By Robert Rapier on Mar 25, 2010 with 103 responses

Bad Assumptions

As I have been traveling around New Zealand, I have had a lot of discussions about various renewable energy companies. Inevitably, there is some discussion as to why certain approaches have failed. Occasionally, companies failed simply because they were running a scam and lying about what they were doing. More common, however, are companies that failed due to bad assumptions on their part.

Those discussions have led me to reflect on what some of the bad assumptions – or potentially bad assumptions – companies may be making that will result in failure of their business models. Of course I have to make assumptions as well, and I must constantly evaluate those assumptions in light of new evidence. I would say that there are three primary assumptions that influence the decisions I make. They are:

1). Oil prices will continue to rise over time.

2). Biomass prices will rise over time as competition increases.

3). What the government gives, the government can take away. So government subsidies have no place in my long-term business plans.

I think the assumption around the cost of biomass is going to be one of the worst assumptions some companies are making today. I see many companies claim that they will produce cheap biofuel, but when you take a closer look they are basing that on getting cheap, free, or even negatively valued biomass. Unless one can lock up a long-term supply agreement with someone who has a track record of being able to deliver biomass, I don’t think this assumption will hold up. Further, farmers are going to command the highest price they can get for any purpose-grown biomass. So I think the dreams of cheap switchgrass or miscanthus enabling cheap biofuels will fail to materialize. It won’t cost any less than it costs to buy hay from those same farmers today. In fact, it will probably cost more.

Here are some other assumptions that have doomed, and I believe will continue to doom, prospective renewable energy companies:

Results in the lab can be replicated at a larger scale.

The fact is, the vast majority of energy technologies can’t be scaled at all out of the lab, for a variety of reasons. My own observation has been that most technologies die in the lab, and most that make it to the pilot stage die there. Very few survive all the way to commercialization (but government policies/funding can result in some surviving that shouldn’t have survived).

One or two technical breakthroughs will be achieved.

While they are often taken for granted, even one technical breakthrough is asking a lot. If two are needed, it greatly compounds the difficulty of commercializing a process. If you see a company trying to scale a process out of the lab, and they have more than one technology aspect that has never been run in that particular service or at that particular scale, the odds of success are probably slim.

Reported results are typical.

Reported results are almost always the best results that a technology has ever achieved. When someone says “Up to 100 gallons per ton” I discount that heavily. People who tend to hype their technology don’t report typical results. They report the best results to investors, and present them as typical. But when they build their plant, typical results are what they will get.

Government subsidies will bridge the gap until you “figure it out.”

Government subsidies can go away tomorrow, so if you haven’t figured it out yet, then you should probably go do something else if you are hanging your hopes on government subsidies. The end is likely to be unpleasant for everyone involved.

You will “figure it out.”

There is a very long list of companies who had seemingly promising technologies, but for one sticky technical issue. Those sticky issues don’t always have a happy ending.

As you scale your technology and climb the learning curve, costs will go down.

Sometimes costs go up as you figure out the things you missed. Scale-up can result in additional pollution control requirements, noise control requirements, corrosion mitigation, etc. that just weren’t that much of an issue in the lab.

You have invented the wheel.

Almost every new invention you see is merely a modification on a previous idea. Sometimes, the modifications aren’t even improvements. If the original idea wasn’t commercialized, it is best to have a very good understanding of why that was, as well as a historical perspective on what ideas similar to yours have been tried before – and why they failed.

All biomass is created equally.

When you hear someone claim that their bioenergy process can take “any type of biomass”, you should apply a high degree of skepticism. Different feedstocks behave very differently in different processes. In a gasification process, some high ash or high moisture feedstocks can be problematic. In a cellulosic hydrolysis process, there are certain feedstocks that produce strong enzymatic inhibitors. In general, processes are optimized around specific feedstocks, and they don’t respond favorably to having inconsistent feeds.

