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ENERGY EFFICIENCY AND RENEWABLES ARE BETTER OPTIONS FOR CALIFORNIA
First things first: California’s energy efficiency potential
According to the state’s own Energy Action Plan, “Energy efficiency is the least cost, most reliable, and most environmentally-sensitive resource, and minimizes our contribution to climate change. California’s energy efficiency programs are the most successful in the nation and we want to continue to build upon those successes.”
From 1975 to 2001, California’s energy efficiency efforts eliminated the need to build more than 10,000 megawatts (MW) of generation capacity, equivalent to ten large nuclear plants, or 20 large natural gas plants. This is equivalent to 15 percent of today’s electricity demand. In other words, California has been able to do more with less, leading the nationwide trend of producing more economic output per unit of energy since the profligate early 1970s.
More recently, during the 2001 energy crisis, Californians successfully reduced their energy consumption significantly, proving their ability to immediately and effectively employ energy efficiency measures.
We can replicate this history – without an energy crisis – if we plan well. Consider some of the state’s own mandates, as well as some ambitious voluntary goals:
In 2004, the CPUC set very ambitious goals that called on the state’s four largest privately owned utilities to reduce their annual electricity demand by 23,183 GWh by 2013 -- equivalent to 38 percent of a large LNG import terminal. For natural gas, the CPUC set an annual reduction goal of 444 million therms by 2013 -- equivalent to 22 percent of a large LNG import terminal. With these goals, the CPUC expects energy efficiency to meet 55 to 59 percent of the utilities’ additional electricity generation needs between 2004 and 2013.
A year later, the CPUC approved $2 billion in funding to ensure that some of the goals outlined in its 2004 decision are met. The funding approved in 2005 is expected to save $5 billion for consumers and obviate the need to build three “large power plants over the next three years.” More specifically, the plans are expected to reduce electricity demand by 7,371 GWh per year from 2006 to 2008 and reduce natural gas use by 122 megatherms per year from 2006 to 2008 -- equivalent to 3,575 GWh -- for a total of 10,946 GWh per year. These programs alone will reduce the need for 18 percent of a large LNG import terminal.
Meanwhile, the California Energy Commission and the CPUC outlined a similar goal in their joint Energy Action Plan II, mirroring the CPUC decisions relating to the investor-owned utilities, calling for saving 23,000 GWh of electricity per year by 2013 primarily by implementing the state’s most recent energy efficiency standards, such as new Title 24 requirements for new buildings. This amount is not in addition to that called for in the CPUC decision, but reflects the fact that the state’s three energy agencies (CPUC, CEC, and Independent System Operator) are on the same page in terms of California’s potential for energy efficiency savings.
Also addressing building efficiency, California’s Green Building Initiative, signed by Governor Schwarzenegger in September of 2004, calls for reducing electricity use by 20 percent in state-owned buildings by 2015. This amounts to 3,870 GWh per year and is equivalent to 6.5 percent of a large LNG import terminal. (The initiative also calls for all commercial buildings in California to achieve the same 20 percent by 2015 goal, but does not mandate reaching this goal).
In addition, there is substantial potential for energy savings through re-powering California’s aging natural gas-fired power plants. If only 17 of the 25 natural gas plants over 500 MW were re-powered with modern, more efficient gas turbines, 174 billion cubic feet per year would be saved, equivalent to 50,808 GWh and 85 percent of a large LNG import terminal.
The following tables depict the various calculations discussed in this section.
California’s renewable energy potential
Although California still has significant potential for reducing energy demand through conservation and efficiency, much of the “easy pickings” have been tapped during previous energy crises and other efforts. This makes the renewable energy sector all the more important.
California currently obtains about 11 percent of its electricity from renewable energy sources. We have an abundance of additional renewable resources, still largely untapped due in part to a lack of sufficient investment, infrastructure and policy support. Governor Schwarzenegger, recognizing the potential for renewables, has called for a 33 percent renewables goal by 2020, mirroring the recommendations in the state’s Energy Action Plan II. The Energy Commission and the other state energy agencies agree that California must adopt a more ambitious renewable energy and have stated their support for this target. This goal was found to be feasible and cost-effective in a recent report completed for the PUC by the Center for Resource Solutions.
According to the Energy Commission, 55,170 GWh per year will be produced from renewable sources if the state meets its 20 percent by 2010 goal, equal to approximately one large LNG import terminal. This includes renewable energy produced by investor-owned utilities, publicly-owned utilities and electric service providers. Publicly-owned utilities are not required by state law to meet the renewable standard, but the two largest -- the Los Angeles Department of Water & Power and the Sacramento Municipal Utility District -- are subject to their own mandates that approximately match the state renewable energy mandates. Many other municipal utilities currently procure large amounts of renewable electricity and plan to procure more in the future. Accordingly, we can consider approximately all load-serving entities to be subject to the same 20 percent renewable portfolio standard by 2010.
Under the more aggressive renewable portfolio standard goal – 33 percent by 2020 – as much as 108,561 GWh per year would be produced from renewable sources, equivalent to about 16,500 MW of electrical generation capacity and 180 percent of a large LNG import terminal. The 33 percent standard is likely to become law in 2006, given the fact that the Governor signed a law in 2005 calling for an examination of the feasibility of this level of renewables, and the subsequent completion of this examination, finding, as mentioned, that the 33 percent RPS is both feasible and cost-effective.
The Energy Commission already includes 32,000 GWh of renewable energy in its natural gas assessment for 2016 (the projection assumes that the 20 percent by 2010 Renewable Portfolio Standard will be met). The Energy Commission does not, however, consider the effects of a 33 percent RPS by 2020 on its natural gas assessment. Assuming, with a 33 percent by 2020 RPS, that 30 percent renewable generation is achieved by 2016, about 32,781 GWh of additional renewable generation will be produced by 2016, which was not included in the state’s natural gas projections. To clarify, 108,561 GWh total would be produced under a 33 percent RPS by 2020, but only 32,781 GWh of new renewables, not already accounted for by the Energy Commission in its natural gas assessment, would be produced by 2016.
The following table depicts the energy production under the mandated, or likely to be mandated, renewable energy goals in California.
Table 5. California’s Current and Prospective Renewable Energy Mandates.
Mandate Generation (GWh) % of 2016 new gas demand Equivalent large LNG terminals
20% by 2010 29,533 (already included) 49%
30% by 2016 32,781 87% 55%
33% by 2020 47,323 125% 79%
Is California’s renewable energy market viable?
For those who would say that the state’s mandate for 20 percent renewable electricity by 2010 – let alone 33 percent by 2020 – is an unachievable goal, we would argue, with the agreement of the state’s energy agencies, that there is more than enough technical and economic potential for renewables in California to meet this goal.
The following sections discuss estimates of California’s renewable energy potential, from the Energy Commission and other reliable sources. Table 6 summarizes the potential from the various renewable resources in California.
Wind
In 2004, California generated 4,258 GWh of electricity using wind power, 1.5 percent of the gross system power and equivalent to about 7 percent of a large LNG import terminal.
