Archive for the ‘Energy’ Category.

Why Do I Think This Penalty Would Have Been Waived on GE or Dreamworks?

Politicians certainly live in their own world:

The Environmental Protection Agency has slapped a $6.8 million penalty on oil refiners for not blending cellulosic ethanol into gasoline, jet fuel and other products. These dastardly petroleum mongers are being so intransigent because cellulosic ethanol does not exist. It remains a fantasy fuel. The EPA might as well mandate that Exxon hire Leprechauns.

As a screen shot of EPA’s renewable fuels website confirms, so far this year - just as in 2011 - the supply of cellulosic biofuel in gallons totals zero.

“EPA’s decision is arbitrary and capricious. We fail to understand how EPA can maintain a requirement to purchase a type of fuel that simply doesn’t exist,” stated Charles Drevna, president of American Fuel & Petrochemical Manufacturers (AFPM), the Washington-based trade association that represents the oil refining and petrochemicals industries.

I will remind Republicans thought that ethanol is a bipartisan turd, this particular requirement having been signed into law by President Bush.

Cap and Trade and the Corporate State

For years, one of the problems I have had with the way CO2 cap and trade systems were structured was a fear that these systems would devolve into cronyism, with the companies best able to lobby the government getting allocations while less connected companies had to pay.  It seems this is already occuring in California:

 The California Air Resources Board (ARB), the regulator of the forthcoming program, held a workshop in Sacramento on Monday where it discussed plans to give away more free permits to prevent leakage in “trade-exposed” industries like cement production, oil refining and food processing.

Over the first three allowance auctions, which begin in November, the state will sell 48.9 million allowances and give away 53.8 million allowances, according to ARB.

Any company deemed to have either a high, medium or low risk of leaving the state will receive all the allowances they need to comply with the program during the first two-year compliance period, from 2013-2014, rather than have to buy the permits at regular auctions.

But those in the low and medium risk groups are currently scheduled to see their allotment of free allowances start to decline in 2015 by as much as half.

ARB officials on Monday said they are conducting studies examining the leakage risk of companies based on their historical energy costs and trade flows.

Don't be fooled by the quasi-scientific-sounding language here about categories of "trade exposure."  The reality will be that companies with political clout will get the permits, and companies without such clout will not.  This is a system that will favor large manufacturers over smaller companies.  It will also, oddly, apparently shift the burden of compliance from large manufacturers to service companies  (since service companies are the least likely to be "trade exposed.")  Of course, any manufacturer still operating plants in California is crazy anyway.

My Favorite Line of the Day

In a report from the DOE Inspector General, which said that $500,000 of equipment bought with stimulus money was missing at a battery company:

 “It would not be appropriate to release the name of stimulus-money recipient where the $500,000 worth of equipment could not be located.”

But it is A-OK to excoriate by name any number of corporations that create value legally if doing so advances this Administration's re-election prospects.

Great Moments in Government Energy Policy Failure

So, why do we have all these "dirty" coal plants?  Market failure?  Industry greed?  Nope -- Carter-era government policy.  For you younger folks, here is a law you may have never heard of:

The Powerplant and Industrial Fuel Use Act (FUA) was passed in 1978 in response to concerns over national energy security. The 1973 oil crisis and the natural gas curtailments of the mid 1970s contributed to concerns about U.S. supplies of oil and natural gas. The FUA restricted construction of power plants using oil or natural gas as a primary fuel and encouraged the use of coal, nuclear energy and other alternative fuels. It also restricted the industrial use of oil and natural gas in large boilers.**

In other words, all new fossil fuel-powered boilers had to be coal-fired (which in a year or so, after Three Mile Island, translated to all new boilers since nuclear was essentially eliminated as an option).  Yes, this may seem odd to us in an era of so much environmental concern over coal, but something coal opponents don't tell you is that many of the exact same left-liberal-government-top-down-energy-policy types that oppose coal today lobbied hard for the above law several decades ago.  Here is a simplified timeline:

1.  Government energy policy sets price controls that create artificial shortages of oil and gas

2.  Government-created shortages of oil and gas lead to this law, with government demanding that all new fossil fuel-powered electric plants and boilers be coal powered.

3.  Government mandates on coal use create environmental concerns, which lead to proposals for taxes and bans on coal power.

4.  The need for government action against coal is obviated by a resurgence of oil and gas supply once government controls were removed.  However, in response, government beings to consider strong controls on expansion in oil and gas production (e.g. fracking limits).

 

** I got involved with this because I worked in an oil refinery in the 1980's.  We had to get special exemptions to run our new boilers on various petroleum products (basically byproducts and waste products of the refining process).  Without these, the law would have required we bring in coal to run our oil refinery furnaces.

