Coyote Blog

Well, we have reached another milestone in our permission-based economy with the Administration's rejection of the Keystone Pipeline.  We have zillions of miles of pipelines and are actually wasting energy and creating environmental messes moving the same oil by the inferior option of rail, but somehow this one pipeline had to be opposed.

Actually, the only reason this project is in front of the administration at all is because it crosses the Canadian border, which requires  State Department sign-off.  Which leads me to wonder if there is a hack.  Why not take the pipeline right up to the border from both sides and create a rail line across the border using a continuous loop of tank cars.  Its kludgy and inefficient, but probably less so than moving the oil long distance by rail.

I am reminded of this from a story long ago off Santa Barbara.  Exxon had gotten permission to drill in Federal waters, but local state/county folks wanted to find a way to stop the oil development.  Plans were (as is typical for any offshore oil) for a separation facility on shore that would separate oil, gas, and water from the mix that usually comes up out of the ground.    The state or local folks (can't remember which) refused to permit the separation facility, thinking that would kill the project.  But Exxon built what I believe was a unique separation facility on a boat and anchored the boat offshore.  No land permits necessary.

This is very similar, in my mind, to the pipeline decision.  California's attempt to block oil development altogether proved futile, just as Obama's decision will have little effect on long-term Canadian oil development.  But it did, in both cases, force a workaround (rail and the separator ship) that were almost certainly environmentally worse solutions than those that were halted.

A reader sent me this article on renewables by Tom Randall at Bloomberg.  I would like to spend more time thinking about it, but here are a few thoughts. [Ed:  sorry, totally forgot the link. duh.]

First, I would be thrilled if things like wind and solar can actually become cheaper, without government subsidies, than current fossil fuels.  I have high hopes for solar and am skeptical about wind, but leave that aside.

Second, I think he is selling renewables the wrong way, and is in fact trumpeting something as a good thing that really is not so good.  His argument is that the decline in capacity factors for natural gas and coal plants is a sign of the success of renwables.  The whole situation is complex, and a real analysis would require looking at the entire power system as a whole (which neither of us are doing).  But my worry is that all the author has done is to demonstrate a unaccounted-for cost of renewables, that is the reduction in efficiency of coal and natural gas plants without actually being able to replace them.

Here is his key chart.  It purports to show the total US capacity factor of each energy mode, with capacity factor defined as the total electricity output of the plant divided by what the electricity output could be if the plant ran full-out 24/7/365.

First, there is a problem with this chart in terms of its data selection -- one has to be careful looking at intra-year variations in capacity factor because they vary a lot seasonality, both due to weather and changes in relative fuel prices.  Also, one has to be hugely suspicious when someone is claiming a long term trend but only shows 18 months of data.   The EIA can provide some of the data for a few years ahead of his table.  You can see it is pretty volatile.

I won't dwell on the matter of data selection, because it is not the main point I want to make, but the author's chart looks suspiciously like cherry-picking endpoints.

The point I do want to make is that reducing the capacity utilization, and thus efficiency, is a COST not a benefit as he makes it out.  Things would be different if renewables replaced a lot of fossil fuel capacity at the peak utilization of the day (the total capacity of a power system has to be sized to the peak daily demand).  But the peak demand in most Western countries occurs late in the day, long after solar has stopped producing.  Germany, which relies the most on solar, has studied this and found their peak electricity demand is around 6PM, a time where solar provides essentially nothing.   Wind is a slightly different problem, because of its hour to hour unpredictability, but suffice it to say that it can't be counted on in advance on any particular day to provide power at the peak.

This means that one STILL has to have the exact same fossil fuel plant capacity as one did without renewables.  Yes, it runs less during the day and burns less fuel, but it still must be built and exist and be staffed and in many cases it still must be burning some fuel (even if producing zero electricity) to be hot and ready to go.

The author is arguing for a virtuous circle where reductions in capacity factors of fossil fuel plants from renewables increases the total cost per KwH of electricity from fossil fuels (because the capital cost is amortized over fewer kilowatts).  This is technically true, but it is not the way power companies have to look at it.  Power companies have got to build capacity to the peak.  With current technologies, that means fossil fuel capacity has to be built to the peak irregardless of their capacity factor.  If these plants have to be built anyway to cover for renewables when they disappear during the day, then the capital costs are irrelevant at the margin.   And the marginal cost of operations and producing power from these plants, since they have to continue to exist, is around $30-$40 a MwH, waaaay under renewables still.

In essence, the author is saying:  hurray for renwables!  We still have to have all the old fossil fuel plants but they run less efficiently now AND we have paid billions of dollars to duplicate their function with wind and solar plants.  We get to pay twice for every unit of electricity capacity.

Environmentalists are big on arguing that negative externalities need to be priced and added to the cost of things that generate them -- thus the logic for a carbon tax.  But doesn't that mean we should tax wind and solar, rather than subsidize them, to charge them for the inefficiently-run fossil fuel plants we have to keep around to fill in when renewables inevitably fail us at the peak time of the day?

By the way, speaking of subsidies, the author with a totally straight face argues that renewables are now cheaper than fossil fuels with this chart:

He also says, "Wind power, including U.S. subsidies, became the cheapest electricity in the U.S. for the first time last year."

I hate to break it to the author, but a Ferrari would be cheaper than a Ford Taurus if the government subsidized it enough -- that means nothing economically other than the fact that the government is authoritarian enough to make it happen.  All his chart shows is that solar is more expensive than coal and gas in every state.

And what the hell are those units on the left?  Does Bloomberg not know how to annotate charts?  Since 6 cents per Kw/hr is a reasonable electricity cost, my guess is that this is dollars per Mw/hr, but it is irritating to have to guess.

I have seen this story all over the place, touting some Indian airport that will, gasp, entirely power itself with solar.  Look at the picture environmentalists are bragging about.  The solar panels to power a few buildings cover perhaps 10x or more of the land taken up by the buildings themselves.  They paved paradise and put up ... a solar farm.