Expanding wind power capacity from the 2,096 MW of capacity in 2004 to about 8,540 MW in 2017, as is expected by the Energy Commission, would produce 19,760 GWh per year, equivalent to 33 percent of a large LNG import terminal. The technical potential for wind power is of course much larger – the Energy Commission recently estimated 127,000 MW of potential in the state.
Solar
Solar energy is another renewable resource that is easily accessible in many parts of California with significant expansion potential. The technical potential for photovoltaic and concentrating solar power systems in California exceeds 17 million MW. For comparison, the state currently has about 60,000 MW of generation capacity. Assuming, however, that photovoltaic systems in the near term will be applied primarily to commercial and residential rooftops, as is likely, a total of 75,000 MW is developable in the next decade or so, with economics being the primary barrier. We don’t expect this full potential to be developed over the next ten years because of cost and supply problems. Instead, we assume that the Governor’s goal of 3,000 MW of new solar PV will be installed by 2016, in light of the CPUC’s recent approval of a new system of rebates over an 11-year period. Solar photovoltaic technology is still the most expensive of the renewable technologies and is dependent on incentives for its success.
In addition, 16 counties throughout the state receive an annual average of solar radiation of six kWh per day per square meter -- enough to meet the requirement for concentrating solar power (CSP) systems. CSP is generally utility-scale solar, so may lead to much larger capacity additions than solar PV. This insolation data leads to a technical CSP potential in California of over one million MW of capacity, capable of producing about 2.7 million GWh. Again, the state’s total generation capacity today is about 60,000 MW, so this potential is about 15 times the total generation in California today.
As CSP technology improves, many other areas of the state will be suitable for CSP, not just the 16 counties described in the CEC study. Moreover, with existing technologies such as those used in Kramer Junction, California, a natural gas generator can be integrated into the CSP plant, making it appropriate for any insolation level since natural gas backup can operate any time there is insufficient insolation for CSP generation alone. The Kramer Junction trough-system plants have achieved on-peak capacity as high as 80 percent with solar alone, but over 100 percent of capacity by using the gas assist generator to sell additional amounts of peak power.
Again, we don’t envision the full technical potential being developed by 2016. We assume, instead, the construction of 10 CSP plants similar to that being built near Barstow for Southern California Edison, which will be 850 MW at full capacity. We believe it is realistic to expect 8,500 MW of CSP plants to be built in California by 2016, or shortly thereafter – a tiny fraction of the technical potential – utilizing either dish systems or trough systems. (Our estimate is based on recent advances in Stirling engine technology and a resurgence of interest in trough systems. ) This estimate of 8,500 MW of CSP would produce about 18,615 GWh per year, at a 25 percent capacity factor, or about one third of a large LNG import terminal.
A poll of CSP manufacturers taken by the Western Governors Association found that the industry could supply the southwestern U.S. with up to 13 GW of CSP by 2015. Given the fact that California has approximately the same power demand as the entire Western states combined (excluding Texas), it is not unreasonable to project 8,500 MW being built in the state. This conclusion is reinforced when we consider the strong renewable energy and climate change policies already enacted in California.
If thermal energy storage systems currently being examined by the industry, such as molten salt systems, are included with trough or dish systems, capacity factors could be as high as 60 percent, much higher than the current 25 percent. This conclusion is based on the 60 percent capacity factor achieved with Solar Two’s (a now defunct solar power tower array) thermal energy storage system in California during the 1990s.
Geothermal
Though wind and solar resources have perhaps the largest potential in California, geothermal, biomass, and small hydroelectric facilities currently contribute more to California’s total renewable energy resource base. Geothermal power contributed 13,571 GWh, or about 4.9 percent of the gross system power in 2004.
The Western Governors’ Association’s Clean and Diversified Energy Advisory Committee found, in a recent draft report, 2,400 MW of new geothermal capacity in California -- capable of producing as much as 15,768 GWh per year. The Energy Commission reported a slightly larger potential of 2,862 MW, or 22,564 GWh per year, in its 2005 geothermal resources report.
Biomass and Waste to Energy
Biomass energy is generated from organic wastes such as woody agricultural wastes and forest thinning. Biomass power plants provided 5,997 GWh of electricity in California in 2004 – about 2.2 percent of the gross system power. In its 2005 updated biomass assessment, the Energy Commission found an additional technical potential of 4,700 MW of biomass power by 2017, using current technologies. The report also estimates a 7,100 MW potential in a best case scenario and states that as much as 60,000 GWh per year could be generated from biomass by 2017 – but acknowledges this is an optimistic projection. Taking the more realistic potential of 4,700 MW, or 35,000 GWh, per year by 2017 is a reasonable estimate of production.
Small Hydroelectric
Small hydroelectric plants (30 MW capacity or less) are considered renewable due to the relatively small amount of water required for their operation and consequent minimal environmental impacts when compared to large hydroelectric projects. In 2004, about 1.7 percent of the electricity generated in California was produced by small hydroelectric plants. Small hydroelectric power potential is estimated at 2,280 GWh from new facilities, plus 667 GWh from water pipelines among municipal water utilities and irrigation districts.
Ocean Power
The ocean is also a viable resource for energy production, especially in California. Wave power along the coast – from surface wave energy conversion alone – has a technical potential of 18,912 GWh, at primary sites only. We are, for the purposes of this report, not considering the secondary sites that the Energy Commission’s consultant also considered, which amount to 75 percent of the potential of the primary sites in terms of GWh of production. We also assume that only 25 percent of the primary site potential will be developed by 2017, resulting in 4,728 GWh of ocean power, equivalent to 8 percent of a large LNG import terminal. We also do not consider the potential of current power devices, which may be appropriate in some locations along our coast.
ADDITIONAL SUPPLIES OF NATURAL GAS IN NORTH AMERICA
It is certainly possible that the state will not meet its renewable energy mandates by 2010, let alone the likely new mandate of 33 percent by 2020. It is even possible that the CPUC’s ambitious and funded energy efficiency programs with the investor-owned utilities will not produce expected savings. We believe this possibility is unlikely, but we have to consider it.
However, even if the state slips in meeting its own mandates, California need not be overly concerned about natural gas supplies, as significant additional supplies will come online in North America in the next decade from a number of sources:
Domestic U.S. natural gas production is expected to increase over the next decade, while Canadian imports are projected to decrease. However, the decrease from Canada is projected to be more than offset by increases in U.S. production. Pipeline bottlenecks for natural gas deliveries to California have, according to the Energy Commission, been resolved such that the historical price differentials between California and the rest of the U.S. have disappeared.
Three LNG import terminals have been approved by the Mexican government for Baja California and will provide over 2.4 billion cubic feet per day of natural gas to Mexico and the U.S. This figure may soon be increased by 1.5 bcf/d because Sempra, the company currently building the first of these terminals, has, as mentioned, requested an expansion of its one bcf/d facility to 2.5 bcf/d, half of which is slated for the U.S. The Energy Commission expects the first of these Mexican plants to be online by 2008 and also expects a portion of this gas to service the San Diego region.