 

Obama as Venture Capitalist

John Stossel has a great link-filled round up of failed and failing solar and green energy programs funded by the Obama Administration with our money.  Check out the extensive list.

Here, for laughs, is Ray Lane of Kleiner Perkins rhapsodizing about Obama as the greatest government venture capitalist ever, and using for his prime example ... Solyndra!

I suppose at one point Kleiner Perkins used to take private risks with private money, but it seems to have found out it can make higher returns leveraging its investments with taxpayer money, and then using political influence to mandate business for the companies in which it invests. Thus the hiring of Al Gore, among other moves, to the KP board. Lane, by the way, is Chairman of serial government trough-feeder Fisker automotive, which make admittedly very cool-looking cars that require a lot of taxpayer subsidies.

Certainly Mr. Lane knows something about marketing, including that age-old tactic the "bait and switch."  The taxpayer subsidies of Fisker were made on the theory that electric cars were somehow greener than gasoline cars because they use less energy.  But looking at the fuel at the power plant it takes to make the electricity that goes into a Fisker Karma, the car gets worse gas mileage than an SUV  (only an EPA equivalent MPG standard that breaks the second law of thermodynamics hides this fact).  Congratulations Mr. Lane, green subsidies for sub-SUV gas mileage.  All those checks KP partners wrote to Obama in the last election certainly got a good return.

Cost of Green

From Zero Hedge:

Why should we worry about 5c or 10c on a gallon of fuel down the local gas station when the US Navy (in all her glory) is willing to pay a staggering $26-a-gallon for 'green' synthetic biofuel(made we assume from the very same unicorn tears and leprechaun nipples that funded the ESM). AsReuters reports, the 'Great Green Fleet' will be the first carrier strike group powered largely by alternative fuels; as the Pentagon hopes it can prove the Navy looks just as impressive burning fuel squeezed from seeds, algae, and chicken fat (we did not make this up). The story gets better as it appears back in 2009, the Navy paid Solazyme (whose strategic advisors included TJ Gaulthier who served on Obama's White House Transition team) $8.5mm for 20,055 gallons on algae-based biofuel - a snip at just $424-a-gallon.

In its defense, the Navy Secretary said, ""Of course it costs more.  It's a new technology. If we didn't pay a little bit more for new technologies, we'd still be using typewriters instead of computers."  Of course, the switch from typewriters to computers proceeded without government mandates (or taxes, as they are called now) and in fact was led by the private sector -- the government trailed in this transition.  Further, people paid the extra money for a computer because they found real value in it (document storage, easy editing, font flexibility).  What real value is the Navy getting for the extra $22 a gallon?  How much better will this task force perform?  The answer, of course, is zero.

Electric Vehicle Mileage Fraud

I am glad to see that other sites with more influence than I are focusing attention on the electric vehicle mileage fraud.   The Green Explored site writes, via Q&O:

The EPA allows plug in vehicle makers to claim an equivalent miles per gallon (MPG) based on the electricity powering the cars motors being 100% efficient. This implies the electric power is generated at the power station with 100% efficiency, is transmitted and distributed through thousands of miles of lines without any loss, is converted from AC to DC without any loss, and the charge discharge efficiency of the batteries on the vehicle is also 100%. Of course the second law of thermodynamics tells us all of these claims are poppycock and that losses of real energy will occur in each step of the supply chain of getting power to the wheels of a vehicle powered with an electric motor.

Finally!  For months I have been writing about this and have started to believe I was crazy.   I have written two Forbes pieces on it (here and here) and numerous blog posts, but have failed to get much traction on it, despite what appears to be near-fraudulent science.  I wrote

the government wants an equivilent MPG standard for electric cars that goes back to the power plant to estimate that amount of fossil fuels must be burned to create the electricity that fills the batteries of an electric car.  The EPA’s methodology is flawed because it assumes perfect conversion of the potential energy in fossil fuels to electricity, an assumption that violates the second law of thermodynamics.   The Department of Energy has a better methodology that computes electric vehicle equivalent mileage based on real world power plant efficiencies and fuel mixes, while also taking into account energy used for refining gasoline for traditional cars.  Using this better DOE methodology, we get MPGe’s for electric cars that are barely 1/3 of the EPA figures.

The linked articles provide much more detail on the calculations.  As a result, when the correct methodology is applied, even in all-electric mode the heavily subsidized Fisker Karma gets just 19 MPG-equivalent.

Do you want to know the biggest energy advantage of electric cars?  When you fill them with energy, you don't stand there at the pump watching the cost-meter spin, as you do in a gas station.   It's not that the energy cost is lower, it's just better hidden (which is why I suggested the Fisker Karma be renamed the Fisker Bastiat, after the French economist who wrote so eloquently about the seen and unseen in economic analysis).  It's why, to my knowledge, no electric car maker has ever put any sort of meter on its charging cables.

