Tag Archives: energy

Victory for Solar Friendly PG&E Rates

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That was the headline from the cleantech blog I opened May 27, 2011 as I surveyed my email inbox, sipped my first cup of coffee and tried to wake up.  There were other stories about the decision by the California Public Utilities Commission to approve a revised rate design for electricity rates, but this ‘Victory for Solar Friendly PG&E Rates’ symbolized this morning the inherent conflicts in utility rate design—it is almost always a zero-sum game.

The California Public Utilities Commission voted down proposals by PG&E that would have been a big step backward for solar customers. The two major victories were 1) the CPUC opted to maintain its 4 tier rate structure, wherein high usage customers are given a strong price signal to conserve electricity or invest in solar to offset the cost of high usage, and 2) PG&E will not be allowed to implement a fixed customer charge,” the blog story from Vote Solar read.

Yes but!

On the warm side of the hills where a growing share of PG&E’s customers live and try to make a living sufficient to feed their family and afford their rising utility bill, the reaction was very different.

The CPUC action in this rate design case split the differences between the parties. It did allow PG&E to reduce the rate tiers but did not permit the increase in the customer service charge. This PG&E rate re-design proposal came about because of outrage in Bakersfield over high utility bills as PG&E was installing smart meters.  This outrage has come to be known as the Bakersfield Effect because it brought customers out into the street ‘totally ticked off’ blaming their smart meter for the high bill caused by the socially engineered rate design.

PG&E’s spokesman Tom Bottorff said after the CPUC decision that PG&E customers who use large amounts of electricity will pay 17.6 percent less than they do now under the new rate design approved but will still pay nearly three times as much as the Tier 1 customers.

For years Tier 1 rates have been called “lifeline rates” designed to provide low cost rates to the first block of energy use to benefit poor, seniors and others in need.  But apartment dwellers in San Francisco and homes in the foggy Bay Area use less electricity and thus benefits from the tiered rate structure because they don’t use their air conditioners in summer. On the warm side of the hills or in the central valley portion of PG&E’s service territory it is a different story.  There the steeply progressive nature of PG&E’s residential rate structure hits hard whether you are low income or not.  PG&E had proposed to reduce the tiers even more than the CPUC approved and more evenly distribute the cost of service by moving a portion of the revenue requirement to a larger customer service charge paid by all residential customers—about $3.00 per month which would have affected the folks in the fog.

The next paragraph in the Vote Solar cleantech blog post revealed the truth about the rate design contest that the CPUC had just resolved:

“Why does this matter? Because rate design, or the process of setting electricity prices, is one of the most important factors in the financial decision for energy customers to go solar. Since much of a solar energy system’s value comes from the utility payments it is offsetting, electricity rates have a significant impact on a solar customer’s return on investment.”

“In the PG&E rate case, the utility had proposed eliminating its 4th residential tier – effectively moving its highest consumption customers into a lower tier and raising rates for others. This closely follows PG&E’s decision to eliminate Tier 5, which recently penalized existing PV owners and makes the changing price dynamics for solar even more extreme – not helpful when you’re trying to encourage investments with long-term payoffs. We modeled the impact of these proposals across a variety of consumption levels, PV system sizes and geographic locations under the two rate scenarios. The modeling showed that most PV customers would lose bill savings in a big way under PG&E’s proposed changes. The graph below illustrates the impact to a typical Tier 4 customer:

Furthermore, PG&E proposed a fixed $3.00 charge in lieu of its existing minimum charge. On policy grounds, Vote Solar opposes flat charges like these because they represent a lost opportunity to incentivize energy conservation and customer investment in PV; in other words, no amount of customer activity would be able to reduce that charge. And the net effect of the proposal would be to drive up rates for low usage customers and reduce rates for high usage customers.”

There you have it!

The reason the solar lobby in California vigorously opposed PG&E’s rate design proposal had nothing to do with the public concern about rising utility bills and EVERYTHING to do with keeping rates as high as possible on the warm side of the hills to improve the competitive position of solar energy companies.

