Who Needs Waxman-Markey to Cut Emissions!
US DOE’s Short Term Energy Outlook (STEO) is out.[1] Not surprisingly, total U.S. electricity consumption was down 4.4% in the first half of 2009 compared to 2008, because of the impact of the recession on industrial electricity sales—we made less stuff!
As a result, carbon dioxide (CO2) emissions from fossil fuels are down by 6.0% in 2009 (U.S. Carbon Dioxide Emissions Growth Chart). This is the second year in a row that CO2 emissions have fallen in the US. But as the economy recovers and natural gas prices rise, the Department expects 0.9-percent increase in CO2 emissions in 2010.
US DOE said CO2 emissions from coal-fired power plants fell almost 10% because low natural gas prices encouraged fuel switching. EIA projects monthly Henry Hub natural gas spot price will average $2.32 per thousand cubic feet (Mcf) in October 2009, the lowest monthly average spot price since September 2001. And, as you might expect, such low gas prices are causing new record highs at the end of this year’s injection season (October 31) to more than 3.8 trillion cubic feet (Tcf) in an effort to lock in the cost savings ahead of the expected rise in natural gas prices. The STEO projects Henry Hub annual average spot price to rise from $3.65 per Mcf in 2009 to $4.78 in 2010 but how much it will go up depends upon the fuel demand for power generation and the pleasantly surprising continued growth of U.S. natural gas production from unconventional gas sources like shale formations.
Lower fuels costs should result in lower electricity retail prices year-over-year for the first time since early 2003 with the STEO projecting annual average 2010 residential electricity price of 11.4 cents /kWh or about 2% lower than the 2009 average.
Other factors helping to reduce both fuel consumption and emissions include the addition of 102 wind farms totaling 8,400 MW with another 300,000 megawatts of wind projects are proposed. [2] Solar projects also grew rapidly but the solar industry hit a financing speed bump during the recession because of limits on capital access.
While the growth in renewable energy capacity was impressive, don’t forget that those 8400 of wind capacity that came on line are the equivalent of only 8 typical sized coal plants. And that represents the biggest challenge to renewable energy today. Can we scale the additional of renewable energy sufficiently—and cost effectively enough—to continue the emission reduction process without more onerous government mandates?
But remember, our insurance policy is natural gas combined cycle generation along with the growing supply of domestic gas from unconventional sources.
What’s missing?
If the US is truly serious about reducing greenhouse gas emissions, it can be accomplished by the continued growth in renewable energy. But we also need to see growth in construction of baseload nuclear power and the use of natural gas fired combined cycle generation to reduce the market share of coal in the overall fuel mix.
Waxman-Markey is primarily driven by imposing a political solution to a market economics problem. It is industrial policy of the worst kind locking the US into a rigid Washington-driven formula rather than letting the market adapt to changing conditions with a fuel mix and technology mix that works.
[1] http://www.eia.doe.gov/emeu/steo/pub/#Overview
[2] http://tonto.eia.doe.gov/cfapps/STEO_Query/steotables.cfm?periodType=Annual&startYear=2006&startMonth=1&endYear=2010&endMonth=12&tableNumber=24
Could SmartGrid Turn Out to be a Dumb Idea?
While there is enormous promise in smart grid technology, it will take more than intelligent meters than can spin both ways to realize its true potential. The Administration is focused on pouring stimulus money into smart grid technology both to create jobs and to advance the pace of clean energy adoption.
But the electric transmission sector is the last unreformed part of the electric power value chain. There are several substantial policy, political and business problems that can undermine all the technology investment in smart grid equipment we are about to make. Yet little attention is being paid to these barriers to our smart grid future. They include:
Grid Fragmentation
There are three separate North American power grids. The Eastern Interconnect includes the US and Canada from the Atlantic Ocean to the Rockies. The WECC covers the Western States, a small part of Baja California in Mexico and the Western Canadian Provinces, and then there is ERCOT—the Republic of Texas is alive and separate with a distinct grid covering much of that state.