Engineering Intuition and The Media

I don't really want to ridicule Kevin Drum here for thinking out loud.  I really hate partisan Conservative and Liberal team-politics blogs, but I read a few to stay out of the echo chamber, and Drum is smarter and incrementally more objective (a relative thing) than most.

But this is really terrible, awful engineering intuition:

These two things together reminded me about an energy factoid that's always struck me as slightly odd: virtually every form of energy seems to be almost as efficient as burning oil, but not quite.

For example, on either a power/weight basis or a cost basis, batteries are maybe 2x or 3x bigger and less efficient than an internal combustion engine. Not 50x or 100x. Just barely less efficient. And you see the same thing in electricity generation. Depending on how you do the accounting, nuclear power is maybe about as efficient as an oil-fired plant, or maybe 2x or 3x less efficient. Ditto for solar. And for wind. And geothermal. And tidal power.

I'm just noodling vaguely here. Maybe there's an obvious thermodynamic explanation that I'm missing. It's just that I wouldn't be surprised if there were lots of ways of generating energy that were all over the map efficiency-wise. But why are there lots of ways of generating energy that are all surprisingly similar efficiency-wise? In the great scheme of things, a difference of 2x or 3x is practically invisible.

First, we have to translate a bit.  He mentions power to weight ratios for batteries in the second paragraph.  In fact, batteries have terrible power (actually energy storage) to weight ratios vs. fossil fuels, much worse than 2-3x for energy storage per unit of weight or volume.  That is why gasoline is still the transportation energy source of choice, because very few things short of plutonium have so much potential energy locked up in so little volume.  But I will assume he is comparing an entire electric drive system compared to a gasoline drive system (including not just energy storage but the drive itself) and in this case the power to weight ratios are indeed closer.

But here is the problem:  in engineering, a 2-3x difference in most anything -- strength, energy efficiency, whatever -- is a really big deal.  It's the difference between 15 and 45 MPG.   Perhaps this is Moore's Law corrupting our intuition.  We see electronic equipment becoming twice as powerful every 18 months, and we start to assume that 2x is not that much of a difference.

But this is why Moore's Law is so much discussed, because of its very uniqueness.  In most fields, engineers tinker for decades for incremental improvements, sometimes in the single digit percentages.

The fact that alternative energy supporters feel like their preferred technologies are just so close, meaning they are only 2x-3x less efficient than current technologies, explains a lot about why we skeptics of these technologies have a hard time getting through to them.

The Two Reasons Why People Buy Electric Cars

1.  They want to say something about themselves.  This is the Leonardo DiCaprio buyer, using the electric car to pronounce that he cares about his carbon footprint.  And it looks great parked next to his Gulfstream V.

2.  There is no meter on the electric line you plug into the car.  When you fill your car up with gas, you get to stand there watching the spinning money dial.  There is no parallel experience for plugging in an electric car.  The costs and fossil fuel use of an electric car are not necessarily less than the same size (e.g. subcompact) gasoline-engine car, they are just better hidden.

Owners of electric cars are not smarter about managing the energy costs of their driving, they are substantially more ignorant.  I know exactly how many dollars of gas I have put in my car this month.  How many electric car owners have the first idea how many dollars of electricity they put in theirs?

Some Potential Good News on Solar

This is terrific, if true.  My fear, of course, is they are getting subsidized through a back door somewhere, but if they really think they can make subsidy-free solar work financially, that's awesome:

Two German solar energy developers are planning to build photovoltaic plants in southern Spain that will earn a return without government subsidies.

Wuerth Solar GmbH & Co. intends to build a 287-megawatt plant in the Murcia area for 277 million euros ($363 million), according to the regional authority. Gehrlicher Solar AG said it plans to develop a 250-megawatt solar park in the Extremadura region for about 250 million euros.

The projects, about three times larger than any European solar plant, may be the first that don’t rely on feed-in tariffs and compete with wholesale power prices. All plants in the region so far depend on fixed premium rates for solar power, which can be several times higher than wholesale prices.

Spain suspended the tariffs on Jan. 27 as part of government austerity measures, threatening the survival of the industry. Tariffs for large-scale solar were set at 121 euros per megawatt-hour. Developers now look to build plants without this support, helped by falling equipment prices.

U. of Rochester Solar Table -- 3,846 Years To Break-even

Professor Rizzo was keen that I check out the $12,000 solar picnic table at University of Rochester

Most kids use this to hook up their laptops.   Here are a few assumptions

  • 3 hours of use per day (heroic, I am pretty sure it is less than this)
  • 65 watt draw from one laptop
  • 160 days with sun (Rochester is apparently in the top 10 US cities for number of heavy cloud days)
  • 10 cents per kw-hour

This means the table would produce 31,200 W-hr per year or 31.2 KW-hr per year.  This yields an annual electricity savings of $3.12, giving the table a payback time on its investment of 3,846 years.  If one assumes a cost of capital anywhere north of 0.026% per year, then the sun will go dark before this table pays itself off.