You see solar still costs more even though its costs have been dropping—than other power generation supply options.  But PG&E and other investor owned utilities in California are required to procure 33% of the electricity consumed from renewable sources even if they cost more.  That is one factor driving up utility rates. So the best hope of solar companies to make a profit and be sustainable is to keep the 33% RPS pressure on utilities to buy the output of their projects and keep the rates high to make solar look more cost effective.

It’s enough to make you green—-with envy.  You can be sure this Vote Solar bragging is not taking place in Bakersfield or elsewhere in the Central Valley—but safely in the fog of their 300 Brannon Street, San Francisco office.

Fracking Safety for Unconventional Oil & Gas Domestic Growth

US Shale Gas Potential to 2035

Fracking Safety Review Panel named even as new unconventional production records are set.

President Obama’s Blueprint for a Secure Energy Future seeks to reduce the U.S.’s dependence on oil and increase the use of renewable energy sources.

North Dakota is doing its part by setting another record production month in March with reports that it pumped 359, 589 barrels of oil per day in March according to the North Dakota Department of Mineral Resources.

But no good deed goes unpunished as the old saying goes so back in Washington DC:

  • On April 16, 2011 House Democrats Henry A. Waxman, Edward J. Markey and Dina DeGette released a report they said was “the first comprehensive national inventory of chemicals used by hydraulic fracturing companies during the drilling process.” used by the 14 leading oil and gas service companies in the U.S.  They want the industry to disclose all the chemicals used in fracking and want EPA to regulate their use in hydraulic fracturing to prevent groundwater contamination.
  • On May 9, 2011 U.S. Department of Energy Secretary Steven Chu formed a subcommittee of his Energy Advisory Board of industry, environmental and state regulatory experts to make recommendations to improve the safety and environmental performance of hydraulic fracturing from shale formations in response to fears that use of fracking chemicals can cause groundwater contamination.
  • Frankly, the oil and gas industry has not helped allay concerns about groundwater contamination by its reluctance or refusal to release the ingredients used in fracking fluids.  This has fed fears that the chemicals are dangerous and given opponents of horizontal drilling using hydraulic fracturing more ammunition for their NIMBY cause.

The steady increase in domestic oil and natural gas production from unconventional sources is a genuine American energy success story.  US DOE’s Energy information Administration says recoverable unconventional natural gas deposits may represent more than 100 years of average domestic supply and oil recovery from unconventional sources is offsetting the foot dragging on drilling in the Gulf and deep water along the coasts needed to replace rapidly depleting conventional vertical drilling resources.

So let’s get on with this health and safety review and set some best practices to assure that hydraulic fracturing is the safe, reliable, effective E&P strategy we think it is for putting America back into the energy production big leagues.

Energy Subsidies and other Boondoggles

President Obama responded to higher oil prices by calling for repeal of tax subsidies on oil companies.

Never mind that oil prices are set by global commodity markets and keep supply and demand in balance using price movement to restore equilibrium—a process as old as time. The more it costs the less we use and price comes down to clear the market demand.

Investigations were announced and months from now when commodity prices fall again the panel investigating will report they found no basis for market price manipulation.

But in today’s economic climate any call for subsidy cuts sends a panic rushing along K Street where lobbyists turn their meter on and go press the political flesh to count votes and and protect their clients from irrational political behavior.  But the Daily Caller’s Chris Moody ran a story about a new Federal subsidy being proposed:

“The House is expected to consider a bill soon that would offer $5 billion in tax credits to the natural gas industry, a proposal that is causing a split among conservative members and groups.

The bill, called The New Alternative Transportation to Give Americans Solutions, or NAT GAS Act, would provide a generous tax credit to transportation companies that buy a vehicle that runs on natural gas. The measure has 180 bipartisan co-sponsors, including many of the chamber’s most conservative Republican members.