13 additional LNG import terminals (or expansions of existing terminals) have been approved in the U.S., outside of California, and 25 other projects have been proposed for other sites within the U.S.
A consortium of oil companies has proposed a natural gas pipeline from Alaska and Canada to the contiguous U.S. This project will provide 1.5 to 2.0 trillion cubic feet of natural gas per year and should be completed by 2016. If completed, this pipeline would forestall the apparent peak in North American natural gas production by a number of years because it would provide access to otherwise stranded natural gas resources.
An additional pipeline, from the MacKenzie region of Canada’s Yukon, is expected to be online by 2013. If this pipeline comes online, it will forestall by a number of years the expected declines in Canadian production.
Although it is impossible to predict where exactly these additional natural gas supplies will be used in the contiguous U.S., they are certain to provide additional downward pressure on North American natural gas prices and ease any supply constraints to California.
We are not here endorsing any LNG import terminals in other states or outside of the U.S. However, we do acknowledge that additional supplies from sources outside of California have either already received permitting approval and are being constructed, or will likely receive approval and be constructed at some point before 2016. State and federal planners need to consider that these additional supplies are coming online over the next decade when making any decision about LNG import terminals not yet approved for construction, in a similar calculus to that provided above for renewable energy and energy efficiency.
It is evident that significant new natural gas supplies will soon be available in the U.S. and that additional downward pressure on natural gas prices will be exerted, even if California builds no LNG import terminals. Additionally, previous natural gas pipeline constraints into California from other western states have been resolved, making it much easier to transport additional natural gas supplies from elsewhere in the U.S. to California.
CONCLUSIONS
The following tables summarize the energy efficiency and renewable energy potential in California.
It should be clear at this point that energy efficiency and renewable energy could readily replace the need for any LNG import terminals in California.
California’s future energy path will depend largely upon the willingness of policy-makers to embrace energy efficiency and renewable energy as the preferred approach to the state’s most pressing environmental issues. The reasons for supporting renewable resources and energy efficiency, rather than supplementing natural gas supplies through LNG, may be boiled down to a few main points.
First, California’s natural gas demand projections are likely too high due to exclusion of California’s full energy efficiency and renewable energy goals and other potential in the state’s natural gas demand projections.
Second, California benefits from a variety of energy efficiency and renewable energy resources that, if developed to their full potential, could eliminate the need for any addition to our current fossil fuel supply base – and could eventually eliminate a large portion of our fossil fuel demand, and perhaps even all of our fossil fuel and nuclear demand.
Third, significant additional supplies of natural gas are likely to be available in California even if California builds no LNG import terminals. This is the case because of the proposed natural gas pipelines from Alaska and Canada and, in the shorter term, numerous new LNG import terminals being built in Mexico, Canada and other parts of the U.S. Additional natural gas supplies from North American sources and LNG terminals outside of California are an effective hedge against the possibility that the state might not reach its full renewable energy and energy efficiency potential by 2016.
So how would the future look if California does not approve any LNG import terminals?
Any decision in the short term by state and federal agencies would have no effect on California’s natural gas supplies until roughly 2008 at the earliest, since it will take at least that long before any of the proposed terminals come online. During that same time, the new three-year round of Public Goods Charge funding for the utilities will probably reduce electricity demand significantly and, at the same time, may reduce natural gas demand for electricity generation, and for natural gas used for heating and cooking in homes and businesses.
In the longer term, disapproving the proposed LNG import terminals in California may have little effect on natural gas supplies in the state because of the availability of additional natural gas (either natural gas or LNG) from domestic sources, Canada, and LNG terminals outside of California.
However, a decision(s) to approve LNG import terminals in California could have significant effects on renewable energy and energy efficiency, potentially inhibiting necessary investments in these technologies and impeding the state in meeting its energy efficiency and renewable energy goals. This result would, among other things, cause more air pollution, lead to more greenhouse gas emissions that contribute to global warming, heighten our exposure to terrorist attacks through creating new attractive targets, and exacerbate our dependence on foreign sources of energy. At the same time, there is no guarantee that the natural gas from LNG import terminals would stay in California, given the functioning of the natural gas markets (the highest bidder will receive the gas, whether in California or not).
Given the existence of viable alternatives to LNG, in the form of energy efficiency and renewable energy, the choice by local, state and federal regulators is clear: we don’t need LNG.
A final thought: if we assume a worst-case scenario in which the state’s renewable energy and energy efficiency goals are delayed by two or three years, it should also be clear that a large increase in renewable generation in California is the obvious preferred solution for the long-term. Renewable energy is, by definition, renewable! This means that we will not run out of these energy sources, as is the case with fossil fuels such as natural gas, oil and coal. With peak oil – and peak gas – concerns increasing by the day, it is imperative that we do everything we can as a state to rapidly increase our share of renewable energy generation. It is equally imperative that we not commit the state to further dependence on natural gas, a disappearing fuel source when we consider the long-term. While natural gas supplies, both domestically and from international sources, will likely be sufficient for the next decade or two, there is no certainty that global supplies of natural gas will remain viable for much longer than that, and much evidence to suggest that supplies will not last much longer than that.
Given the obvious environmental benefits of renewable energy, its increasing cost-effectiveness, it’s immunity from terrorism concerns, its price stability due to lack of any fuel costs, and its diversity in terms of different resources and generation technologies, it should be obvious to any impartial observer that the renewable energy transition must happen, and as soon as possible.
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I fully agree with Tam about how importing LNG just to use it for power generation is a terrible idea. In fact, I would add a reason or two that Tam didn't discuss (or discussed lightly).
In addition to the gas price volatility risk and negative balance of trade, there are the negative impacts on US energy security, and our geopolitical position in general. Only fools do not understand how our dependence on foreign oil has lead to our heavy-handed presence in the Middle East which has caused resentment and (ultimately) terrorism, and to enormous expenditures for the bloated military and actual wars that are required to ensure our access to that limited resource (for which there is declining supply and increased international competition).
Well, we are rapidly running out of natural gas on this continent, and the great majority of the remaining reserves are in Russia or the Middle East. Thus, the gas situation will soon come to resemble the oil situation, and we will then be reliant on those same regions for both our oil and gas. Thus, all the negative effects discussed above will be greatly exacerbated.
My personal opinion is that every state should be ranked in terms of how much natural gas it uses for power generation, as well as how many SUVs people drive, and the highest ranking states should have their sons and daughters placed at the front of the line with respect to who's going to do the fighting in all of the future resource wars that our energy policies (and personal habits) are going to lead to in the future. Just my opinion.......
I am, in fact, so serious about not using imported natual gas for power generation, that I am actually (unlike Tam) willing to consider ALL alternatives to gas, including clean coal and nuclear power. The one main issue with all of Tam's arguments are that they all apply at least as well (if not better) to other more potent alternatives like clean coal and nuclear as they do to renewables.
