improved materials and optimization of the structure, a new procedure called wafer bonding plays a central role. With this technology, we are able to connect two semiconductor crystals, which otherwise cannot be grown on top of each other with high crystal quality. In this way we can produce the optimal semiconductor combination to create the highest efficiency solar cells.”

“This world record increasing our efficiency level by more than 1 point in less than 4 months demonstrates the extreme potential of our four-junction solar cell design which relies on Soitec bonding techniques and expertise,” says André-Jacques Auberton-Hervé, Soitec’s Chairman and CEO. “It confirms the acceleration of the roadmap towards higher efficiencies which represents a key contributor to competitiveness of our own CPV systems. We are very proud of this achievement, a demonstration of a very successful collaboration.”

“This new record value reinforces the credibility of the direct semiconductor bonding approaches that is developed in the frame of our collaboration with Soitec and Fraunhofer ISE. We are very proud of this new result, confirming the broad path that exists in solar technologies for advanced III-V semiconductor processing,” said Leti CEO Laurent Malier.

Concentrator modules are produced by Soitec (started in 2005 under the name Concentrix Solar, a spin-off of Fraunhofer ISE). This particularly efficient technology is employed in solar power plants located in sun-rich regions with a high percentage of direct radiation. Presently Soitec has CPV installations in 18 different countries including Italy, France, South Africa and California.

Solar Batteries

June 21, 2013

SMA Solar, Germany’s largest solar company and the world’s largest maker of inverters, a device to feed solar-generated energy into the electricity grid, announced the introduction of a new battery set to store surplus daytime solar energy for up to three hours of nighttime use.

The new combined inverter battery will give a four-person household up to three hours of extra energy during the evening, the equivalent of up to 50 percent of their own solar power.

The company’s figures are based on conditions in Germany, where clouds and precipitation limit exposure to direct, unobstructed sunlight throughout the year.

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