But some are crying foul over the special treatment that the government would be providing to the natural gas industry, arguing that it is not Washington’s role to “choose winners and losers” by offering tax credits to promote one energy industry over another. The bill’s proponents, however, say promoting natural gas — a plentiful resource in the United States — will help wean the country off foreign oil, provide resources to alternative energy sources and increase the nation’s energy security. A coalition of nearly two dozen free-market and conservative groups sent a letter to members of Congress in March urging them to avoid new subsidies and tax credits, and they plan to blast anyone — especially Republicans — who do.”

What are they thinking?

There is an energy revolution going on in the United States right now and it is being led by the amazing success of unconventional oil and natural gas exploration and development.  Even the US Energy information Administration called unconventional oil and gas a “game changer”.  US domestic supply of oil and gas is actually going UP despite the best efforts of the Administration to stall or kill-off deep water drilling in the Gulf of Mexico and anywhere else in the country.  Meanwhile, President Obama goes to Brazil and announces the US wants to be a ‘customer’ of new Brazilian deep water oil output. DUH!

The oil and gas industry does not need a new Federal subsidy—it needs for the government to get out of the way and let the revolution happen!

I could almost turn into a Ron Paul supporter over issues like this.  Let’s hope nothing comes of this.

America’s failed “industrial policy” of picking winners and losers among fuels, technology and companies is undermining our national security making us weaker and more vulnerable to unreliable but politically correct choices.  It is driving up our costs and weakening our competitive advantage.

Once upon a time we had markets for the purpose of forcing business to actually compete for customers, compete to reduce costs and increase quality.  Today the core competency of many firms is the hiring and managing of K Street lobbyists.

For the record, I favor the elimination of the subsidies for oil and gas companies.  I also favor eliminating those for ethanol, for wind, for solar and coal and nuclear all replaced by a level playing field where ‘least cost, best fit’ is the Darwinian industrial policy and the role of government is to create a level playing field where all can compete.

If our environmental strategy would strike a reasonable balance between protecting our environment with clean air and water, reasonable habitat protections and mitigation of damage while simultaneously balancing those environmental interests with our compelling national interest in economic growth and development and a thriving industrial base creating jobs—my forecast is we’d see the clean energy economy take off.

And if we would change the tax code to make repatriating earnings and investing in America more attractive than keeping investment, manufacturing and earnings off shore our economy would keep growing here at home rather than in China or Far-off-istan!

There ends the rant.

America’s E&P Mojo is Back!

America’s domestic E&P mojo is Back thanks to American technology and our potential for E&P domestic energy growth from unconventional oil and natural gas plays here at home.  The question is whether the Government will tolerate such an unqualified success without smothering it in new regulations.

North Dakota is currently the fourth largest producer of oil in the United States and has been setting new production records almost every month. At the end of 2010 oil production had grown to 342,000 barrels of oil per day (BOPD). The key impediment to even faster growth is the oil pipeline and transport infrastructure limits.

The North Dakota Department of Mineral Resources updated its estimate of recoverable oil in 2008 and 2010 based upon better E&P data and now believes there are 4.0-6.3 billion barrels of recoverable reserves in North Dakota’s Bakken and Three Forks formations alone. And there are additional oil plays including the Lodgepole, Tyler, and Spearfish that are yet to be explored for development.

Stop and think about that for a moment.  At the current actual oil production rate of 350,000 barrels of oil per day (BOPD) at the current price of WTI Cushing oil of $112.43 per barrel (4/27/11) North Dakota alone is reducing oil imports by $39.3 million per day or more than $14.4 billion per year annualized.

Energy security we can believe in!

We know from experience with unconventional oil and gas production that it will not always be this way in North Dakota and pother plays as the horizontal drilling technique is effective in extracting the ribbons of oil and natural gas but the size of the plays is typically smaller than the huge conventional oil play pools found in the Gulf of Mexico or Alaska.  But studies done by the North Dakota Industrial Commission and Mineral resources Department suggest the Peace Garden State has an undeveloped resource base as large again as that found in Western North Dakota suggesting at least an additional ten to twenty years of intense drilling and development, followed by several more decades of continued petroleum production.