Government green energy programs are supposedly about subsidizing new energy technologies to reduce their cost and increase their adoption rate.  But it appears to me that they are in fact merely about subsidizing favored companies.

Why?  Well consider this:

Over the last couple of years, trade remedy actions on clean energy products have intensified. In the wind industry, the Wind Tower Trade Coalition, an association of U.S. producers of wind towers, brought an AD/CVD complaint against imported wind towers in 2011. The U.S. Commerce Department started an investigation, and announced a preliminary decision in December 2012.

This decision found both subsidization and dumping in relation to Chinese imports and imposed an antidumping tariff of between 44.99% and 70.63%, as well as countervailing duties of 21.86%–34.81%. The Commerce Department also established a separate antidumping duty of 51.40%–58.49% on Vietnamese wind tower manufacturers.

In the solar industry, in October 2011, the Coalition for American Solar Manufacturing, a group of seven U.S. solar panel manufacturers led by Solar World Industries America, accused Chinese solar panel companies of dumping products in the United States. The Commerce Department opened an investigation in 2011 and announced the final ruling in 2012. The decision was to impose antidumping tariffs ranging from 24% to 36% on Chinese producers.

All of those actions are not only not consistent with reducing the cost of new energy technologies, they actually raise the cost of wind and solar.  The only benefit of these actions is to improve the bottom line of crony-connected green energy companies.  There is no reason to believe that this cronyism is not the real rational behind the whole program.   If government subsidizes consumer solar purchases 30% and then raises solar panel costs by 30%, they are not making the technology cheaper for consumers, but just finding an excuse to pour tax money into the pockets of a few folks like Elon Musk.

Environmentalists often claim that people systematically under-invest in energy conservation, something they call a market failure.   This is why Obama and the Left put in a much heralded provision in the stimulus package that used Federal money to subsidize home energy conservation (new windows and insulation and such).

A new study in the NBER looks at the results.  This is the abstract:

Conventional wisdom suggests that energy efficiency (EE) policies are beneficial because they induce investments that pay for themselves and lead to emissions reductions. However, this belief is primarily based on projections from engineering models. This paper reports on the results of an experimental evaluation of the nation’s largest residential EE program conducted on a sample of more than 30,000 households. The findings suggest that the upfront investment costs are about twice the actual energy savings. Further, the model-projected savings are roughly 2.5 times the actual savings. While this might be attributed to the “rebound” effect – when demand for energy end uses increases as a result of greater efficiency – the paper fails to find evidence of significantly higher indoor temperatures at weatherized homes. Even when accounting for the broader societal benefits of energy efficiency investments, the costs still substantially outweigh the benefits; the average rate of return is approximately -9.5% annually.

The only failure here is the government diverting capital from productive uses into money-losing ventures like this one.

Theorum:  A media article on a wind or solar project will give its installation costs or the value of its energy produced, but never both.

Corollary 1:  One therefore can never assess the economic reasonableness of any green energy project from a single media article

Corollary 2:  For supporters of green energy, there is a good reason for Corollary #1.

I am mostly inured to being told I am "anti-science" for thinking manmade global warming will be less than catastrophic.  In debate situations (which are increasingly rare, since most colleges where I do most of my speaking no longer want a second side in climate discussions) I usually can demonstrate I know a hell of a lot more about the science than my opponent in the first 3 minutes or so.

But the whole "pro-science" pose of environmentalists is especially funny when they get really excited about some very stupid technology.  Environmentalists' support for corn ethanol is a good case in point.  Most of them have retreated on this, and the media has pretty much allowed them to pretend they were never really vociferous supporters of this technology that most now consider (and I considered from the beginning) to be environmentally damaging.

Here is the new, latest, greatest example.  From Think Progress, where else, but the story has been reprinted all over the hip environmental Left:

The World’s First Solar Road Is Producing More Energy Than Expected

In its first six months of existence, the world’s first solar road is performing even better than developers thought.

The road, which opened in the Netherlands in November of last year, has produced more than 3,000 kilowatt-hours of energy — enough to power a single small household for one year, according to Al-Jazeera America.

“If we translate this to an annual yield, we expect more than the 70kwh per square meter per year,” Sten de Wit, a spokesman for the project — dubbed SolaRoad — told Al Jazeera America. “We predicted [this] as an upper limit in the laboratory stage. We can therefore conclude that it was a successful first half year.”

De Wit said in a statement that he didn’t “expect a yield as high as this so quickly.”

The 230-foot stretch of road, which is embedded with solar cells that are protected by two layers of safety glass, is built for bike traffic, a use that reflects the road’s environmentally-friendly message and the cycling-heavy culture of the Netherlands.

In the US, we pay about 12 cents a KwH for electricity  (the Dutch probably pay more).  But at this rate, in 6 months, the solar sidewalk has generated... $360 of electricity.  Double that for a year, and we get $720 of electricity a year.

How much did the sidewalk cost?  The article doesn't say.  You will find this typical of wind and solar articles.  If they quantify the installation cost, they will not quantify the value of power produced.  If they quantify the power produced, they will never quantify the installation cost. This article says the installation cost was $3.5 million, though I suppose one should subtract from that the cost to build a similar length concrete bike path, but that can't be more than $100,000 for 230 feet.  They say they are getting 70kwh per year per square meter, which is $8.40 worth of electricity per square meter per year.  Since regular solar panels - without all the special glass overlays and installation in the ground and inverters and wiring - cost about $150-$200 per square meter, you can see this is a horrible investment.

Part of the reason this is a bad investment is that solar panels are simply not efficient enough and cheap enough to be cost effective -- I think they will be someday, but not now.   But this project has special problems:

• The panels are actually in the ground with people driving over them.  Honestly, could one actually choose a worse spot for a solar panel?  This installation location, vs. say a roof, adds incredible cost to toughen the panels for wear.  Also, it increases their maintenance costs and likely reduces their life.
• Even worse, the panels have to sit flat on the ground, which is not the most efficient place for them.  Panels are most efficient if tilted at an angle and (in the case of Holland) facing south.  Further, they are more efficient up in the air where they do not get shaded by trees or buildings.

