Tuesday, October 14, 2008

Attention Obama and McCain: Electricity Matters!

I've tried numerous times to get through to the candidates, but so far, none of them are knocking at my door seeking my advice. I've sent books to every member of Congress who sits on a committee that has anything to do with electricity and infrastructure. I've traveled across the country speaking to groups large and small talking about the state of the electricity industry, and I know there are many out there who share my concerns about our electricity future.

I also know there are many pressing issues on our candidates' and current legislators' minds, but electricity must be considered a "front and center" priority if we are to grow our economy, maintain our national security, and address energy independence and global climate change.

So, I've put together a set of talking points. Whether you agree or not with every single point, share them with friends and colleagues, send them to your elected representatives, and work to get the candidates--and America--talking about electricity.

Talking Points

:: It’s time to talk electricity!
Because during a time of political change everyone will be talking about:
Climate change energy independence, skyrocketing costs for commodity energy sources, inadequate transmission infrastructure, and unrealistic demands for renewables and conservation

:: Electricity is absolutely critical to our economy and to our modern lifestyles.
- Nothing substitutes for its convenience, cleanliness (at the point of use), and versatility.
- It is the product at the base of our entire infrastructure, and therefore a critical part of our national security. Electricity’s role in national security, whether we’re talking about a terrorist attack or a natural disaster like Katrina, gets little attention from inside or outside the industry.

:: Electricity is the one energy that is Invisible—Except When It Isn’t There.
- Nobody cares or thinks about electricity until their lights go out or their rates skyrocket.
- When you don’t know the cost of something, you can’t understand it’s value and you have no incentive to regulate/change your patterns of consumption.

:: When it comes to infrastructure, Americans suffer from the long-term consequences of short-term thinking.
- We pass short-term palliatives (ethanol, wind production tax credits for two years, etc) and lurch from election cycle to election cycle instead of adhering to a long-term policy or plan, granted one that needs to be modified as we go.

:: When it comes to infrastructure, Americans suffer from the long-term consequences of short-term thinking.
- The industry has always been structured to pay more attention to supply than demand, and to pay more attention to building the “next thing” rather than achieving superior performance from the “last thing.”
:: Transmission, although critical to every kind of electricity generation and distribution, is becoming an example of the “tragedy of the commons.”
- We are setting ourselves up for unrealistic expectations for wind because many of wind depends on transmission, storage and many of its strongest proponents can’t seem to distinguish between a kilowatt and a kilowatt-hour.

:: Energy storage is essential!
- Optimizing our existing infrastructure and ensuring a viable and cost-effective pathway for large-scale renewable energy requires a new piece of the production and delivery value chain, energy storage, accompanied by a supply chain that doesn’t even exist yet.

:: We need infrastructure engineering—not financial engineering!
- Our electricity infrastructure has become the victim of financial engineering. Our ability to manage assets diminishes as our infatuation with managing balance sheets grows.

:: The solution to addressing global warming is elegantly simple.
- Use nuclear power combined with more renewable energy supported by energy storage technologies to move away from coal for electricity production and toward clean, renewable energy for electric vehicles.

Here’s the “How to Prevent Lights Out” Plan:
(1) Expand our nuclear power capacity with nuclear fuel reprocessing. Nuclear is the most economical way to meet the constraints we face on the production side of the electricity value chain and it helps address global warming and helps speed the move from petroleum-based transportation to electricity-based transportation.

(2) Fix and expand the transmission grid. In the book I try to convey how downright dysfunctional transmission seems to be right now. We should not have a grid characteristic of the “third world.” And that’s what engineers who know it well call it, not just me. A chain is only as good at its weakest link and for electricity production and delivery, that link is transmission.

(3) Make sure every ratepayer has an advanced meter that displays the price of electricity (preferably on their refrigerator!) and how much is being consumed, and allows utilities to interact with users to manage demand. We cannot successfully manage electricity demand without these consumer tools, and this day to day knowledge of the value of the product. These meters must become two-way interactive point devices for automating demand management.

(4) Limit Liquefied Natural Gas (LNG) imports, or better yet, abandon the idea for electricity production. Do we really want the bedrock of our economy, and our infrastructure, subjected to the same geopolitical vagaries as petroleum and that boasts a 20x more potent warming agent than carbon dioxide?

