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Posts from — January 2011

Section 1603 Extension: The Renewable Energy Bailout of 2011

In the waning hours of the tax bill debate last December, the Obama Administration and GOP leaders released the terms for continuing the Bush-era tax cuts. The framework negotiated between the parties initially omitted any reference to extending the renewable energy programs introduced in 2009 under the American Recovery and Reinvestment Act of 2009 (ARRA), which were scheduled to sunset at the end of 2010.

The renewable industry responded ferociously. A media blitz hit overnight, and wind and solar lobbyists huddled with lawmakers on Capitol Hill. Repeated warnings about job loss and the immediate harm to green energy businesses worked. Lawmakers relented and sanctioned a 1-year extension. The windfall? A check from the U.S. Treasury for 30 percent of a project’s qualifying cost.

With the fuss now behind us, we decided to examine one of the more popular renewable subsidy programs to be extended, the Section 1603 cash grants. Our analysis revealed a pattern of rewarding inflated project costs and decreased energy production, while shifting a substantial portion of the development risks to American taxpayers.

Supersubsidy upon Subsidy

Following the collapse of Lehman Brothers in September 2008, tax-based policy incentives lost much of their effectiveness as the number of tax equity investors declined. Provisions under ARRA were designed to fill the void by reducing, and essentially eliminating, the need for tax advantaged investors. The Section 1603 cash grant program enabled developers to secure direct monetary outlays from the Federal government to cover 30 percent of a project’s qualifying cost. (Greenwire October 14). The criteria for receiving the grant were not onerous, and the Treasury Department was prohibited by law from ranking the projects before distributing the funds.

Spanish energy giant Iberdrola Renewables, Inc., which received nearly a billion in cash grants alone, argued the money was crucial to promote jobs and economic opportunity (as if the money spent elsewhere would not have done the same….).

But a preliminary evaluation of the grant outlays published last year found that 61% of the grant money distributed through to March 2010 “likely would have deployed under the PTC [production tax credit] if the grant did not exist.” In many cases, money went to projects that were already under construction, and in some cases already producing electricity. [Read more →]

January 31, 2011   16 Comments

Green Enron (Part IV Interview with Robert L. Bradley Jr.)

[This interview of Robert L. Bradley Jr. by Stephen Hicks (website here) is part of a series: Part I (Libertarianism and Energy); Part II (Expanding Energy Horizons); and Part III (Enron as a Political Company).]

Kaizen: You mentioned that Enron was also involved in lots of alternative energy sources—wind power, solar power, “green” energy, and that it was one of the first at the political table. Did Enron think that with the right kind of farsighted investment the new energies could be profitable?

Or was this again part of a political strategy: Alternative energy was a political favorite, certainly during the Clinton Administration years, when Al Gore was vice president? So Enron is getting a seat at the table; and whether alternative energy actually succeeds or not, it’s a good business strategy at least in the short term.

Bradley: Enron certainly believed that they could make money at it, but it was a very large public relations, perception, government favor play. Believe me, the fact that the intellectual class is pushing these things and you have Al Gore as vice president and the “greens” in political ascendency in the U.S. and in the EU is huge to Ken Lay’s and Enron’s thinking. If global warming was not an issue, Enron would not have been on that bandwagon.

So NASA’s James Hansen and Al Gore were Enron enablers, in retrospect.

Kaizen: So Enron had a “green” category within its political business model?

Bradley: Absolutely. This is all part of the business model of rent-seeking, political capitalism—and offensive rent-seeking at that. Enron ended up with seven, count ’em seven, profit centers tied to the global warming issue, or more specifically, to government policy setting a price on carbon dioxide.

Kaizen: Was there a division for green energy?

Bradley: Enron Renewable Energy Corporation. At the 2000 Enron Management Conference, Lay announced that Enron was going to be “world’s leading renewable energy company.” It was wind and solar with a little hydro thrown in. I don’t think we ever got into biomass.

Kaizen: How did this begin? Was there a buildup?

Bradley: Enron’s ‘green’ play actually had a noble basis at the very beginning, in that rate base or public-utility regulation penalized natural gas in favor of coal-fired electricity generation, and natural gas was and is cleaner burning than coal. So there was a free-market, environmental angle to promote gas, which Enron exploited to its advantage because it was a natural gas company, not a coal company.

Here is the problem. [Read more →]

January 28, 2011   4 Comments

Rep. Upton of Commerce and Energy: Is This the Real Deal?

Some very rational words on energy policy–long needed–have come from Chairman Fred Upton (R-MI) of the House Committee on Energy and Commerce. But will Congress act on them?