This is just stupid, stupid, stupid.  Perhaps if solar becomes more efficient and we have run out of space on every roof in the world, one might possibly maybe (but probably not) consider this.  But despite the inherent inanity of this idea, look at all the articles on Solaroad -- Think Progress, the Huffington Post, Engadget, Tree Hugger, Extreme Tech, NPR, Sustainable Business -- they all have multiple, gushing, unrelentingly positive articles about this.  Look at all the positively fawning comments on Think Progress.  I can't find a single article on the web that is even slightly skeptical.

 Update:  A reader sends me this epic video takedown of this stupid idea.  He did this in advance of the article today.  He finds it to be complete BS, despite the fact that he overestimates electrical production by a factor of 2.

The invaluable Carpe Diem blog has a compendium of 18 forecasts of doom that were made on or around the first Earth Day in 1970 -- all of which turned out wrong.   Here is an example:

8. Peter Gunter, a North Texas State University professor, wrote in 1970, “Demographers agree almost unanimously on the following grim timetable: by 1975 widespread famines will begin in India; these will spread by 1990 to include all of India, Pakistan, China and the Near East, Africa. By the year 2000, or conceivably sooner, South and Central America will exist under famine conditions….By the year 2000, thirty years from now, the entire world, with the exception of Western Europe, North America, and Australia, will be in famine.”

9. In January 1970, Life reported, “Scientists have solid experimental and theoretical evidence to support…the following predictions: In a decade, urban dwellers will have to wear gas masks to survive air pollution…by 1985 air pollution will have reduced the amount of sunlight reaching earth by one half….”

Participants in the global warming debate today will surely recognize the formulation of these statements as representing a consensus scientific opinion.

For those of you too young to actively follow the news in the 1970s, Mark Perry is not cherry-picking cranks.  These fearful quotations are representative of what was ubiquitous in the media of that time.

My school (Kinkaid in Houston) took speech and debate very seriously and had a robust debate program even in middle school.  In 1975-1976 the national debate topic was this:

Resolved:  That the development and allocation of scarce world resources should be controlled by an international organization

The short answer to this proposition should realistically have been:  "you have got to be f*cking kidding me."  But such were the times that this was considered a serious proposal worth debating for the entire year.  In fact, in doing research, it was dead-easy to build up suitcases of quotations of doom to support the affirmative;  it was far, far harder finding anyone who would argue that a) the world was not going to run out of everything in a few decades and b) that markets were an appropriate vehicle for managing resources.   I could fill up an hour reading different sources predicting that oil would have run out by 1990 or 2000 at the latest.

President Obama is preparing to unleash a Colorado-River-sized torrent of stupid.  He wants to spend tens of billions of dollars on goofy green energy projects that will have an indiscernible affect on world temperatures but will have a very robust effect on some crony bottom lines.   Here is one example:

As part of President Obama’s plans to combat climate change, the White House announced a program on Friday for the U.S. Department of Energy to train 75,000 people to work in the solar power industry by 2020, many of whom will be part of a military veterans jobs initiative called Solar Ready Vets.

Seriously, is the training costs of workers really a substantial portion of a solar installation?

Andrea Luecke, president and executive director of the Solar Foundation, which publishes the annual National Solar Jobs Census, said that Obama’s announcement will not likely increase the size of the solar industry’s workforce but will instead ensure that the industry will be able to find highly skilled workers to fill jobs.

“We’re experiencing difficulty finding more skilled and qualified workers to install and do design work required,” she said, adding that the industry’s workforce has a “skills gap” as well-trained electricians and other workers go back to other construction jobs as the economy gains momentum.

I will translate that trade-group speak for you:  We like to pay our workers less than similarly-skilled construction workers so we lose a lot of skilled workers to higher paying construction companies. This program will not add any net employment to the economy but will help us keep wages lower by increasing the supply of qualified workers.

I can't help but think of Henry Ford, who famously raised the wages of his employees substantially.  The fake story is that he did this so all his workers could buy his product.   The real reason he did this was that he had horrendous labor turnover problems.  Like the solar industry, he was training folks who then left for higher paying jobs.  So he had to raise his wages to retain trained people.  How history would have changed if Ford had instead been able to call Obama and ask him to have the taxpayer pay to feed him with new, trained workers so he wouldn't have to raise his wage rates!

Seriously, did a bunch of technocrats get together and study the whole solar industry and come to the conclusion that solar installation skills were the keystone problem that was holding back the whole industry?  Of course not.  The solar industry will sink or swim based on panel costs and efficiencies.   What happened is someone said, "well the public always seems to like job training programs.  Those poll well."  And then they called the solar crony association or whatever it is called and they said, "sure, we would love to have taxpayers pay some of our training costs.  Thanks, we will be very supportive." And then someone said, "well, won't the Republicans pitch a fit over this?" And then someone had the brilliant idea of making it a veterans program -- "Republicans love soldiers, that will help defuze their opposition."  And an expensive crony giveaway was born.

About 5 years ago I said I would be willing to accept a carbon tax whose proceeds were used to reduce various labor tax rates (e.g. social security).  Substituting an energy consumption tax for a labor consumption tax was probably at least neutral and maybe even a net positive.

Now, I want to come back to that idea.  I don't believe any more than I did then that CO2-driven global warming will be catastrophic.  In fact, I am more confident than ever that while CO2-induced warming is a reality, the sensitivity of temperatures to CO2 levels is relatively low.  But please, I am willing to fully support a carbon tax that offsets some other existing tax if only we will stop all this stupid crony useless green energy stuff.  At least with a carbon tax, the markets will reduce fossil fuel use in the most efficient ways possible.  As opposed to programs like this one that will reduce fossil fuel use not at all but will cost a lot of money.

The recent drop in oil prices has been met with a surprising amount of negativity, as if something bad is happening.  This strikes me as insane.  The world uses 90 or so million barrels of oil a day.  The recent $30+ price drop in oil thus equals a world savings of $1 trillion a year.