(5) Use coal intelligently by extracting its full value of coal at the mine site. We must learn to think of electricity as one of several byproducts of coal and mine-mouth processing facilities as coal refineries. Shipping coal that is mostly water thousands of miles across the country doesn’t make sense.

(6) Fund a massive development program for electricity storage. As important as renewable energy sources (solar and wind) are to carbon-free electricity and to moving to electric vehicles powered by renewable sources, they will only gain a minimum of traction and will be subsidized into eternity if we don’t solve the problem of intermittency, and get the public to understand the difference between a kilowatt and a kilowatt-hour. And, they will wreak havoc on our transmission and distribution grid. Electricity storage has many other benefits, too; they facilitate electricity markets (all other commodities make use of storage to moderate supply and demand), make the transmission grid more robust, and improve our infrastructure security (think strategic petroleum reserve).

(7) Shift money and emphasis from the left side (the production side) of the value chain, to the right side, the consumption or demand side. Markets and deregulation really could work and help manage demand, but they have to be instituted far more intelligently than the last time we went through this.

(8) Federalize the backbone of the electricity infrastructure in the same way almost every other critical industry—health care, banking, airlines, home mortgages, transportation, etc—is backstopped by the federal government (e.g. consider only the impending bailout of Fannie Mae and Freddie Mac)

(9) Make electricity part of everyday discourse. Let’s not get bent out of shape just when the lights go out. If everyone sustains their engagement with this unique, ubiquitous and ever so valuable product, then we will surely have a more rational future with it. At the very least, it needs to be as important as gasoline prices and petroleum in public and political discourse.

(10) Concentrate on infrastructure engineering—not financial engineering! Increasingly, the destiny of the electricity industry is controlled by the financial industry on shorter and shorter time horizons. This is exactly opposite what you want for sensible, long-term infrastructure investment.

Whether you agree with all the points or not, the important thing is to get America talking about electricity infrastructure. Please help get America talking...

Friday, October 10, 2008

What happens now?

Most people outside the electricity industry are startled to learn that it is the largest industry in America. When you say "energy," most people think ExxonMobile--not the electricity cooperative on the edge of town. As I've railed so many times, people just don't "think" about electricity.

Now, more than ever, it's time to start thinking--and thinking hard. The electricity industry relies on debt to finance at least half of the cost of building power plants. So, what happens to the electricity industry now that free-flowing credit has come to a screeching halt?

What politician will want to add the costs of carbon to the price of anything today?

How will wind projects fare? The same firms that have been financing and developing these projects are the same ones we're reading about on the front pages of our favorite news outlets, the same ones begging to get their hands in the Fed's pockets.

Both John McCain and Barack Obama talk about the need for new nuclear power--McCain talks about a building 45 new plants by 2030. But, if building one new plant means borrowing millions of dollars for construction costs, how is even one new plant going to get off the ground? Right now, businesses can't get short-term loans to cover payroll, let alone millions for such a major construction project.

If investors were skittish about financing the debt for nuclear plants six months ago, how do those firms feel today. Investors are poorer today (as I type the market is down 305 pts at 8273) and many about to become quasi-socialized. Oh, and now that the Fed is guaranteeing all of the bad debt from the mortgage business financial engineering, it just adds that to the growing deficit from fighting wars on two fronts, and not getting any control over spending. The only "bright" spot is that as consumers stop buying foreign goods, our deficit will shrink...but, on the other hand, as American consumers stop buying foreign goods, the whole global economy shrinks....)In other words, the government is broke unless the Fed's pocket stretches halfway around the world to China and Japan. But in our "world is flat" global economy, when we tank they, tank too.

The bottom line is, the electricity industry one of, if not THE, most asset intensive industry in the country and without debt financing, nothing new gets built.

Here's what I think:

(1) Regulated utilities are king--they can still raise money by raising rates and secure their long-term investment needs,

(2) companies who own assets like power plants or gas reserves are princes-when all of the debt inflated value is wiped out, they still own some real things with value,

(3) competition in electricity is dead-even Warren Buffet is investing in utilities because they are regulated, stable income producing businesses,

(4) the financial engineers, who move from one source of trading volatility to another, will move to carbon trading. In five to 10 years, that will be the next Wall Street scandal,

(5) we will likely see a massive infrastructure building program here, not unlike the 1930s, and, signaling the final death knell of globalization--at least for electricity--the government will direct this program towards energy independence--nuclear, clean coal, wind, solar, coal-based refineries, ethanol, and all the rest will be subsidized to the hilt.