Another One Bites the Dust

Another solar company which received $2.1 billion in loan guarantees from the Obama Administration has gone bankrupt.  The good news is that it has not spent much of that taxpayer money, and its bankruptcy is probably due more to the bankruptcy of its German parent, which in turn is likely related to the huge cuts Germany has made in its feed-in tariff subsidies.

The big asset possessed by Solar Trust is the Blythe solar project, a planned 1000MW facility that apparently has all of its permitting in place.  The Blythe facility was originally going to be a solar-thermal facility, with adjustable mirrors focusing the sun on a central boiler that would in turn power turbines.   This plan was scrapped last year in favor of a more traditional PV technology, and I know local company First Solar has been hoping to save itself by getting the panel deal (First Solar also has been hammered by the loss of German subsidies).

If we take the cost of this planned 1000MW facility as the stated $2.8 billion (of which 2.1 billion would be guaranteed by US taxpayers), we see the basic problem with solar.   A new 1000MW  natural gas powered electric plant costs no more than about $1 billion.  It produces electricity 24 hours a day.  This solar plant, to be the largest in the world, would produce 1000 MW for only a few hours of the day.  That area of desert gets about 7 peak sun hours per day (the best in the country) so that on a 24 hour basis it only produces 292 MW average.  This gives it a total capital cost per 1000 MW of $9.6 billion, making it approximately 10 times costlier than the natural gas plant to build.  Of course, the solar plant has no fuel costs over time, but solar is never able to close the gap over time, particularly with current very low natural gas prices.

Update:  Apparently the $2.8 billion was just for the initial 484 MW so you can double all the solar costs in the analysis above, making the plant about 20x costlier than a natural gas plant.

First Solar Update

A few years ago I was asked to give a presentation in front of a group of Phoenix business leaders on climate and alternative energy.  I can't remember what particular group it was, but it was some public-private group that was heavily invested in advocating for local subsidies to promote strategic businesses - the sort of local MITI that most large cities have, that has this delusion that they can ramp up the city's growth by focusing public and private investment into a few selected industries (that they select, of course).

I told them that I thought their focus on solar manufacturing was dumb.  First, the whole idea that because Arizona is a good solar market meant that it should have some advantage in solar manufacturing made absolutely no sense.  This only makes sense for products with high transportation costs or a particular input cost that can be gotten more cheaply in one particular area (the location of aluminum manufacturing near cheap electricity in the Northwest comes to mind).  By the same logic all car manufacturers would be located in LA.

Second, I said that the whole solar business was completely driven by subsidies.  If the subsidies were to go away, the heart of the business would go away faster than pets.com.  I specifically mentioned First Solar in a positive context here, saying that though they where wholly dependent on subsidies for their revenues, they at least acknowledged as a corporate strategy they needed to get costs low enough to compete without subsidies.  (Someday, solar will get to that point, I hope, but I am skeptical that current approaches will yield the breakthrough, but that is another discussion).

If you want to understand the financial problems First Solar is having, let me show you four items.

First, from their 2010 annual report:

Geographic Risk. Our solar modules are presently predominantly sold to our customers for use in solar power systems concentrated in a single geographic region, Germany. This concentration of our sales in one geographic region exposes us to local economic risks and local public policy and regulatory risk in German.

This is way back in the notes on page 133.  By the way, I took a whole course in business school on reading financial reports.  Here is the key lesson for those not in the financial industry:  read them from the back.  Skip all the glossy crap at the front, go straight to the notes.

OK, here is the second bit of information.  Here is a world map of solar insolation, which is essentially the total solar energy available to produce power in a location when adjusted for atmosphere, weather, latitude, etc.

See Germany?  I won't insult your geographic knowledge by pointing at it, but much of Germany is in that yellow-green color which, for solar potential, means (in scientific terms) "it sucks."  Let's zoom in, and compare it to the US to get a feel for it (combined from two charts here)

Apparently the better sites in Germany have the same solar potential as ... Seattle!  The sliver of absolute best sites in Germany have approximately the same solar potential as Buffalo, NY.

So we have a company whose fortunes are dedicated almost entirely to selling solar panels into one of the most unpromising solar sites in the world.   Why is Germany buying so much solar?

