With David Leonhardt's piece on a new weatherization program/jobs bill nicknamed "Cash for Caulkers" generating buzz, as well as questions, it seemed a good time to resurrect a post I wrote about a year ago on the general subject of energy efficiency improvement. I had been inspired by a lengthy Grist post on a post-carbon economy which observed that the way to jumpstart efficiency and incentivize improvements is to copy the British and set per square foot emissions levels for building (unlikely, I know). But more practically, we should also make energy efficiency a "utility" like electricity, gas, or water. Here's what I wrote:

Of course an efficiency utility wouldn't just cover insulation, caulk, and new windows -- it would cover heating systems, appliances, shower heads, etc. A further advantage to a utility model over the financing model that Leonhardt discusses -- the idea of adding weatherization costs to homeowner's property tax bills -- is that it addresses the fact that weatherization doesn't lend itself to one-size-fits-all solutions. As Leonhardt observes, the complexity of retrofitting old homes is enormous:

Even if they don't ultimately perform the work themselves, a utility would have the scale to provide the expertise as well as the data for what particular homeowners should do. Obviously, this kind of program would go beyond what any stimulus bill is likely to enact. But if we want to make efficiency a goal unto itself, a utility model -- not to mention per square foot emissions limitations -- is the way to go.

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Today the Wall Street Journal editorial board published a typically dismissive editorial defending the U.S. Chamber of Commerce from the companies that have quit or criticized it over its position on climate change.

The Chamber, to recap, opposes the clean energy bill in Congress and recently called for a “Scopes Monkey Trial” questioning the scientific reality of climate change. The 97-year-old business lobby has faced a wave of defections, from large utilities such as Pacific Gas & Electric Co. and Exelon and well-known members such as Nike (which quit the Chamber’s board but retained its membership) and Apple.

The WSJ editorial board waved its hand at the moves: “Apple and Nike are putting green political correctness above the long-term interests of their own shareholders.”

It also buys wholesale the Chamber’s claim that it really wants to help on climate change, it just doesn’t happen to approve of the bill currently in Congress, or last year’s Lieberman-Warner climate bill, or the plan the Environmental Protection Agency is pursuing.

Bizarrely, the WSJ editorial board also attacks Al Gore for promoting clean energy while investing his own money in renewable energy technologies, as if it were hypocritical to invest in a cause one believes in. It complains that cleantech could make Gore “richer than he already is,” as if his wealth discredits him.

No big news here—the editorial board has long made it clear it doesn’t believe in climate change and opposes any energy plan that attempts to address it. But I learned about the most recent editorial from a takedown by the WSJ’s own Keith Johnson, the lead reporter at the paper’s Energy Capital blog.

Writes Johnson:

Johnson (understandably) declined my request to talk about his criticism and the internal politics involved in posting it. Like the Washington Post, the WSJ puts out some solid journalism on climate and energy issues, combined with utterly misleading pieces from its opinion page. As with the Post reporters who called out Post columnist George Will for lying about climate science last spring, it shouldn’t be surprising that the Journal editorialists find themselves challenged by their own news staff.

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This story was written by Danielle Ivory.

Results from a federal drinking water monitoring program show that many public water companies are ineffective at removing a widely used weed-killer from their water supplies.

As the Huffington Post Investigative Fund reported earlier this week, the Environmental Protection Agency has failed to notify the public about data showing that the herbicide atrazine has been found at levels above the federal safety limit in drinking water in at least four states.

But that data also reveals that many public water filtration systems are not removing the herbicide. In many places, atrazine levels in untreated water sources such as rivers directly match the levels that come out of the tap.

A carbon filter with granular activated carbon — in other words, a giant Brita-like filter — should absorb all or most of the atrazine. But the EPA’s atrazine monitoring data shows that many water utilities in the Corn Belt do not use carbon filtration. Many use rapid sand filters instead. They are cheaper and last longer, but are unable to remove organic compounds such as PCBs, phthalates, pharmaceuticals, and pesticides such as atrazine.

“Carbon filters might have to be replaced every couple of years whereas sand filters could last 20 to 30 years,” said Alan Roberson, director of security and regulatory affairs at the American Water Works Association, a non-profit organization representing water utilities.

To recover the cost of filtering atrazine, water companies in six states are preparing a lawsuit against the makers of atrazine, the Swiss company Syngenta.

When you compare the raw and finished water of an effective carbon filtration system, you see something like the chart below, which shows weekly levels of atrazine in river water and drinking water as measured last year in Bowling Green, Ohio.

Bowling Green added carbon filters to the water system in 2000. “We installed the filters to take care of taste and odor problems, but it [also] gets the atrazine out of there,” said Chad Johnson, assistant superintendent at the water utility. “These filters are expensive, though. Our new building cost about five million dollars.”

Every year, the utility replaces six of the 12 filter vessels at a cost of $126,000, Johnson said. He said the water plant had received $5 million in stimulus funds, which will be used to partially fund an $11 million project to install new membranes, which will remove nitrates and other chemicals from the water.

Atchison, Kan., is among water systems that do not have adequate filters in place. The chart shows weekly levels of atrazine in river water and drinking water as measured last year.

“I’ll be darned,” said Michael Matthews, the utilities director in Atchison, Kan., upon hearing that atrazine was barely being filtered from his drinking water. “That’s bad.”

Water plant managers said the economic downturn has made it even harder to convert to more effective filters. “Right now, we can’t afford anything,” said Lloyd Littrell of the Beloit, Kansas water plant, where rapid sand filters are used.

“It’s impossible to get atrazine out of the water with these filters. There’s no way to remove it,” he said. “But people need this water. We can’t just shut our doors and tell people to drink from the river.”

Stan Schafer of the Baxter Springs plant, where sand filters are used, said it was difficult to get funding for water cleanup even prior to the recession. “Shoot, I’d like another filter,” he said. “But they’re expensive. We did a $2.5 million update about three years ago and that system is falling apart.”

A civil engineering professor at Virginia Tech University, Marc Edwards, said that the cost of granular activated carbon treatment could double the total cost of drinking water treatment in some rural and poor communities.

“We are used to paying very little for tap water,” Edwards said. “It is hard for some rural communities to justify the higher costs of advanced treatment.”

“Most water systems don’t have the resources to buy a new filter,” said Kirk Leifheit, Assistant Chief of the Drinking Water Program at the Ohio EPA. “They are reporting to us needs in the billions.”

The EPA only monitors the river water and drinking water in about 150 water systems, so it is unknown whether other communities might be experiencing problems filtering atrazine. Washington, D.C., and Maryland, for example, are not part of that program.

However, atrazine is heavily used in the Maryland area, according to data from the U.S. Geological Survey. The Washington Aqueduct, which treats water from the Potomac River for about 1 million in the D.C. area, does not filter for atrazine.

Water systems in 57 cities are preparing a lawsuit against the atrazine manufacturer, the Swiss company Syngenta, to recover the cost of filtering the chemical out of drinking water. Utilities in Illinois, Ohio, Kansas, Indiana, Missouri, and Iowa are preparing to file suits in state courts. A hearing in Illinois is scheduled for Monday.