The grand experiment in privatization, deregulation, unfettered free markets, etc, is over.

Thursday, September 11, 2008

It’s time to talk electricity!

This election cycle it is critical to get the candidates talking about the future of electricity in America.

Electricity is SO fundamental to our economy and our modern way of life that most people don't even think about it. The industry has done such a good job that today we have (relatively) affordable, reliable, robust power available to homes and businesses. But, if we don't address the challenges facing the industry, the future of affordable, reliable, and robust power may not be secure. The challenges are many, the solutions complex. Climate change policy, energy independence, skyrocketing commodity costs, inadequate transmission infrastructure, incessant demands for renewable energy, and conservation all affect electricity policy, and become de facto back-door electricity policy.

The future of our economic well-being and competitiveness depends on crafting a smart electricity policy--not only reacting to our challenges with a hodgepodge mess of initiatives that are neither well thought out or feasible. So, right now, take the time to write a letter to the editor, craft an Op-Ed piece, write or call your elected representatives and make your voice heard!

Talking Points on our Electricity Future

:: Electricity is absolutely critical to our economy and to our modern lifestyles.
- We have to manage the impact of all of these environmental and economic pressures on our electricity infrastructure.
- Nothing substitutes for its convenience, cleanliness (at the point of use), and versatility.
- It supported our entire infrastructure, from server farms to water supply, and therefore is a critical part of our national security.

:: Electricity is the one energy that is Invisible—Except When It Isn’t There.

- Voters and ratepayers have to think about electricity before their lights go out or their rates skyrocket.
- Unlike gasoline, consumers don’t see the price of electricity, so they cannot respond viscerally to it. When you don’t know the cost of something, you can’t understand its value and you have little incentive to change behavior. Right now, electricity rates are escalating everywhere but most of this is to pay for the excesses and the deficiencies of past deregulatory and competition programs! Future rate shock will pale in comparison and we won’t be paying for the right things unless voters get engaged now!

:: When it comes to infrastructure, Americans suffer from the long-term consequences of short-term thinking.
- We pass short-term palliatives (ethanol, wind production tax credits for two years, etc), or legislation that spends more time in court than in practice, and we lurch from election cycle to election cycle catering to narrow special interests instead of adhering to a flexible but long-term policy or plan.

:: Transmission, although critical to every kind of electricity generation and distribution, is becoming an example of the “tragedy of the commons.”
- We are setting ourselves up for unrealistic expectations for wind because many of wind depends on more transmission
- Transmission is the smallest component of value in the production and delivery value chain but represents the greatest investment and infrastructure gap for long-term reliability, security, and price stability.
- Transmission knits our national grid together but a terrorist attack on a key interconnecting substation can black out half the country. We must protect the grid for what it is, the linchpin for survival and comfort.

:: Energy storage is essential!
- Optimizing our existing infrastructure and ensuring a viable and cost-effective pathway for large-scale renewable energy requires a new piece of the production and delivery value chain, energy storage, which requires substantial RD&D funding.

:: We need infrastructure engineering—not financial engineering!
- Our electricity infrastructure has become the victim of financial engineering. Our ability to manage assets diminishes as our infatuation with managing balance sheets grows. Financial engineers have been extracting money from the nation’s electricity infrastructure, and little of it is put back to work.

: We must begin to address global warming now! Addressing global warming can be elegantly simple.
- Use nuclear power combined with more renewable energy supported by energy storage technologies (both carbon-free sources) to move away from fossil fuels for electricity production and revamp the transportation infrastructure for electric vehicles.

Thursday, August 21, 2008

Winter temperatures in the August heat

Sometimes in this great game of energy consumption and environmental impact, all you can do is plead for someone to just pay attention.

Unlike most of our posts here on the larger vision, new technologies, and policy frameworks, this one simply describes the last two days I spent in Chicago. In sum: It is August and I was freezing.

Not outside, mind you. A few years ago, I was in Chicago in August when it was cool enough for a light winter jacket. No, this time, I was indoors. Literally, everywhere was over-air-conditioned. And I asked around. I was by no means the only one freezing.

