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Posts from — January 2010

Remembering When Enron Saved the U.S. Wind Industry (January 1997)

January 7, 1997, some 13 years ago, was one of the worst days in my 16-year career at Enron. Enron had already entered into the solar business (1994) in partnership with Amoco (Solarex), and the U.S. wind industry was on its back. Zond Corporation was struggling, and  rival Kenetech had recently suspended its dividend and was on the way to  bankruptcy. Enron bought Zond on this day and renamed it Enron Wind Company.

Enron Wind would never turn a profit, and it would be sold in May 2002 by the bankrupt parent to GE. (GE and Enron would have other ominous parallels.)

Enron came in at just the right time for a troubled, undeserving industry by

  1. Putting a big-name corporation in the U.S. wind industry for the first time;
  2. Issuing countless press releases on ‘wonderful’ green wind for the next several years; and
  3. Successfully lobbying Texas politicians to enact the most strict renewable mandate in the country in 1999.

Regarding the third point, the Texas mandate created an unholy business-government alliance of sufficient size for the state to increase its renewable mandate in 2005. Texas is the leading wind power state in the country–but hardly by consumer choice.

Right after Enron purchased Zond to enter into the wind business, I got a call from Hap Boyd, Enron Wind’s PR person. The Cato Institute had just published my windpower-cenric study, Renewable Energy: Not Cheap, Not ‘Green’ (August 1997), and Hap was trying to sell me on the benefits of wind. One of his arguments I remember was that landowners were receiving royalties from allowing the use of their land for wind turbines, as if this really meant something.

My relationship with Enron Wind went downhill from there. The head of the subsidiary wanted to get me fired for my public opposition against this technology (see the interoffice memos posted at my political Capitalism website).

Oh how sad I am that Enron purchased Zond and did so much to enable the artificial windpower boom in Texas and United States. Houston Chronicle business editorialist Loren Steffy wrote about this in a column, Wind Whispers of Enron (June 3, 2008). [Read more →]

January 19, 2010   3 Comments

‘The People vs. Cap-and-Tax’: James Hansen and the Left’s Civil War on Climate Policy

“Washington appears intent on choosing a [cap-and-trade] path defined by corporate greed. Unless the public gets engaged, the present Administration may jam down the public’s throat just such an approach, which, it can be shown, is not a solution at all.”

“Cap-and-trade’s complexity provides a breeding ground for special interests…. [T]ry reading the Waxman-Markey 2,000-page bill to figure out who would get the money! Why do those special interests deserve it anyhow?”

- James Hansen, “The People vs. Cap-and-Tax,” paper delivered to the Chairperson of the Carbon Trading Summit, New York City, January 12, 2010.

James Hansen is losing patience. He is upset at the Obama Administration and its advisors, such as John Holdren (read his futile letters). Hansen is mad at the New York Times; after all, he got suckered by their editors and by Paul Krugman regarding his pre-Copenhagen opinion-page editorial.

All this and more is in Dr. Hansen’s latest 3,600-word attack–reproduced in its entirety below–on the political establishment in what is a widening civil war on the Left regarding climate policy.

Temperature trends, climategate, and Copenhagen are major problems for climate alarmism/neo-Malthusianism in theory and practice. But add to this ‘perfect storm’ the problem of Enronesque climate policy. What is the party in power to do?

Some Hard Questions for Dr. Hansen

It is fair to ask some hard questions to the father of climate alarmism in the United States. Hansen said years ago that we had to quickly and fundamentally reverse the world’s energy mix to avoid his modeled doom. That is not going to happen. Is it time for him, both as a scientist and a layperson, to rethink the whole issue and reverse course? If climate stabilization is indeed a futile crusade, James Hansen should be part of the solution rather than continue to be part of the problem.

Here are some questions I have for Dr. Hansen that could help him get on track. I invite readers to add questions in the comments to this post.