“Many of those water providers have incurred an enormous amount of expenses at a time when their tax base is shrinking,”said Stephen Tillery of the Korein Tillery law firm in St. Louis, who represents the water systems. “They’re cash strapped.”

Jere White, executive director of the Kansas City Corn Growers Association and the Kansas Grain Sorghum Producers Association, has been fighting atrazine regulation at both a local and national level since 1995. He has been vocal about opposing the class action lawsuit against Syngenta.

“The difference between them [the lawyers] and an ambulance chaser is the fact that with an ambulance chaser, you at least assume that there’s an ambulance and an injury,” White said in a phone interview.

White is also chairman of the Triazine Network which has been fighting atrazine regulation since 1995. The Network and the Corn Growers, according to White, receive regular funding from Syngenta — for travel, speaking engagements (including EPA hearings), and education, though he pointed out that it has never been earmarked specifically for “advocacy.” The Network, according to its website, “strives to keep the beneficial triazine herbicides available in the United States.”

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On Friday, the U.S. Energy Information Administration released new monthly statistics for renewable energy output as well as output of traditional forms of power.  The good news is that renewable energy in May, the latest month for which statistics have been compiled, is at its all-time highest level, accounting for 13% of total power.  The bad news, however, is that the vast majority of this, about 9.4%, comes from traditional hydropower.  The other renewables -- wind, solar, biomass, and geothermal -- accounted for just 3.6%.   Wind accounts for 1.8%, biomass 1.3%, geothermal 0.4%, and solar 0.3% of the total. 

All of the sources of renewables grew, but the growth rates were modest.  Wind grew year-on-year by 12.5% and solar by only 3.5%.  These growth rates might be passable for mature technologies with a huge starting base.  However, for comparatively new technologies with a tiny denominator, these growth rates are not impressive.  True, the data do not reflect the full force of the Investment Tax Credit (for solar installations) extended last fall and the American Recovery and Reinvestment Act passed this winter -- because of the lag in the data.  Still they tell at best a story of an industry surviving the recession.  They do not tell a story of economic rebirth based on the promise of a low-carbon future.

There are reasons to hope clean energy would be growing much faster than these rates--the goal of lowering greenhouse gas emissions, essential to addressing climate change, and the goal of creating a new wave of clean technology-driven growth.  (The goal of energy security is less dependent on renewable technologies since coal is present in the United States but is nonetheless also served by replacing oil in our nation's energy mix.) 

However, there are also reasons to expect clean energy to be growing far faster than it is: the declining cost curves of renewables relative to fossil fuels, the large subsidies the government has put in place and the huge push America is making, from the president's speeches to the T.Boone Pickens Plan for energy independence on down.  In many states, renewable energy is even mandated through a Renewable Electricity Standard.  Looking abroad, Germany produces 7% of its power from wind, about four times what the U.S. does, and Spain's solar power capacity grew 364% in 2008.  Now that is the type of growth needed to have a real effect!  The fact is, U.S. growth rates in renewable industry are not meeting reasonable expectations for clean energy growth, let alone desirable targets.

I have been studying the question of why clean technology is moving so slowly into the marketplace in the United States and my research suggests that adoption of clean technology and renewable energy must be about more than pricing and incentives.  It is about decision-making and removing obstacles to the deployment of clean energy.  These obstacles are present, once you peer into the complex world of the electricity industry, in a host of non-economic barriers to implementation.

To understand why clean energy is not -- even with large incentives in place -- displacing dirtier forms of energy, it is important to recall the extraordinarily complex nature of the industry.  Like all large industries, the electricity industry has incumbents.  These incumbents--unlike, say, car manufacturers or computer companies -- are protected by regulation.  During the 1990s, the industry was partially deregulated so that market forces were introduced in some parts of the industry in some regions.  However, the work of regulatory reform proceeded only part way, leaving the industry in a sort of limbo.  Today, some regions of the country have wholesale competition.  Others have limited retail competition.  Still others have wholly vertically integrated companies supplying their customers with soup-to-nuts service unchanged from a half century ago.  And there is limited trade in electricity -- this in an era when frozen dinners served in the United States are made in Thailand and fresh flowers cut in Bolivia.

Indeed, the electricity industry is quite rare today in remaining geographically divided.  With some exceptions, it is illegal for a utility in one region to sell to customers in another.  There is effectively no such thing as national competition. There are, of course, many precedents for these legalized restraints on trade.  Banking used to be organized this way prior to reforms in the 1980s and 1990s.  Telecommunications after the breakup of Ma Bell but before the 1996 Telecom bill and development of national communications services was similarly organized by region.  In the case of electricity, besides the legal restraints on trade, there are major physical restraints in the form of lack of capacity on the grid to move power where it is needed.

The absence of universal market allocation of power means that decision making -- of what types of power to buy, what types of clean technology to implement, and what types of infrastructure to build -- is left frequently to a small group of decision makers who are also incumbents and have a rational bias towards decisions supporting their incumbent position.  A transformative technology, for example, could reduce the value of their legacy assets.  Building a new transmission line to connect wind power to the grid may make a plant they own obsolete.  It may therefore be entirely rational for them to discourage rather than encourage the deployment of new technology. 

It would be one thing if the decision makers were acting on their own.  However, typically they make decisions under the rate-base system that provides a guaranteed rate of return on anything they can place in the rate base.  This would ordinarily incent them toward over-investment.  However, since regulators oversee these rate cases and generally try to lower costs, the decision makers at utilities have a conflicting mandate to gain a high rate of return but also keep costs down.  This can lead to a bias toward investments that pay off immediately and against investments that pay off longer term.

The upshot is that getting the type of growth rates of renewables needed to unlock the economic and social potential of clean energy is likely to take more than economic incentives and mandates.  It may well require reform to remove obstacles to the deployment of new technology.

The energy bills now working their way through Congress contain some measures to address these problems.  But my research suggests more work needs to be done.

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Note to utilities: solar is popular with your customers. 

Earlier in the month in Colorado, Xcel proposed a scheme to charge their customers who install a solar installation an extra fee.  After 5 days of intense public outcry, they withdrew the plan.  For now.

And in New Mexico, Public Service of New Mexico  (the largest utility in the state) is trying to eliminate customer solar incentives in the state--essentially, declaring war on the state's solar industry.  It's an incredibly aggressive move. 

We are working with the Renewable Energy Industry Association of New Mexico, who officially filed to intervene in the proceeding today, to fight this.  I think it is safe to say that PNM can expect a lot more press like this in the interim:

"PNM's newest plan to meet the state's renewable energy requirements has thrust it headlong into a solar storm, drawing sharp objections from installers, a statewide trade group, Albuquerque Mayor Martin Chávez and Gov. Bill Richardson"

It's what your customers want.  Isn't reading the polls easier than reading negative press?

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Energy markets are neither free nor efficient, so traditional economic arguments against regulation and other government interventions do not apply. 