I was in the Hyatt Hotel O'Hare, a large meeting room at the Stephenson Convention Center at Rosemount, a charter bus to Wrigley Field (Yes, I believe this is the year Cubs fans will no longer have the curse to blame their poor showings on year to year), and the Field Museum. Everywhere, the AC system was doing refrigeration, not cooling.

I am used to being over-AC'ed in Houston. But that's a city that proudly proclaims to be the energy capital of the world, in production and consumption. But Chicago? This is the city that increasingly is referred to in the same breath as "green cities," "cities that work," cities making a collective effort to inculcate green building design into the urban psyche.

I suspect I know the reason, but it's really only an excuse. It was cooler than normal for August. Spaces are commonly over-air-conditioned in the summer under these conditions. Or, in the case of the Field Museum, it could have been a combination of the unseasonably moderate temperature and smaller number of crowds in the space.

My question is, why isn't anyone paying attention and doing something about it? It seems all it takes is for a facility manager to dial back the control system or change the settings if the control system is automated.

Chicago this week seemed like a city where gasoline costs $1.50 a gallon, they have a special deal on petroleum for the low, low price of $25/barrel, and electricity rates are still frozen at 1995 levels.

So, the next time you are talking up green building design, renewable energy mandates, demand side management, energy independence, and the horrors being inflicted on all of us by global oil companies, let's remember that we're not part of the solution until we start paying attention.

Tuesday, August 19, 2008

Energy storage: It's time to get excited!

For years, I've been speaking and writing and (sometimes, even) ranting about the sad state of our electricity grid. Now, I'm really getting frustrated. Every day I learn about some new effort to wean ourselves from coal by putting up huge windfarms or solar arrays. Everyone is on the solar and wind bandwagon, but still no one is talking about transmission. Or at least talking about it realistically. It's easy to say we're going to put up X number of miles of new transmission, but getting the permits, access to the land, and dealing with private owners and multiple state governments isn't so easy.

We all know that to meet our nation's demand for electricity, wind farms and solar arrays are going to have to be huge. And they are, more often than not, going to be located at some distance (often hundreds of miles) from where the electricity demand is located. Think North Dakota and Chicago, or West Texas and Houston. If we truly want to shift our dependence from coal to renewable wind and solar, we need a grid that will support the shift--one that reaches from North Dakota to Chicago and West Texas to Houston. But, beyond that, simply extending the grid only solves one of the problems.

The other problem is intermittency. No matter what wind proponents tell you, intermittency is a problem. Ask any grid operator. The physics of operating the grid demand that the electricity fed into it NOT be intermittent. A surge or sudden drop in electrons can actually cause the system to trip offline. I don't think anyone running a business or a home wants to depend on intermittent electricity --we all want quality, usable electricity 24/7. The point is that the electricity generated by the wind farm, for instance, has to get to the demand center and it has to be fed onto the grid in a way that does not disrupt the physics of the transmission wire...it's a little more complicated than saying, oh, some electrons have arrived, let's dispatch 'em on the wire and ship them out to neighborhood A or factory B.

So, not only do we need a new network of transmission lines to get energy from the remote source to the demand center, we also need a way to solve intermittency. But what gets me so frustrated is that the solution to making solar and wind installations economically viable and physically dispatchable is energy storage--and yet, when was the last time you heard anyone get really excited about storage?

We'll I'm excited about storage. In fact, I'm really excited. I believe storage is the key to changing the way we think about electricity, global warming and energy independence. Storage has the potential to change how we live our lives. I'm not just talking about large scale storage that enables renewable energy; I'm talking about energy storage in all its sizes and all its possibilities.

Today, the world’s electricity system is essentially a massive network we are all plugged into. Everything we depend on that runs on electricity must be plugged in. Even our small modern conveniences—our cell phones or laptops—must be plugged in and recharged. We live lives connected to the grid.

Tomorrow, however, the traditional, one-way, electricity grid may be, literally, a relic of the past. Instead of being attached to the grid, we can set ourselves free with powerful living, transportation, and communications storage devices that allow us to use the grid simply as a base charging station. Our storage devices will both draw electricity from and feed electricity into the base station. And the base station will be fed by sustainable wind, solar and thermal energy that relies on bulk storage devices to make them both economically and physically viable.