In fact, whereas the benefits of coal, nuclear, and renewables like geothermal and solar are clear, in terms of reducing imported gas use for power generation, the argument is less clear for wind, by far the dominant renewable source being considered. The reason is that steady, reliable sources like coal, nuclear, or geothermal, as well as sources like solar that produce power at times of peak demand, do not require "reactive" backup power generation which, in practical terms can only be provided by gas plants. Wind farms, whose output varies randomly, often falling at times of peak demand, require a large amount of standby gas capacity.
In states like CA, where a huge (50%) fraction of the power is generated by gas plants, this is not as much of an issue, but that large gas fraction is the very problem we are trying to correct!! At first, wind will reduce gas use by displacing gas consumption. But the most wind one can practically have is such that the total peak (rated) generation is equal to the typical total gas fired generation. As wind's effective capacity factor is ~1/3, wind basically ropes you in to having two units of annual gas generation for every unit of annual wind generation. Using hydro dams as storage units may alleviate this somewhat. Thus, with wind, it will be hard to substantially reduce the level (fraction) of gas consumption, due to this 2-to-1 gas/wind ratio constraint.
This is a proablem, as our goal really should be to limit gas' generation fraction to ~10%, 15% at most. Under such a system, wind could only contribute ~5-8% (10% at most). Thus, even if CA goes down this "renewable path", the fact will remain that it will still be using an inordinate amount of gas for power generation. The fact will remain that CA will be continuing to living off the indulgence of other, wiser states, which use coal and nuclear for most of their power, thereby allowing CA to use a disproportionate share of the nation's gas.
I agree with Tam that the LNG import terminals should be blocked. But I have a better idea on what to do next. Why don't we just:
1) Block the LNG terminals.
2) Cap/reduce CO2 emissions (bye bye non-sequestered coal)
3) Then let the market decide how best to meet future demand.
Len Gould 5.12.06
The clearest statement I see in the article can be summarized as "California shouldn't authorize LNG terminals because Mexico is willing to do so, and we can depend on those terminals to carry our lugage when all the dream plans fall through."
Tam Hunt 5.12.06
James,
A few comments re wind's intermittency.
You assume that wind, with a capacity factor of about 1/3, will be available at all wind sites at the same time, requiring a 2/3 additional baseload capacity for back up.
Obviously, wind blows at different times at different places, so geographic disperson of wind farms is a very legitimate and effective way of mitigating intermittency. Also, as you mentioned there are other ways to mitigating intermittency, such as pumped hydro storage as well as compressed air energy storage, fly wheels, and hydrogen production. All of these storage mechanisms add to the cost, but as fossil fuels and nuclear power costs continue to rise, they will become more cost-effective. Not to mention of course the economy of scale that will result from mass commercialization of such technologies.
Also, the wind intermittency problem will not be a real problem in California and other states until we reach much higher levels of penetration. We're still at about 1% wind in California, and less around the country. A recent study by the UK government found that the UK could obtain 20% of its power from wind and add only 1% to customer bills - indicating that the additional balancing generation is minimal at this penetration level. Germany's energy agency, DENA, found last year that Germany could get to 14% penetration before any additional balancing generation was needed. We have a long way to go in the US before we approach this type of penetration.
Last, I agree with your statements that we need to seriously reduce California's natural gas fired generation capacity, but I'm confident that we can replace existing generation as it expires with renewables and energy efficiency, not nukes or "clean coal." Don't forget there are also baseload renewables that have serious capacity in CA, such as geothermal, biomass and small hydro. Solar power can be a very effective peak generator, as evidenced by the 350 MW SEGS plants near Barstow, which have operated at 108% nameplate capacity for 20 years, as peak plants. They've used 80% solar power and 20% natural gas generation to reach such high capacity, but 80% solar is obviously a huge improvement over the status quo. Also, as ocean power becomes a real option we can expect to see higher capacity factors than we see for wind and solar power.
Roger Arnold 5.13.06
I mostly agree with Tam about the options available for mitigating the intermittency of wind power. However, if geographic dispersion is to be one of the options, it will require enhanced long distance transmission capacity. New long distance transmission capacity won't come cheap. In fact, on the basis of capital cost per kilowatt of backup power delivered, it's probably one of the more expensive options.
As I understand it, it's actually pretty hard to beat a stable of diesel gensets. They sit around idle most of the time, but are there if the wind fails at time of high demand. They don't kick in just anytime the wind drops, but only when other means of compensating aren't enough. I don't have any current figures handy, but I think their capital cost per kilowatt is even lower than it is for simple gas combustion turbines.
The gas turbines used for peaking and backup, BTW, are not very efficient. I think I've read that they're as low as 27%? But like diesel gensets, they're cheap, last for ages with almost no maintenance, and aren't bothered by frequent starting and stopping. The high efficiency combined cycle units that one hears about are a different matter. They operate at much higher temperatures, and are unsuited for use as peakers or for backup. Their lifetimes, as I understand it, are measured largely in terms of start-stop cycles. The same would be true--possibly even more so--with IGCC plants.
Good old hydroelectric is probably the most economical backp for wind power. Preferably with a small dam just below the big one, so that a regular downstream flow can be maintained even when the flow between the two reservoirs can swing from zero to full capacity on short notice.
In the future, wind turbines should operate at higher capacity factors than today's units, and require less backup. No magic. Their rated capacity, relative to the area swept by their blades, will be lower. That means that they'll reach rated power at lower wind speeds. When the wind is blowing faster, they'll hold at rated power, tapping only a portion of the wind energy available. That will allow them to be lightweight. They'll sit atop tall, slender towers, with long floppy blades. The blades will be actively "flown" through the wind, to minimize stress, wear, and noise.
At least, that's one high tech vision for windmills of the future. We'll have to see if we're around long enough for it to be realized.
mauk mcamuk 5.15.06
Roger:
The "dual dam" idea for hydro to back up windmills is actually quite a good one. While I think that most riverine environments would benefit from more flow variation, the abiltiy to catch the really big slugs would be very useful.
Your notions of future windmills are likewise good. There is SO MUCH wind resource, we can certainly afford to spill some in the interest of making it more usage friendly.
James Hopf 5.15.06
Roger,
Would you know how much effect, if any, using these lower-wind-speed turbines would have on overall average electricity price? In other words, if you had a normal turbine and a low-wind-speed turbine, which produce the same amount of annual generation (kW-hrs), which would be more expensive?
I'm guessing that the low-wind-speed turbine would be at least a little bit more expensive (or that the technology hasn't been developed yet). After all, if one is offered the same number of annual kW-hrs, at the same cost, choosing the more steady kW-hrs would be a no-brainer.
Roger Arnold 5.15.06
Riverine environments do benefit from some flow variation. They're adapted to seasonal flooding, and need it to stay healthy. But too much variation, too often, is also unhealthy. The lower dam also allows for modest reverse pumping, to increase the capacity on tap during peak / no-wind hours.