In response to my recent article digging into green jobs, a reader sent me a copy of a March paper by Andrew Morriss et al at University of Illinois that attempts to debunk green jobs myths.  While I see major flaws in most green jobs papers I read, many of the myths cited by this paper are irrelevant to what I consider the most important questions:

Other "myths" are simply not myths; the flaw arises because the debunkers are economists, and approach the subject from the perspective of economics.  The problem is that the energy market is neither free nor efficient, so the traditional economic assumptions about how supply and demand regulate price simply do not apply.  I'll deal with the myths in the order they are presented by Morriss et al.

Define "Green Job"

From the paper:

Myth 1: Everyone understands what a “green job” is.

Fact 1: No standard definition of a “green job” exists.

My Thoughts:  The hundreds of billions of dollars to be committed are designed to promote cleaner energy.  Who cares how green jobs are defined?  The important question is Question #1 above: Regardless if the jobs are defined as "green" or not, will more jobs be created by promotion of cleaner energy, or by some alternative sort of spending?  My last article answered this question in favor of clean energy.

Productivity of Green Jobs

From the paper:

Myth 2: Creating green jobs will boost productive employment.

Fact 2: Green jobs estimates in these oft-quoted studies include huge numbers of clerical, bureaucratic, and administrative positions that do not produce goods and services for consumption.

My Thoughts:  If cleaning up the energy economy simply creates a shift to the less efficient use of labor, then it is not worthwhile.  

However, labor efficiency is the wrong metric.  Higher labor efficiency can nearly always be achieved with greater use of capital or energy.  For instance, driving to work is statistically more labor-efficient than taking light rail.  If I take light rail, then the pro-rated labor needed to run the rail system goes into the cost of getting me to work.  If I were to drive, my labor in guiding the vehicle would not be counted in work statistics, because I am not paid for my efforts (even though I'm probably not enjoying myself much.)  Nor is the capital investment in my car included in the calculation, (although the road I drive on probably is) because it is a private, not business of government expenditure.

Green spending is likely to be more energy-efficient than other spending: reducing energy use one of the main goals.  Capital spending may go up or down, and labor usage may increase, as labor is substituted for fossil energy.  The goal should be to find those sectors which most effectively substitute spending on labor (a renewable resource of which we currently have more than we are using) for spending on fossil energy (a nonrenewable resource which causes harm to the environment.)

As I previously discussed, spending on energy efficiency programs such as weatherization  are ideally suited to substitute labor for energy.  Weatherization gets the largest share of the energy spending from the stimulus bill.

Modeling 

Myth 3: Green jobs forecasts are reliable.

Fact 3: The green jobs studies made estimates using poor economic models based on dubious assumptions.

The forecasts for green employment in these studies optimistically predict an employment boom that will take us to prosperity in a new green world. The forecasts, which are sometimes amazingly detailed, are unreliable because they are based on: a) Questionable estimates by interest groups of tiny base numbers in employment, b) Extrapolation of growth rates from those small base numbers, that does not take into consideration that growth rates eventually slow, plateau and even decline, and c) A biased and highly selective optimism about which technologies will improve. Moreover, the estimates use a technique (input-output analysis) that is inappropriate to the conditions of technological change presumed by the green jobs literature itself. This yields seemingly precise estimates that give the illusion of scientific reliability to numbers that are actually based on faulty assumptions.

My Thoughts: As often with the arguments against greenery, the critics equate greenery with exciting new (and expensive) technologies such as solar PV.  Some of the proponents fall into this trap as well.  And everyone should be uncomfortable with relying on attributing any level of accuracy to a study even though it claims to be precise.  Precision is impossible in economic forcasting.

In fact, the majority of the spending will be going to old, proven technology with a long track record.  Building weatherization and mass transit have been around and evolving for over a century, and these two alone get well over half of the spending.  Cofiring of biomass is also a proven and very cost effective technology.  All of these will reduce, not increase the overall cost of energy, without waiting for technology improvements.

No, we won't get the number of jobs we expect, but for the purpose of decision-making, we only need to be confident that we'll get more jobs than if we had not acted.

"Free" Markets

Myth 4: Green jobs promote employment growth.

Fact 4: By promoting more jobs instead of more productivity, the green jobs described in the literature actually encourage low-paying jobs in less desirable conditions. Economic growth cannot be ordered by Congress or by the United Nations (UN). Government interference in the economy – such as restricting successful technologies in favor of speculative technologies favored by special interests – will generate stagnation.

Myth 6: Government mandates are a substitute for free markets.

Fact 6: Companies react more swiftly and efficiently to the demands of their customers/markets, than to cumbersome government mandates.

My Thoughts: The government already interferes on a massive scale in energy, to support the fossil fuel industries.  Electric and gas utilities are either government regulated (IOUs), government-run (munis), or government-sponsored non-profit cooperatives (REAs.)  Unless you live in Lubbock, your electric utility is a monopoly. Our transportation infrastructure is government-built and maintained (or government-sponsored, in the case of toll roads.)  Rules, taxes, and incentives specifically targeted at fossil fuels are legion.  

Deriding "government interference" in an industry with so much government involvement already is ludicrous.  Nothing can happen in the energy industry without "government interference."   The trick is to make sure that any change is change for the better.  "Hands off" is not an option.

Yes, green spending produces a higher proportion of low skilled jobs than would spending on capital intensive fossil fuels.  But green spending creates more jobs at every skill level than spending on fossil fuels, making workers at every level of skill better off.

A typical instance of the authors' blind faith in markets appears in the section titled "Markets vs. Mandates." "The implication of the necessity of a mandate is that profit-seeking building owners are too foolish to make investments in energy saving despite the alleged short-term paybacks."   Yet this is precisely what happens, if not because building owners are foolish.  It happens because renters, not building owners derive the benefits from the efficiency investments, and because many building owners lack the skills and information necessary to make informed decisions.

Instances of profit-seeking building owners not making efficiency improvements abound. When the building owner does not pay the utility bill (as with most rentals), there is no incentive to make such improvements at all. Even in owner-occupied buildings, how many building owners know what improvements will be cost effective, or make it a priority to find out? Without adequate information, no improvements will be made.

Anti-Trade

Myth 5: The world economy can be remade by reducing trade and relying on local production and reduced consumption without dramatically decreasing our standard of living.

Fact 5: History shows that individual nations cannot produce everything its citizens need or desire. People and countries have talents that allow specialization in products and services that make them ever more efficient, lower-cost producers, thereby enriching all people .

To the extent that we're not just exporting the manufacture of energy-intensive goods to other counties, I agree with this caveat.  However, to the extent that transport requires large amounts of energy, some of the arguments for re-localization make sense, or where the production of the good (such as oil) is controlled by non-market forces (Russia, Venezuela, OPEC, etc.) free trade (which is rooted in the assumption that markets operate efficiently) does not make sense.

