Posts tagged ‘electricity’

LMAO At the Nerve of Solar Companies. Please Don't Corrupt The Term "Free Market" By Trying to Apply it to Yourselves

Our public utility APS wants to enter the rooftop solar business.  As a ratepayer and taxpayer, I have deep concerns about this because of the numerous ways this venture could end up with various hidden subsidies.

However, I find it simply hilarious that current rooftop solar providers, including #1 subsidy whore and crony capitalist SolarCity.  Here is what trade group Arizona Solar Energy Industry Association wrote in an email to me today.  I have highlighted some of the bits that got my blood boiling this morning:

In an unprecedented announcement that took the solar industry by surprise, Arizona’s largest utility, APS, announced that it intends to begin competing directly with Arizona solar installers. APS announced Monday that it is seeking permission to spend between $57 and $70 million -not including its profits- of ratepayer money to install solar on the roofs of homes in its service territory and to compete directly with solar installers of all sizes.

The idea of our members who compete in the free market today having to all of a sudden compete with a regulated monopoly is frightening. How would you like it if the government just stepped in and started competing with your business?” said Corey Garrison, CEO of Arizona based Southface Solar and treasurer of Arizona Solar Energy Industries Association (AriSEIA). "APS has proposed subsidizing certain customers that allow it to put solar on their rooftops while the free market gets no more utility subsidy and actually gets charged for going solar."

It has been well publicized that APS spent much of the last year in a battle with the very industry it now seeks to dominate. Throughout 2013 APS urged the Arizona Corporation Commission to install a huge monthly tax on those who would put solar on their roof. It has also been reported that APS urged the Department of Revenue to institute a new property tax on rooftop solar panels that are leased to customers.

“After spending a year misleading the public with well-publicized lies and misdirection, APS seems to think this is a good time for it to be rewarded with an expansion of its monopoly franchise” said Corey Garrison

Unlike rooftop solar companies that must compete with each other on a level playing field, APS earns a guaranteed rate of return off of its assets including these proposed rooftop solar installations. If approved, APS would be permitted to advertise its solar product in its customer bills and to use its customer lists to market and sell, all with employees paid for by ratepayers. Unlike traditional, free market rooftop solar which is paid for only by the customer that installs the system, APS will be asking all its ratepayers to pay the cost of, and guarantee its profits on, each of the systems it installs under this program.

This is a massive expansion of the monopoly into an area that is well served by the free market” continued Garrison, “what’s next; will APS ask to sell electric cars or ovens or some other set of goods or services?”

This is hilarious.  The rooftop installers in AZ lost some of the subsidy from power companies (e.g. APS) over the past years but still get a myriad of subsidies for themselves and their customers.  We will use one of the larger installers, SolarCity, as an example.  This is from the SolarCity web site:

Federal, state and local governments offer incredible solar tax credits and rebates to encourage homeowners to switch to renewable energy to lower their energy usage and switch to solar power. The amount of the rebate subsidy varies by program, but some are generous enough to cover up to 30% of your solar power system cost.

The federal government allows you to deduct 30% of your solar power system costs off your federal taxes through an investment tax credit (ITC). If you do not expect to owe taxes this year, you can roll over your credit to the following year.

.... Some locations have additional incentives to make solar even more affordable.  SolarCity will get the most for your project

SolarCity is committed to helping you benefit from every federal, state and utility rebate and tax credit available for your energy upgrade projects.

Navigating through government rebate programs on your own can be intimidating. SolarCity will identify all of the qualifying tax credit and rebate programs for your system and file the required paperwork for you. We will even credit you for the state rebate upfront so that you do not have to wait for the government to send you a check later.

This language is a bit odd, since in most cases SolarCity captures these credits for themselves and then passes on the savings (presumably, but maybe not) to customers via lower power costs, exactly the same model APS is proposing.

Customers, however, must sign a contract agreeing to cede "any and all tax credits, incentives, renewable energy credits, green tags, carbon offset credits, utility rebates or any other non-power attributes of the system" to SolarCity. The tax credits are passed on to its investors, which include the venture-capital firms Draper Fisher Jurvetson, DBL Investors and Al Gore's Generation Investment Management LLP.

The description by solar installers that they somehow represent the "free market" is simply hilarious, given the dependence of their industry on taxpayer subsidies (either of the installers or the customers).  SolarCity admits that their business would actually never be able to operate in a free market:

SolarCity officials, including Musk’s cousins and fellow Obama donors Lyndon and Peter Rive, acknowledged the company’s dependence on government support in its 2012 IPO filing. “Our business currently depends on the availability of rebates, tax credits and other financial incentives,” they wrote. “The expiration, elimination or reduction of these rebates, credits and incentives would adversely impact our business.”