America’s Unconventional Oil and Gas Transformation Underway

Combine the resource potential of North Dakota with those of similar oil plays in other states and it adds up to enough domestic energy production potential to fuel America’s energy transformation. The US EIA reports that US oil production declined in all but one year from 1986 to 2008 and increased in both 2009 and 2010 caused primarily by the increase in deepwater developments in the Federal Gulf of Mexico in 2009 and by the growth in horizontal drilling programs in U.S. shale plays in North Dakota portion of the Bakken formation in 2010. In the Bakken and other shale formations horizontal drilling and hydraulic fracturing have refocused on oil production instead of shale gas production because of higher oil prices and low gas prices thus increasing oil production. Baker Hughes rig count data shows a pronounced trend toward oil horizontal rigs from less than one-third of oil-directed rigs in September 2008.  Since then horizontal oil rigs have tripled to about 46% of all rigs.

And then there is Unconventional Gas

US EIA’s Annual Energy Outlook 2011, says there is 2,552 trillion cubic feet (Tcf) of potential natural gas resources in the US. Unconventional natural gas from shale resources are 827 Tcf of this resource estimate, more than double the EIA estimate published last in the AEO2010. Based upon the 2009 rate of U.S. consumption (about 22.8 Tcf per year), that is enough natural for 110 years of use.  EIA expects these unconventional gas estimates to grow and other potential oil and gas plays are explored and validated.

Higher oil prices reflect the global tradable market for oil as a commodity.  Lower domestic natural gas prices reflect the reality that natural gas trades primarily as a regional commodity.  There was a time not long ago when energy experts expected LNG to transform natural gas into the same globally priced commodity as oil.  Russia, Qatar and others even considered forming an LNG cartel like OPEC to fix prices for natural gas.

What changed?

American technology demonstrated the potential for horizontal drilling and hydraulic fracturing to unlock the potential of previously uneconomic shale oil and gas plays.  North Dakota and Texas were the laboratories for these new technologies and now they are the domestic powerhouses of unconventional oil and gas production.

But the success of this disruptive technology could be undermined by NIMBY restrictions out of fear of groundwater contamination or government restrictions on unconventional oil and gas from the piling on of new regulations.  The oil and gas industry needs to ‘get real’ about fracking fluid disclosure and best practices to reduce the risks and mitigate the need for Federal intervention.

But the government also needs to get it priorities straight and recognize that the potential from unconventional oil and gas is a game changer that gives America a competitive advantage today.  If the US restricts the use of horizontal drilling or fracking the rigs and expertise working at home today in America will just go elsewhere in the world and America will be stuck with higher imports, higher prices and a weaker economy.

How to have Happy Endings for ‘SOTU Dates’ in Congress

No, I’m not talking about disgraced Congressman Lee (R-NY) who resigned this week after a solicitous photo from Craigslist ‘exposed’ the 46 yr old married politician with his pants down.

Remember in the run-up to the president’s state of the union message the political buzz was that Democrats and Republicans were pairing up to sit together to show the American public their willingness to work together.  Of course, we were suspicious of this as a stunt by politicians who cannot resist the warmth of TV camera lights.

But will any of these dates produce a happy ending?

Gallup conducted a poll of voters asking what actions they most wanted Congress to take in 2011 testing the potential for compatibility of these dates. Given the politics of Capitol Hill the voters surveyed were clear about just how far they want their Congressional representatives to go on their next date.

The surprise in the voters answers suggest a ‘hook-up’ Democrats and Republicans in Congress on several key issues American public WANTS them to do.

Wipe that grin off your face and listen.  The constant bickering and sparing for political points turns off most Americans, but the eHarmony or match.com ‘dates’ from the SOTU stunt might actually blossom into a romance Americans would support if the partners focus on their measures of compatibility.