If we could actually create an increase in domestic oil, the conservative proponents of domestic drilling (whom I think of as the "Local Oil" movement) would have a point, despite the fact that they use the same anti-trade rhetoric.  Unfortunately, since total production of domestic oil is capped by our already-diminished reserves, the Local Oil movement is simply asking for more domestic oil today, at the cost of less domestic oil for our children.  In contrast, today's local farmers can avoid taking food from their children by using sustainable farming practices.

Free trade makes sense in free (or at least reasonably efficient) markets where total supply is not limited.  Inefficient markets may rob us of the benefits of free trade.  When the total supply of a commodity is finite, as with fossil fuels, we can never have true "free trade," because one set of participants has no voice in the transaction.  Future generations have no say about what they give up in future consumption when we consume a finite resource today.

Pie-in-the-Sky

Myth 7: Wishing for technological progress is sufficient.

Fact 7: Some technologies preferred by the green jobs studies are not capable of efficiently reaching the scale necessary to meet today’s demands.

Absolutely true. We can't decarbonize the economy this decade.  We need to start now with the established, cost-effective technologies we have today, such as energy efficiency, electricity transmission, wind power, geothermal, and mass transit which are capable of scaling and bring both jobs and economic benefits today.  As new technologies such as solar become cost effective, we will have the infrastructure in place to allow them to scale.

The gigantic scale of the job is a reason to start as soon as possible, not to delay.

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Courtesy trackrecord via FlickrOmaha zillionaire Warren Buffett repeated his criticism of cap-and-trade emissions regulation on Wednesday, telling CNBC the plan being pushed by Democrats amounts to “a huge tax” and a “fairly regressive tax” that’s going to burden poor consumers in particular.

“If we buy permits, essentially, at our utilities, that goes right into the bills of the utility customers and an awful lot of people in Iowa, in Oregon, and Utah, and places where we are, very poor people are going to pay a lot more money for electricity,” said Buffett, who runs the holding company Berkshire Hathaway Inc. (Transcript.)

“Regressive” is the opposite of the conclusion reached by the nonpartisan Congressional Budget Office, the Environmental Protection Agency, the Natural Resources Defense Council and the American Council for an Energy-Efficient Economy.

The CBO’s study found Waxman-Markey would cost the average household $175 a year by 2020, while the lowest-earning fifth of households would see average savings of $40 a year. That’s the opposite of regressive.

EPA's analysis found household electricity and natural gas spending would be reduced by 7 percent in 2020 because of the energy efficiency and consumer protection provisions of the legislation. (Buffett, like so many others, seems interested only in the cap-and-trade portion of Waxman-Markey, not its other three titles.)

The NRDC created a model of Waxman-Markey’s impact and found it would have the cumulative effect of cutting household electricity bills in 46 states (with modest increases in Minnesota, Nebraska, and North and South Dakota).

And ACEE found the bill would save approximately $750 per household by 2020 and $3,900 per household by 2030.

Next time Warren Buffett stops you on the street and starts hating on cap and trade, consider yourself equipped to respond.

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That, my friends, is the sound of the California solar market grinding to a halt -- which is exactly what will happen if we don't lift the cap on net metering.

Net metering, of course, is the policy that allows you to roll you meter backwards when you generate more solar electricity than you use. By allowing you to reduce your utility bill commensurate with what you generate, it makes a solar system more economical. And by maximizing the amount of electricity on the grid during peak periods--when the system needs it most and electricity is most expensive--net metering saves all ratepayers money.

In Calfornia, utilities's obligation to offer net metering is currently capped at 2.5 % of system peak load--a limit we'll likely reach in parts of the state within this legislative cycle. If the Legislature does not act, California's solar industry would take a serious hit. AB 560 (Skinner) would raise the cap to 10%, and is a top priority for the California solar industry this year.

We are in for a serious fight. The state's investor owned utilities...how to put it?...have yet to fully embrace a lifting of the cap. Press is picking up on the issue (see article in San Jose Mercury News, KPIX primetime news story, and even The New York Times). But we need to make sure that Sacramento hears you loud and clear. AB 560 would raise the cap to 10%. It's passed the Assembly, and faces a key hurdle in the Senate Energy, Utilities, and Communications Committee on June 30.

More info on endorsements, press, and all things net metering here, a page we designed especially for you.

If you are a California resident and want to take action, you can do so here.

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Major coal utilities are now publicly endorsing electricity decarbonization, an all but unimaginable position even 12 months ago.  And although Duke is a member of USCAP, which was the basis of Waxman-Markey, it remains remarkable that the company has joined the call for strong climate action (see How does Duke CEO Jim Rogers sleep at night, generating so much coal-fired CO2: “Lunesta”).

Jim Turner, chief operating officer of Duke Energy Corp, explains the utility’s view in an Energy Daily (subs. req’d) column:

For over 100 years electricity has powered the economic growth of this nation. In the last 30 years, the real price of electricity has declined on average, even as reliability improved to meet the demands of an increasingly automated economy. This combination powered a period of economic ascendancy that is without historical precedent in this country or in the world.

Best of all, these dramatic gains in efficiency and productivity occurred even as our economy was investing hundreds of billions of dollars to reduce the environmental footprint of industrial America. Utilities participated actively in this effort with capital investments that have substantially reduced emissions of sulfur dioxide, nitrogen oxide, mercury, particulate matter and other pollutants from America’s coal-based generation.

This context is important as Congress discusses the prospect of regulating carbon dioxide (CO2) for the first time in human history. The debate has been and will continue to be spirited and robust, as it should be.

But there is one thing we should not debate, and that is the importance of ensuring that the United States has the cleanest, but also the most affordable and reliable, supply of electricity to be found anywhere in the world. It is the relentless pursuit of these parallel objectives that will keep existing businesses on our shore, attract new industry and jobs to our country, and position America to continue its pre-eminent role in the world’s economy.

This objective should seem obvious. Yet, almost daily we hear people calling for Congress to use climate legislation to achieve other social objectives. Some have argued that we should push the real price of electricity higher so that renewable energy resources can flourish even though already heavily subsidized.

More recently, on the pages of this publication we heard an argument in support of an “auction and recycle” approach to climate regulation, which appears to have as its central theme a desire to raise electricity prices high enough to force price-responsive behavior by consumers. In other words, reduce CO2 by making electricity so expensive no one will want to consume it.

Undeniably, enhanced renewable energy and energy conservation are laudable objectives and should be part of a comprehensive solution to climate change. But our ultimate objective must be to transition to a lower carbon economy in a manner that inflicts the least economic pain on America’s consumers and businesses.

Electricity can be the low-cost and reliable engine that transports us into a prosperous and “decarbonized” future, but not if we allow it to be used as a high-priced sledge hammer to pound out other societal priorities or as shock therapy to induce an energy starvation diet.

If the Waxman-Markey bill is any indication, Congress appears to have come a long way in understanding the complexities of addressing climate change in a responsible manner and appears eager to move forward in a fair and responsible manner, recognizing that climate legislation will impact different regions differently.

The cap-and-trade approach embodied in Waxman-Markey is not unprecedented. We need look no further back than 1990, when Congress passed the Clean Air Act Amendments and ushered in huge reductions in sulfur dioxide and other pollutants in a manner that improved air quality and advanced our economic growth.