A more recent SolarCity filing with the Securities and Exchange Commission notes: “[The company’s] ability to provide solar energy systems to customers on an economically viable basis depends on our ability to finance these systems with fund investors who require particular tax and other benefits.”

Rooftop installers also have their business buoyed by government mandates that power companies pay residential solar producers 2-3x the going wholesale market rate for any electricity they put into the grid

SolarCity also benefits from "net metering" policies that 43 states, including California, have adopted. Utilities pay solar-panel customers the retail power rate for the solar power they generate but don't use and then export to the grid. Retail rates can be two to three times as high as the wholesale price of electricity because transmission and delivery costs, along with taxes and other surcharges that fund state renewable programs, are baked in.

So in California, solar ratepayers on average are credited about 16 cents per kilowatt hour on their electric bills for the excess energy they generate—even though utilities could buy that power at less than half the cost from other types of power generators.

This was the battle referred to obliquely in the press release above.  The electric utility APS wanted to stop overpaying for power from these rooftop solar installations.   Rooftop installers fought back.  In the end, a fixed charge was placed on homeowners to account for part of this over-payment, an odd solution in my mind that seems to have ticked off both sides.

So the supposedly "free market" rooftop companies are competing successfully with regulated utilities because they got Federal, state, and local subsidies; are exempted from things like paying property tax on leased equipment that every other business has to pay; and get a mandate from the state that utilities have to pay double the market price for their power.  Is it any wonder that a regulated utility, which is no stranger to cronyism and feeding at the subsidy trough, might want to get a piece of that action?

ASEIA, you are welcome to duke it out for first spot at the trough with APS, but don't corrupt the word "free market" by trying to apply the term to yourselves.

Are You Desperately Worried About Global Warming? Then You Should Be Begging for More Fracking

Charles Frank of Brookings has looked at the relative returns of various energy investments in the context of reducing CO2.  The results:  The best answer is natural gas, with nothing else even close.  Solar and Wind can't even justify their expense, at least from the standpoint of reducing CO2.  Here is the key chart (Hat tip Econlog)



Note that this is not a calculation of the economic returns of these types of power plants, but a relative comparison of how much avoided costs, mainly in CO2 emissions (valued at $50 per ton), there are in switching from coal to one of these fuel sources.  Natural gas plants are the obvious winner.  It remains the winner over solar and wind even if the value of a ton of CO2 is doubled to $100 and both these technologies are assumed to suddenly get much more efficient.   Note by the way that unlike wind and solar (and nuclear), gas substitution for coal plant yields a net economic benefit (from reduced fuel and capital costs) above and beyond the avoided emissions -- which is why gas is naturally substituting right now for coal even in the absence of a carbon tax of some sort to impose a cost to CO2 emissions.**

I was actually surprised that wind did not look even worse.  I think the reason for this is in how the author deals with wind's reliability issues -- he ends up discounting the average capacity factor somewhat.  But this understates the problem.   The real reliability problem with wind is that it can stop blowing almost instantaneously, while it takes hours to spin up other sorts of power plants (gas turbines being the fastest to start up, nuclear being the slowest).  Thus power companies with a lot of wind have to keep fossil fuel plants burning fuel but producing no power, an issue called hot backup.  This issue has proved itself to substantially reduce wind's true displacement potential, as they found in Germany and Denmark.

There is no evidence that industrial wind power is likely to have a significant impact on carbon emissions. The European experience is instructive. Denmark, the world's most wind-intensive nation, with more than 6,000 turbines generating 19% of its electricity, has yet to close a single fossil-fuel plant. It requires 50% more coal-generated electricity to cover wind power's unpredictability, and pollution and carbon dioxide emissions have risen (by 36% in 2006 alone).

Flemming Nissen, the head of development at West Danish generating company ELSAM (one of Denmark's largest energy utilities) tells us that "wind turbines do not reduce carbon dioxide emissions." The German experience is no different. Der Spiegel reports that "Germany's CO2 emissions haven't been reduced by even a single gram," and additional coal- and gas-fired plants have been constructed to ensure reliable delivery.

Indeed, recent academic research shows that wind power may actually increase greenhouse gas emissions in some cases, depending on the carbon-intensity of back-up generation required because of its intermittent character.


** Postscript:  The best way to read this table, IMO, is to take the net value of capacity and energy substitution and compare it to the CO2 savings value.

click to enlarge

The first line is just from the first line of the table above.   The second is essentially the net of all the other lines.