Here are the questions and answers from that poll:

QUESTION: I’m going to read a list of actions Congress could take this year. Please say whether you strongly favor, favor, oppose or strongly oppose Congress doing each of the following this year. How about –

Total % Favor Total % Oppose
Pass an energy bill that provides incentives for using solar and other alternative energy sources 83 15
Pass a bill to overhaul the federal tax code 76 14
Speed up the withdrawal of US troops from Afghanistan 72 25
Pass an energy bill that expands drilling and exploration for oil and gas 65 33
Approve a free-trade agreement with South Korea 53 35
Pass stronger gun control laws 49 50
Take steps to deny automatic citizenship to children born in the US whose parents are illegal immigrants 44 54
Pass a bill to give some illegal immigrants living in the US a path to legal status 43 55

Source: Gallup, based on polling on Jan 14-16, 2011.

See what I mean?

  • Happy Ending # 1:  Renewable Energy + Drill, Baby, Drill. More than 85% favor creating incentives for solar and other clean energy sources on the one hand, but 65% also want the barriers removed for more domestic oil and gas exploration because we worry about energy security and believe keeping more of our money at home rather than spending it on imported oil is better for the country.  But don’t let China buy up all that new oil and gas we’re finding before we can use it for ourselves.
  • Happy Ending # 2: Pimp My Tax Code Till it Feels Good. If the parties got together to streamline the Federal Tax Code not only would they save us tons of frustration but a ton of money now spent gaming the tax system could be redeployed to useful, value-creating work.  Americans think we are falling behind because lobbyists have larded up and abused the tax system to intrude in our lives and choices.  Get your hand out of my pants pocket—unless you are serious about happy endings for all is the message.
  • Happy Ending #3: We are the Superpower Economic Champs—Keep it that way! There is only so much treasure we are willing to spend on a corrupt Afghan government—buy more drones and bomb the bad guys, but bring the troops home.  Meanwhile, quit pissing off our friends and allies like South Korea and approve the dang free trade agreement.  Besides we’re going to need South Korea to build all those new nuclear power plants before China reverse engineers all our technology.
  • Happy Ending #4:  Stay Away from Immigration, Gun Control and other Hot Button Issues. No happy ending is yet possible on these issues so don’t waste your time on them until after you fix the important big stuff above.

Isn’t dating fun?

Flushing Energy Down the Drain

A new study published in the Environmental Science and Technology Journal of the American Chemical Society says that the energy producing potential of wastewater has been underestimated by about 20%.

In “Determination of the Internal Chemical Energy of Wastewater” professor Elizabeth Heinrich wrote that turning wastewater into another energy source would have substantial benefits since the US uses about 1.5% of its electricity supply to treat more than 12.5 trillion gallons of water each day.  The article estimates that the energy potential of each gallon of treated wastewater is the equivalent of running a 100 watt light bulb for five minutes.

I will spare you the discussion of the net metering potential of this.  The best I think you can expect is that each trip to the bathroom can now be considered “carbon neutral”.

Wash your hands!

Peak Oil Blowout!

The concept of peak oil has been around for decades in the imagination of those who either fear —or wish—that the days of successful E&P of the black liquid are waning.  Peak oil advocates argued that we have already reached the point where the most oil able to be produced from the easy to find sources has been reached and we can expect to see steady declines in new oil discoveries—-ergo—get thee off the black stuff and onto cleaner options.

The political correctness of peak oil helped it grow in popularity among both the ‘chattering classes’ and the ‘political classes’ because it reinforced their environmental views.

I am not opposed to renewable energy nor cleaning up the environment, but in the real world where I live and work “sustainability” means I can continue to afford to use the product and live the lifestyle I have chosen without harassment or breaking the law.

Yes, I know, I am making fun of the peak oil true believers.

But admit it, they have it coming. Most of us know enough about science and the scientific method to realize that just because Al Gore says there is ‘incontrovertible evidence’ of global warming does not make it so.  And just because The Oil Drum says we reached the stage of peak oil in 2008 and it is irreversible—does not make it so.