Moving electricity North and South within each grid is relatively easy, but East-West movement between the grids is impracticable. Doing so requires converting alternating current to direct current to move it to the adjacent grid and then converting it back to alternating current. There are a few places where this is done, but it represents a small fraction of the vast need to move energy for optimal use. This becomes even more important when we consider the desire for access to renewable energy resources such as geothermal and solar in the West or the wind resources of ERCOT or the Midwest.
Congress dabbles with policy solutions. In the Energy Policy Act of 2005 it first authorized US DOE to designate National Interest Electric Transmission Corridors (NIETC) where future high voltage DC power lines could be built. Two were designated including one in the Southwest US for solar energy and one in the Northeast. But scores of politicians objected to US DOE “intrusion” into the regional or local role of states.
We are now awaiting release of US DOE’s 2009 Congestion study to learn whether the Department plans to designate additional NIETC corridors. If it does not or fails to address assertively the integration of these three un-synchronized power grids then the investment in Smart Grid will be restricted to use in each of the respective grids based upon the progress in retrofit.
Grid fragmentation prevents the North American wide scaling of markets that gives renewable energy developers bigger markets for their projects. SmartGrid is primarily an IT play and scale is necessary for these start-ups and investors to realize the potential for their products. Defragging the transmission system improves the ROI in smart grid investment and drives down the costs of conversion faster for all of us. Grid fragmentation prevents the optimization of grid resources so that each market can take advantage of the resources and capabilities of all the markets.
There are two ways to end grid fragmentation. The first, is to build the transmission interstate highway system equivalent often discussed straddling the interconnects with high voltage DC backbone transmission sufficient to satisfy the smart grid objectives. This will require large financial investments by the industry and the preemption by the Federal Government of the morass of state, regional, local planning, permitting, environmental and other land use reviews which has, to date, been the NIMBY death to most transmission construction projects.
The second alternative, (I suggest facetiously) is maybe we can just turn the power off in two of the three grids and on the count of three flip the switches at the same time to get them to function the same. Just kidding!
Creating a truly North American scale electric power grid opens the full potential of SmartGrid to create continental markets and competition for both renewable energy and clean technology, transmission congestion services, demand response, energy efficiency and customer aggregation. Unleashing the forces of wholesale and retail competition is the sure way to the SmartGrid promise.
Grid Balkanization
The second problem is like the first except it is policy driven not technology driven. Grid fragmentation resulted in balkanizing the authority to manage power grids.
In the beginning this was done by state public utility regulators and their jurisdictional vertically integrated utilities. FERC and Congress sought to prevent utilities from using their monopoly ownership of transmission to prevent competition so utilities were forced to turn over control of transmission to independent system operators in order to take advantage of the benefits of wholesale power competition.
The result was amending the Federal Power Act adding new laws creating USDOE and FERC, adopting the Energy Policy Act of 1992 and a series of FERC Orders implementing these laws clarifying Federal jurisdiction over interstate transmission. One result was creation of regional transmission organizations in many parts of the country with the notable exceptions of the Southeast and Pacific Northwest. By forcing utilities to turn over operational control of transmission to these RTOs or independent system operators, FERC thought it was doing the industry a favor. While we got less utility control, we substituted an even more complex bureaucracy and drove up the cost of transmission operation substantially.
Today the promise of SmartGrid requires renewable energy developers and other technology players to navigate a complex web of stakeholder committees, business process reviews, transmission planning requirements and the like.
Even if we get interoperability standards in place among SmartGrid equipment and appliance builders, we still have the problem of this balkanized policy setting process across the country driving up the cost, slowing down progress, and forcing a mind-number process of planning consultation in the absence of clear strategic direction.
Left to the fate of RTO/ISO process as usual SmartGrid will suffer the death of a thousand meetings, cost vastly more to implement, and take longer—much longer.
Who’s on First? The Politics of Federal-State Relations
The third problem is pure politics. SmartGrid forces the Federal government and States to talk to each other. It requires active collaboration on action plans around share objectives. State regulators are loath to give up jurisdiction and control over utilities and the transmission siting and permitting process. This creates a system where an interstate transmission line is subject to being held hostage to regulatory proceedings in each state, country, municipality or special district is passes through. Good luck with that.