In fact, the key to addressing global warming and our dependence on foreign oil is energy storage. Energy storage increases the ability of solar and wind to meet our energy needs, therefore reducing our dependence on coal. With more wind and solar feeding our base charging stations, energy storage eliminates coal from the equation and enables the electric transportation revolution. The electric transportation revolution eliminates our need to import oil from nations that don't necessarily have our best interests at heart. And, beyond all that, powerful energy storage devices open up a vast new world of possibilities for how we live, work and play in the future. Energy storage is central to addressing our current challenges and to enabling a sustainable future. It's past time we all got excited it!

Saturday, May 17, 2008

More talk of rising rates

As we've been saying here for well over a year (much longer in print and speeches), rates are going to head higher--in some areas, much higher. Recently bloggers and industry analysts have picked up on this issue and are also writing about the coming increases. Here's a piece first reported in the South Florida Business Jouranl and then picked up by MSNBC:

Global warming bill could raise natural gas, power costs
By Kent Hoover
South Florida Business Journal
updated 7:00 p.m. CT, Sun., May. 11, 2008

High gasoline prices may be today's energy crisis, but electricity rates and natural gas prices could become even bigger headaches for businesses in the future.

Pending legislation to cap greenhouse gas emissions would increase the cost of electricity and natural gas, according to a new analysis by the Energy Information Administration. The federal agency studied the potential impact of the Lieberman-Warner Climate Security Act, which would cap emissions of carbon dioxide and other gases tied to global warming. EIA projects the legislation would reduce carbon emissions in 2020 by up to 36 percent below what they would be under current regulations.

More than 80 percent of the emissions reductions would come from the electric power sector, EIA projected. This would be achieved through expanded use of nuclear power and renewable energy sources, as well as deploying carbon capture and sequestration (CCS) technology at fossil-fuel power plants.

If cleaner sources of power and CCS technology are not developed quickly enough, electric utilities would increase their use of natural gas as a substitute for coal, according to the study. This would result in "markedly higher" natural gas prices, EIA predicted.

That would impact Florida Power & Light Co., which relies on gas to generate 50 percent of its energy. The company gets 20 percent of its power from nuclear power, and recently announced plans to add two reactors to its Turkey Point plant near Homestead.

FP&L only gets 5 percent of its power from coal; the remainder is from oil or purchased from other utilities.

FP&L has filed to increase the average consumer bill by about $2.50 next year to help pay for the two reactors, according to news accounts of regulatory filings.

Nationwide, the proposed regulatory changes would increase the price by 5 percent to 27 percent by 2020, compared with what would happen under current regulations, according to EIA. By 2030, the price would be 11 percent to 64 higher.

These higher energy costs would hurt the economy, with the impact growing worse over time as the emissions caps become more stringent, according to the study. Manufacturing would be the hardest-hit sector, EIA predicted.

Higher costs worry manufacturers
The Lieberman-Warner bill "runs the risk of doing more economic harm than environmental good," said John Engler, president and CEO of the National Association of Manufacturers.

"Manufacturers are the most natural gas-intensive sector, and affordable natural gas is essential to the long-term competitiveness of manufacturing and the U.S. economy," Engler said. "We cannot continue to propose increases in the price of natural gas while failing to expand domestic gas exploration and increase investment in nuclear energy technology."

The U.S. Chamber of Commerce contends the bill's timetable for greenhouse gas reductions is unrealistic.

"In fact, the only way to get there - without shutting down economic activity - would be to use technologies that don't yet exist," chamber President and CEO Tom Donohue said.

'Price signals' to spur innovation
Development of these new technologies, however, would accelerate if Congress caps carbon emissions, environmentalists say.

The legislation would distribute allowances for carbon emissions and allow companies to trade them. Companies with low carbon emissions, for example, could sell allowances to companies with high emissions.

This cap-and-trade system would send "price signals" that would unleash investment in new energy technologies, said Eric Svenson, VP of environmental health and safety at Newark, N.J.-based energy company Public Service Enterprise Group (PSEG).

Economic projections often miss the impact of technological advances, said Dan Bakal, director of electric power programs at Ceres, a Boston-based coalition of investors and environmental groups.

"There is no model that can adequately capture the ability of our industry to innovate," he said.