Technology and American ingenuity will allow for the development of lower carbon technologies that propel our economy forward. Cap and trade along the lines proposed by the Waxman-Markey bill can be the catalyst for that to happen. Making unreasonable demands on business, industry and consumers to achieve different social objectives will not accelerate the decarbonization process, but would decelerate an economic recovery. Our country can’t afford that.

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‘Heretic’ battles straw man

Fighting for the Waxman-Markey climate bill may be sexy and hip (and worthwhile), but here in the Roaring Fork and Vail Valleys of Colorado, without much fanfare, we are engaged in some trench fighting to solve climate change.

A view from one of the ski lifts at Vail in Colorado.Courtesy Pravin8 via FlickrThe battle: trying to elect progressive board members to the rural coop (Holy Cross Energy) that supplies power to  the heart of ski country and and two of the largest, and most high profile, ski resorts in the United Sstates -- Aspen and Vail. It's a tough fight because nobody knows about it. Yet the stakes are huge: climate change threatens this major part of colorado's economy, and the utility has bought into a big chunk of yesterday in the Comache 3 coal plant.  

Meanwhile, Holy Cross' board president recently said that "civilizations have historically thrived in warmer periods as opposed to ice ages." (Perhaps, but it's not clear that Holy Cross's two largest customers, both ski areas, or the thousands of employees that work there, would concur...). Never mind climate change, that coal fired power is going to get pretty pricey very soon. 

The fight goes on mostly behind the scences because utility politics has never really grabbed the public's fancy. (It doesn't help that Holy Cross failed to mention the board election or the opportunity to run for a seat in its newsletter to customers. And then there's the fact that the coop sends out rebate checks DURING the election period, an act that almost certainly favors the incumbents.

Nonetheless, the fight--for democracy and climate stability--goes on, and if you want more details, check out this recent article from the Colorado Independent: Ski-country electric co-op prez hit for anti-Ice Age, pro-coal rhetoric.

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Treat energy efficiency like a utility

The North Face, Aspen, and climate policy

Michael Bennet (D-Colo.)

Fortune Magazine's annual Brainstorm Green confab in sybaritic Southern California locales brings together Fortune 500 types (naturally), green tech entrepreneurs, venture capitalists, and environmentalists. As such it's a barometer of sorts for the state of green in the Green State.

At last year's conference, the chatter was all about tech and the latest cool green innovations. But at the event that concluded this week on Earth Day, the suits, scientists, and activists sounded more like a bunch of Washington wonks than Silicon Valley geeks. In the Obama era, innovative public policy will drive green tech as much as the latest high-tech solar breakthrough. (Disclosure: I'm a Fortune contributing editor and helped organize Brainstorm Green.)

When Ford Executive Chairman Bill Ford took the stage, the auto industry scion and early electric-car enthusiast wanted to talk taxes. Gas taxes. He's in favor of 'em. "When gasoline went to $3.50, we saw a sea change in customer behavior," he said. "Now people are turning away from more fuel-efficient vehicles and taking the bigger vehicles."

In other words, Ford doesn't want customers ditching his latest alt-energy car for a monster SUV because the Saudis send gasoline prices plummeting. "I've been talking about the need for a gas tax," said Ford. "We need a much more stable planning horizon. That's not just true for gasoline but for any fuel we use."

"We can't go on with fossil-fuel burning the way we are now," he added. "We can't go on with cheap gas forever."

If the prospect of a Detroit auto chieftain calling on the government to send to the scrap heap its most profitable products might have caused conference-goers to fall out of their Aeron chairs a year to two ago, it was par for the course this week.

Listen to Peter Darbee, CEO of San Francisco-based PG&E -- one of the United States' largest utilities -- on the bottlenecks to building a green energy transmission grid. "If you look at what happened in World War II, we transformed an economy in two years from a civilian peacetime economy to a wartime," he said. "We need to do that in California and across the nation ... So government needs to stop getting in the way and start getting in there constructively and making these projects work if we are going to meet the challenge of climate change."

(Which is not to say that PG&E is not putting itself on the outer limits green tech – last week it signed a deal for the world's first space-based solar power plant.)

At last year's Brainstorm Green, Wilber James, a VC with Rockport Capital Partners, extolled the technological virtues of the Think Global, the Norwegian electric carmaker in whose North American operation his firm had taken a large stake. When I ran into him this week, he was ranting about Norwegian industrial policy, or the lack thereof. The global financial crisis has idled Think's auto factory outside Oslo, and Norway's government has refused to give the company a loan guarantee to restart production of its City electric car.

"The Norwegian government has made trillions from North Sea oil and they can't give Think $10 million!" James fumed, noting approvingly that three U.S. states are putting tax breaks and cash on the table in a bid to become the site of Think North America's first U.S. factory.

Van Jones, the newly appointed special green jobs advisor to President Obama, spoke of a decidedly low-tech approach to generating environmentally friendly employment. "We're not talking about sexy, Buck Rogers, space-age stuff most of the time," he told the audience. "We're talking about caulking guns most of the time."

The three words that were on everyone's lips this week were "cap and trade," and throughout the conference you could overhear solar startup founders, wind farmers, and utility executives debating the intricacies of auctioning carbon permits.

Still, technological innovation didn't entirely take a backseat to policy pronouncements. Bob Gates, an executive with California wind-turbine maker Clipper Windpower, said the next frontier in wind won't just be massive offshore wind farms but a new generation of highly efficient smaller turbines that can be placed near cities as to avoid having to build massive new transmission projects.

And Shai Agassi, CEO of Silicon Valley electric-vehicle infrastructure company Better Place, unveiled the first electric version of the corner gas station (it'll be demo'd next month in Japan). Drive your EV into the $500,000 battery-swapping station and in 40 seconds a robot positioned under the car unlatches the battery compartment door, removes the drained battery, and installs a fresh one, soothing drivers' "range anxiety" that they'll be stuck in the boonies with a dead battery.

The confab ended with a speech by former President Bill Clinton -- looking tan, rested, and ready -- who spent most of an hour talking policy, but ended with a plea to just do it when it comes to fighting climate change.

"If you prove the economics, you can completely swamp the skeptics."

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Not many people I know think space solar is a low-cost, scalable solution.

Certainly it is worth pursuing any genuine low-carbon baseload power source if it can be practical and scalable — and affordable, which I would put at $0.15 a kilowatt hour or less for.  The problem with space solar is that, like hydrogen fuel-cell cars, there is little chance it could be affordable until it is massively scaled up — and no guarantee that it would be practical and affordable even then.  That’s one reason major utilities have been unwilling to take the risk on it.

Until now.

Apparently at least one serious utility that has invested in “wind, geothermal, biomass, wave and tidal, and at least a half dozen types of solar thermal and photovoltaic power” is looking in to it.  Jonathan Marshall, Chief, External Communications, Pacific Gas and Electric Co., sends me a link to his posting on NEXT100.com, “a blog supported by PG&E that explores the intersection of the clean energy business and the environment”:

PG&E is seeking approval from state regulators for a power purchase agreement with Solaren Corp., a Southern California company that has contracted to deliver 200 megawatts of clean, renewable power over a 15 year period.