That is why it was SO DELIGHTFUL to read in an authoritative source none other than The Oil Drum that a new high in liquid production has been reached.  The problem for The Oil Drum was this report was written January 2011 for a period including November 2010!  And worse, the report was confirmed by both IEA and OPEC.  Oh Mon Dieu!

“Both the IEA and OPEC came out with new monthly reports recently. And both report that oil production in November 2010 exceeded the previous high month of July 2008 (back when oil was over $140). Probably the difference is within the margin of error, and in any case the third agency (the EIA) won’t weigh in for a few months.”—-The Oil Drum January 5, 2011

I’ll take that as an admission of error on the peak oil notion.

So what?

So the problem with the peak oil concept is that it relied on the old school view of oil and gas E&P where vertical drilling in search of vast pools of oil was the stuff of petro-dreams.  Today most of the new prospects for such oil come from non-OPEC countries in places of large potential and larger risks like Africa and deep water off-shore Brazil.  No doubt we will find it there, but meanwhile, the real story of the oil and gas future is in unconventional sources that use horizontal drilling and hydraulic fracturing to search for the ribbons of hydrocarbons once thought uneconomic to produce the old style conventional ways.  They were right then, but not today.

Even better news is that unconventional oil and gas apparently can be found in many places around the world from North America where it is transforming the energy business despite the best efforts of our government to prevent domestic oil and gas production from growing to China that so desperately needs new domestic sources of energy that it is now importing coal from the US that we will not allow to be used here to the EU where Russian gas always carries a risk greater than any OPEC price gouge.

It is time for the US to have an energy policy driven by a reasonable balancing of economic and environmental considerations and focused on sustainable economic growth not a failed policy of picking winners based upon the political correctness of fuels.

So Drill, Baby, Drill!

California RPS Dreamin’

As expected California’s three major investor owned utilities will not meet the 20% RPS goal by the end of 2010 as required by law. We have known this outcome for more than a year, but pressure has been applied on all sides to get as close to the goal as possible.  The failure to meet the goal is not causing major heartburn because procurement is continuing and the CPUC and CEC have been approving new projects at a frantic pace over the last six months to ‘show progress.

At the end of the third quarter reporting period the RPS performance was about 15% of retail electricity sales allocated as follows:

Despite the inability to meet the 20% target California pressed on nonetheless setting an even higher 33% PRS goal by 2025 by executive order.  By increasing the goal to 33% and pushing it beyond the term of office of the current politicians responsible for failing to meet the 20% target—this is considered ‘good news’ in Sacramento.

There is an additional 352MW of renewable projects that are working feverishly to come on line by year end 2010 to meet the federal financing requirements.  But Congress granted an extension to the end of 2011 for compliance.  To date, the sum of all renewable energy capacity installed that counts toward achieving the California RPS goals is 1, 049 MW or about the size of one typical nuclear power plant or—bite your tongue—typical Midwest coal plant.  Remember we don’t allow either new nuclear or coal plants to be built in California—that’s one of the reasons our electricity rates are so high.

But we still feel good about trying to meet our RPS goals and save the planet even if we fail. And the voters seem to think that’s OK since they rejected Proposition 23 to suspend the Global Warming Solutions Act on the November ballot effectively telling Sacramento to keep doing what you are doing.

Now Jerry Brown is on the hook to finish what he started the first time he was Governor.  The 33% RPS goal is set by executive order not legislation and the state can hardly afford any more subsidies of anything.

The sum of our fears is the perfect storm of higher state taxes, higher electricity rates and continued high unemployment.

Forget it, I’m not giving up my old beer refrigerator in the garage to save energy!

Reading the Energy TEA Leaves after the Election

While the results of the 2010 midterm elections are still be digested, the impact on the energy industry seems likely to be net positive if you believe in a balanced energy future that includes using more of America’s domestic energy potential.  If you are the American Wind Energy Association you probably are still drinking to ease your pain.  This gallows humor is meant to suggest that the GOP and TEA Party view that America should have a well rounded, domestic product focused energy strategy is likely to move forward in search for common ground with the Democrat view of climate change action and renewable energy.