Sure, oil companies and their suppliers are worse off (and believe me, I care -- a lot of my portfolio was invested in such things when oil started dropping).  But the economy as a whole is clearly better off and wealthier.

To understand why, the analysis we need to undertake is an exact parallel of the broken window fallacy analysis.  Its sort of a healing window analysis.

After the oil price drop, consumers have a trillion dollars more and oil producers have a trillion dollars less.  Even right?  Actually, not.  Because consumers then spend that trillion on other things.  Those other manufacturers and producers get the trillion dollars lost to the oil industry.  Still even, right?  No.  Think of it this way:

Before the price drop

• Oil companies have $1 trillion extra revenue
• Other producers have no extra revenue
• Consumers have 90 million barrels a day of oil

After the price drop

• Oil companies have no extra revenue
• Other producers have $1 trillion extra revenue
• Consumers have 90 million barrels a day of oil AND $1 trillion of extra stuff (goods, service, savings, etc)

The world in the second case is wealthier.  And this is assuming all the people involved are private parties.   In fact, much of the oil revenue drop comes out of the hands of  value-destroying governments so that in fact the wealth increase in the price drop scenario is actually likely even greater than in this simplistic analysis.

Postscript:  OK, yes I am ignoring any cost of carbon pollution.  But the market is not set up to price that, and readers will know that I am skeptical that the cost is that high.  Never-the-less, this is a separate issue that if it needs to be dealt with should be dealt with as a carbon tax on fuels.  The price drop should not affect the value of that tax.  Or another way to put it, if one thinks the tax should be $30 per ton based on a $30 cost of carbon, it should be $30 per ton at $100 oil and $30 per ton at $60 oil.

Equal protection means that the same law applies to everyone, at least in theory.  But compare these two stories:

1. Exxon fined $600,000 for 85 bird deaths in five states over five years

Exxon Mobil has agreed to pay $600,000 in penalties after approximately 85 migratory birds died of exposure to hydrocarbons at some of its natural gas facilities across the Midwest.

The fine amounts to about $7,000 per dead bird.

The oil company pleaded guilty to causing the deaths of waterfowl, hawks, owls and other protected species, which perished around natural gas well pits or water storage areas in Wyoming, Kansas, Oklahoma, Colorado and Texas over the last five years....

“We are all responsible for protecting our wildlife, even the largest of corporations,” said David M. Gaouette, the United States attorney in Colorado, in a statement accompanying the Justice Department’s announcement.

We are all responsible for protecting our wildlife... except if we are politically-favored solar companies with strong ties to the Obama White House

2. No fines for solar power plant that may be killing 28,000 birds a year

A common sight in the sky above the world's largest solar thermal power plant is a "streamer," a small plume of smoke that occurs without warning. Closer inspection, however, reveals that the source of the smoke is a bird which has inadvertently strayed into the white-hot heat above the plant's many reflecting mirrors. Because the BrightSource Energy plant near Ivanpah uses supercritical steam rather than photovoltaic energy, the sun's heat is reflected off more than 300,000 mirrors to a single point, which is used to drive a steam turbine. The downside of that, of course, is that it's lethal for any wildlife that strays into the picture -- a problem that was recognized well before the facility opened, but now the government has gotten involved.

Government wildlife inspectors believe that insects are drawn to the highly reflective mirrors, which in turn lures local birds to their doom. BrightSource feels that the issue has been overblown, claiming that only 1,000 living creatures will die in a year, but the Center for Biological Diversity believes the actual figure is closer to 28,000. The US Fish and Wildlife service is pushing for more information and an accurate calculation of the deaths before California grants the company any more permits for solar plants.

You can see from the last line that the Feds don't seem to be even considering a penalty, but are just considering whether they should permit such plants in the future.  If the 28,000 figure is correct, this company should be getting $196 million in fines (the Exxon rate of $7000 per bird)  if there was any such thing as equal protection.  Even the company's admitted figure of 1,000 a year is almost 60 times as high as Exxon was penalized for, despite the fact that Exxon experienced the deaths across hundreds of locations in five states and this is just one single solar plant.

The same alternate standard is being applied to the wind energy industry, as I wrote a while back here.

Our public utility APS wants to enter the rooftop solar business.  As a ratepayer and taxpayer, I have deep concerns about this because of the numerous ways this venture could end up with various hidden subsidies.

However, I find it simply hilarious that current rooftop solar providers, including #1 subsidy whore and crony capitalist SolarCity.  Here is what trade group Arizona Solar Energy Industry Association wrote in an email to me today.  I have highlighted some of the bits that got my blood boiling this morning:

In an unprecedented announcement that took the solar industry by surprise, Arizona’s largest utility, APS, announced that it intends to begin competing directly with Arizona solar installers. APS announced Monday that it is seeking permission to spend between $57 and $70 million -not including its profits- of ratepayer money to install solar on the roofs of homes in its service territory and to compete directly with solar installers of all sizes.

“The idea of our members who compete in the free market today having to all of a sudden compete with a regulated monopoly is frightening. How would you like it if the government just stepped in and started competing with your business?” said Corey Garrison, CEO of Arizona based Southface Solar and treasurer of Arizona Solar Energy Industries Association (AriSEIA). "APS has proposed subsidizing certain customers that allow it to put solar on their rooftops while the free market gets no more utility subsidy and actually gets charged for going solar."

It has been well publicized that APS spent much of the last year in a battle with the very industry it now seeks to dominate. Throughout 2013 APS urged the Arizona Corporation Commission to install a huge monthly tax on those who would put solar on their roof. It has also been reported that APS urged the Department of Revenue to institute a new property tax on rooftop solar panels that are leased to customers.

“After spending a year misleading the public with well-publicized lies and misdirection, APS seems to think this is a good time for it to be rewarded with an expansion of its monopoly franchise” said Corey Garrison

Unlike rooftop solar companies that must compete with each other on a level playing field, APS earns a guaranteed rate of return off of its assets including these proposed rooftop solar installations. If approved, APS would be permitted to advertise its solar product in its customer bills and to use its customer lists to market and sell, all with employees paid for by ratepayers. Unlike traditional, free market rooftop solar which is paid for only by the customer that installs the system, APS will be asking all its ratepayers to pay the cost of, and guarantee its profits on, each of the systems it installs under this program.