Solaren says it plans to generate the power using solar panels in earth orbit, then convert it to radio frequency energy for transmission to a receiving station in Fresno County. From there, the energy will be converted to electricity and fed into PG&E’s power grid. (See interview with Solaren CEO Gary Spirnak.)

Why would anyone choose so challenging a locale to generate electricity? For one, the solar energy available in space is eight-to-ten times greater than on earth. There’s no atmospheric or cloud interference, no loss of sun at night, and no seasons. That means space solar can be a baseload resource, not an intermittent source of power.  In addition, real estate in space is still free (if hard to reach). Solaren needs to acquire land only for an energy receiving station. It can locate the station near existing transmission lines, greatly reducing delays that face some renewable power projects sited far from existing facilities.

Yeah, well good luck PG&E!

Wikipedia has a good entry on SBSP here.  Scale and cost are probably the biggest problems.  You probably need more than a factor of 10 more drop in launch costs.  The space community has been promising such a drop was just around the corner for decades, now.

It seems all but inconceivable that you could get the cost to drop that sharply without economies of scale and a learning curve driven by a massive number of regular launches.  But who is going to pay for all those incredibly expensive space-based solar systems before the cost drops?

This is a classic chicken and egg problem, compounded by the fact that there is no guarantee you will actually get the cost drops even with large-scale deployment, so all of your money is at grave risk.

The risk is even greater because land-based solar baseload (or load following or dispatchable solar) — aka Concentrated solar thermal power — is practical and scalable now, and certain to be much cheaper.  And land-based PV is poised to drop in cost sharply, and will ultimately have access to tremendous land-based storage through plug-in hybrid and electric cars.

Then we have the life-cycle emissions issue.  It takes a massive amount of rocket fuel to put stuff in orbit.

Solaren CEO Gary Spirnak glosses over this entire issue in his interview with Marshall on the web (here):

Q: Is the renewable energy generated from this project completely carbon-free?

A: Yes. Solaren’s SSP energy conversion process is completely carbon-free.

Q: How will this project impact the environment?

A: The construction and operations of Solaren’s SSP plant will have minimal impacts to the environment.  The construction of the SSP ground receive station will have no more environmental impact than the construction of a similarly sized terrestrial photovoltaic (PV) solar power plant.  Space launch vehicles will place the SSP satellites into their proper orbit. These space launch vehicles primarily use natural fuels (H2, O2) and have an emissions profile similar to a fuel cell. When in operation, the Solaren SSP plant has a zero carbon, mercury or sulfur footprint.  In addition, the high efficiency conversion of RF energy to electricity at the SSP Ground Receive Station does not require water for thermal cooling or power generation, unlike other sources of baseload power (nuclear, coal, hydro).

Uhh, not quite.  The solar energy is carbon free (other then the manufacturing of the cells which is typically recovered in one or two years of operation).

But I’d hardly call H2 — hydrogen– a “natural fuel.”  Today, NASA gets its hydrogen from natural gas in a process that generates large amounts of carbon dioxide.  And then it uses a huge amount more energy to get the hydrogen into the Space Shuttle.   As I discuss in my book, The Hype about Hydrogen:

At atmospheric pressure, hydrogen becomes a liquid only at the ultra-frigid temperature of -253 °C (-423 °F or 20 K), just a few degrees above absolute zero. It can be stored only in a super-insulated tank, known as cryogenic storage.

NASA uses liquid hydrogen as a fuel for the space shuttle, along with liquid oxygen. Some 100 tons or nearly 400,000 gallons of liquid hydrogen are stored in the shuttle’s giant external tank.  To fuel each shuttle launch, 50 tanker trucks drive several hundred miles from New Orleans to Kennedy Space Center in Florida. We have a great deal of experience shipping liquid hydrogen: Since 1965, NASA has trucked more than 100,000 tons of liquid hydrogen to Kennedy and Cape Canaveral….

The process of liquefying hydrogen requires expensive equipment and is very energy-intensive. Refrigeration processes have inherent efficiency limitations, and hydrogen liquefaction requires multiple stages of compression and cooling. Some 40% of the energy of the hydrogen is required to liquefy it for storage….

A major challenge facing liquefied hydrogen is evaporation. Hydrogen stored as a liquid can boil off and escape from the tank over time. NASA faces this in the extreme: The agency loses almost 100,000 pounds of hydrogen each time it fuels up the shuttle, requiring NASA to truck in far more hydrogen than the 227,000 pounds needed by the main tank.…

From a global warming perspective, even with large, centralized liquefaction units, the electricity consumed would be quite high. According to Raymond Drnevich of Praxair, a leading supplier of liquefied hydrogen in North America, the typical power consumption is 12.5 to 15 kWh per kg of hydrogen liquefied.  Since that electricity would come from the U.S. electric grid, liquefying 1 kg of hydrogen would by itself release some 17.5 to 21 pounds of carbon dioxide into the atmosphere for the foreseeable future. Burning one gallon of gasoline, which has roughly the same energy content as 1 kg of hydrogen, releases about the same amount–20 pounds of carbon dioxide into the atmosphere. So even allowing for the greater efficiency of hydrogen fuel cell vehicles, if liquefaction is a major part of the hydrogen infrastructure, it would be exceedingly difficult for hydrogen-fueled vehicles to have a net greenhouse gas benefit until the electric grid is far greener than today (that is, has far lower carbon dioxide emissions per kilowatt-hour).

Yes, you could make the hydrogen from renewable sources — and liquefy it with renewable sources.  But there is no prospect that can be done for anything less than an exorbitant cost, which would drive up the price of each launch enormously.

PG&E concludes

From PG&E’s perspective, as a supporter of new renewable energy technology, this project is a first-of-a-kind step worth taking. If Solaren succeeds, the world of clean energy will never be the same.

I don’t think space-based solar should be considered among the plausible climate solutions until and unless someone publishes

This post was created for ClimateProgress.org, a project of the Center for American Progress Action Fund.

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Gore on the Daily Show: extended dance remix

Reactions to the Waxman energy legislation are going to be pouring in over the coming days and weeks. On an early read, environmentalists are enthusiastic. But who is looking out for society's most vulnerable? Power companies, of course!

Says Scott Segal, chairman of the Electric Reliability Coordinating Council:

Although Segal makes no mention of the fact, credit auctions could also have particularly dire consequences for orphanages and ice cream trucks.

The issue at hand is how carbon credits will be allocated to industry under a cap-and-trade bill. Segal and the companies he represents want them to be handed out for free, rather than sold via auction. His claim is that a credit auction will "double up" the impact on consumers. Both economic theory and real-world experience in Europe suggest that this is not true. The consumer impact is the same in either case.

But a carbon auction allows the government to raise revenue that can be put to useful ends. Such as, for example, providing relief to pensioners, schools, and other groups adversely affected by higher energy prices. Weep not, gentle power companies. Permit auctions are good for consumers.