I think this makes is clearer what is going on.  For wind, we invest $106,697 for $132,030 $132,030 for $106,697 in emissions reduction (again, I think the actual number is lower).  In Solar, we invest $258,322 for $69,502 in emissions reduction.    For gas, on the other hand, we have no net investment -- we actually have a gain in these other inputs from the switch -- and then we also save $416,534.  In other words, rather than paying, we are getting paid to get $416,534 in emissions reduction.  That is not several times better than Solar and Wind, it is infinitely better.

Postscript #2:  Another way to look at this -- if you put on a carbon tax in the US equal to $50 per ton of CO2 that fuel would produce, then it still likely would make no sense to be building wind or solar plants unless there remained substantial subsidies for them (e.g. investment tax credits, direct subsidies, guaranteed loans, above-market electricity pricing, etc).  What we would see is an absolute natural gas plan craze.

Bizarre Payback Analysis Being Used for Alternate Energy

Check out this payback analysis that is being trumpeted for wind power:

US researchers have carried out an environmental lifecycle assessment of 2-megawatt wind turbines mooted for a large wind farm in the US Pacific Northwest. Writing in the International Journal of Sustainable Manufacturing, they conclude that in terms of cumulative energy payback, or the time to produce the amount of energy required of production and installation, a wind turbine with a working life of 20 years will offer a net benefit within five to eight months of being brought online.

So of all the scarce resources that go into producing wind power, if you look at only one of these (energy), then the project pays itself back in less than a year.  This is stupid.  Yes, I understand that there are some "green" energy sources (*cough* corn ethanol *cough*) that cannot even produce more energy than they consume, so I suppose this finding is a step forward from that.  But what about all the other scarce resources used in producing wind power-- steel, labor, engineering talent, concrete, etc?  This is roughly like justifying the purchase of an 18-wheeler truck by saying it will pay off all the vanadium used in its production in less than a year.

Environmentalists seem to all feel that capitalism is the enemy of sustainability, but in fact capitalism is the greatest system to promote sustainability that has ever been devised.  Every single resource has a price that reflects its relative scarcity as compared to demand.  Scarcer resources have higher prices that automatically promote conservation and seeking of substitutes.  So an analysis of an investment's ability to return its cost is in effect a sustainability analysis.  What environmentalists don't like is that wind does not cover the cost of its resources, in other words it does not produce enough power to justify the scarce resources it uses.  Screwing around with that to only look at some of the resources is just dishonest.

The one reasonable argument is that the price of fuels does not adequately reflect the externalities of Co2 production.  I don't think these are high but obviously there are those who disagree.  The right way to do this analysis is to say that wind power provides a return only if electricity prices are X (X likely being well above current market rates) which in turn reflects a Co2 cost of Y $/ton.  My gut feel is that it would take a Y -- a cost per ton of CO2 -- way higher than any of the figures that are typically bandied about even by environmentalists to make wind work.

Postscript:  I did not critique the analysis of energy payback per se, but if I were to dig into it, I would want to look at two common fallacies with many wind analyses.  1) They typically miss the cost of standby power needed to cover wind's unpredictability, which has a substantial energy cost.  In Germany, during their big wind push, they had to have 80-90% of wind power backed up with hot fossil fuel backup.  2)  They typically look at nameplate capacity and not real capacities in the field.  In fact, real capacities should further be discounted for when wind power produces electricity that the grid cannot take (ie when there is negative pricing in the wholesale market, which actually occurs).

Subsidies Beget Subsidies

So after spending billions to subsidize the construction and operation of wind farms, Britain has discovered that their output variability is a problem and that they produce too much of their power at night (issues many of us predicted long before they were built).  So now England is facing the policy choice of either a) paying wind farm owners to NOT product power or b) paying factory owners to switch their operations to night time.  Seriously.  For most areas, wind is among the worst possible electricity source.

Moore's Law on Steroids: World Computing Power for One Type of Calculation is Doubling Every Three Weeks

Over at Forbes, I wrote this week about Bitcoin mining.  But don't be immediately put off.  This is not yet another article by a crazed libertarian and Cryptonomicon fan on the miracle effects of digital currencies.  Instead, I look at the crazy economics and absurdly steep capacity and technology curves of Bitcoin mining.  An excerpt:

Let’t take an example, and consider the Cointerra TerraMiner IV, a 2TH/sec machine priced at about $6000 which if purchased today would be delivered sometime in February, or about 3 months from now.  At current difficulties and exchange rates, such a machine would pay back its purchase price in less than a week, producing over $25,000 a month in Bitcoins.

A no-brainer, right?  But Bitcoin mining difficulty has been going up of late by a factor of 10 every 3 months.  Based on a mining difficulty ten times greater than today and current exchange rates, we could expect instead to be making at delivery something more like $575 a week.   Three months later we would be making a tenth of that.  If we factor in the costs of electricity, this machine will never cover its costs at current Bitcoin exchange rates.