“This is a massive expansion of the monopoly into an area that is well served by the free market” continued Garrison, “what’s next; will APS ask to sell electric cars or ovens or some other set of goods or services?”

This is hilarious.  The rooftop installers in AZ lost some of the subsidy from power companies (e.g. APS) over the past years but still get a myriad of subsidies for themselves and their customers.  We will use one of the larger installers, SolarCity, as an example.  This is from the SolarCity web site:

Federal, state and local governments offer incredible solar tax credits and rebates to encourage homeowners to switch to renewable energy to lower their energy usage and switch to solar power. The amount of the rebate subsidy varies by program, but some are generous enough to cover up to 30% of your solar power system cost.

The federal government allows you to deduct 30% of your solar power system costs off your federal taxes through an investment tax credit (ITC). If you do not expect to owe taxes this year, you can roll over your credit to the following year.

.... Some locations have additional incentives to make solar even more affordable.  SolarCity will get the most for your project

SolarCity is committed to helping you benefit from every federal, state and utility rebate and tax credit available for your energy upgrade projects.

Navigating through government rebate programs on your own can be intimidating. SolarCity will identify all of the qualifying tax credit and rebate programs for your system and file the required paperwork for you. We will even credit you for the state rebate upfront so that you do not have to wait for the government to send you a check later.

This language is a bit odd, since in most cases SolarCity captures these credits for themselves and then passes on the savings (presumably, but maybe not) to customers via lower power costs, exactly the same model APS is proposing.

Customers, however, must sign a contract agreeing to cede "any and all tax credits, incentives, renewable energy credits, green tags, carbon offset credits, utility rebates or any other non-power attributes of the system" to SolarCity. The tax credits are passed on to its investors, which include the venture-capital firms Draper Fisher Jurvetson, DBL Investors and Al Gore's Generation Investment Management LLP.

The description by solar installers that they somehow represent the "free market" is simply hilarious, given the dependence of their industry on taxpayer subsidies (either of the installers or the customers).  SolarCity admits that their business would actually never be able to operate in a free market:

SolarCity officials, including Musk’s cousins and fellow Obama donors Lyndon and Peter Rive, acknowledged the company’s dependence on government support in its 2012 IPO filing. “Our business currently depends on the availability of rebates, tax credits and other financial incentives,” they wrote. “The expiration, elimination or reduction of these rebates, credits and incentives would adversely impact our business.”

A more recent SolarCity filing with the Securities and Exchange Commission notes: “[The company’s] ability to provide solar energy systems to customers on an economically viable basis depends on our ability to finance these systems with fund investors who require particular tax and other benefits.”

Rooftop installers also have their business buoyed by government mandates that power companies pay residential solar producers 2-3x the going wholesale market rate for any electricity they put into the grid

SolarCity also benefits from "net metering" policies that 43 states, including California, have adopted. Utilities pay solar-panel customers the retail power rate for the solar power they generate but don't use and then export to the grid. Retail rates can be two to three times as high as the wholesale price of electricity because transmission and delivery costs, along with taxes and other surcharges that fund state renewable programs, are baked in.

So in California, solar ratepayers on average are credited about 16 cents per kilowatt hour on their electric bills for the excess energy they generate—even though utilities could buy that power at less than half the cost from other types of power generators.

This was the battle referred to obliquely in the press release above.  The electric utility APS wanted to stop overpaying for power from these rooftop solar installations.   Rooftop installers fought back.  In the end, a fixed charge was placed on homeowners to account for part of this over-payment, an odd solution in my mind that seems to have ticked off both sides.

So the supposedly "free market" rooftop companies are competing successfully with regulated utilities because they got Federal, state, and local subsidies; are exempted from things like paying property tax on leased equipment that every other business has to pay; and get a mandate from the state that utilities have to pay double the market price for their power.  Is it any wonder that a regulated utility, which is no stranger to cronyism and feeding at the subsidy trough, might want to get a piece of that action?

ASEIA, you are welcome to duke it out for first spot at the trough with APS, but don't corrupt the word "free market" by trying to apply the term to yourselves.

Charles Frank of Brookings has looked at the relative returns of various energy investments in the context of reducing CO2.  The results:  The best answer is natural gas, with nothing else even close.  Solar and Wind can't even justify their expense, at least from the standpoint of reducing CO2.  Here is the key chart (Hat tip Econlog)

Note that this is not a calculation of the economic returns of these types of power plants, but a relative comparison of how much avoided costs, mainly in CO2 emissions (valued at $50 per ton), there are in switching from coal to one of these fuel sources.  Natural gas plants are the obvious winner.  It remains the winner over solar and wind even if the value of a ton of CO2 is doubled to $100 and both these technologies are assumed to suddenly get much more efficient.   Note by the way that unlike wind and solar (and nuclear), gas substitution for coal plant yields a net economic benefit (from reduced fuel and capital costs) above and beyond the avoided emissions -- which is why gas is naturally substituting right now for coal even in the absence of a carbon tax of some sort to impose a cost to CO2 emissions.**

I was actually surprised that wind did not look even worse.  I think the reason for this is in how the author deals with wind's reliability issues -- he ends up discounting the average capacity factor somewhat.  But this understates the problem.   The real reliability problem with wind is that it can stop blowing almost instantaneously, while it takes hours to spin up other sorts of power plants (gas turbines being the fastest to start up, nuclear being the slowest).  Thus power companies with a lot of wind have to keep fossil fuel plants burning fuel but producing no power, an issue called hot backup.  This issue has proved itself to substantially reduce wind's true displacement potential, as they found in Germany and Denmark.