OK, here is the third bit of information.  For years Germany had enormous feed-in tariffs (mandated above-market minimum prices)  for solar electricity:

The German feed-in tariff scheme has been in operation since 1991 and is regarded as one of the most successful in the world. In Germany, feed-in tariff rates are differentiated according to the source of the renewable energy. Separate tariffs are determined for biogas, biomass, hydroelectric, geothermal, solar and wind energy sources. The tariff paid for solar generators varies between EUR 45.7c/kWh and EUR 57.4c/kWh, depending on the capacity of the system and other design features. The tariff is greater for generators that are attached to the roof of a building or structure and greater again for generators that are attached to another part of a building. In Germany, the feed-in tariff is paid for a period of 20 years

Note the language from several years ago where "most successful" is determined without references to costs.

0.574 Euros per kWh is equal to about $0.75 today and even more several years ago when exchange rates were higher.  Remember this is a wholesale price, and should be compared to a $0.04 to $0.06 wholesale electricity price in the US  (I use US numbers to as its not clear to me Europe has a particularly competitive wholesale market.  The French have some sort of fixed price system set around $0.06).

However one wants to look at it, these are enormous subsidies.  People putting up solar panels in Germany were getting paid 10-15x what a market price for the same electricity might have been.

Finally, here is the fourth piece of evidence leading to First Solar's woes.  In 2010 and 2011 Germany, whose consumers began to balk at paying the highest electricity rates in the world in order to subsidize the method of electrical generation least suitable to Germany, began substantially cutting these tariffs.  In 2012 they will cut them even further:

German Environment Minister Norbert Roettgen and Economy Minister Philipp Roesler are set to hold a press conference on Thursday to outline the government's new approach on subsidies. However, the indications are that the cuts will be heavier than the market has been expecting:

  • a 30% cut in the feed-in-tariff (FIT) to 13.5 cents per kilowatt hour for new large solar installations
  • and a 20% cut in the FIT to 19.5 cents for new small plants

The market has of course been expecting cuts in the German FIT system. However, this news is decidedly worse than expected and likely to continue to pressure solar stocks - particularly those such as Yingli (YGE) with a significant exposure to German solar demand.

From a peak of $0.75 per kWh, Germany will now pay $0.255 per kWh for smaller installations, still four times the market price for wholesale electricity but only a third of what they paid during First Solar's boom years.  As I wrote yesterday, Germany was essentially paying $2 for milk from brown cows and $25 for milk from black cows.  This can't be sustained.

If one assumes a wholesale electricity price of 6 cents, First Solar's German customers were getting a 92% subsidy.  Sure, First Solar now faces other problems like Chinese competition and they have shot themselves in the foot on quality, but at the end of the day the only way they can survive is to convince some other government to turn on the taxpayer money spigot to keep them in business.  I am hoping we in Arizona and the US will not be the suckers, but I fear that we will.  One can argue the projects I discussed the other day, including the one where we taxpayers loaned First Solar the money to sell its solar panels to its own subsidiary, are evidence of this.  My guess is that First Solar will be throwing a lot of money and time towards Obama, praying for his re-election.

The Article I Would Write, If I Didn't Have A Day Job

Update:  I found a bit more time to give some more background on First Solar and German feed in tariffs here.

If I had the time, I would love to try to research and list every subsidy recieved by a company like First Solar.  Here are just a few:

First Solar is an Arizona-based manufacturer of solar panels. In 2010, the Obama administration awarded the company $16.3 million to expand its factory in Ohio -- a subsidy Democratic Gov. Ted Strickland touted in his failed re-election bid that year.

Five weeks before the 2010 election, Strickland announced more than a million dollars in job training grants to First Solar. The Ohio Department of Development also lent First Solar $5 million, and the state's Air Quality Development Authority gave the company an additional $10 million loan.

After First Solar pocketed this $17.3 million in government grants and $15 million in government loans, Ex-Im entered the scene.

In September 2011, Ex-Im approved $455.7 million in loan guarantees to subsidize the sale of solar panels to two solar farms in Canada. That means if the solar farm ever defaults, the taxpayers pick up the tab, ensuring First Solar gets paid.

But the buyer, in this case, was First Solar.

A small corporation called St. Clair Solar owned the solar farm and was the Canadian company buying First Solar's panels. But St. Clair Solar was a wholly owned subsidiary of First Solar. So, basically, First Solar was shipping its own solar panels from Ohio to a solar farm it owned in Canada, and the U.S. taxpayers were subsidizing this "export."

But this is just a few of them, even on this deal.  For example, the Canadian solar farm very likely picked up federal and provincial subsidies from Canada, and even more likely gets some kind of subsidized feed-in tariff (meaning that an above-market wholesale rate is paid for its electricity).  This sort of feed-in tariff, which is paid by electricity consumers, is wholly un-transparent and likely makes up the large bulk of solar subsidies.   I know the state of Arizona threw a lot of money at First Solar as well (which is headquartered in the Phoenix area.)