It will take a lot of heretofore undemonstrated courage for members of Congress to take the actions needed to:

1.  Convince the Washington Establishment* to recognize that central planning really hasn’t and doesn’t work.

2.  Get private sector companies to devote their financial and human resources to innovative and productive efforts rather than (like GE, Duke, Exelon, many Wall St firms, and many others) focusing those resources on “milking” federal and state tax breaks and subsidies.

3.  Break the hammerlock that Federal agencies officials and employees, their favorite constituencies (who benefit from our tax dollars), Congressional committees and staff, and lobbyists have on appropriations, credit programs, and tax policies.

4.  Give members of Congress and their staff the wisdom to discern the difference between facts vs. propaganda provided by lobbyists and federal agency staff — and then the courage to act in the national and public interest, rather than in their personal interests and those of the lobbyists that befriend them and contribute to their reelection. [Read more →]

January 27, 2011   5 Comments

Windpower Emissions: Kleekamp Critique (Part III – Cost of Wind and Nuclear Plants)

Parts I and II dealt with most of the issues in a recent paper by Chuck Kleekamp and showed the weaknesses of his analysis. This post addresses in detail the question of the costs of electricity generation for nuclear and wind.

Kleekamp says, “If you think wind power is expensive, wait till you have to pay for electricity from a new nuclear plant.” This suggests that nuclear plant electricity is more expensive than that of wind. This is remarkably incorrect. The costs of each according to the EIA along with my adjustments, are shown in Tables 2 and 3 below, which clearly demonstrates the high costs of wind compared to nuclear. As will be seen, the EIA costs are just starting points.

These costs are shown on separate tables for wind and nuclear because they are not really comparable. The reason for this is that nuclear plants produce power, which can be depended upon, a critical factor in the successful use of electricity, and wind plants do not.

The EIA shows capital costs and levelized costs. Levelized costs, expressed in $/MWh are important to understand, because this is the basis on which we use and pay for electricity. However, and as already stated, but repeated for emphasis, comparing the EIA reported levelized costs of wind with conventional electricity generation technologies is not an “apples to apples” comparison, because of the unreliability of wind. Stated another way to the previous paragraph, this is because wind has no capacity value, the details of capacity value are too extensive to deal with in this post. Interested readers can see more information on this important consideration here.

We will first look at actual experience with wind capacity factors in the United Kingdom (UK), an important issue in determining levelized costs, and then at an analysis of the levelized costs for nuclear and wind plants as published by the EIA. Even without consideration of the reliability factor, it will be seen that wind is substantially more expensive compared to nuclear than the EIA reports, and contrary to what Kleekamp appears to suggest. [Read more →]

January 26, 2011   11 Comments

Windpower Emissions: The Kleekamp Critique (Part II – Capacity Considerations)

Part I of this series critiquing an article by Chuck Kleekamp dealt with the more general issues of examples used, one of the major references and electricity markets. There is a lot found to question his analysis. This post focuses on capacity considerations and other miscellaneous issues raised by Kleekamp. Finally, Part III addresses his remarkably inappropriate warning, “If you think wind power is expensive, wait till you have to pay for electricity from a new nuclear plant.”

 

Availability of Other Generation Capacity

Kleekamp cites the extensive unused capacity in the total electricity system that he claims is available to balance wind. He is incorrect in this notion. This capacity provision is normal, and it is there for a purpose. One of the reasons is the need for reserves as described in Part I and represents about 20% of total capacity.

Another reason is the nature of electricity demand. A large number of plants are used only to meet daily demand rises and peaks, at which point they are all committed, albeit some to reserves. The “excess capacity” is therefore not available for other purposes, which would make it unavailable for its primary, important purpose. It would be “robbing Peter to save Paul”.

Contrary to Kleekamp’s view, the introduction of wind capacity results in additional capacity that would not otherwise be required. [Read more →]

January 25, 2011   6 Comments

Windpower Emissions: Kleekamp Critique (Part I – Introduction)

This post is the first in a three part series that critiques the recently published article “Wind Power Always Replaces Fossil Fuels” by Chuck Kleekamp, which provides material for another in the series of my critiques of wind proponents’ claims. Previously analyzed were papers by Milligan, Komanoff and Gross. My understanding is that this author has previously made notable contributions to environmental matters. Let’s see how he does with respect to wind.

To begin, I cannot help commenting on the inclusion of “Always” in the title. The apparent certainty in this term immediately alerts me to a questionable analysis. Perhaps the author meant to be provocative, and was not serious in the use of this word. If so, this does not give due consideration to the importance of the matter.