There is no evidence that industrial wind power is likely to have a significant impact on carbon emissions. The European experience is instructive. Denmark, the world's most wind-intensive nation, with more than 6,000 turbines generating 19% of its electricity, has yet to close a single fossil-fuel plant. It requires 50% more coal-generated electricity to cover wind power's unpredictability, and pollution and carbon dioxide emissions have risen (by 36% in 2006 alone).

Flemming Nissen, the head of development at West Danish generating company ELSAM (one of Denmark's largest energy utilities) tells us that "wind turbines do not reduce carbon dioxide emissions." The German experience is no different. Der Spiegel reports that "Germany's CO2 emissions haven't been reduced by even a single gram," and additional coal- and gas-fired plants have been constructed to ensure reliable delivery.

Indeed, recent academic research shows that wind power may actually increase greenhouse gas emissions in some cases, depending on the carbon-intensity of back-up generation required because of its intermittent character.

 

** Postscript:  The best way to read this table, IMO, is to take the net value of capacity and energy substitution and compare it to the CO2 savings value.

The first line is just from the first line of the table above.   The second is essentially the net of all the other lines.

I think this makes is clearer what is going on.  For wind, we invest $106,697 for $132,030 $132,030 for $106,697 in emissions reduction (again, I think the actual number is lower).  In Solar, we invest $258,322 for $69,502 in emissions reduction.    For gas, on the other hand, we have no net investment -- we actually have a gain in these other inputs from the switch -- and then we also save $416,534.  In other words, rather than paying, we are getting paid to get $416,534 in emissions reduction.  That is not several times better than Solar and Wind, it is infinitely better.

Postscript #2:  Another way to look at this -- if you put on a carbon tax in the US equal to $50 per ton of CO2 that fuel would produce, then it still likely would make no sense to be building wind or solar plants unless there remained substantial subsidies for them (e.g. investment tax credits, direct subsidies, guaranteed loans, above-market electricity pricing, etc).  What we would see is an absolute natural gas plan craze.

Check out this payback analysis that is being trumpeted for wind power:

US researchers have carried out an environmental lifecycle assessment of 2-megawatt wind turbines mooted for a large wind farm in the US Pacific Northwest. Writing in the International Journal of Sustainable Manufacturing, they conclude that in terms of cumulative energy payback, or the time to produce the amount of energy required of production and installation, a wind turbine with a working life of 20 years will offer a net benefit within five to eight months of being brought online.

So of all the scarce resources that go into producing wind power, if you look at only one of these (energy), then the project pays itself back in less than a year.  This is stupid.  Yes, I understand that there are some "green" energy sources (*cough* corn ethanol *cough*) that cannot even produce more energy than they consume, so I suppose this finding is a step forward from that.  But what about all the other scarce resources used in producing wind power-- steel, labor, engineering talent, concrete, etc?  This is roughly like justifying the purchase of an 18-wheeler truck by saying it will pay off all the vanadium used in its production in less than a year.

Environmentalists seem to all feel that capitalism is the enemy of sustainability, but in fact capitalism is the greatest system to promote sustainability that has ever been devised.  Every single resource has a price that reflects its relative scarcity as compared to demand.  Scarcer resources have higher prices that automatically promote conservation and seeking of substitutes.  So an analysis of an investment's ability to return its cost is in effect a sustainability analysis.  What environmentalists don't like is that wind does not cover the cost of its resources, in other words it does not produce enough power to justify the scarce resources it uses.  Screwing around with that to only look at some of the resources is just dishonest.

The one reasonable argument is that the price of fuels does not adequately reflect the externalities of Co2 production.  I don't think these are high but obviously there are those who disagree.  The right way to do this analysis is to say that wind power provides a return only if electricity prices are X (X likely being well above current market rates) which in turn reflects a Co2 cost of Y $/ton.  My gut feel is that it would take a Y -- a cost per ton of CO2 -- way higher than any of the figures that are typically bandied about even by environmentalists to make wind work.

Postscript:  I did not critique the analysis of energy payback per se, but if I were to dig into it, I would want to look at two common fallacies with many wind analyses.  1) They typically miss the cost of standby power needed to cover wind's unpredictability, which has a substantial energy cost.  In Germany, during their big wind push, they had to have 80-90% of wind power backed up with hot fossil fuel backup.  2)  They typically look at nameplate capacity and not real capacities in the field.  In fact, real capacities should further be discounted for when wind power produces electricity that the grid cannot take (ie when there is negative pricing in the wholesale market, which actually occurs).

Thomas Friedman outlines what he would do first to attack climate change

Well, the first thing we would do is actually slash income taxes and corporate taxes and replace them with a carbon tax so we actually encourage people to stop doing what we don't want, which is emitting carbon, and start doing what we do want, which is hiring more workers and getting corporations to invest more in America.

Friedman is a bit disingenuous here, as he proposes this in a way that implies that deniers (and probably evil Republicans and libertarians) oppose this common sense approach.  Some may, but I would observe that no one on the alarmist side or the Left side of the aisle is actually proposing a carbon tax that 1:1 reduces other taxes.  The only person I know who has proposed this is Republican Jeff Flake, who proposed a carbon tax that would 1:1 reduce payroll taxes.

As I said back then, I am not a big fan of taxes and think that the alarm for global warming is overblown, but I could easily get behind such a plan.  Payroll taxes are consumption taxes on labor.  I can't think of anything much more detrimental to employment and economic health.  So Flake's proposed shift from a consumption tax on labor to a consumption tax on carbon-based energy sources is something I could get behind.  I probably would do the same for Friedman's idea of shifting taxes from income to carbon.  But again, no one is proposing that for real in Congress.  The only plan that came close to a vote was a cap and trade system where the incremental payments would go into essentially a crony slush fund, not reduce other taxes.

Of course, since this is Friedman, he can't get away without saying the government should invest more in infrastructure

 the federal government would borrow money at almost 0 percent and invest it in infrastructure to make our cities not only more resilient, but more efficient.