Electric utilities are "on the cusp of making massive investments" over the next 10 to 15 years to meet future demand, said Melissa Lavinson, director of federal environmental affairs and corporate responsibility at PG&E Corp., the San Francisco-based parent of Pacific Gas and Electric Co.

(FP&L's new nuclear plants may cost up to $18 billion.)
Congress needs to enact climate change legislation soon so that utilities are "making the right investments," Lavinson said.

The impact of the legislation on electricity users, including businesses, could depend on how allowances for emissions are distributed. A report by Ceres, the Natural Resources Defense Council, PG&E and PSEG concluded consumers would benefit if as many allowances as possible were auctioned, instead of given to utilities. Proceeds from the auctions could be used for energy efficiency programs, investment in clean energy technologies and rebates for consumers, the report said.

Energy efficiency is the most cost-effective way to reduce greenhouse gases, Bakal said.

Reducing the gases could be critical to the local economy. Scientists have linked them to global warming and rising sea levels, which could threaten the coastline and water supply.

Global warming bill
Status: Senate will consider Lieberman-Warner Climate Security Act (SB 2191) in June

Establishes progressively lower caps on greenhouse gas emissions.
Distributes emissions allowances, which could be traded and banked.
Provides economic incentives for carbon capture and storage.
Tightens appliance efficiency standards and building efficiency codes.
Source: Energy Information Administration

© 2007 South Florida Business Journal
URL: http://www.msnbc.msn.com/id/24660180/

Thursday, April 03, 2008

Financial engineering, LNG and CCS

You probably know about what you paid per gallon last time you filled your gas tank. But, do you know what you paid per kilowatt hour last month to keep your lights on?

If you don’t know, you’re not alone. Unfortunately, when it comes to paying attention to electricity, most people would rather, well, not. But, here’s the catch. If you don’t know what electricity costs, you can’t place a market value on it. And, if you can’t place a value on it, how can you possibly know whether or not you’re getting a good deal.

Today, in fact, you’re not getting a good deal. Plus, I believe the deal is going to get a lot worse because, at least in the near term, we are likely to be relying not on coal, not on nuclear, not on renewable energy, but on exorbitantly priced natural gas.

To understand why, let’s look at what’s happening across the country. In reaction to CO2 concerns, coal plants are being cancelled or postponed. In reaction to nuclear energy fears, new plants can’t get past the initial permitting stage, and, even if they could, the earliest we could get a new unit on line is about 2017. Wind energy is getting built and financed, but slowly, and turbines run, at best, only 35% of the time. There have been several recent success stories for high-profile solar projects, but, if our appetite continues to grow, our electricity infrastructure won’t be able to satisfy the demand for high-quality, reliable, 24/7/365 electricity.

But let’s go back to coal for a moment. Citi, JPMorgan Chase and Morgan Stanley made big news recently with the announcement that they will not finance new coal plants without carbon capture and sequestration. Their reluctance may be due to stated concerns about global warming. However, the same financiers are also skittish about providing the debt financing for nuclear plants which don’t produce any CO2. The skeptic in me began wondering about their sudden desire to go green and got me thinking about what else might be at stake for Wall Street.

To understand what else might be driving the financiers, it is instructive to review a couple of things that happened in the wake of the California Energy Crisis and Enron meltdown. First, Wall Street firms picked up a fleet of gas-fired power plants for pennies on the dollar. Those plants represent about 80% of the generating capacity owned by Wall Street, which turns out to be about 5% of the total generating capacity in the U.S. Secondly, most of the electricity trading operations picked up stakes and moved from energy-based firms in Houston to financial firms on Wall Street. Third, Wall Street has begun salivating at the prospect of trading carbon credits and allowances.

We know that corporations and investment firms have a fiduciary duty to act in the best interests of their shareholders. In this case, that fiduciary duty has conveniently converged with the growing movement to limit CO2 emissions from coal, lingering fears of nuclear energy, dominance of the electricity trading market and, by extension, dominance of any proposed cap and trade system, and a portfolio of gas-fired plants.

I don’t think it’s farfetched to guess that some very smart financiers see that if no new coal or nuclear plants come on line, and reserve margins continue to shrink, then the best way to reliably keep the lights on is with electricity generated at gas-fired plants. Seen from this vantage point, it makes perfect sense that the financial firms suddenly care about reducing CO2 emissions. If you (1) own the gas-fired power plants, (2) control the trading of gas and electricity, and (3) acquire and control the carbon credits, going green is, in fact, your fiduciary duty.