As to the cost impact of the lightweight turbines optimized for capacity factor, I don't think it's possible to predict it at this point. The hope and expectation on the part of those researching these designs is that the combination of lower weight, lower materials cost, taller towers, and higher capacity factor will more than offset the lower energy capture per disk area at higher wind speeds. But I suppose they'd be happy if they just managed to deliver the same cost per kWh in areas with less wind to start with.
Success is not guaranteed. According to the article I read about this design approach, the giant turbines built by American aerospace companies in the '70s (with government money, of course) also attempted to minimize weight. They ended up being short-lived and costly. According to that article--I think I found it in Technology Review Online--the "breakthrough" that the Danes came up with was simply that they built their turbines to be very simple and very robust. Now NREL is giving "light and sophisticated" a second chance. The key to success would be smarter controls that are ultra-reliable, and able to keep stresses on the hub and blades low, even in heavy and gusty wind conditions. Theoretically doable, but it all depends on how good the engineers are.
Edward Reid, Jr. 5.16.06
A few points that appear to have been "glossed-over" in the article and comments so far: 1. Utility-level reliability from current technology, geographically-dispersed wind turbines requires 20 wind turbines of 35% availability to produce the capacity of 1 wind turbine with 99.98% reliability, plus a lot of additional "source of opportunity" power with far lower reliability. The investment implications for transmission in this case are not trivial. 2. Utility-level reliability from current technology, geographically-dispersed wind turbines plus storage requires not only additional investment in storage, but also additional investment in wind turbines. My "back of the envelope" estimate would be 5 wind turbines plus storage capable of delivering the design output of 1 wind turbine for 24 hours, allowing for intermittency and storage in/out losses. This is not a trivial increase in required investment. 3. There are significant natural gas resources located off the California coast. The fact that CA will not permit natural gas E&P offshore has adverse impacts, not only on CA, but also on the rest of the US, since CA's natural gas for power generation demand and consumption affects natural gas prices throughout the US. LNG imports are not the only approach to more NG for CA. They are, however, a convenient "straw man".
I do not wish CA ill, by any means. However, reliance on a wind power percentage approaching, or exceeding, the conventional capacity reserve margin will likely result in a very large scale demonstration of the adverse results of grid instability. While large scale demonstrations are very convincing, they can also be very costly and very damaging.
Regarding Mr. Hopf's recommendation on capping CO2 emissions, I am confident that this approach would increase the cost of meeting CA's future energy needs; and, that it would have no measurable affect on global climate change.
Tam Hunt 5.16.06
Edward, can you explain your calculations? I don't understand why you think it would take 20 wind turbines to produce a dispatchable product.
Also, as I mentioned above, many studies have shown that at penetration levels of 20% and less, wind power doesn't need much, if any, additional backup than is already provided by the system. We're a long way from reaching this goal in the US. And Pres. Bush has in fact endorsed this goal, to his credit.
The calculation is simple and straightforward. Achieving "four nines" reliability is not simple or cheap, especially when starting with low availability components. You may be satisfied with lower reliability levels, but the utilities cannot be satisfied with them.
There is a huge difference between "source of opportunity" power and "reliable" power.
Todd McKissick 5.17.06
Edward,
I can't say I'm convinced that the property labeled 'reliability' is quite as straight forward a calculation as you elude to. If one was considering a single turbine's reliability as a flip of a coin (on vs. off), then that might be the case. However I think there are a number of other variables that need to be considered. The grid is going to see the total output of all the turbines in a farm which includes the ones producing at max as well as the ones producint 5% of max. I'm unsure of how to perform these statistical calcs, and defer to others more skilled in the art, but it seems to me a problem of overlaying 20 bell curves random data points into one bell curve. Graphically, I see this widening the curve and pushing the ends to the ends of the scale somewhat.
The other issue that may dramatically affect this is the time of an individual turbine's lowered output. For example, if one sees a 50% drop in output for 10 seconds, that should be calculated differently than an 80% drop for 2 minutes.
The complexities of these also need to be weighed against the backup (or storage) supply's reserve capacity at that instant. The long and short of it, is that it seems to point to higher actual penetration levels should be equivalent to the single-factor-calculated levels and this muddies the playing field. I would guess that actual testing will be the only way to be sure.
Just me two cents, Todd
Murray Duffin 5.17.06
Edward, even coal fired plants rarely exceed 90% availability, so going for 3 nines is irrelevant. We also have the fact that we are not dealing with on/off conditions, the fact that current USA experience is near 28% availability, and recent large test turbines are realizing well in excess of 30% availability in good wind areas. Your 20:1 number is far far from reality. The intermittency argument against wind is the true strawman. Murray
Murray Duffin 5.17.06
Tam, I think you have to consider the probability of increases or decreases in USA NG production, rather than just accepting the increase projections. Also the Alaska pipeline expectation is overstated considerably. Murray
Tam Hunt 5.17.06
Edward, I can't claim honestly I understand the math behind your numbesrs, but I know your calculations aren't entirely pertinent b/c of the issue Murray raises - we don't need 99.9% CF - but also b/c we have folks like CalISO in California (the grid operator) that current assign capacity credits of 26-31% to wind areas in California, for dispatch planning, belying your point.
Also, see the IEA report "Variability of Wind Power" for some very interesting figures re the smooth effects of geographic dispersion of wind farms on variability: http://iea.org/textbase/papers/2005/variability.pdf.
Edward Reid, Jr. 5.17.06
My numbers were based on 35% availability. From the numbers, 90% reliability requires 6 machines in geographically dispersed but matched locations. The numbers do not include any issues of unavailability other than absence of wind. (My limited physical observations of wind farms tell me that I have never seen more than 50% of the turbines in a CA wind farm operating at any time.)
There is no problem as long as wind is a substantially smaller fraction of total capacity than the conventional capacity reserve margin. Tam uses a 20% number for a reasonable wind share; that may be fine if the conventional capacity reserve margin is also ~20%. That is not the case in CA.
To Murray's point, the numbers indicate that it takes a minimum of 6 geographically dispersed wind turbines to provide the output of one of those turbines at the same reliability as a coal plant. Thus, if "source of opportunity" wind power is available at a cost of $0.10/kWh, the cost of 90% reliable wind power is ~$0.60/kWh. My point was that the cost of utility level reliable wind power is closer to $2.00/kWh. That may not be of much interest to wind advocates; it is of more interest to utilities.
Don Giegler 5.19.06
Murray,
Johnson, Pao, Balas and Fingersh of NREL have written an excellent article, "Control of Variable-Speed Wind Turbines", in the June 2006 IEEE Control Systems Magazine. It is difficult to conclude that their efforts to maximize energy capture for such devices are based on the idea that wind intermittency is of little concern.
Tam Hunt 5.19.06
Edward, I'm borrowing a comment provided by Tom Gray of AWEA, in response to Ken Silverstein's recent piece on wind energy storage, which addresses your point fairly well (sorry I don't have time for a more detailed response, but we're working on a detailed paper examining renewable energy variability for our region, which should be done this summer). Most telling from the quote below is the fact that the 6,000 MW (there are now over 9,000 MW installed in the US) installed at that time, not even one MW of balancing load had to be added.