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Cash for Clunkers brought us ... more clunkers!

This post was originally published at earthpolicy.org.

-----

Community opposition, legal challenges, and financial uncertainty over future carbon costs are prompting companies to rethink their plans for coal. Since the beginning of 2007, 95 proposed coal-fired power plants have been canceled or postponed in the United States -- 59 in 2007, 24 in 2008, and at least 12 in the first three months of 2009. This covers nearly half of the 200 or so U.S. coal-fired power plants that have been proposed for construction since 2000. The vast majority of the remaining proposals are essentially on hold, awaiting word on whether the Environmental Protection Agency (EPA) is going to impose limits on carbon dioxide (CO2) emissions. With further legal challenges ahead and the regulation of CO2 imminent, 2009 may very well witness the end of new coal-fired power plants in the United States.

An April 2007 Supreme Court ruling is proving to be a seminal decision. In Massachusetts v. EPA, the Court ruled that the Clean Air Act gives the agency authority to regulate CO2 emissions and that the EPA must review whether such emissions pose a threat to public health or welfare. Complying with the Court order, new EPA Administrator Lisa Jackson submitted an endangerment finding to the White House in late March 2009 indicating that human health and welfare are indeed threatened by CO2 emissions. This finding opens the door to regulating CO2 emissions under the Clean Air Act. Such regulation would provide a backup option for curbing emissions if Congress fails to set limits on them through legislation.

Congress, however, is under increasing pressure from grassroots activists to take on Big Coal.

Encouraged by calls from former Vice President Al Gore and leading climate scientist James Hansen for civil disobedience to stop the construction of coal-fired power plants, thousands of individuals from across the United States converged on Washington, D.C., on March 2, 2009, to protest the coal-burning Capitol Power Plant and to urge Congress to pass legislation to reduce carbon emissions. The rally was the largest act yet of civil disobedience against coal in the United States. (See timeline and data.)

Both Senate Majority Leader Harry Reid and Speaker of the House Nancy Pelosi are strong advocates of regulating carbon emissions and are pressing to get a climate bill through Congress before the United Nations Climate Change Conference in Copenhagen in December. If limits on CO2 emissions are imposed via a carbon tax or a cap-and-trade system, the operating cost of fossil-fuel based power plants would increase. And since the burning of coal releases more CO2 per unit of energy than any other energy source, coal-fired power plants would be hit the hardest. With President Barack Obama calling for a cap-and-trade program to curb carbon emissions, the future for new coal-fired power plants looks tenuous at best.

Even if legislation to regulate carbon emissions does not materialize this year, approval of pending permits for coal-fired power plants is potentially on hold. In November 2008, prior to the endangerment finding, the EPA Environmental Appeals Board determined that the agency's regional office must consider whether to regulate CO2 emissions before approving an air quality permit for a proposed coal-fired plant in Utah. This not only put the brakes on building the Utah plant, it set a precedent to halt the permitting process for any proposed plant until the EPA determines whether and how to regulate emissions under the Clean Air Act.

At the state level, actions within various branches of government demonstrate the growing distaste for coal. Since May 2007, the governors of Florida, Illinois, Kansas, Michigan, South Carolina, Washington, and Wisconsin have all taken action or voiced opposition to new coal-fired power plants. In her State of the State address in February 2009, Michigan Governor Jennifer Granholm called for an evaluation of "all feasible and prudent alternatives before approving new coal-fired power plants" in Michigan -- placing at least five proposed coal plants on hold. Instead of investing in coal plants that would require Michigan to buy coal from Montana and Wyoming, Governor Granholm stated that money spent on improving energy efficiency and tapping renewable energy sources in Michigan would create thousands of new jobs in the state.

This viewpoint does not seem to have occurred to the Kansas legislature, which is attempting for the fourth time in a year to pass a bill that would let Sunflower Electric Power Corporation build a 1,400-megawatt coal-burning power plant in Holcomb. With vast wind resources, it makes little sense for Kansas to rely on coal, a more expensive out-of-state fuel that creates fewer jobs than wind development for a given investment. Kansas Governor Kathleen Sebelius has vetoed all attempts by the legislature to approve the coal plant.

In June 2008, Georgia Superior Court Judge Thelma Moore, in accordance with the Massachusetts v. EPA ruling, rescinded an air pollution permit issued by the Georgia Department of Natural Resources for the proposed 1,200-megawatt Longleaf coal-fired power plant. Judge Moore's action halted construction on the plant and marked the first time that CO2 had been cited as a factor in denying an air pollution permit. And in February 2009, Georgia legislators introduced House Bill 276 calling for an immediate moratorium on the construction of new coal-fired power plants in the state and the phase-out by mid-2016 of the burning of any coal extracted by mountaintop removal.

Power companies and utilities are responding to the increasing regulatory uncertainty and mounting public opposition by backing away from coal and turning to clean, renewable sources of energy, such as wind, solar, and geothermal. Dynegy Inc., a wholesale power provider serving 13 states, announced in January 2009 that it will no longer continue its joint venture with LS Power Associates, L.P., to build up to seven new coal-fired power plants. On the day that Dynegy made the announcement, its stock price rose 19 percent. Several weeks later, Arizona's largest electric utility, Arizona Public Service Co., submitted a Resource Plan to the Arizona Corporation Commission indicating that it will not build any new coal-fired power plants because the carbon risk is too high. In late February, Oklahoma Gas & Electric released a plan to turn to renewable energy and defer building any fossil-fired power plants until at least 2020.

The notion that the United States needs additional coal-fired electricity generation to meet electrical demand is misguided. Simply using electricity more efficiently could reap large energy gains. A recent study by the Rocky Mountain Institute found that if the 40 least energy-efficient states raised their electric productivity -- the dollars of gross domestic product generated per kilowatt hour of electricity consumed -- to the average level of the 10 most efficient states, 62 percent of coal-fired power generation in the United States could be shut down -- roughly 370 coal plants.

The events of the past two years illustrate that the door is closing on the prospect of building new coal-fired power plants in the United States. While only five new coal plants, totaling 1,400 megawatts, began operation in 2008, more than 100 wind farms capable of generating 8,400 megawatts came online. Yet this is only the beginning. To have a decent chance of mitigating the potentially catastrophic effects of climate change, our attention should now turn to phasing out all coal-fired electricity generation over the next decade.

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Joe Romm has done a pretty thorough trashing of Matt Wald's recent New York Times piece. Herein, I pile on. This is a shoddy enough piece of journalism to deserve it. Like Joe, I've talked to Matt Wald before, and generally I find him to be a good writer on energy. He's capable of much better reporting than this.

That said, my larger beef is not with Wald nor the NYT per se, but rather with the analytical errors that are innate to his analysis, which are far too common in most journalism of this "what is the cost of competing power technology" type of piece.

The cost of electricity from any power generation technology is ultimately a function of five variables, some of which are innate to technologies and some of which are innate to specific uses of those technologies:

Virtually everyone who compares power generation costs screws up one or more item on this list. Wald may well have screwed up all five.