As a bonus, going green means more transactions. A carbon cap and trade system will generate more transactions, which generate more fees, which, in turn, create “transactional value,” which is, it is important to note, very different from intrinsic value. Wall Street, we must remember, specializes in financial engineering, not infrastructure engineering.

So, Wall Street is driving the financial push toward lower CO2 emissions while also pushing for a transaction-based cap and trade system which they will control. The catch is that rather than investing for the long-term with more sensible options such as renewables with storage, no-CO2 nuclear, or even so-called clean coal, we’re served up increasingly expensive electricity from gas-fired plants with a shiny, new cap and trade system on top.

Whether you think carbon capture and sequestration is the answer or not, the bottom line is there’s money to be made by not investing in it. The big money is in natural gas-fired electricity. At least for the short-term. And in a transaction society, the short-term is all that matters. In the long term, however, we will all pay the price—in higher rates, lower service, greater dependence on imported natural gas, reduced investment in low-CO2-producing generation, and the continuing, long-term neglect of our electricity infrastructure.

Thursday, January 31, 2008

Coal gets battered again while natural gas waits in the wings

Coal has been taking blows from environmentalists for a long time, but the prospect of climate change and coal’s contribution to atmospheric CO2 has put it at the center of the bulls eye. Many in the electricity industry continue to insist that coal is less expensive than new gas and that states that keep the lights on with coal have lower electricity costs than those that don’t—with the exception of states that rely on hydropower.

But, if the economic consequences of global warming are added into the equation, the math looks less clear. When discussing clean coal and carbon capture and sequestration (CCS), the equation, in fact, becomes fuzzy. (No one really knows how and where carbon sequestration will work and how much it will add to the coal bill.) As I’ve often said about climate change--perception is everything. If the majority of citizens in the US believe in climate change and believe that burning coal contributes to the buildup of CO2 in the atmosphere and to global warming, then the electricity companies are going to have to start at least acting like they’re listening. (If the markets start taking CCS into consideration, the cost of coal will change dramatically—and the electricity companies will most definitely start listening.) So far, the primary response to American’s concern about climate change has been a lot of talk about CCS and clean coal, but the announcement that DOE has decided to scrap FutureGen, just a month after the Mattoon, IL site was announced, says a lot.

Deputy Energy Secretary Clay Sell said he and Secretary Bodman learned last March that the price tag for the FutureGen project had gone from an original $950 million to $1.8 billion. "I knew (then) that we were in to something that would not end well," Sell said, according to the Associated Press. Hmm. DOE knew last March that the costs were out of hand and that the program was in trouble. But, the PR train had left the station and the FutureGen dream just kept on chugging along.

So now, Sell says that DOE will solicit industry applications for new CCS projects in conjunction with new coal plants. The government will pony up the money for the CCS projects, each designed to capture 1 million metric tons of CO2, while industry will build the new plants. (I wonder if anyone in Washington has heard that communities across the country are just saying no to coal?)

Coal is in trouble. In fact there's a movement afoot to demonize coal and cast it as an enemy of mankind. This is a movement that is gaining ground amongst future ratepayers. According to the Christian Science Monitor, (Thursday, Jan 24) the battle against coal is taking shape across the country this week with Focus the Nation: Global Warming Solutions for America. “Organizers bill the culminating day, Jan. 31, as the largest teach-in in the nation's history, drawing parallels to the civil rights and antiwar movements of the 1960s and '70s. More than 1,500 institutions, most of them colleges and universities, will host classes, documentaries, performances, energy-saving competitions, and discussions with political leaders.”

To get students to understand the role of coal in energy, at least one college is literally dumping piles of coal on campus to illustrate how much is needed to power the student’s daily lives. Others are staging mock battles between a windmill and a smokestack, and at one university, taking a page straight from the Aristophones’ Lysistrata, a one-woman show is being staged in which the “fictional first lady calls for a boycott against sex until the nation starts a serious dialogue about climate change.”

The bottom line is that the coal industry better start taking these concerns seriously. If they don’t, coal is going to be just a lump in the nation's stockings and natural gas is going to come out smelling like a rose.