In an authoritative article entitled "Wind Plant Integration: Cost, Status, and Issues," by Edgar A. DeMeo, William Grant, Michael R. Milligan, and Matthew J. Schuerger, published in the November-December 2005 issue of IEEE Power & Energy Magazine, the following passage appears:
"We discuss four of the most prominent misconceptions here, with additional detail in subsequent sections. First is the notion that every megawatt of wind generation must be backed up by approximately 1 MW of conventional dispatchable generation. Actually, the great majority of wind generation has been added to power systems as an energy source rather than a capacity source, so the generation needed to maintain system demand-generation balance is already present as part of the system. As discussed further below, a small amount of additional regulation or load-following capability is generally needed, but that is most often provided by existing units. And as a practical matter, with over 6,000 MW of installed wind power generation so far in the United States, not a single conventional unit has been installed as a backup generator for wind."
Len Gould 5.19.06
Saying "with over 6,000 MW of installed wind power generation so far in the United States, not a single conventional unit has been installed as a backup generator for wind." is comparable to saying "not one knot had to be reduced from the speed of the Titanic due to fear of icebergs" just before it struck one. Concerned engineers aren't predicting a likely problem UNTIL wind capacity starts to excessively tax the approx. ?? 30 to 60,000?? MW available reliability backup now connected in North America. BUT when that starts to happen, perhaps some people may wish they had studied the issue more closely, just as the passengers on Titanic likely wish they had questioned the captain more closely.
Tam Hunt 5.19.06
But Len, many reputable folks, including our esteemed Pres. Bush, believe we can get to 20% wind power in the US without hitting a glacier. No one to my knowledge is currently advocating wind power for higher penetration levels than 20% in the US.
John K. Sutherland 5.19.06
Len and others, You must feel that this is like trying to nail jello to the wall.
Edward Reid, Jr. 5.20.06
Tam,
Since it appears that CA is likely to encounter the iceberg first and has notable experience in dealing with power problems, I will just sit back and watch CA deal with the issues. I'm sure we will all learn much from CA's pioneering experiences.
The issue is actually broader than just wind; it includes all "source of opportunity" power sources. CA learned several years ago that not all of the capacity of large hydroelectric projects is "reliable" power; rather, there is a "reliable" fraction and a "source of opportunity" fraction. CA and BPA also learned the importance of accurately determining the "reliable" power fraction. BPA, as I recall, actually "brought down" the CA transmission grid twice in the summer of 1996 by taking the "opportunity" to maximize the delivery of "source of opportunity" power available from its dams.
As an old "utility guy", I hope you will have the good grace not to blame future grid instability resulting from excessive application of "source of opportunity" power under CA's aggressive RPS on the CA utilities. (I know that's asking a lot.)
Regardless of your esteem for President Bush, the likelihood of the US "hitting" a glacier any time soon approaches zero asymptotically, especially since we are being told that most of the world's glaciers are receding.
Len Gould 5.20.06
Tam: "No one to my knowledge is currently advocating wind power for higher penetration levels than 20% in the US."
So, you're dead against nuclear and would given choice, shut down instantly the 20% electricity currently supplied therefrom, agree I presume that geothermal can't possibly exceed perhaps 1 to 5%, agree that conservation ans etc. even in the best scenario can't hope to do more than somewhat slow the present rate of increase. And argue strongly that imported LNG should be banned.
Coal and solar?
Edward Reid, Jr. 5.21.06
Len,
Obviously solar and storage plus 20% wind and storage plus existing hydro. Should be fun meeting the anticipated doubling of demand driven by doubling of population over the next 50 years.
Maybe instead of Mexifornia, this will result in Calimexico, with everyone moving south of the border. Could be an interesting strategy!
Len, here's the real world scenario and how I'd like to see it shake out, looking just at California for the time being:
As demand increases, which it will, albeit at a slower pace than it has historically (the Energy Commission recently downwardly revised its natural gas demand fro 0.7% annually to 0.55% annually, through 2016), new renewable supplies can meet incremental demand, rather than new gas-fired plants. I'm not currently advocating shutting down our 4 GW of nuclear power in California, though this may be possible at some point in the not too distant future.
Rather, I'm advocating that as old gas-fired plants go offline, we replace them with renewables, rather than more 1 GW NG plants like the Mountainview plant that just opened.
And it's not just me advocating this kind of thing - the PUC recently commissioned a report from the Center for Resource Solutions finding that a 33% RPS by 2020 was not only achievable but could lead to a cost savings. We're currently at 11% renewables, so this would be a 22% proportionate increase - a truly significant figure.
At the same time, we may in fact be able to quell incremental demand through aggressive EE measures on the demand side. There's a new proceeding at the PUC, which we are involved in, which will look at this issue and will set new goals for the state in this area. For example, simply by re-powering 17 of the state's 25 largest aging natural gas plants, we could save over 50,000 GWh a year (and its equivalent natural gas). There's amazing potential and a lot of these trends are pretty well laid out. That is, it may not take a lot more work by folks like us (non-profit policy wonks) to ensure that the current trend lines continue along their path.
Len Gould 5.22.06
Tam: I'd just like to point out some of the physics problems, eg. with large-scale solar v.s. N Gas. N Gas flames are easy to produce at eg. 1700 degC making the Carnot (theoretical) efficiency very high relative to a solar collector at even 1000 degC. Further problem, a solar collector operating under concentration at 1000 degC will re-radiate a huge proportion of all energy directed at it. In fact, this problem makes high-temp solar collectors almost insurmountable impractical economically.
You're going to need a breakthrough in external-heat-source engine technology to get anywhere near your goal. Better spend some effort digging up some funding for eg. McKissik's high-efficiency low-delta-T engine or something like it.
Tam Hunt 5.22.06
Len, there are alrady 350 MW of concentrating solar power operating in CA's desert near Barstow - reliably producing peak power at 108% of nameplate capacity for the last twenty years using 80% solar and 20% natural gas. The plant's owners sell power at 12 c/kWh to Edison, a pretty good rate for peak power in California.
A new 1 MW facility was just completed in Arizona and a 64 MW facility broke ground last month in Nevada. A number of projects are expected in Spain and other sunny countries over the next few years.
CSP is very much alive and well with today's technologies. I welcome new and more efficient (and more cost-effective technologies), but it's important to be aware of what's already on the ground.
Jack Ellis 5.23.06
Mr. Hunt,
Regarding the number of wind turbines that are required, Mr. Reid has the math exactly right, but only if one assumes, somewhat unrealistically, that the output of each wind turbine is completely independent of the output of every other turbine. If they're all in the same wind regime, or if there is any reasonable correlation in the output of diverse wind regimes, you'd need more regimes and more turbines. I'd be happy with 99% reliability, which still requires 10 turbines, each in a different location, and each interconnected to the grid so that it's entire output can always be transmitted to where the output is required. There's no magic here - it's the same analytical formulation utilities have been using to determine reserve adequacy levels (loss-of-load probabiulity) for several decades.