I do not think I have ever seen a business technology obsoleted so quickly.  Essentially, the next generation of mining processors will be virtually obsoleted between the time of its sale and its delivery 3 months later.  Every three months one has to reduce his production costs by a factor of 10, in a business where cost reduction basically means throwing out all one’s existing capital assets and buying expensive new stuff.

A Typical Clean Energy Boondoggle

Master Resource looks at the California Valley Solar Ranch

In a realistic appraisal of the CVSR we should note the following:

· An investment of $1.6 billion 250 MW breaks down to an extravagant $6,400,000 per megawatt.

· The Solar Ranch covers 1,500 acres.

· The CVSR is projected to produce 482,000 MWh per year, implying an operating capacity factor of around 22%.

· Given a reasonable appraisal of the value of 482,000 MWh per year, it is not possible that the solar panels will be able to provide a return sufficient to pay back the $1.6 billion investment within their functional life (not even close), even when ignoring annual operating and maintenance costs. Hundreds of millions of dollars will be lost (see Updated CSVR Cash Flow).


A much more viable alternative to a solar generation facility, although not the only one, is a plant using natural gas. A natural gas combined cycle gas turbine (CCGT) facility capable of 250 MW would have required less than one-fourth the capital investment, would be capable of making four times the electricity per year at 88% capacity factor, and would fit on a single acre.

Also, a CCGT facility could have been located closer to the point(s) of actual use of the electricity, and could provide dispatchable energy which could be increased or decreased as demand fluctuates; something the solar facility is incapable of providing.

So why is this project even happening?  Because most of the project was funded by a taxpayer-gauranteed loan.  And then many of the players got direct subsidies and tax breaks.  And finally the electricity from the project gets bought at an above-market subsidized rate.


In New Mexico, Forced Government Anal Probes are Way Better than Having Even One Person Smoke A Joint

Or so I am led to believe by the fine folks in Deming, New Mexico, who forced a man to undergo two forced X-rays, two anal probes, three enemas, and a colonoscopy under anesthesia because they worried that he might be hiding a smidge of illegal narcotics in his nether regions.  Oh, and they made him pay the hospital bills for these procedures as well, sort of like billing someone's estate for the electricity used to execute them in the electric chair.

Details here.

Update:  Orin Kerr has a legal anal-ysis of the case (sorry, couldn't resist).   His conclusion seems to be that the victim may be sh*t out of luck (sorry again) in seeking compensation.  From reading it, he may even be stuck with the medical bills.  I have come to expect cops to display this kind of excessive behavior.  What is particularly disappointing is to see a doctor so eagerly cooperate and even, apparently, take the lead in escalating the intrusiveness of the search.  It is depressing that Kerr believes the doctor may well enjoy qualified immunity for his actions.  Thousands of doctors every day are successfully sued for malpractice over honest mistakes and differences in judgement, but this guy is going to walk?

When Environmentally Sustainable Actually Was Sustainable

Many of your know that my company operates public parks.  So I see a lot of different approaches to park design and construction.  Of late I have been observing a trend in "environmental sustainability" in park design that is actually the opposite.

The US Forest Service has built more campgrounds, by far, than any other entity in the world.  For decades, particularly in the western United States, the USFS had a very clear idea about what they wanted in a campground -- they wanted it to be well-integrated with nature, simple, and lightly developed.  They eschewed amenities like pools and playgrounds and shuffleboard.  They avoided building structures except bathroom and shower buildings.  The camp sites were simple, often unpaved with a table and fire ring and a place for a tent.  They used nature itself to make these sites beautiful, keeping the environment natural and creating buffers of trees and natural vegetation between sites.   I have never seen an irrigation system in a western USFS campground -- if it doesn't grow naturally there, it doesn't grow.

This has proven to be an eminently sustainable design.  With the exception of their underground water systems, which tend to suck, they are easy to maintain.  There is not much to go wrong.  The sites need new gravel every once in a while.  Every 5-10 years the tables and fire rings needs replacement, hardly a daunting task.  And every 20-30 years the bathrooms needs refurbishment or replacement.  The design brilliance was in the placement of the sites and their integration with the natural environment.

Over the last several months, I have been presented with plans from three different public parks agencies for parks they want to redevelop.   Each of these have been $10+ million capital projects and each one had a major goal of being "sustainable."   I have run away from all three.  Why -- because each and every one will be incredibly expensive and resource intensive to operate and of questionable popularity with the public.  Sustainability today seems to mean "over-developed with a lot of maintenance-intensive facilities".

