Category — Department of Energy/Secretary Chu

At a time when the federal government is debating whether to raise the debt ceiling, the U.S. Department of Energy’s Loan Programs Office (LPO) is offering guaranteed financing to First Solar Inc. for three solar panel projects in California for $4.5 billion. Not million but billion.

Carefully analyzed, these projects do little to fund efficient energy production or create permanent jobs. Such largesse is one of many rich targets for immediate deficit reduction in any budget deal.

LPO specifically targets projects that promote clean energy and includes “job creation; reducing dependency on foreign oil; improving our environmental legacy; and enhancing American competitiveness in the global economy of the 21st century.”

Specifically, these loan guarantees promote projects that include biomass, hydrogen, wind and hydropower, advanced fossil energy coal, carbon sequestration practices and technologies, electricity delivery and energy reliability, alternative fuel vehicles, industry energy efficiency projects, pollution control equipment, nuclear, and solar power.

Moreover, support by the LPO is for borrowers in case they default on their financial obligations while the project is constructed. Clearly, this is all about government picking energy winners at the expense of market preferences and forces. [Read more →]

“All Americans are involved in making energy policy. When individual choices are made with a maximum of personal understanding and a minimum of government restraints, the result is the most appropriate energy policy.”

- Reagan Administration Energy Plan (1981)

The U.S. Department of Energy (DOE) oversees nuclear weapons sites and subsidizes conventional and alternative fuels. The department has a history of fiscal and environmental mismanagement. Further, misguided energy regulations have caused large loses to consumers and the economy over the decades.

DOE will spend about $45 billion in 2011, or about $380 per U.S. household. It employs about 17,000 workers directly and oversees 100,000 contract workers at 21 national laboratories and other facilities across the nation. The department operates 37 different subsidy programs.

Spending Cuts

Department of Energy research activities should be terminated. The private sector is entirely capable of funding its own research into coal, natural gas, nuclear power, solar power, and other forms of energy. Businesses will fund new technologies when there is a reasonable chance of commercial success, as they do in other private industries.

Federal energy subsidies impose a burden on taxpayers, and they can be counterproductive if they steer the marketplace away from the most efficient energy solutions. Furthermore, federal energy research has a track record of poor management, cost overruns, and wasteful boondoggles.

The Strategic Petroleum Reserve and the Power Marketing Administrations should be privatized. The Federal Energy Regulatory Commission should be terminated. Ending all these activities would save taxpayers about $18 billion annually, as shown in the table.

The bulk of the Department of Energy’s activities are defense-related. Those activities, which total about $19 billion annually, should be moved to the Department of Defense. That would allow for a more transparent presentation of defense costs in the budget, and it would allow the Department of Energy to be abolished.

Click here for a list of proposed spending cuts to the department to save taxpayers about $18 billion annually. [Read more →]

“If the guiding agency is less knowledgeable than the system it is trying to guide—and even worse, if its actions necessarily result in further undesired consequences in the working of that system—then what is going on is not planning at all but, rather, blind interference by some agents with the plans of others.”

- Don Lavoie, National Economic Planning: What is Left? (Cambridge: Ballinger Publishing Company, 1985), p. 95.  

 Upon reading the latest letter from the Secretary of the Department of Energy, Stephen Chu, five questions came to mind. Perhaps he, a staffer, or anyone else can provide answers to see just how justified this part of DOE’s mission is during a time of fiscal challenge.

Question #1: Can Secretary Chu spell C-E-N-T-R-A-L  P-L-A-N-N-I-N-G ?

Question #2: If there is “…deep energy expertise within the Department and our national laboratories…” how does one explain the minimal results from the approximately $150 billion (2009$) that has been poured into “energy R&D” (not counting money spent in basic sciences) by DOE and its predecessors?

Question #3: Has an energy technology promoted by DOE ever made it into unsubsidized commercial application?  (Please list)

Question #4: Are the two key assumptions underlying DOE’s energy RD&D efforts — i.e., (i) more spending WILL overcome technology hurdles, and (ii) economies of scale WILL inherently bring down the price so that the technology will be competitive in commercial markets — really justified, recognizing the failure of these assumptions for every “winning” energy technology selected by the federal government during the past 45 years?

Question #5: Starting with 1973, how many different energy technologies have been picked as “winners” by federal officials (Administrations and/or Congress), only to have the technology fall by the wayside because of it proved to be (a) higher in cost, (b) lower in value, (c) technically impractical and/or (d) more environmentally unacceptable than its advocates claimed?  (Please list.) 

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 →]

Thirty years after President Carter declared that our energy crisis was the “moral equivalent of war,” forever known as “meow,” we are faced with another federal potentate who is sure that he knows what is best for us. At a Smart Grid conference in Washington, D.C., Energy Secretary Stephen Chu opined that “The American public … just like your teenage kids, aren’t acting in a way that they should act.”

Just as President Carter declared that our country’s failure to conserve natural gas and oil was a symptom of a “malaise,” not heaven forefend, the low prices for fuels sold at (federally) regulated prices, so does the current Energy Secretary believe that our citizenry is incapable of making rational decisions about energy use.

Why would the smartest guy in the room (read: central planner) say such a thing–a mistake his press office now says?

Incentives Matter

We consumers respond to economic incentives all the time. If the government offers an incentive to get rid of a car that was already paid for, then we will take the $4,500 and walk away with a new one; when the price of oil and gas rise people put on sweaters and turn down the thermostat, install new windows and think about shorter commutes to work; if the government encourages banks to lend money at very low rates to anyone with a pulse, then people will borrow money to purchase houses they cannot afford; if the government pays companies to generate electricity using wind then they will try to do so regardless of its specific utility in the energy mix. Incentives run the world of personal choices. People can only make rational decisions about the real alternatives that face them, not about some theoretical concerns far in the future.

Obviously, the Secretary thinks he was the only person to grow up in a household where dad told us to turn off lights, shut the refrigerator door, close windows in the winter and other staples of energy-conscious behavior. Only it was not really energy-conscious behavior that motivated dad, it was the gas and electric bills at the end of the month.

I’ve got news for you, Mr. Secretary, a lot of us grew up with this dad, made fun of him at the time for his “light bulb fetish,” and now tell our children exactly the same things (and don’t track mud on the floor, while you’re at it!). [Read more →]