  1. Climate science and the empirical record of temperature and climate change are more unsettled than ever. You once even admitted that “The prospects for having a modest climate change impact instead of a disastrous one are quite good, I think.” Will you show humility by constructing a non-alarmist scenario within the error bars of ‘settled’ and ‘unsettled’ science as an alternative scenario?
  2. In your very public criticisms of cap-and-trade, you do not bring up Enron. Yet Enron is the father company of the U.S.-side push of cap-and-trade, and Enron-ex Jim Rogers brought the Ken Lay political model of climate alarmism/cap-and-trade to the electricity sector.
  3. You speak below of “a clean energy future.”Why not talk about Enron’s quest to become the world’s leading renewable company and the fact that Enron’s very first crime involved its wind subsidiary? (Hint: government-dependent energy investments, not only cap-and-trade, enable the “corporate greed” you lament.
  4. You forthrightly state that “fossil fuels are the cheapest form of energy.” Will you explore what is really the more important fact: that fossil energies used to firm up intermittent energies such as wind and solar create inefficiencies and incremental emissions compared to a grid without intermittent resources? (Hint: wind and solar are not major CO2 mitgators.)
  5. You were very articulate on the David Letterman Show. Why not debate an intellectual opponent? Or why not recommend that a Richard Lindzen spend a few minutes with Letterman to explain why we are not doomed? After all, as you once said: “Climate is complex. People have different opinions about the extent to which humans are causing climate change.”
  6. You have powerfully spoken against the political waste of the climate-policy debate. Can you weigh the fact of “government failure” against “market failure” in your analysis of what the government can really be expected to do to address the alleged problem?
  7. Is it time for you to shift from a mitigation to a adaptation strategy for dealing with future climate change, as Robert Murphy has argued? Your ten-years-or-else alarm of 2006 (“We have at most ten years—not ten years to decide upon action, but ten years to alter fundamentally the trajectory of global greenhouse emissions”) is rapidly running its course.

Hansen’s post is reproduced in its entirety below because of its importance. [Read more →]

January 17, 2010   7 Comments

Pioneer Press Op-ed: We’re Warming, but not so Fast

I recently had an opinion-page editorial in the St. Paul/Minneapolis Pioneer Press in which I pointed out that the recent behavior of the earth’s weather/climate system was not much in accordance with some of the rather alarming predictions/projections coming from climate models or interpretations thereof. Perhaps we don’t understand the inner workings of the earth’s complex climate system as well as some people think we do.

A large collection of observations are indicating that our forecasts seem to be erring on the high side (notice I didn’t say that observations suggest that climate change wasn’t occurring, but that they suggest that the projections of climate change are too extreme). As such, I suggested that we ought not rush headlong into efforts aimed at attempting to restrict carbon dioxide emissions for the sake of trying to alter the course of future climate, considering that a) the future course of climate doesn’t seem to be all that bad, and b) that any impact that we may make would likely be minimal.

Here is an excerpt:

There’s a certain urgency these days to take action to mitigate climate change. World leaders assembled last month at the U.N. conference in Copenhagen to try to forge a global plan aimed to reduce carbon dioxide emissions. Back home, Congress, the EPA, and individual states (including Minnesota) are considering their own plans to do the same. All in an effort to steer the Earth’s climate in a direction other than the one in which it is projected to be heading.

But what if the climate projections are wrong? What if the earth’s climate isn’t plotting a course of death and destruction? Would it still make sense to restrict the kinds of energy we use even if it has little impact on the climate and/or future climate change was benign or possibly beneficial (for example, longer growing seasons, more precipitation)? . . . . [Read more →]

January 16, 2010   No Comments

Smart Grid Passion–It’s On Your Dime (Part II)

In Part I earlier this week, I asked critics for corrections to the surprisingly weak figures on avoided investment that smart grid advocates use to push their program. Having gotten none, let’s see where the figures take us.

First stop is the home page of the U.S. Department of Energy’s Office of Electricity Delivery and Energy Reliability (OE). Its most prominent link is to their own The Smart Grid: An Introduction. Intended by its own admission for impressionable readers, it is plagued with misstatements, deceptive graphics, and unsourced assertions. Its official author is Eric Lightner, Director of the Federal Smart Grid Task Force. Lightner has not bothered responding to my requests for the sources of his footnote-free document, which was actually put together by a PR firm. Perhaps this is to be expected from a federal department that has a policy to push and must point us underlings toward official documents favoring the policy. But do we taxpayers have to really put up with this?

Then on the homepage is a link to the Galvin Electricity Initiative, the project of a retired Motorola executive who wants “Perfect Power,” nowadays pushed by the former head of the utility industry’s Electric Power Research Institute.