What each of these projects has had in common are a myriad of aggressively architected buildings - not just bathrooms but community rooms and offices and interpretive centers.  These buildings have been beautiful and complex, made from expensive materials like stainless steel and fine stone.  They have also had a lot of fiddly bits, like rainwater collection and recycling systems and solar and windmills.  They have automatic plumbing valves that never seem to work right.  The grounds have all been heavily landscaped, with large lawns that require water and mowing, with non-native plants that need all kinds of care.  Rather than a traditional sand pad for tents they have elaborate wooden platforms.

The plans for these facilities are beautiful.  They win awards.  In fact, I am increasingly convinced that that is their whole point, to increase prestige of the designer and the agency that hired them through awards.  But they make no sense as a recreation facility.  In 10 years, they will look like hell.  Or sooner, since one agency that is in the process of spending a $22 million bond issue on 5 campgrounds seems to not have one dollar budgeted for operation and maintenance.

These things actually win awards for sustainability, which generally means they save money on one input at the expense of increasing many others.  One design  got attention for having grass on the roofs, which perhaps saved a few cents of electricity at the cost of having to irrigate and mow the roof (not to mention the extra roof bracing to carry the load).  I briefly operated a campground that had a rainwater recovery system on the bathrooms, which required about 5 hours of labor each week to keep clean and running to save about a dollar of water costs.

Technologies That Make No Sense

The wireless electric vehicle charger.  Sure it's cool.  And convenient.   But as I understand it, the main selling point of electric vehicles is their energy efficiency (I personally like the driving feel of a torque-y electric motor, but that does not seem to be the advertised selling point).  If this is the case, then why the hell would one accept a 30% energy loss (wireless charging is generally considered to be about 70% efficient) because they were too lazy to plug in a cable?

This is against the backdrop of most electric vehicle owners having no freaking clue if they are actually saving energy and money or not (all they know is that they see the costs to fill their gas tank but don't see little numbers spinning when they fill their electric car).  As I have written before, they likely are not saving energy vs. a similar size gasoline engine car but may be saving some money due to the lower cost of fuels like natural gas and coal (vs. gasoline) used in electricity production.

Bringing Skepticism (and Math) to Electric Vehicle Fuel Numbers

Frequent readers of this blog will know that I am enormously skeptical of most fuel and efficiency numbers for electric vehicles.  Electric vehicles can be quite efficient, and I personally really enjoy the driving feel of an electric car, but most of the numbers published for them, including by the government, are garbage.  I have previously written a series of articles challenging the EPA's MPGe methodology for electric cars.

In just a bit, I am going to challenge some numbers in a recent WSJ article on electric vehicles, but first let me give you an idea of why I don't trust many people on this topic.  Below is a statement from, which bills itself as the official government source for fuel economy information (this is a public information, not a marketing site).  In reference to electric vehicles, it writes this:

Energy efficient. Electric vehicles convert about 59–62% of the electrical energy from the grid to power at the wheels—conventional gasoline vehicles only convert about 17–21% of the energy stored in gasoline to power at the wheels

The implication, then, is that electric vehicles are 3x more energy efficient than cars with gasoline engines.  I hope engineers and scientists can see immediately why this statement is total crap, but for the rest, here is the problem in short:  Electricity has to be produced, often from a fossil fuel.  That step, of converting the potential energy in the fuel to use-able work, is the least efficient step of the entire fuel to work process.  Even in the most modern of plants it runs less than a 50% conversion efficiency.   So the numbers for the gasoline cars include this inefficient step, but for the electric vehicle it has been shuffled off stage, back to the power plant which is left out of the calculation.

Today I want to investigate this statement, which startled me:

Factor in the $200 a month he reckons he isn't paying for gasoline to fill up his hulking SUV, and Mr. Beisel says "suddenly the [Nissan Leaf] puts $2,000 in my pocket."

Yes, he pays for electricity to charge the Leaf's 24-kilowatt-hour battery—but not much. "In March, I spent $14.94 to charge the car" and a bit less than that in April, he says.

This implies that on a cost-per-mile basis, the EV is over 13x more efficient than gasoline cars.  Is this a fair comparison?  For those who do not want to read a lot of math, I will preview the answer:  the difference in fuel cost per mile is at best 2x, and is driven not by using less fossil fuel (the electric car likely uses a bit more, when you go all the way back to the power plant) but achieves its savings by using lower cost, less-refined fossil fuels  (e.g. natural gas in a large power plant instead of gasoline in a car).

Let's start with his estimate of $14.94.  Assuming that is the purchased power into his vehicle charger, that the charger efficiency is 90%, and the cost per KwH in Atlanta is around $0.11, this implies that 122.24 use-able KwH are going into the car.  Using an estimate of 3.3 miles per KwH for the Leaf, we get 403 miles driven per month or 3.7 cents per mile in electricity costs.  This is very good, and nothing I write should imply that the Leaf is not an efficient vehicle.  But its efficiency advantage is over-hyped.