From RES to CES. The panel said that AWEA’s push for a national renewable energy standard (RES) had little chance of passing but a modified clean energy standard (CES) that included tax support for building new nuclear power plants and investing in clean coal technology along with continued tax credits and loan guarantees for renewable energy might find common ground. As you can imagine adding tax supported competition for new baseload generation from zero emission nuclear power and low emissions from clean coal carbon capture and sequestration was not what the wind boys wanted to hear on top of their other problem competing with China.  But that is where they are like it or not so the debate is shifting toward finding a compromise number higher than the 15% RES proposed by AWEA but allowing nuke and clean coal to count.  Unless you raise the target it becomes a zero-sum game with the larger baseload plants swamping the smaller wind and solar plants.  Do I hear 33% anybody?

Waxman-Markey is Dead and AB32 Got a Stay of Execution. It seems clear that hell will freeze over before any kind of carbon tax bill makes it out of Congress.  Even the president admitted this was dead until at least after the next Presidential election.  Even in California where voters rejected Proposition 23 to suspend AB32 the California Global Warming Solutions Act those same voters approved Proposition 26 which reclassified administrative fees and impact fees just like CARB expects to impose to tax carbon releases under AB32 as a “tax” and thus requires a 2/3 vote of the Legislature or voter approval.  Carbon taxes are going to be radioactive in this new political environment.

New Nukes. It is time to step up the nuclear licensing, standards and regulatory approval process for new standard technologies for smaller scale, safe nuclear power plants. We should create a competitive market among the major architect-engineers and take advantage of the construction experience in other countries while America has been on the nuke sidelines to accelerate our go-to-market strategies.  America needs more baseload power for the future and now is the time to build the next generation of nukes to expand the current fleet and progressively replace the oldest units.  And we need to do this BEFORE inflation eats our lunch and sends us déjà vu into the same death spiral cost overrun conditions that hurt the first generation nuclear units.

Drill Baby Drill. Domestic oil and gas production won new champions in this election in the belief that America should produce more of its own energy book and put its best technology to work to do so efficiently, cleanly and effectively.  Horizontal drilling and hydraulic fracturing are America’s current technology wonder of the world and we should use to our own advantage.  States like New York and Pennsylvania that seek to restrict the use of these technologies in the Marcellus shale risk being left behind with higher price energy costs and lower tax revenues.

Will Clean Coal still be King? The technology risk associated with carbon capture and sequestration and other clean coal technologies make them very costly and commercially un-viable today.  More R&D is needed to unlock that potential and drive down the cost.  There is a role for the government in encouraging and supporting such R&D efforts but the coal industry must now step up and spend more of its own money to extend its useful life.  Similarly, creating a market for the captured carbon and turning it into useful CO2 gathering products makes perfect sense and also need to be supported.  Meanwhile, add scrubbers and other pollution control equipment to the current units and mitigate their negative impacts.

EPA and New Rules for Regulatory Accountability.  A likely scenario to a wounded President unable to get his energy and environmental agenda through a disbelieving Congress is to use his executive authority to regulate everything that moves in the energy industry through the US EPA and other Federal agencies.  The new Republican majority in the House will need to guard against this over-reach.  And the TEA party members will probably welcome one more revolutionary idea—all Federal regulations must reasonably balance policy objectives intended with the public and economic interests of the nation and be submitted to Congress for an up or down vote.  Give Congress 90 days from submittal to act or the rules go into effect but force legislative accountability for regulatory actions.  Also sunset every regulation at least every ten years so we have to rethink this stuff periodically.  If the goal is to control the size and reach of government and force it to balance interests reasonably the Congress must fix the problem of regulatory free will.

There ends the rant!

Are We Getting the Energy Future Wrong?