Then there is a blurb on Gridweek, the annual convention for smart griddies. Its 2009 “Platinum Sponsors” include the usual mix of meter makers, utilities, and … Didja guess the Department of Energy? Right. $50,000. Yours. DOE was equally partisan before the election — It was a “Key Partner” in Gridweek 2008, whose financial and in-kind contributions I can’t reconstruct. [Read more →]

January 15, 2010   2 Comments

Power Generation Industry Forecast: Natural Gas as Fuel of Choice, Little Change for Other Technologies (Part II)

In Part I of this two-part post, we presented our observations of a power generation industry that will likely become more dependent on natural gas as a source of fuel for new power plants constructed in the coming years. Other fuel-based technologies (principally nuclear and coal) don’t seem to have the wherewithal to grab a larger piece of what should be a growing demand for electricity in the U.S. Both will be lucky to maintain their market share in the future. Renewables, with high levels of production tax credits, coupled with legislative mandates, will continue to grow in installed capacity but will contribute little to peak demand reduction. And should politically correct renewables (not hydropower) lose part or all of its government support, say as part of a deficit reduction program, then market share will actually be lost.

What follows is what we believe to be the future path of the remaining fuel-based power generation alternatives in 2010 and beyond.

Nuclear power, the last best hope for zero-carbon emissions from baseload generating plants, was many analysts’ early pick for a generating revival in the first decade of the 21st century. If one accepts the conventional view of climate change, the rational case for nukes appears unassailable. If you want low-carbon generation, you must go nuclear, period. (Gas-fired capacity to firm intermittent sources of power makes carbon-free wind and solar an illusion.)

The first decade of our new century has passed. After years waiting for the nuclear renaissance, it doesn’t look as if the second decade will bring the nuclear industry closer to revival. Indeed, the horizon may be receding. Literature Nobel laureate Samuel Becket could not have had U.S. nukes in mind when he wrote his iconic 1953 play, Waiting for Godot. But some of its dialog is eerily on target. The character Vladimir in the second act comments, “What are we doing here, that is the question. And we are blessed in this, that we happen to know the answer. Yes, in this immense confusion one thing alone is clear. We are waiting for Godot to come.”

In the U.S., we are into the second decade of the 21st century, waiting for the nuclear renaissance, after the market collapsed in the 1970s. Waiting and waiting.

Nuclear power plants won’t pick up U.S. generating market share in 2010, by all accounts. That’s despite prior federal government policy aimed at jump-starting new nuclear generation, including allegedly streamlined federal regulations and a longed-for candy jar of additional subsidies, such as major loan guarantees, pledged in the Republicans’ Energy Policy Act of 2005. Those have yet to materialize.

Some in the Obama administration and Congress are contemplating additional loan guarantees and other nuclear subsidies, to be included in pending climate change legislation. Arguing for $50 billion in additional federal loan guarantees, Exelon CEO John Rowe told a Senate committee in late October, “Deployment of new nuclear plants simply will not happen, given the large up-front capital costs, without a much more robust federal loan guarantee program than currently exists.” There doesn’t seem to be much enthusiasm on either side of the partisan aisle for committing that kind of money to nuclear power.

The 2005 congressional vision (perhaps a hallucination) was of a modest new fleet of nukes—a dozen or so—that would come into the U.S. market and revitalize the stagnant industry. New reactor designs from U.S., Japanese, and French companies; interest from multiple utilities; applications for more than 30 units under the streamlined approach of the Nuclear Regulatory Commission’s (NRC) licensing reforms of the 1990s; and the Energy Policy Act of 2005 all led to irrational exuberance among nuclear power developers. The 2005 loan guarantees would jump-start the market, the legislation assumed and the industry agreed.

More than four years later, [Read more →]

January 14, 2010   3 Comments

Power Generation Industry Forecast: Natural Gas as Fuel of Choice, Little Change for Other Technologies (Part I of II)

“It’s déjà vu all over again,” said Yogi Berra. The baseball Hall of Famer could easily have been predicting the coming resurgence of new natural gas–fired power plants. A couple of nuclear plants may actually break ground, but don’t hold your breath. Many more wind turbines will dot the landscape as renewable portfolio standards dictate resource planning, but their peak generation contribution will continue be small (and disappointing).

The most interesting story for 2010 is that the dash for gas in the U.S. has begun–again. In Part II or this two-part report, we will explore the challenges facing nuclear, coal, and renewable energy electricity sources in 2010 and beyond.