Now let's take his $200 a month for his Ford Expedition, which has an MPG around 15.  Based on fuel prices in Atlanta of $3.50 a gallon, this implies 57 gallons per month and 857 miles driven.  The cost is 23.3 cents per mile.

Already we see one difference -- the miles driven assumptions are different.  Either he, like a lot of people, don't have a reliable memory for how much he spent on gas, or he has changed his driving habits with the electric car (not unlikely given the shorter range).  Either way, the total dollar costs he quotes are apples and oranges.  The better comparison is 23.3 cents per mile for the Expedition vs. 3.7 cents a mile for the Leaf, a difference of about 6x.  Still substantial, but already less than half the 13x difference implied by the article.

But we can go further, because in a Nissan Leaf, he has a very different car from the Ford Expedition.  It is much smaller, can carry fewer passengers and less cargo, cannot tow anything, and has only 25% of the Expedition's range.   With an electric motor, it offers a very different driving experience.   A better comparison would be to a Toyota Prius, the c version of which gets 50MPG.  It is similar in most of these categories except that it has a much longer range, but we can't fix that comparison, so just keep that difference in mind.

Let's look at the Prius for the same distances we calculated with his Leaf, about 403 miles.   That would require 8.1 gallons in a Prius at $3.50, which would be $28.20 in total or 7 cents a mile.  Note that while the Leaf still is better, the difference has been reduced to just under 2x.  Perhaps more importantly, the annual fuel savings has been reduced from over $2200 vs. the Expedition that drove twice as many miles to $159 a year vs. the Prius driving the same number of miles.  So the tradeoff is $159 a year savings but with much limited range  (forgetting for a moment all the government crony-candy that comes with the electric car).

$159 is likely a real savings but could be swamped by differences in long-term operating costs.  The Prius has a gasoline engine to maintain which the Leaf does not, though Toyota has gotten those things pretty reliable.  On the other hand the Leaf has a far larger battery pack than the Prius, and there are real concerns that this pack (which costs about $15,000 to manufacture) may have to be replaced long before the rest of the car is at end of life.  Replacing a full battery pack after even 10 years would add about $1200 (based on discounted values at 8%) a year to operating costs, swamping the fuel cost advantage.

Also note that a 2x difference in fuel costs per mile does not imply a 2x difference in fuel efficiency.  Gasoline is very expensive vs. other fuels on a cost per BTU basis, due to taxes that are especially high for gasoline, blending requirements, refining intensity, etc.)  Gasoline, as one person once said to me way back when I worked at a refinery, is the Filet Mignon of the barrel of oil -- if you can find a car that will feed on rump steak instead, you will save a lot of money even if it eats the same amount of meat.    A lot of marginal electric production (and it is the margin we care about for new loads like electric cars) is natural gas, which is perhaps a third (or less) the cost of gasoline per BTU.   My guess is that the key driver of this 2x cost per mile difference is not using less fuel per se, but the ability to use a less expensive, less-refined fuel.

Taking a different approach to the same problem, based on the wells-to-wheels methodology described in my Forbes article (which in turn was taken directly from the DOE), the Nissan Leaf has a real eMPG of about 42 (36.5% of the published 115), less than the Prius's at 50.  This confirms the findings above, that for fossil fuel generated electricity, the Leaf uses a bit more fossil fuels than the Prius but likely uses much less expensive fuels, so is cheaper to drive.  If the marginal electrical fuel is natural gas, the Leaf also likely generates a bit less CO2.

Evidence We Are Winning the War on Poverty

Over the last few days I have heard the same radio commercial three times, trying to raise awareness about hunger and poverty.  A little girl's voice says that when she goes downstairs and looks in the refrigerator, she does not see any food.  I too aspire to eliminating hunger from the world, but if our poor have electricity, refrigerators, and two-story houses, we must be doing something right.

I Like to Hear This

In the past I have been critical of First Solar, like I have most solar companies, for having business models that were almost entirely dependent on huge government subsidies, particularly in Europe.  When these go away, the businesses start to crash.

I have not had time to dig into their financials to look for shenanigans, and to parse out how much is still dependent in some way on either direct subsidies of solar projects or incentives that cause utilities to buy solar electricity at above market rates, but First Solar reversed their large losses to a profit in the last quarter.  I am not sure if this is BS or not, but I like this attitude if true:

The company's cost per watt is the lowest in the industry, but it increased slightly during the quarter, to 72 cents per watt, because of the under utilization of its factories. If the factories had run more, the cost would have gone down, officials said.

Hughes said First Solar is making headway on its plan to target regions of the world with ample sunshine and a need for electricity, where solar power can compete without subsidies that make it cost-effective when compared with traditional energy sources.