Storing energy, whether it's water behind a dam, compressed air in a salt cavern, or some other method, is extremely costly. Hydro projects face many of the same vocal opponents as transmission lines, conventional gas-fired stations and nuclear plants. Compressed air storage simply replaces the compressor section of a gas-fired combustion turbine. It is more efficient, but it also uses natural gas. Moreover, the capital costs are significant.
I would agree with the notion of capping CO2 emissions and then letting the market decide. I would not take nuclear power off the table, though I might agree that subsidizing it to any greater degree than other technologies is foolhardy.
Anyone who thinks there's a magic bullet that will solve our energy conundrum is living in a fantasyland. Every technology that's been discussed in these forums has its strengths and weaknesses. Renewable resources are not as benign as renewable advocates might claim. Neither are modern coal-fired power plants with best-available pollution controls as bad as environmental advocates claim. Conservation will reduce the rate at which energy use is growing but it will not lead to decreases. As we saw during the Great Blackout of 2001, simply shutting down powerplants isn't possible either without bringing our economy to a screeching halt and causing an unimaginable health and safety crisis. By all means let's debate the merits, but let's also not let our imaginations run too wild.
Edward Reid, Jr. 5.23.06
Mr. Ellis,
My comment, prior to the one showing the calculations, specifies "geographically-dispersed" wind turbines. I should have been more explicit and stated that they must be in carefully selected and matched locations.
I am not comfortable with capping CO2 emissions. I remain unconvinced that it is necessary; and, that it would be sufficient, if it were necessary. Call me a "climate change agnostic".
Otherwise, three cheers.
Ferdinand E. Banks 5.23.06
Tam, if you come to Europe this year, perhaps you should stop by Finland. They are building what they say is the largest nuclear facility in the world - 1600 Mw. Frankly, I didn't think that they would do it, because there is plenty of gas on both sides of that country (in Norway and Russia), and their environmental (i.e. anti-nuclear) movement is fairly strong. What's the explanation then? According to the latest OECD statistics, Finnish schoolchildren are at the top - number 1 - in math, science, and reading. Assuming that some of this intelligence characterizes the rest of the population, I think it possible to conclude that the Finns are too smart to play games with their standard of living.
Don Giegler 5.23.06
Tam,
You obviously neglected to contact Craig Rose of the San Diego Union-Tribune to get the apples and oranges straightened out. SDG&E will not put its $154 million into SONGS steam generator replacement with the idea of shutting down the facility "in the not too distant future". Apparently, SDG&E recognizes what you do not, i.e., the "economic potential" of splitting or fusing nuclei to generate electricity. Remember, even UCAN's Michael Shames doubted the Stirling engine concentrating solar dish was worth the "sterling"!
Tam Hunt 5.23.06
Don, you're comparing apples to persimmons here. SDG&E is investing $154 million into SONGS, with PUC approval (as is required) b/c primary construction costs for SONGS have been paid off already. The 900 MW Stirling engine solar system SDG&E has also contracted for is a more speculative venture b/c no large scale Stirling systems have been built. This is a different technology than the SEGS plants by Barstow, which use trough technology (Stirling is dish with a Stirling engine). The Solargenix 64 MW Nevada facility is also a trough facility, as is the new 1 MW APS system in Arizona. Stirling systems have a lot of promise, but it will remain just promise until they get steel in the ground. Stirling steel?
Tam Hunt 5.23.06
Fred, I personally think Swedes are far more intelligent than Finns ;-) Accordingly, their collective decision in 1980 to phase out nuclear power plants represented the better wisdom, in m view.
Don Giegler 5.23.06
Now let's connect the dots, Tam. No bafflegab (apologies to John Sutherland) about LCOE or speculative ventures. At least you've recognized that SDG&E will make an investment, though you don't seem to know why. Apparently the ROI for new SONGS S/Gs is projected to be considerably higher than the ROI for a new NG-fired generating station or a new renewable power source. It would seem reasonable to read Rose's article before you discuss it.
Ferdinand E. Banks 5.24.06
Tam, one of the reasons why I am a great economics teacher - and I mean GREAT - is that I don't have any ideological hang-ups. This keeps me from believing (over a long period of time) the kind of statement you just made about the difference between the attitude of Swedes and Finns toward nuclear energy, which happens to be a complete departure from the truth. On the basis of the voting in the Finnish Parliament, Finnish legislators are much less positive toward nuclear energy than Swedish legislators; and in the latests polls, only 30% of Swedish voters indicated that they would support a nuclear retreat if there was another referendum. If politicians in this country understood elementary ecoomics, and were capable of telling the truth, it would be even less.
I repeat: although 2 of the 12 Swedish reactors are going out of service, as much energy is being produced today as when the 12 were in full operation. On economic grounds closing those two reactors is inexcusable, however the Social Democrats require the support of the environmental party, and so once again they have sold out the weakest members of the community. For instance, can you imagine what the billions of crowns that are being lost because because of this crazy decision to abandon nuclear would mean for welfare in this country - for instance health care.
Edward Reid, Jr. 5.24.06
Professor Banks,
As a great economics teacher, and an interested observer of the political scene, I am sure you have also concluded that many (most?) politicians appear to believe that the laws of physics and economics are subject to being amended, or repealed, should it suit their whim. No painful trail of failed experiments has yet been sufficient to convincingly demonstrate the error of their ways.
While the Swedish Social Democrats and the Environmental Party are singing "Kumbaya", the California "non-profit policy wonks", environmentalists and PUC are singing "The answer, my friends, is blowin' in the wind. The answer is blowin' in the wind."
The search for "the answer" reminds me of the account of the final conversation between Gertrude Stein and Alice B. Toklas at Stein's death bed. Toklas is reputed to have asked: "Gertrude, Gertrude, what is the answer?" Miss Stein replied: "What is the question?" Then she died.
Don Giegler 5.24.06
One would suppose that the CEC and CPUC holdovers that exacerbated the 2000-2001 CA electric energy crisis should have vanished with the likes of Gray Davis, Loretta Lynch and C. David Freeman. Apparently not. Both commissions persist in enlisting the services of folks like Tam Hunt, who, as another commentator pointed out, have not been and never will be held accountable for the questionable policies they advocate. It is hard to make Walpole's choice, think and laugh at the comedy or feel and cry over the tragedy.
Tam Hunt 5.25.06
Don, that's a good one. First, it's acknowledged by most parties that energy efficiency and demand response programs (largely suspended during the ramp up to deregulation) would have in fact saved our collective behind in California if they had been available like they are today. Second, it's clear that dirty traders had a very large role in what happened in California - as evidenced by the billions of dollars companies have already settled for in Attorney General initiated lawsuits. Last, the CEC and CPUC do not "enlist" the likes of me or my organization - we step up to the plate as intervenors, which is a nice feature of our regulatory process in California. I suppose you'd be more happy with just utility lawyers involved in such proceedings? Who are they accountable to? I'll answer my own question: they're accountable to no one but their shareholders, which most definitely is not the public at large.