Business Climate–Energy Demand

As we enter the second decade of the 21st century and a second year of avoiding an economic collapse, the U.S. business climate seems to have become more positive. A growing sense of cautious optimism is appearing. A mid-October survey by the National Association for Business Economics concluded that the largest recession since the 1930s Great Depression is over, and economic growth is likely for the U.S. economy in 2010. The government announced that third-quarter 2009 economic growth hit 3.5%, the first positive growth in five quarters, suggesting an end to the recession (Figure 1).

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Figure 1. Electricity growth resumes in 2010. After a two-year contracting market, total electricity consumption in the U.S. in 2010 is expected to increase. Source: EIA, November 2009 Short-Term Energy Outlook

The implications for electric generation are mixed. What gets built depends on a complex stew of credit markets, regulatory responses, economic growth, technology, and national politics. Some of those are leading economic indicators, some lagging, some not clear at all.

Renewable generation has not made a convincing economic case in the market. But politically it has the upper hand. Coal and nuclear continue to take a political battering at the hands of the renewables advocates. The politics of energy is being upended by new implications for natural gas. The political and regulatory landscape is a dog’s dinner (a Britishism for an undigested mess).

The need for new generation to supply load appears less urgent than in previous years. According to the EIA, demand for electricity has fallen since the economy tanked in 2008. The demand down-tick is the first since the EIA has accumulated these statistics in 1977.

Facing a sluggish economy, consumers have reduced thermostats, cut off air conditioning, and dialed down appliances, leading to the decline in electricity demand. A cool 2009 summer in most of the U.S. helped to reduce air conditioning load. Net electric generation dropped 6.8% from June 2008 to June 2009. That was the 11th consecutive month that electric generation slid downward, compared to the same month in the prior year.

Analysts say they expect the declining demand trend to reverse when economic growth shows up at the beginning of 2010 or thereabouts. But they have been wrong before and may be wrong again. The EIA, the U.S. Department of Energy’s statistical agency, says it suspects the decline in demand will continue into early 2010, despite what appears to be a bottoming-out of the recession.

Many electric power company long-term capital spending plans have been built on the dire forecasts of the past decade, particularly from NERC. For years, the conventional wisdom in the generating industry was that the U.S. was running out of generating capacity. Year after year NERC had the same message: It’s time to build baseload, particularly nuclear and coal, and make major investments in high-voltage transmission.

Maybe not. Intermediate-load and peaking units, suggesting new gas plants, may be the ways to hedge big investment bets on future baseload units. A recent Washington Post article quoted anonymous sources as saying that new nuclear plants aren’t economical until natural gas prices are above $7/mmBtu. That’s more than double the current price. [Read more →]

January 13, 2010   2 Comments

‘Smart’ Grid: New Critics of a Bad Idea (Part I of II)

Possibly the most fascinating aspect of the Smart Grid is the absense of an economic rationale. But industry incentives being what they are (concentrated benefits, diffused costs), many have bet on much of it being built. Boondoggles must pass political tests, not economic ones.

But guess what?  People are finally starting to wonder if this smart grid is worth the trouble. Intervenors, at last, are turning up at state proceedings. For a good sample of the issues and alternatives, look at Synapse Energy Economics’ July 8 filing at the New Jersey Board of Public Utilities on behalf of the state Department of Public Advocate. Synapse is possibly the best firm in the business to represent efficiency or environmental interests, but they stand with the skeptics on smart grids.

The utilities have yet to find consultants who can make an easy case for the grids. Advanced Metering Infrastructure (AMI) by itself recovers only 50 to 80 percent of its costs if all it gets used for is automated reading, data transmission, and service initiations and terminations. (See Brattle Group’s The Power of Five Percent, at p. 6.) Getting a positive cost-benefit figure requires time-varying rates for small customers and ways they can react to them, or giving their utility power to do that for them.

California is in the midst of distributing smart meters to everyone over the next few years, but it has already made certain that the necessary rate reforms and controls rate and controls won’t be there. First, the state just got a law that prohibits any mandatory form of time-varying pricing, with or without bill protection, prior to 2013. Mandatory real-time pricing without bill protection has to wait until 2020. Utility-controllable thermostats (originally deemed necessary for a positive cost-benefit figure) were removed from the state’s regulatory options a year ago by public protests. [Read more →]

January 12, 2010   8 Comments

Energy Innovation as a Process: Lessons from LNG

Modern technical innovations operate unlike the traditional, pre-industrial advances: they too have their phases of gradual improvements based on tinkering and everyday experiences with running a machine or a process. But the initial accomplishments result almost invariably from deliberate and systematic pursuits of theoretical understanding. Only once that knowledge is sufficiently mastered the process moves to its next stage of experimental design followed by eventual commercialization.