During First Solar's boom years, the company was mainly supported by sales to Germany, probably one of the worst solar sites in the world after perhaps Seattle.  But the German government mandated feed-in tariffs for solar that were five times (or more) the market price for electricity.  It was like saying that, while milk generally goes for $2 a gallon, the government mandated that milk from  brown cows could be sold for $10 a gallon, and what's more, consumers had to buy it.

The House Your Tax Money Built

An Open Letter

Dear America,

Have fun resetting all those clocks this weekend.  Sorry about the hour you lose.

Love, Arizona

 

PS-  we have to have something to make up for Sheriff Joe, and not farting with DST eases the pain a bit.  See my article here about why DST is an outdated concept that no longer saves energy -- it turns out that the nature of electricity demand has changed over the last 100 years since DST was first tried.  Who would have thought?  Anyway, this research essentially demonstrates that Arizona is at the forefront of modern, science-based environmentalism.

Am I Missing Something?

Maybe I am missing something, but "friction-reduced" tires seem to be going in the wrong direction.   Hopefully friction-reduced brake pads or inflation-reduced airbags are not next.

State of the Union: Apparently, Hugh Hefner is Responsible for Abstinence

My column for this week is up at Forbes, and inevitably, deals with the State of the Union address last night.

But the portion that really floored me was Obama’s taking credit for the increase in US oil and gas production over the last several years.  It is certainly true that, against all predictions of peak oil, new technologies have helped drive a surge in US hydrocarbon production.  Combined with a recession-driven drop in demand, America’s oil imports as a percentage of its total use has dropped to 45.6%, the lowest level in over 15 years.

This surge in energy production is a fabulous reminder of how markets work.  For years I have written that the peak oil folks were missing something fundamental by performing an overly static analysis.  They looked at current “proven” reserves of oil and gas and projected forward how many years it would take for these to run out.  But oil and gas reserve numbers only make sense in the context of a particular set of technologies and pricing levels.  As hydrocarbons run short, rising prices tend to spur both innovation and new, more expensive exploration activity.  Oil and gas companies are once again proving Julian Simon’s addage that the only true scarcity is human brain power, and they should be given a lot of credit for the recent production boom.

The one person who deserves no credit for this boom is Barack Obama....

Read it all.

Sense of Scale -- Keystone XL vs. Wind

One thing that many green energy advocates fail to understand is the very scale of US energy demand in relation to the output of various green sources.

Let's consider wind.

The Keystone XL pipeline would have provided 900,000 barrels of oil per day, roughly equivalent to 1.53 billion kw-hr per day.  A typical wind turbine is 2MW nameplate capacity, but at best actually produces about 30% of this on average.  This means that in a day it produces 2,000*.3*24 = 14,400 kw-hr of electricity.  This means that the Keystone XL pipeline would have transported an amount of energy to the US equal to the output of 106,250 of those big utility-size wind turbines.

Looked at another way, the entire annual output of the US wind energy sector was about 75 terra-watt-hours per year or about 260 million kw-hr per day.  This means that the Keystone XL pipeline would have carried energy equal to over 5 times the total output of wind power in the US.

Of course, this is just based on the potential energy in the fuel, and actual electricity production would be 50-65% less.  But even so, this one single pipeline, out of many, is several times larger than the entire wind power sector.

Keystone XL: Voting for the Stone Age

(update: link is fixed)  My new Forbes column is up, and it attempts to strip away the window dressing around the Keystone pipeline decision to get at the core issue -- "a quasi-irrational ('I'm blogging against the modern economy from my iPhone'), almost aesthetic distaste for energy production, the modern industrial economy, and capitalism itself. "  Read it all here.

PS-  the contrast between the Administrations support of the egregious HSR project in CA and its rejection of the takes-no-tax-dollars Keystone XL infrastructure project reminds me of my earlier piece on the Timeless Appeal of Triumphalism.   Politicians love to shift capital from private, boring, productive things like pipelines to sexy taxpayer-funded things that they can put their names on.

Dispatches From the Corporate State: Apparently, Taxpayers Don't Give Enough Money to Solar Companies

Well, it appears that Solyndra has not scared solar companies off from feeding at the state trough

More subsidies for the solar industry in Arizona are crucial to avoid being left behind by other states and China, a Phoenix business leader said today at a solar-power conference.

Tax incentives and loan guarantees "make a lot of sense" right now in Arizona, which is already a leader in the industry, said Barry Broome, president and CEO of theGreater Phoenix Economic Council at the Solarpraxisconvention.

Despite the high-profile financial failure of the Solyndrasolar plant this year in California, Broome told a packed conference room that solar power is destined to be a major force in Arizona and elsewhere. The only question, as he sees it, is whether sunny-skied Arizona will take full advantage....