Most of the mistakes that arise from these analyses comes from a near universal failure: no one other than engineers gives a damn about the cost of power generation at the plant gate. It has nothing to do with the price of tea in China, and only a little bit more to do with the full societal cost of delivered energy. But it's ubiquitous in these analyses.

Roughly half of the capital cost of our electricity infrastructure comes from the transmission and distribution required to connect that power up to the load. It's also the source of about 10 percent of the total energy losses in our electric grid, and nearly 100 percent of all our blackouts. It is also the most consistently subsidized part of the electric system, which has played a key role in the construction of remote, inefficient power plants that explain why the power industry today is only half as fuel efficient as it was in 1910. And of course, all those other societal externalities -- from acid rain to global warming -- associated with certain power technologies are necessarily ignored from any analysis that presumes regulatory stasis.

Installed capital costs

I have no idea what Wald assumed, but his prices are laughable. If it's possible to build a modern coal plant with 7.8 cents/kWh costs as he suggests, I'd love to know where it's being done. As I and others have noted, this is more like 12-13 cents/kWh by any reasonable analysis, and it keeps increasing.

A part of the reason for the high cost of coal is the cost of delivery since coal plants -- for fairly obvious reasons -- tend not to be built anywhere near where the people are. Transmission and distribution to connect that power to the load costs $1,300/kW, on average in the U.S., tacking 3-4 cents/kWh onto the cost of any remotely-sited power plant. Since the fuel costs alone for a coal plant are in the 2-3 cent/kWh range, I'm fairly certain Wald's numbers simply ignored the T&D costs (and associated losses). They probably also ignored the fact that central power stations require a higher degree of redundancy than local ones, for the simple reason that more (small) generators make for a more reliable system than fewer (large) ones.

But hell, let's give the NYT the benefit of the doubt. And let's be conservative. Recent price increases notwithstanding, let's assume that a coal plant that is only compliant with current environmental rules (e.g., pre-CO2) can be built for $2,500/kW, and that the 7.8 cents includes 2 cents for T&D and 2 cents for fuel. Throw in another penny for non-fuel operating costs and that leaves us with 2.8 cents/kWh for capital recovery. I will again be really generous and assume that this plant operates 24/7/365, without a single outage for maintenance or unplanned outages, so that 2.8 cents/kWh will pay off $0.028 x 8,760 = $245/kW per year. That's a 10.2 year simple payback on the $2,500/kW investment, or a 7.5 percent annual rate of return (over 20 years of outage-free operation). Are you freakin' kidding me? No one is building a power plant for those kind of economics. And that's with hugely optimistic performance assumptions! Which brings us to the second assumption:

Cost of capital

Most power generation analyses look at the cost of capital (that is, how much do your investors and lenders expect you to pay back for every dollar they give you) based on current experience. People are building modern coal plants with an 11 percent cost of capital, so let's use that. People are building wind turbines with a 15 percent cost of capital, so let's use that.

But here's the problem with that analysis: lenders don't loan money based on fuel type. They loan it based on credit risk. And a regulated utility presents a massively lower credit risk than a small renewable developer. It is perhaps the most distortive subsidy in our electricity system, because it makes money flow to the most expensive, most inefficient power-generation technologies.

To be sure, just because this is "unfair" doesn't make it unreal. Small, financially unsophisticated guys don't have the kind of credibility with lenders that big utilities have, no matter how much we might want it to be otherwise. But when we are asking ourselves what the societal costs of various options are for the purposes of policy-making, Hippy Joe the Renewable Guy's credit rating isn't relevant -- what matters is a comparison across levelized capital structures. I would be very surprised if the EPRI analysis Wald cites makes such an equivalent comparison.

Capacity factor

Capacity factor is a measure of how many kWh a given kW of generation can produce in a year. It is a critical weakness of solar and wind, for all the usual reasons. (Rage, rage against the stillness of the night!)

It's usually got a healthy dose of BS in it for traditional technologies as well. The whole U.S. coal fleet today runs at something like a 75 percent annual capacity factor, generating 6,750 kWh/kW-year, rather than the 8,760 in my way-too-generous assumption above. This isn't because coal plants are particularly prone to outages. Rather, it's because for much of the country, there are substantial pieces of the year when the nuke + hydro + coal fleet is capable of generating more power than the system needs during substantial fractions of the year. As the highest marginal-cost generation of those three, the coal "dials back" accordingly, running at less than full load for much of the year.

This matters because -- as many a renewable developer knows -- a plant that isn't running is a plant that isn't making money. This is a problem that no storage technology in the world will solve, but is often ignored in analyses that assume that coal and nuke plants will run at 90+ percent capacity factors even while others run much less. EPRI and Black & Veatch may assure you otherwise -- but you can be quite certain that the equity investors who conspicuously chose not to invest in coal plants during the last two decades knew better.

Non-fuel operating costs

This is perhaps the least interesting of the numbers, for the simple reason that the data on O&M is pretty robust, and outside of equipment manufacturers, rarely overstated. It's the cost of humdrum items like labor, water chemicals, insurance, etc. Costs that all have to be paid, to be sure, but they don't swing wildly from one technology to the next. At the very low-end, you might see as little as 0.5 cents/kWh for natural gas-fired turbines or up to 2-3 cents/kWh for small-scale solid fuel plants (biomass, some coal). But it is worth noting that the cost of pollution clean up -- from sulfur to CO2 -- are borne predominantly by coal plants, and any sane investor is going to put a healthy cushion in their analysis to factor in coming CO2 regulation, either by demanding much higher returns or by assuming much larger non-fuel operating costs. Again, there's no possible way this was included in Wald's analysis.

This raises a final issue that all economic analyses struggle with: volatility.

Fuel costs

The story of the last 15 years -- from an energy, credit, or commodity perspective -- is not a story of rising costs per se, but rather one of massive volatility. From 1995 to today, crude oil has gone from $20/bbl to $9 to $140 and back to $40. Natural gas has ranged from $2/MMBtu to $15. Coal hasn't swung quite as strongly, but it's been far from consistent.

How do you factor this volatility into your analysis? That turns out to be a really hard question. In theory, volatility = risk, and so you capture it all in the cost of capital. That's what modern options-pricing is based on, and was used heavily by the folks at Long Term Capital Management to figure out how to make money in commodity markets. Say what you want about those guys, they were freakin' smart. And pricing volatility is really freakin' hard.

Moreover, the universal feature of all "alternative" energy sources, from solar to efficiency is that they reduce one's exposure to fuel volatility. That clearly has value -- and it clearly isn't captured in any model that sets a fuel price, assumes a conversion efficiency, and extends that number ad infinitum to the future with nothing more than a known inflation factor.

Taking that all into account, one can maybe give Wald a bit of the benefit of the doubt, if only because he is repeating mistakes made by so many others, so consistently. But the Times gets cited a lot more often than Black & Veatch reports, and it ought to be held to a higher standard. Wald's article simply isn't varsity material.

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