That is precisely how Charles Parsons, Rudolf Diesel, and their collaborators/successors invented and commercialized the two machines that work–unseen and unsung–as the two most important prime movers of modern economies:

steam turbo-generators, which still generate most of the world’s electricity and

diesel engines, which power every tanker and every container ship besides energizing most of the trucks and freight trains.

The process of process is also how we got gas turbines (jet engines) and nuclear reactors, and many other taken-for-granted converters and processes. Ditto for solid state electronics that has evolved from crude transistors in the Bell Laboratories in the late 1940s to the now ubiquitous microprocessors.

Moore’s Curse

Unfortunately, this conquest of the modern world by microchips has helped to create a warped image of a universally accelerating technical progress, one that has been unthinkingly promoted both by computing gurus (Ray Kurzweil makes perhaps the most egregious claims, as he believes that the 21st century will be equivalent to 20,000 years of progress at today’s rate of advances) and politicians (nobody can compete with Al Gore in this category with his call for completely repowering America in just one decade). [Read more →]

January 11, 2010   1 Comment

Houston’s Climate Debate (Hundreds respond to Neil Frank’s Op-Ed, ‘Climategate: You Should Be Steamed’)

My recent post at MasterResource, Climategate: Here Comes Courage!, has been picked up in the blogosphere (such as at WattsUpWithThat) and has received several thousand views at MasterResource.

In my post, I profiled three individuals in the Houston area who in the post-Climategate environment have spoken up more forcefully against climate alarmism:

  1. Dr. Neil Frank (a former director of the National Hurricane Center in Miami and a weather forecaster at KHOU-Channel 11 in Houston);
  2. Michelle Michot Foss, an internationally respected energy economist with the University of Texas at Austin and the past president of both the U.S. Association for Energy Economics (2001) and the International Association for Energy Economics (2003); and
  3. Peter Hartley, the George and Cynthia Mitchell Chair in Sustainable Development and Environmental Economics, and Professor of Economics, at Rice University.

Neil Frank’s op-ed generated hundreds of online comments, and hundreds more views, with support being overwhelmingly positive (see for yourself). A number of comments are very appreciative of the Houston Chronicle for having published Frank’s piece given the editorial position at the paper as New-York-Times alarmist. (A number of readers also take the opportunity to fuss that their hometown paper is so one-sided.) And I must add my frustration: the editorial board’s jump from ‘market failure’ to government activism (support of cap-and-trade, etc.) as if there were not ‘government failure’ in the ‘correction.’ Political economy, anyone? [Read more →]

January 10, 2010   4 Comments

"[Nuclear] Fortunes in Cap-and-Trade" (Part III of “Political Capitalism: Understanding the Beast that Broke the Cage”)

This post by Richard Schlesinger of EnergyBizInsider is reproduced with permission. The problem of rent-seeking by corporations (political capitalism) has been explored previously at MasterResource.

Although the electric industry has endorsed the concept of cap-and-trade as the least onerous approach to carbon regulation, at least one major company endorses it with unalloyed enthusiasm. Exelon not only supports the idea, it stated in a second-quarter conference call to analysts, which it posted to its Web site, that it expects to see a “$1.1 billion and growing annual upside to Exelon revenues from implementation of Waxman-Markey.” Is that number real or simply wishful thinking? Does Exelon know something that’s escaped the rest of us?

Actually, if one makes a couple of assumptions, the potential earnings boost is very real. Here’s how it works. Exelon’s 17 nuclear plants, the largest nuclear fleet in the country, generated just over a record 132 million megawatts-hours of power in 2007. That’s fact. Assumption number one: The Senate follows the House and passes an unchanged version of the Waxman-Markey bill.

At the start of the program, about 85 percent of the permits would be given away. Over time, the percentage of free permits would decline. About 15 percent of the permits would be auctioned off to begin with, and that percentage would increase over time. What concerns us is the value of these permits, because that value translates into increased costs for generation. Which brings us to assumption number two: The EPA estimates that during the early years of the program, a permit to emit one ton of CO2 would cost approximately $15. [Read more →]

January 9, 2010   2 Comments