Behind Broome on an overhead screen, a chart showed that Texas, Oregon, Nevada and other states provide more "aggressive economic development tools," (a.k.a. public money), for solar power than Arizona, and the state can't compete without doing the same thing.

What is this, a football game?  This strikes me as turn-of-the-century small town boosterism updated to the 21st century, with a dollop of tribal rivalry thrown in. He's talking mainly about manufacturing of solar components.  I am left with a couple of questions

  • Why should the fact that Arizona has sunny skies have any bearing on whether or not it is an appropriate spot to manufacture solar panels.   Should Seattle subsidize umbrella manufacture because it is rainy there?   My sense is that transportation costs are a small part of the price to end users.  Arizona clearly will be a great spot for solar panels to be installed -- why does that mean we need to manufacture them?
  • If other states like Oregon or China are subsidizing solar products that we might buy, shouldn't we celebrate that?  Thanks, taxpayers of Oregon, for forking over your tax money so we can buy solar panels cheaper in Arizona.  Why in the hell should be try to out-do them at this?  Now we can go invest our capital in a business that actually makes money.
  • I am obviously not a fan of government-led economic/industrial policy, but if I were, why in the hell would I want to direct my state's capital and manpower towards a business that requires subsidies, ie can't make a profit  on its own in the marketplace?

Its just too easy to snipe at about everything in this article, but this caught my eye in particular

To help move the industry's message, Broome said, solar advocates must stop infighting over their competing technologies and present a unified and positive position.

Normally, I think an economist would argue that in an immature (both market-wise and technologically) product, competition and creative destruction between various competitors is critical to ultimate success.  So in fact this advice is totally senseless, unless you see the industry as a taxpayer-money-magnet rather than a real business, and then it makes perfect sense.  Politics, after all, demands simple sound bytes and a unified front.

Update:  In the first week of Harvard Business School, I learned a lesson from strategy class, in a series of two cases, that still may be the most important thing I learned there.  The cases were a hot, sexy electronics company, and a boring, dull as dirt water meter company.  To cut to the chase, the electronics company sucked as an investment, and the water meter company was a gold mine.  The moral, among several takeaways, is don't get fooled into thinking the hot, sexy business of the moment is necessarily a good investment.  Our development agencies in AZ are making this mistake in spades.  In fact, the entire history of government economic development efforts in Phoenix has been to chase sexy businesses at the top of the market, spend taxpayer money to get some plant relocations, and then see the businesses struggle.  We certainly did this with semiconductor fabs a couple of decades ago.

My Questions for Chu

1.  Accepting for a moment that the purpose of the loan program under which Solyndra received its money was truly reduction of CO2 output and fossil fuel use, what is the metric the DOE uses to score these investments against these goals (e.g. tons of CO2 output avoided over the next 10 years per dollar of government investment).

2.  How did Solyndra and other companies that were accepted for the program score on your metric?  How did companies that were turned down score?

Of course there was no such analysis -- the government appears to have invested in whatever companies raised the most money for Obama or got Joe Biden's heart palpitating or both.  Even if one pulls the obvious politics out of it, it appears they invested in stories they found appealing, the same mistake many novice investors make.

The Left works hard to wrap itself in the mantle of science, and Republicans just let them do so.  If Chu wanted to take the high ground of  trying to do the right thing for US energy policy, questioners should have taken him at his word and challenged how well his internal process matched his bold words.   Politicians are too obsessed with finding some crime or smoking gun.  The underlying failure is that the loan process does not, never will, and in fact cannot match the stated ideals and goals of the program.

Another Bankrupt Obama Investment

Via Business Week

 Beacon Power Corp., an energy- storage company that received $43 million in backing from the U.S. program that supported failed solar-panel maker Solyndra LLC, filed for bankruptcy after struggling to raise private financing.

The money-losing company, which makes flywheels that manage energy moving through a power grid, had sought to avoid the fate of Solyndra, which entered bankruptcy last month after receiving a $535 million loan guarantee from a U.S. Energy Department program designed to spur alternative energy development. Beacon faced delisting of its shares by the Nasdaq Stock Market and warned in an Aug. 9 regulatory filing that it might not remain a “going concern.”...

In addition, Beacon received $29 million in grants from the U.S. and Pennsylvania for a 20-megawatt plant in that state and hired Group Robinson LLC to help raise more funds for the $53 million project. Group Robinson, a Menlo Park, California- based renewable-energy consulting company, also was helping Beacon find customers outside the U.S.

This is not an accident.  By definition, the government is investing in companies that every other private lender and investor turned down.