Edward Reid, Jr. 5.25.06
Tam,
Precisely what did CA "deregulate"? I know that they restructured and re-regulated several aspects of the CA energy industry. The revised regulatory structure supported a near perfect storm, created by a toxic combination of stupidity and cupidity. The PX which didn't realize that the utilities were "gaming" the next day market and the ISO which didn't know whether the congestion on its system was real fit into the former category. Their failures permitted the cupidity of the "dirty traders", who jumped at the opportunity.
A real demand/supply imbalance was the fundamental cause of "what happened in CA". The imbalance was the result of several factors, including: the realization that a portion of the hydro resource which serves CA was not "reliable", but rather "source of opportunity"; the slim capacity reserve margin which resulted from years of environmental resistance to power plant construction; and, environmental restrictions which limited the operation of generation resources which could have alleviated at least a portion of the power shortage.
The biggest factor in the number and nature of the comments above is the realization that CA has learned little or nothing from its experiences; and, appears both willing and anxious to "try it again". Good luck!
Don Giegler 5.26.06
Right on, Edward! It doesn't look like our friendly intervenor's "...1975 to 2001, California’s energy efficiency efforts eliminated the need to build more than 10,000 megawatts (MW) of generation capacity, equivalent to ten large nuclear plants, or 20 large natural gas plants... " was enough to save "...our collective behind in California...". Possibly that's because they were "...largely suspended during the ramp up to deregulation...". What's this fellow been smoking? As I recall, though the memory is aging, the forced outage of a unit at SONGS and planned outage of a unit at DCNPP during the crisis helped magnify the folly of the policy our wonk is pushing. Running those peakers and what not to make up for loss of base load got a little pricey. As for cupidity, does anyone remember what amount Los Angeles Department of Water & Power, under the tutelage of S. David Freeman, sold a MW-hr into the market for during the crisis? The IOUs, who were in commission-applied handcuffs vis-a-vis long term retail contracts during the crisis, might have mitigated festivities. However, their lawyers, so roundly distrusted by our collectivist intervenor, were too busy defending themselves against price-gouging charges to deal with Ms. Lynch. The same lady was busy publicly stating that the handcuffs had been applied to prevent those irresponsible IOUs from entering into long term contracts for "expensive" nuclear generated electicity. Guess we don't fit into the category of "most parties". Do we laugh or cry?
Edward Reid, Jr. 5.26.06
Don,
I can laugh; I don't live in CA. I don't know where you live.
Real markets establish themselves; and, adjust themselves continuously to changes in the environment in which they function. "Managed" markets are established by those who believe (or wish?) that they are smarter than a market which evolves from the free interactions of willing buyers and willing sellers. The principal requirement of a "market manager" is that the manager be smarter than the combined pool of buyers and sellers of the market's products and/or services. I would award CA's energy "market managers" a grade of "F" for their management of the re-regulated energy market.
Antoine de Saint Exupery said: "A goal without a plan is just a wish." I would add that a goal with a poor plan is a crisis waiting to happen, particularly in the CA energy market. Unfortunately, crises affecting large samples cause widespread hardship and cost big money. Tam apparently believes that the IOUs in CA were irresponsible and required "management"; however, they sure became responsible rapidly when the feces hit the air moving device.
Ferdinand E. Banks 5.27.06
Edward, I'm curious. Did the attempt at deregulation in California - which I call deregulation, but many people have decided to call something else - evolve from the desires and free interactions of willing buyers and sellers, or from the good citizens and legislators of that state being confronted with a torrent of lies and misunderstandings - as happened with Sweden and the EU. I don't know what Josef Goebbels would have said about this, but I know what he might have said: the bigger the lie, the harder people will work to believe it.
Edward Reid, Jr. 5.27.06
Professor Banks,
The original electric energy markets in the US did, in fact, "evolve from the desires and free interactions of willing buyers and sellers". However, somewhere along the way, some "visionary" saw a "natural monopoly" which required government regulation. That "natural monopoly" was viewed as encompassing all aspects of the electric energy business. However, there were and are elements of that "natural monopoly" which are not intrinsically monopolies. Perhaps one of the most poignant examples is generation, particularly renewable generation. There is no "natural monopoly" on solar PV or wind turbines, nor should there be. CHP systems are also not intrinsically monopolistic. Technology has a "bad habit" of changing the competitive landscape, if the landscape will permit competition.
I was not in the middle of the CA "deregulation" discussions, nor the discussions in Sweden and the EU, so I cannot comment regarding the "big lie". What should be obvious, in hindsight and at some distance from the "fiasco", is that what CA did was akin to "putting lipstick on a pig". There is not enough beer in the world to "drink it pretty", in my opinion.
You and others may certainly call what CA did "deregulation". However, renewable portfolio standards, must serve regulations, price caps, prohibition of long term contracts, mandatory daily bidding, etc. are hardly the intrinsic characteristics of an unregulated market, nor did they "evolve from the desires and free interactions of willing buyers and sellers". Restructuring has been an attempt to introduce competition into those aspects of the energy industry which are not intrinsic monopolies. It has been done more effectively and far less painfully in locations other than CA. I am becoming concerned that being a little bit deregulated is very much like being a little bit pregnant - it is an unsustainable condition.
Ferdinand E. Banks 5.29.06
Edward, I plan to continue calling what they did in California deregulation, because that's what they thought they were doing. The problem is that what they did - on the advice of some of the best academic microeconomists in that state. - just didn't work out, nor could it work out in the real OR the textbook world.
Needless to say, I see that industry as a natural monopoly or strong oligopoly, and if I remember correctly one of the reasons the deregulation booster club said that this was untrue included the claim that there were no longer any increasing returns to scale to generation. (Amazingly enough, it was possible to get important people to believe this nonsense). Let me also note that to my way of thinking solar PV and wind are still marginal options that do not belong in this discussion. Here again I can refer to the Swedish 'experiment', where the 5 or 6 largest electric firms became 3, and if the country had been smaller it would have been 1 or 2.
When I lectured in Hong Kong, just before the California meltdown, I got EVERYTHING right, to include the destiny of Enron's big-wigs. But this isn't the reason that I have my 'attitude' about deregulation. Deregulation/restructuring/liberalisation has failed all over the place, more failures and probably on the way, and moreover in each state or country they seem to fail in different ways. Of course, these failures have one common denominator: an absence of physical investment, which makes all the sense in the world from the point of view of economic theory.
Tam Hunt 5.30.06
Don, I should have been more clear: CA did indeed add many MW of energy efficiency improvements since 1975 - about 15% of the total capacity today. However, the type of EE that was not emphasized at the time of the energy 'crisis' was demand response programs, which allow utilities to shut down some customers' power demand - as long as the customer has signed up in advance for the program. This allows peak demand to be managed much more flexibly. These programs have been revitalized since the 'crisis,' as have other EE programs. For example, the PUC approved last year $2 billion in new funding for the current 2006-2008 EE cycle, which will yield $5 billion in savings to all IOU customers in CA.