This leads to another general comment. In a circulation of a draft of these posts to a panel of reviewers, one commented on the nature of Kleekamp’s article as that of not having sufficient knowledge of the subject, but attempting to appear so. He provides descriptions, but makes errors in the process. Cases in point are his (1) example of the Mirant Canal oil-fired plants and (2) description of electricity system markets and activities of the System Operator of New England (ISO NE). [Read more →]

January 24, 2011   23 Comments

EU Energy Orwellianism: Ignorance Is Strength

In George Orwell’s masterpiece, 1984, one slogan of the party dominating Britain was: “Ignorance Is Strength.”

It actually meant that the ignorance of the people is the strength of the government: if people do not know things, or do not have the information to make informed decisions, they are like subjects, not free citizens.

Something akin to this is going on in the European Union (EU) on the energy front. Energy is an active are of EU public policy. Yet authorities are not revealing information (data is surely has) that is crucial to determine whether its policies are distorting the market and come at too high a cost to society.

High-Sounding Aims

The website of Eurostat – the European Union’s statistical office – sells itself as “your key to European statistics.” The EU also created an ad-hoc website, www.energy.eu, in order to provide “your trusted source for past, present and projected Energy Prices and Statistics.”

While words are sweet, the implementation of the goals is far from perfect. In fact, several key statistics are not available–not even commercially–especially with regard to energy issues.

This is a major fault in Europe’s credibility in advancing its policy goals, as well as a serious limitation to the accountability of the policy making process, because it prevents, or makes it much harder, to double check the rationale, the numbers, and the declared outcomes of the EU’s policies. [Read more →]

January 21, 2011   4 Comments

Enron as a Political Company (Part III: Robert L. Bradley Jr. Interview)

[Part III of an interview of Robert L. Bradley Jr. by Stephen Hicks (website here). Part I (Libertarianism and Energy) and Part II (Expanding Energy Horizons) have been published.]

“Ken Lay lives in Jim Rogers! The master of the regulation game for natural gas transmission brought Lay’s get-out-in-front political strategy from Enron to a company called Public Service Company of Indiana, which became Cinergy, which was bought by Duke Energy. Rogers positioned his coal-laden company as very concerned about climate change and wanting cap-and-trade regulation.”

Kaizen: Enron operated in a highly mixed political and economic environment. In the decades that Enron was operating—the 1980s through the early 2000s—to what extent was the U.S. energy market a free market, and to what extent was it regulated economy?

Bradley: The energy industries—oil, natural gas, and electricity—have all been politicized. And Ken Lay, the big-picture economics Ph.D., had a skill set that was attracted to the mixed economy and thus to energy, particularly to natural gas.

Kaizen: When was Enron created?

Bradley: Lay joined Houston Natural Gas Corporation as CEO in May 1984. The next year, HNG became HNG/InterNorth after a merger with InterNorth, a major Midwest supplier. A year later, in 1986, the company was renamed Enron.

Kaizen: Did it begin as a regulated company?

Bradley: Not really, interestingly. What Lay did in his first six months was to take a company that was selling gas in the largely unregulated Texas market through a vast intrastate pipeline and transform it into a company of interstate gas transmission companies regulated by the Federal Energy Regulatory Commission (FERC) out of Washington, D.C. FERC was the old Federal Power Commission (FPC), where Lay worked while in Washington, D.C.

So in addition to its unregulated core, Enron obtained three major interstate pipelines that are public-utility-regulated. And Lay starts staffing up with some very innovative folks who understood the ins and outs of public utility regulation.

James E. “Jim” Rogers

One was James E. “Jim” Rogers, who had a background with FERC. He was a master at figuring out ways for the regulated pipeline to “beat” its rate case, or how to exceed your authorized regulated rate of return.

Kaizen: So Rogers is a ‘gamer’ of regulation.

Bradley. Yes, but in a good way since in this case regulatory entrepreneurship was to a large extent pro-consumer—doing what your customers want to transport or sell gas in new ways.

Rogers left Enron in 1988 for the electricity industry and is now CEO of Duke Energy, a major electric utility company. He became the leading political entrepreneur of the electricity business. Over the years, he sold his industry on cap-and-trade as a global warming policy strategy—a real blow for the free market and those of us who are against climate alarmism and related policy activism.

Kaizen: So Rogers has continued the political capitalism strategy of the late Ken Lay?