Those places include Australia, India, the Middle East and other regions, he said.

That would be terrific.  I would love to see a solar boom driven by real economics and not taxpayer largess.

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.

Where Did Those First Solar Subsidies Go? $32 Million went to their Failed CEO

It would be impossible to trace all the ways taxpayer money ends up in the coffers of solar manufacturers like First Solar.  Most of First Solar's money has been made selling panels in Germany to solar plants that, by law, can rape electricity customers with prices 10-15x higher than the market price for electricity.  First Solar also benefits more directly from direct subsidies, loan guarantees, "retraining" subsidies and even government Ex-Im Bank loans to sell panels to itself.  While First Solar vehemently denies it is a subsidy whore, it is telling that when Germany began to cut its solar feed-in tariffs, First Solar's stock price fell from over $300 to around $20.  Just watch day to day trading of First Solar stock, it does not move on news about its efficiency or productivity, it moves on rumors of changes in government subsidies.

Let's look at one subsidy.  In 2010, the Obama administration gave First Solar a subsidy of $16.3 million, ostensibly to help open a new plant in Ohio.  But it is interesting that this private company, which apparently could only raise the $16.3 million it needed by taking it by force from taxpayers, had plenty of money to pay its CEO.  In the 13 months leading up to its $16.3 million taken from taxpayers, First Solar paid its new CEO $29.85 million!  

Rob Gillette, the ousted CEO of First Solar Inc., earned more than $32 million in compensation from the struggling company for his two years of service, according to a regulatory filing Wednesday.

Gillette came to First Solar from Phoenix-based Honeywell Aerospace in October 2009 and was fired by the Tempe-based solar company's board of directors in October 2011....

Most of his compensation came in the three months of 2009 that he worked, when his total compensation, including salary, bonus, stock and options awards and other perks, reached $16.55 million. In 2010 his total compensation was $13.3 million, and last year he earned $2.46 million, which consisted of $763,000 in base salary and a $1.7 million severance.

Yep, they can't scrape up $16.3 million of their own money for a factory but they can find $30 million to give to an unproven CEO they eventually had to ride out on a rail.

By the way, I don't know Mr. Gillette, but I was once an executive at Honeywell Aerospace for several years.  I can tell you that it's a great place to find an executive who is focused on process to manage large complex organizations in a relatively stable business where manufacturing, logistics, and schmoozing large buyers is important.  It is a terrible, awful place to seek an executive for a fast growing business that needs to rapidly shift business strategies and where grinding through the process gets the wrong answer 12 months too late.

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.

Difference Between Trusting Science and Scientists

I don't often defend Conservatives but I will say that there is nothing much more useless to the public discourse that bullsh*t sociology studies trying to show that Conservatives are dumber or whatever (and remember, those same studies show libertarians the smartest, so ha ha).

In this general category of schadenfreude masquerading as academics is the recent "finding" that conservatives are increasingly anti-science or have lost trust in science.  But here is the actual interview question:

166. I am going to name some institutions in this country. Some people have complete confidence in the people running these institutions. Suppose these people are at one end of the scale at point number 1. Other people have no confidence at all in teh people running these institutions. Suppose these people are at the other end, at point 7. Where would you place yourself on this scale for: k. Scientific community?

A loss of trust in the scientific community is way, way different than a loss of trust in science.   Confusing these two is roughly like equating a loss in trust of Con Edison to not believing in electricity.  Here is an example from Kevin Drum describing this study's results

In other words, this decline in trust in science has been led by the most educated, most engaged segment of conservatism. Conservative elites have led the anti-science charge and the rank-and-file has followed.

There are a lot of very good reasons to have lost some trust in our scientific institutions, in part due to non-science that gets labeled as real science today.  I don't think that makes me anti-science.  This sloppy mis-labeling of conclusions in ways that don't match the data, which Drum is ironically engaging in, is one reason may very scientific-minded people like myself are turned off  by much of the public discourse on science.  The irony here is that while deriding skepticism in the scientific community, Drum provides a perfect case example of why this skepticism has grown.

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  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.

Surprise: Fisker Automotive Struggling

Apparently electric vehicle maker -- and recipient of lots of your and my money -- Fisker Automotive is struggling.    Who would have thought that a company that could not fully fund itself privately and had to rely on political connections to use the coercive power of government to take money from taxpayers might be a bad investment?

As a reminder, Fisker's taxpayer largesse likely came at the behest of politically powerful Ray Lane of Kleiner Perkins.  It is his firm's investment returns we taxpayers are supporting.  So it should come as no surprise that Ray Lane says, in the video below, that he thinks Obama is the greatest public sector venture capitalist ever.  What does he use as justification for this conclusion?  Why, Solyndra!  I kid you not, check it out.