In TARP and the stimulus and various other clean energy bills, the government borrowed almost a trillion dollars at 0% interest.  How much good infrastructure got done?  About zero.  Most of it just went to feed government bureaucrats and planning studies or ended up as crony payments to well-protected entities (Solyndra, anyone?).  The issues with government infrastructure investments, which Friedman has never addressed despite zillions of articles on infrastructure, are not the borrowing rate but

• The incentive and information problems the government has in making investments of any sort.
• The vast environmental, licensing, and NIMBY factors that make it virtually impossible to do infrastructure projects any more, at least in any reasonable time frame.

The new Bank of America building near me has all kinds of plaques inside about how it is LEED certified.  How?  Well, I don't know the whole plan, but out front there are four reserved parking spaces for electric vehicles.  There are not any charging stations mind you -- those might cost money -- just parking spots for electric vehicles, right next to the handicapped spots.  LEED is a points based system and you can score a lot of points doing mindless, useless, zero-value stuff like this.

So I am not at all surprised to read this:

Washington, D.C. may have the highest number of certified green buildings in the country, but research by  Environmental Policy Alliance suggests it might not be doing much good.

The free-market group analyzed the first round of energy usage data released by city officials Friday and found that large, privately-owned buildings that received the green energy certification Leadership in Energy Design (LEED) actually use more energy than buildings that didn’t receive this green stamp of approval.

LEED is the brainchild of the U.S. Green Building Council (USGBC), a private environmental group.

Washington, D.C.’s Department of Environment made the capital the first city in the nation to mandate LEED certifications in the construction of public buildings. The standards are now being phased in.

The results are measured in EUI’s, a unit that relates a building’s energy consumption to its size; the higher the number, the more energy is expended by a smaller building.

Take the Green Building Council’s Washington headquarters. Replete with the group’s top green-energy accolade, the platinum LEED certification, the USGBC’s main base comes in at 236 EUI. The average EUI for uncertified buildings in the capital? Just 199.

Certified buildings’ average comes in at 205 EUI, still less efficient than that didn’t take home the ultimate green trophy.

“LEED certification is little more than a fancy plaque displayed by these ‘green’ buildings,” charged Anastasia Swearingen, LEED Exposed’s lead researcher on the project. “Previous analyses of energy use by LEED-certified buildings have consistently shown that LEED ratings have no bearing on actual energy efficiency.”

Hilariously, the problem cited with the certification program by government regulators is not that it is ineffective - after all, they can't admit that after requiring LEED certification in DC buildings.  Their only problem is that it is a private program outside of government control.  I am sure the folks who gave hundreds of millions to Solyndra would do much better managing the program.

The problem with LEED is the same problem that many ISO 9000 programs had -- it puts too much emphasis on process an inputs, and not enough on results.

Postscript:  One wonders why if there is a perfectly good "output" metric like EUI why people even bother with input-based systems like LEED.  If the government really wants to regulate here, the lightest touch would be to require architects and builders to estimate EUI of buildings for clients.  Then the owners themselves can decide if they are comfortable with their potential energy bills or want so more design work.

California is about to implement a new climate tax via a cap and trade system, where revenues from the tax are supposed to be dedicated to carbon reduction projects.  Forget for a moment all my concerns with climate dangers being overhyped, or the practical problems (read cronyism) inherent in a cap-and-trade system vs. a straight carbon tax.  There is one improvement California can and should make to this system.

Anyone who can remember the history of the tobacco settlement will know that the theory of that settlement was that the funds were needed to pay for additional medical expenses driven by smoking.  Well, about zero of these funds actually went to health care or even to smoking reduction programs  (smoking reduction programs turn out to be fiscally irresponsible for states, since they lead to reduced tax revenues from tobacco taxes).  These funds just became a general slush fund for legislators.   Some states (New York among them, if I remember correctly), spent the entire 20 year windfall in one year to close budget gaps.

If California is serious that these new taxes on energy should go to carbon reduction programs, then these programs need to be scored by a neutral body as to their cost per ton of CO2 reduction.  I may think the program misguided, but given that it exists, it might as well be run in a scientific manner, right?  I would really prefer that there be a legislated hurdle rate, e.g. all programs must have a cost per ton reduction of $45 of less -- or whatever.  But even publishing scores in a transparent way would help.

This would, for example, likely highlight what a terrible investment this would be in reducing CO2.

I believe it was back in 1973, when my dad was an executive with an oil company, he got hauled in front of Congress to testify on the proposed Alaska pipeline.  Senators on the Left accused the industry of threatening the environment in the name of greed, by trying to bring oil to market that was entirely unnecessary.  A few months later, once the Arab oil embargo had begun, he was back in front of Congress answering questions from the same Senators who opposed the Alaska pipeline about whether the rumors were true that oil companies were holding tankers off-shore, purposely making the shortage worse and driving up prices.  It was an early life-lesson in government for me, watching my dad be publicly accused within months of seeking new oil supplies too aggressively and purposely withholding oil supplies from the market.

I am reminded of all this by the Keystone pipeline brouhaha.  One wonders how many of the people opposing the Keystone pipeline will be the first out on the picket line protesting oil prices the next time there is an oil price spike.

The economics of large-scale solar projects still don't work without massive subsidies and mandates that consumers pay above-market rates for solar power.

So after spending billions to subsidize the construction and operation of wind farms, Britain has discovered that their output variability is a problem and that they produce too much of their power at night (issues many of us predicted long before they were built).  So now England is facing the policy choice of either a) paying wind farm owners to NOT product power or b) paying factory owners to switch their operations to night time.  Seriously.  For most areas, wind is among the worst possible electricity source.

Master Resource looks at the California Valley Solar Ranch

In a realistic appraisal of the CVSR we should note the following:

· An investment of $1.6 billion 250 MW breaks down to an extravagant $6,400,000 per megawatt.

· The Solar Ranch covers 1,500 acres.

· The CVSR is projected to produce 482,000 MWh per year, implying an operating capacity factor of around 22%.

· Given a reasonable appraisal of the value of 482,000 MWh per year, it is not possible that the solar panels will be able to provide a return sufficient to pay back the $1.6 billion investment within their functional life (not even close), even when ignoring annual operating and maintenance costs. Hundreds of millions of dollars will be lost (see Updated CSVR Cash Flow).