Bradley: Yes–Ken Lay lives in Jim Rogers! The master of the regulation game for natural gas transmission brought Lay’s get-out-in-front political strategy from Enron to a company called Public Service Company of Indiana, which became Cinergy, which was bought by Duke Energy. Rogers positioned his coal-laden company as very concerned about climate change and wanting cap-and-trade regulation. [Read more →]

January 20, 2011   3 Comments

Oxymoronic Windpower (Part II: Windspeak)

Windspeak: Language used by those who profit financially, politically, or ideologically from wind technology that disguises, distorts, or reverses the meanings of words in order to promote the technology. Oxymorons, which combine incongruous or contradictory terms, abound in windspeak—viz, windpower, wind capacity, responsible windpower (double oxymoron), windfarms, windparks, wind jobs, wind reliability workshops, and wind as alternate energy. Generally any claim made for the technology in windspeak produces the virtually opposite effect in reality.

With the right story and no accountability, Madison Avenue can sell fantasy wholesale. Rock Hudson’s ad executive did just this 50 years ago in the charming send-up to our commercial culture, Lover Come Back, when he successfully marketed a non-existent product, VIP.

Nothing illustrates this idea better than the au courant fantasia about wind technology, where public relations legerdemain has deployed the power of windspeak to give wind a complete makeover, transforming a klutzy pretender into a seemingly benevolent superhero unbound by the laws of physics and even its own history. This is due in no small part because of the way wind has been entwined in stories deeply embedded within our cultural consciousness.

Giving the Middle Ages a contemporary look, J. K. Rowling borrowed much from fictional works by J. R. R.Tolkien, a medieval history and literature scholar who thought Shakespeare too modern and vulgar. Her Harry Potter books invite comparison to the current wind propaganda narrative. Like these stories, wind is presented as a coming of age chronicle, complete with the use of magical powers and the idea of transforming ancient technologies into modern elixirs. Although wind in its latest incarnation has been at the public trough for nearly 40 years, windspeak portrays its hero as an infant wizard preparing to save the world; it simply needs more time at Hogwarts-like institutions such as Stanford and MIT.

What is even more striking is how wind has franchised itself, much like the Harry Potter phenomenon, through self promotion, using product placement and embedded, leveraged marketing techniques a la GE/NBC/CNBC. A quick Internet search revealed the following items, under “Wind Marketing:” mugs, t-shirts, boxer shorts, thongs, back packs, lunch boxes, posters, tote bags, hats, aprons, yoga mats, license plate frames, wall clocks, keepsake boxes, greeting cards, buttons, decals, gym bags, desktop wind turbine, Lego’s wind turbines, a Lionel wind turbine cargo car and O gauge wind turbines. And, from our good friends at Greenpeace, there’s the Wind Farm Game. In fact, for nearly every product used to leverage the Potter Syndrome, there is a counterpart with wind. [Read more →]

January 19, 2011   15 Comments

Oxymoronic Windpower (Part I: Howlers)

Definitions:

Howler: A ridiculous idea or proposition, one that elicits howling laughter; also, a type of magic spell from the Harry Potter series.

Bellyfeel: A blind, enthusiastic acceptance of an idea, taken from George Orwell’s Nineteen Eighty-Four, where any good Oceanian internalizes Party doctrine such that it becomes gut instinct—a feeling in the belly.

Blackwhite: In Orwell’s Nineteen Eighty-Four, a word that has two contradictory meanings, used to convey how people have been propagandized to believe that black is white while never realizing that the reverse might be true. It is the ultimate achievement of newspeak that requires a continuous alteration of the past made possible by a system of controlled thought.

Every major claim made by those who would profit, either financially or ideologically, from wind technology is replete with Owellian doublespeak. Despite the promise of many jobs in the USA, for example, wind provides almost no permanent employment, with most wind manufacturing migrating to China.

Despite the bellyfeel assertion that wind is an environmental savior, it is in fact an environmental wrecking ball. Contrary to the proposition wind can back down the coal industry, in most areas of the country it may actually increase coal consumption.

However, nothing about wind is more Orwellian than the very term windpower. Despite its pervasive use and casual acceptance, windpower as a contemporary expression of reality is quite at odds with itself, particularly in technologically advanced societies.  It’s a howler.

Widespread misunderstanding about the difference between energy and power has given cover to the charlatan-like wind lobby which pretends their wares provide something they do not. We are all familiar with blackwhite PR jargon that characterizes wind projects as mills, farms, and parks, despite the looming industrial presence of 450-foot tall turbines propelling rotors at tip speeds of nearly 200-mph for many miles along terrain or seabed.

But for sheer oxymoronic audacity, nothing beats the trickeration of the term windpower, since the technology is the very antithesis of modern power performance. In fact, wind provides no modern power. Rather, it throws out spasmodic, highly skittering energy that cannot by itself be converted to modern power. [Read more →]

January 18, 2011   25 Comments