Watch what happens when USDOE issues its 2009 Congestion Report. That study is complete and due to Congress by the end of September, but DOE officials says release is being held up by Administrative clearances. This is code for a fear that certain members of Congress are going to have reactions ranging from irritation to apoplexy over the DOE’s recommendations.
The more you hear about political conflict this 2009 Congestion study in the press, the better job US DOE is likely to have done on the report.
So what?
Spending a king’s ransom on SmartGrid technology offers the promise of transforming the way we use energy, but it may not deliver on that promise because of these problems. It offers the potential for cleaner power generation technology, more efficient use of energy, the ability to turn appliances on and off to optimize our energy use. But none of this will matter if the transmission grids remain fragmented, control balkanized and bureaucratic, and politics takes precedence over economics of energy efficiency, optimization and security.
Which will we get?
Coping with Copenhagen
Imagine Times Square, New York City on New Year’s Eve, you see the giant Tiffany crystal ball overhead prepared to light up and signal the fresh start of something new, something better, something hopeful to wash away the sweat and tears of the past year.
Now go to the website of the UN Climate Change Conference where you will find the countdown clock for the Copenhagen Conference on Climate Change ticking away dramatically. Don’t you feel the excitement, the anticipation, the prospect of realizing the aspirations of Kyoto which were frustrated by the refusal of the United States and a few other Neanderthal nations to play ball? This time around the United States has a new president, and he REALLY wants to play ball at Copenhagen. He wants to be accepted as a player in the global quest to solve the “climate crisis”.
Does this feel a little surreal?
If you answer yes, that’s good because the build-up to Copenhagen is one of the best produced movies since—well, An Inconvenient Truth. It has drama. It has villains. It has suspense. It has a noble quest to lift the spirit and a cast of many hero-wannabes.
What is does not have but is about to get is a big dose of reality therapy. That reality is being delivered in small doses these days as the countdown clock ticks on seeking desperately to adjust expectations to fit the facts of what can be done—and not done in Copenhagen in December. You will hear these messages in diplomatic dress over the next few months delivered by politicians and statesmen who having raised expectations by endless pandering to the true believers now try to adjust them to the current realities.
The Kyoto Protocol was successful in raising world awareness of environmental responsibility and good stewardship. It strengthened the drive for energy efficiency, expanded use of cleaner fuels and new renewable energy technologies, and encouraged investment in cleantech we might not have seen otherwise.
The Kyoto Protocol failed miserably as an enforceable global policy framework for disciplining countries in setting, enforcing and achieving specific mandated reductions in greenhouse gas emissions. We all know the reasons for this failure. The world’s biggest economy and some of the world’s fastest growing developing economies refused to be bound by arbitrary global mandates especially if they impeded economic growth. Others signed onto Kyoto and then either ignored the targets, failed to achieve them, or cheated. The rest lamented that the “science was settled” and chastised any who questioned it. But while the literati and environmental do-gooders rejoiced in Al Gore’s Nobel Prize and Academy Award the folks on Main Street were not quite convinced that the inconvenient truth was really true.
And so for all the hype and work of the climate change or “climate crisis” public relations machine, regular folk voted not to bankrupt themselves by imposing carbon taxes or environmental police measures on themselves when the world’s greatest economy and its fastest growing ones said “no thanks, we’ll just watch how it works out for you—but good luck with that” and went about their business.
Meanwhile, back in Washington, DC on September 22, 2009, the U.S. Environmental Protection Agency finalized new rules requiring major greenhouse gas emitters to monitor and report their emissions. The first report by emitters, covering 2010, is due in 2011. This reporting requirement will provide data to assist US EPA which is considering a rule to declare such emissions a public danger. Such a declaration would then lead to further new economy-wide rules to regulate emissions. These regulatory actions are being taken as part of an uncertain choreography with Congress which is considering a cap and trade bill called Waxman-Markey which is facing the death of a thousand cuts in Senate consideration.
The Copenhagen clock is indeed ticking—and so is the one in Washington, but we don’t know yet whether it will be a celebration or a wake.