....

A much more viable alternative to a solar generation facility, although not the only one, is a plant using natural gas. A natural gas combined cycle gas turbine (CCGT) facility capable of 250 MW would have required less than one-fourth the capital investment, would be capable of making four times the electricity per year at 88% capacity factor, and would fit on a single acre.

Also, a CCGT facility could have been located closer to the point(s) of actual use of the electricity, and could provide dispatchable energy which could be increased or decreased as demand fluctuates; something the solar facility is incapable of providing.

So why is this project even happening?  Because most of the project was funded by a taxpayer-gauranteed loan.  And then many of the players got direct subsidies and tax breaks.  And finally the electricity from the project gets bought at an above-market subsidized rate.

From our paper this morning:

California regulators have launched an investigation into offshore hydraulic fracturing after revelations that the practice had quietly occurred off the coast for the past two decades.

The California Coastal Commission promised to look into the extent of so-called fracking in federal and state waters and any potential risks.

Hydraulic fracturing has been a standard tool for reinvigorating oil and gas wells for over 60 years.  While it gets headlines as something new, it decidedly is not.  What is new is its use in combination with horizontal drilling as a part of the initial well design, rather than as as a rework tool for an aging field.

What California regulators are really saying is that they have known about and been comfortable with this process for decades**, but what has changed is not the technology but public opinion.  A small group of environmentalists have tried to, without much scientific basis, demonize this procedure not because they oppose it per se but because they are opposed to an expansion of hydrocarbon availability, which they variously blame for either CO2 and global warming or more generally the over-industrialization of the world.

So given this new body of public opinion, rather than saying that "sure, fracking has existed for decades and we have always been comfortable with it", the regulators instead act astonished and surprised -- "we are shocked, shocked that fracking is going on in this establishment" -- and run around in circles demonstrating their care and concern.  Next step is their inevitable trip to the capital to tell legislators that they desperately need more money and people to deal with their new responsibility to carefully scrutinize this decades-old process.

**Postscript:  If regulators are not familiar with basic oil-field processes, then one has to wonder what the hell they are going with their time.  It's not like anyone in the oil business had any reason to hide fracking activity -- only a handful of people in the country would have known what it was or cared until about 5 years ago.

After my post the other day on how new award-winning supposedly environmentally sustainable parks are far more resource intensive than the old parks they were replacing, I have gotten a lot of feedback -- this is obviously a topic that strikes a chord with folks.  In particular, a reader (I always forget to ask if I can use their names) sent me this article on the new LEED Platinum-certified building in New York

When the Bank of America Tower opened in 2010, the press praised it as one of the world’s “most environmentally responsible high-rise office building[s].” It wasn’t just the waterless urinals, daylight dimming controls, and rainwater harvesting. And it wasn’t only the Leadership in Energy and Environmental Design (LEED) Platinum certification—the first ever for a skyscraper—and the $947,583 in incentives from the New York State Energy Research and Development Authority. It also had as a tenant the environmental movement’s biggest celebrity. The Bank of America Tower had Al Gore.

The former vice president wanted an office for his company, Generation Investment Management, that “represents the kind of innovation the firm is trying to advance,” his real-estate agent said at the time. The Bank of America Tower, a billion-dollar, 55-story crystal skyscraper on the northwest corner of Manhattan’s Bryant Park, seemed to fit the bill. It would be “the most sustainable in the country,” according to its developer Douglas Durst. At the Tower’s ribbon-cutting ceremony, Gore powwowed with Mayor Michael Bloomberg and praised the building as a model for fighting climate change. “I applaud the leadership of the mayor and all of those who helped make this possible,” he said.

Gore’s applause, however, was premature. According to data released by New York City last fall, the Bank of America Tower produces more greenhouse gases and uses more energy per square foot than any comparably sized office building in Manhattan. It uses more than twice as much energy per square foot as the 80-year-old Empire State Building. It also performs worse than the Goldman Sachs headquarters, maybe the most similar building in New York—and one with a lower LEED rating. It’s not just an embarrassment; it symbolizes a flaw at the heart of the effort to combat climate change...

“What LEED designers deliver is what most LEED building owners want—namely, green publicity, not energy savings,” John Scofield, a professor of physics at Oberlin, testified before the House last year.

I will go out and get a picture today of our local Bank of America branch.  It is LEED certified at some level, proudly displaying the certificate in the lobby.  Out front it has two parking spaces near the door for electric cars - it does not have a charger for them, just reserved preferred parking.  I am sure they got their LEED points this way.

Postscript:  I am not religious but am fascinated by the comparisons at times between religion and environmentalism.  Here is the LEED process applied to religion:

• 1 point:  Buy indulgence for $25
• 1 point:  Say 10 Our Fathers
• 1 point:  Light candle in church
• 3 points:  Behave well all the time, act charitably, never lie, etc.

It takes 3 points to get to heaven.  Which path do you chose?

It is interesting that the buck just never stops at this President's desk.  Apparently, the reason for the delay in approval of the Keystone Pipeline is the Republicans.

The approval process for the Keystone XL pipeline has been delayed by Republicans playing “political games,” Treasury Secretary Jack Lew says.

Lew said that the economy is “strong” and more resilient after 40 months of growth but the economic recovery is not fast enough, which led Chris Wallace on “Fox News Sunday” to ask whether approving the pipeline would help speed up job growth.

“If you’re so interested in creating more jobs, why not approve the Keystone pipeline, which will create tens of thousands of jobs?” Wallace asked of the pipeline under review.

“There were some political games that were played, that took it off the trail and path to completion, where Republicans put it out there as something that was put on a timetable that it could not be resolved. It caused a delay,” Lew said. “Playing political games with something like this was a mistake.”

Uses huge greenhouses combined with a very tall column to generate convection currents that drive turbines.    Apparently can still generate power at night taking advantage of the difference between soil and ambient air temperatures.  I have no idea if this makes a lick of sense financially (without subsidies).