Once upon a time in a land not far away from our memory, we experienced an extended period of economic growth.  We actually manufactured things here in the US instead of importing them from China. We built homes by the subdivision instead of tucked them into some odd-ball sized inner city space.  We needed mobility so we built the interstate highway system.  We sent men to the moon and imagined entirely new ways to communicate with each other.  I’m describing, of course, the post WWII America that gave rise to the baby boomers and the technology revolution they created.

We needed energy to run that America and we built power plants that were fueled with coal because we had plenty of it and it was cheap.  Yes it polluted the air and over time we got progressively more serious about cleaning it up with new rules and better technology.

And then the world turned upside down with oil embargos, energy crisis after crisis, the Fuel Use act which prevented using natural gas and then the Natural Gas Policy act which encouraged it, the Energy Policy act which allowed wholesale power competition and then the emergence of renewable energy from wind and solar since Three Mile island scared us off from building more nuclear plants and inflation and regulatory delays made them prohibitively expensive.

We went from being optimistic and growth focused to pessimistic and constraints focused.

Fast forward a decade and we’ve reached a middle ground where we’d like to manufacture things in America AGAIN to create jobs, but we’re worried about global warming (or climate change or climate disruption depending upon how Al Gore explains the latest meltdown of his Inconvenient Truth) so today we focus on optimization and venture capital is being thrown at smart grid and its assorted technology disciples to conquer this middle kingdom.

Coal has not gone away but we don’t build as much of it anymore.  Nuclear power has not gone away and we plan to build one new nuke in the South if the Japanese will build the containment vessel, the Chinese will let us into their AE queue, and the NRC will stick with the plan approved instead of changing it constantly whenever some group gets nervous.

Living in a scenario driven by optimization around green goals is a wonderful place to be if you can get there.  But the costs are high because the technologies are new. Wind and solar are plentiful but intermittent and need back-up and besides the wind blows in places far removed from the markets we need to serve and the transmission lines are not always adequate to the task.  And then there is still the Chinese quest for market share buying every commodity they can for domestic use, building export capacity to drive down prices just enough to discourage US manufacturing competitiveness in wind turbines, solar panels and many other products which as an intended consequence reduces industrial demand enough to discourage building the kind of baseload power plants with cheap domestic coal we used to build.

The question is are we getting the energy future wrong?

  • Lower Average Energy Costs with Baseload. If we want to manufacture more things here at home and create jobs we will need steady or lower energy costs.  The kind of energy costs we got from building baseload generation in a market environment where the incremental costs of new capacity brought down the average costs for all.
  • Improve Efficiency through Competitive Market Forces. We’ve learned that wholesale competition for power generation is great at driving out the excess costs and driving up the capacity factors and efficiency of the plants.  In a study we did of divested old power plants in the last decade we found that the improvements in the way the divested coal plants were operated produced enough efficiency gains to power 25 million typical American homes for a year.  Similar improvements were found in the divested nuclear plants.
  • Create Competitive Market Conditions for Manufacturing and Job Growth. There is much the US can do to restore its competitive market position and create jobs—driving up taxes and the costs of doing business are not among them.  When we get serious about growth again we can get our groove back.  The recession has officially ended but the pain continues, but America seems ready for changes in tax laws, investment policy and a focus on growth and job creation to create those competitive conditions.

So what?

There is nothing wrong with adding renewable energy, smart grid, efficiency and other technologies and strategies to our energy mix.  But they are not sufficient to get the job done without tax and investment policies and certainty in our regulatory conditions to attract investment, restore economic growth and create jobs.

Our policy should focus on bringing down the average cost of doing business and that includes lower average energy costs.  The only way to achieve that is through economic growth to increase energy demand with the baseload energy and competitive market policies (not un-sustainable dependence upon subsidies) to achieve it.

The place to start is creating a ferociously attractive market in off-peak energy use to jump start manufacturing and production again and then sustain that with the baseload resource to live into our long term economic growth strategy of getting our groove back.