I Don't Think Live TV is My Milieu

I started blogging because I was always frustrated in live arguments that I would remember the killer comment 5 minutes too late, so it is no surprise that I find live TV frustrating.  Here is how I had hoped the interview would go this morning on Fox.  In actual execution, I decided not to play the "2nd law of thermodynamics" card on the morning show just after the in-studio visit by a bunch of bijon frise's.

I'm confused, why are we we even talking about miles per gallon in an electric car?
  • We measure how well traditional cars use fossil fuels with the miles they drive per gallon of gas, or mpg
  • Of course, we can't measure efficiency the same way in an electric car since they don't use gas directly, though the electricity we use to charge them is mostly produced from fossil fuels.
  • So the EPA came up with a methodology to show an equivalent MPG for electric cars so their fossil fuel use (way back in the power plant) could be compared to traditional cars
And you think there is a problem with those numbers?
  • It turns out the EPA uses a flawed methodology that overstates the electric car equivalent MPG, in part because they assume the potential energy in fossil fuels can be converted to electricity in the power plant with perfect efficiency, which doesn't happen in real life and actually violate the second law of thermodynamics
How should they have done it?
  • During the Clinton administration, the Department of Energy came up with a better methodology which uses real world power plant efficiencies and fuel mixes to determine how much fuel went into charging an electric car.
  • Using this methodology, the Fisker Karma, even in all-electric mode, gets about 19 mpg equivilent, not 52.  This means that it uses about the same amount of fossil fuels to drive a mile as does a Ford Explorer SUV -- the only difference is that the fossil fuel use is better hidden.
Via my mom, here is the video.


Fisker Chairman in 2009: Obama is Great Because He Invested in Solyndra

Ray Lane of VC Kleiner Perkins is seen in this video trumpeting how the Obama Administration is, for the first time in his memory, succesfully making investments in private companies.  His main example:  Solyndra!

The reason this is particularly timely and fascinating is that just a few weeks ago, Ray Lane took delivery of the first Fisker Karma electric car, financed with $529 million of our tax money and promoted with $7500 of our tax money on every sale,  Mr. Lane and Kleiner are investors in Fisker (and Lane is Fisker's Chairman) and therefore huge beneficiaries of Obama's largess, and Mr. Lane got the first Karma as a big thank you for his political connections that helped score the cash.

Of course Kleiner (who also hired green Crony-in-chief Al Gore) is going to be thrilled with the government money. Nothing is worse than being a VC in with a large early round position in a company and being unable to get the next stage of investment. Since it appears they could not get any private investors to fund this, the taxpayer money probably saved their investment .... at least for a while.

Update: Ray Lane is apparently ticked off by the negative publicity surrounding the Fisker Karma and the money they received from taxpayers. Tough. Surely he is used to his investors being ticked off about bad outcomes. Well, now he gets to see how REALLY ticked off his investors can be when their money was taken against their will, even without their knowledge. At least he can tell his institutional guys, when things go bad, that they came in with eyes open. What's his response to taxpayers?

For those who have not seen it, my article on how the Fisker Karma, even on all electric, uses more fossil fuels per mile than an SUV is here.

Update on Fisker Karma

I had some fun yesterday, dashing off a quick note about the Fisker Karma electric car and just how bad the electric mileage is if you use the DOE methodology rather than the flawed EPA methodology to calculate an mpg-equivalent.

It was the quickest and shortest column I have ever written on Forbes, so of course it has turned out to be the most read.  It has been sitting on top of the Forbes popularity list since about an hour after I wrote it, and currently has 82,000 reads (I am not a Twitter guy but 26,000 tweets seems good).

I wanted to add this clarification to the article:

Most other publications have focused on the 20 mpg the EPA gives the Karma on its backup gasoline engine (example), but my focus is on just how bad the car is even in all electric mode.    The calculation in the above article only applies to the car running on electric, and the reduction in MPGe I discuss is from applying the more comprehensive DOE methodology for getting an MPG equivilent, not from some sort of averaging with gasoline mode.  Again, see this article if you don’t understand the issue with the EPA methodology.

Press responses from Fisker Automotive highlight the problem here:  electric vehicle makers want to pretend that the electricity to charge the car comes from magic sparkle ponies sprinkling pixie dust rather than burning fossil fuels.  Take this quote, for example:

a Karma driver with a 40-mile commute who starts each day with a full battery charge will only need to visit the gas station about every 1,000 miles and would use just 9 gallons of gasoline per month.

This is true as far as it goes, but glosses over the fact that someone is still pouring fossil fuels into a tank somewhere to make that electricity.  This seems more a car to hide the fact that fossil fuels are being burned than one designed to actually reduce fossil fuel use.  Given the marketing pitch here that relies on the unseen vs. the seen, maybe we should rename it the Fisker Bastiat.