By the way, if you did not see it, check out my Forbes article on how the Fisker Karma gets worse mileage than an SUV when you trace its electricity back to the power plant.

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.

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.

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.

Are Private Entities Solely To Blame For Making Money Off Structural Problems Created by the Government?

Paul Krugman had this sideswipe comment the other day:

This isn't the only case where news organizations consistently report as truth something that didn't happen, while failing to report what did. Another one that comes to mind is the California electricity crisis of 2001-2002. As some readers may recall, that crisis was caused by market manipulation -- and that's not a hypothesis, Enron traders were caught on tape telling plants to shut down to create artificial shortages. Yet "news analyses" published after the whole thing was revealed would often tell readers that excessive environmental regulation and Nimbyism caused the crisis, with nary a mention of the deliberate creation of shortages.

And as you'll notice, in both cases the imaginary history just happened to be one more comfortable to status quo interests.

I find it hilarious that Krugman is talking about imaginary history, since he plays the same game so often.  In fact, the disconnect between many of Krugman's current political writings and his historical economic work are often jaw-dropping.  Even the differences in Krugman's opinion on the same topic when a Republican vs. a Democrat is in the White House can be amazing.

But I wanted to address the California utility issue.  Certainly Krugman is right, as far as he goes, in that Enron made a lot of money in the California electricity crisis creating some short-term artificial shortages.  But what he leaves out of his brief comment were the structural rules the government had put in place that made Enron's actions possible.  Enron's profits in the California electricity crisis could never have been made in a free market.

I am not an expert on the whole regulatory environment in which these events occurred, but there were three key regulatory facts that need to be understood:

1.  California, due to the NIMBY and environmental concerns Krugman mentions in passing, want lots of electricity but do not want the electricity production near them.  So they have exported the production to other states, and, more importantly, California utilities did not control the production of the electricity they needed.  Thus a lot of California power, and all of its marginal demand, is satisfied by local utilities buying out of state power.  As we will see next, Krugman is really putting up a straw man here, as this is simply background, the least important of the three government factors that drove the problem.

2.  California deregulated wholesale utility prices, but not retail prices.  The point of price deregulation is that suppliers and consumers can make better decisions because the information they get via prices is not distorted by government mandates.   But price deregulation only makes sense if the ultimate consumers have prices that float with the market.  But California consumers still had fixed prices.  There were no changes to pricing signals to consumers that might cause them to conserve more when electricity was particularly short.

So, only wholesale customers saw their prices paid increase when electricity supplies ran short.  This mainly applied to large California utilities that bought power they needed from out of state.   Theoretically, when prices spiked, they could cut back their demand.  This is more awkward for them than consumers, but could be done either with pre-determined shut down priorities or rolling brown-outs.  At some point, one would assume the cost of power would be higher than the cost of service disruptions, but...

3.  California utilities were effectively required by regulation to try to serve all demand.  Right or wrong, they felt they were in a position that if power were available, they had to buy it no matter what the cost.

So step in Enron.  Seeing this mess, they found they could corner the market at a few peak demand times and sell Calfornia power for a gazillion dollars a Kw.   I would not personally have been proud to make money that way, but Enron jumped right in.

I have no problem giving Enron grief for the way they make money, but one has to ask themselves, why the hell were California utilities buying power no matter what the price, and why was it that when electricity was so dear, it was illegal to communicate this to end users via prices (as we do with any other product or commodity).  The story here is a lot more complicated than Enron.

Update: Finem Respice took a more sophisticated look at this same issue a while back in a broader post about trying to close an open system.

On the retail side, just as California was patting itself on the back for "deregulating" in 1996 (via a bill that Pete Wilson created with complexities and exceptions for e.g., San Diego that make the special interest game in Washington look tame by comparison), it froze, just after reducing, retail electricity rates for five years. Add to this the fact that California had long depended on supplies from, e.g., the Northwest, which, for years, enjoyed a hydroelectric power generation surplus. As the surplus vanished with droughts and increased demand in the Pacific Northwest, so did the supply buffer California was so used to, and that it leaned on most heavily over the years to avoid building new generating capacity (new capacity being the bane of the progressively green environmental utopian-paradise that was (is) California energy politics). All this conspired to spike rates. Who is surprised?

It is somewhat unfortunate that Enron's shrewd manipulation of California's badly flawed and outright schizophrenic market scheme was so flagrant, and that unrelated accounting scandals at the company permitted the story to become one of deregulation evils and free market greed rather than the core issue: the political spinelessness exhibited by California officials and their ongoing attempt to insulate voters from anything resembling market prices for electricity