In conclusion, all of these assumptions are common among renewable energy companies today. Many of these faulty assumptions have already resulted in bankruptcy for a fair number of companies, and will undoubtedly lead to a few more bankruptcies in the future.

Note: I will be in New Zealand until March 30^th, and then my posting and commenting should return to normal. We are still working on optimizing the commenting structure, but are still quite open to what readers would prefer.

103 responses to Bad Assumptions

By Benny BND Cole on March 25, 2010 at 1:19 pm

Excellent post.

I will say one thng: In 1979, when I squeeked through grad school, I entered a world in which I was assured that we would soon see $100 a barrel oil, and no oil by 2000. The Bible (and I read it) was “Limits to Growth.”

Then, I think two years ago, RR delivered a gloomy missive about never again being able to drive across the USA–the family car trip coast-to-coast would become a thing of the past, and gasoline shortages would become a perma-feature on the landscape.

Of course, today we have a glut of refineires in the USA–not enough gasoline demand.

There is probably a glut of oil in the world. Brazil says it has 500 billion barrels in the Tupi. Venezuela has 500 billion in heavy oil. Iraq says it can go to 12 mbd.

At $80 a barrel, I don’t think we will ever see anough demand to drive prices up higher, baring a spike or fevered, manipulated market. But $80 a barrel is plenty high for huge profits from development.

We have eopic supplies of natural gas, and the longer oil stays at $80, the more CNG will be subbed for oil globally.

In short, I think there may be even more bad news for bio-producers: Oil ain;t going anywhere, price-wise or supply-wise.

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By rufus on March 25, 2010 at 1:47 pm

I don’t know, Benny; if you look at the oil “megaprojects” data at wikipedia it looks like 2010 will be the last year in (maybe, the history of the world) that oil brought online will equal the decline from existing wells. And, China, India, Opec “Demand” doesn’t look to me as if it has any intention of stalling.

I expect Biomass to end up costing somewhere in the $65.00 to $70.00 range. Between the cost of expensive “horse-quality” hay, and cheaper “prairie” hay.

I’m going to keep an eye on the project at Vonore, Tn. They have a few thousand acres of switchgrass under cultivation, and top flight “enzyme” brains with Dupont-Danisco.

You make a good point, Robert, when you bring up situations such as EPA, Smell, etc. that aren’t a consideration in the lab, or pilot plant. I’m, also, watching Poet. That boy is moving slowly, and cautiously. VERY slowly, and cautiously. When They start putting up structures for their cellulosic refinery I’ll consider it a good sign.

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By Benny BND Cole on March 25, 2010 at 1:55 pm

Rufus: Yes, China is growing..and also buying e-bikes,and soon to build e-cars. India going into natural gas.

At $80 a barrel, importing nations with leadership will move away from oil. In addition, you have the unreliability of oil suppliers. You can trust a thug state to do just two things: Screw themselves. Screw you. Nations with leadership will reduce their exposure to such thug states.

Demand for liquid fuels may be in long-term decline. I hope biofuels are successful, but it may be tough. PHEVs and CNG cars might be better options. Time will tell.

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By rufus on March 25, 2010 at 2:00 pm

Benny, you can get more miles by levaraging the nat gas with sun, rain, and biomass than by burning the nat gas directly. You, also, avoid the huge costs of changing infrastructure.

Those folks in China don’t want an ebike. They want a toyota, or a chevy.

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By savro on March 25, 2010 at 2:15 pm

Robert Rapier said:

Government subsidies will bridge the gap until you “figure it out.”

Government subsidies can go away tomorrow, so if you haven’t figured it out yet, then you should probably go do something else if you are hanging your hopes on government subsidies. The end is likely to be unpleasant for everyone involved.

Another problem we see all too often is that companies end up relying on the subsidy “band-aid” for more than just the “figuring it out” phase. Companies begin to rely on the subsidies to actually turn their product into a money-maker, usually once they see that their product is not economically viable, rather than just using it as a crutch during the development and start-up process.

Keeping a company or technology afloat in the short-term through the use of subsidies so that their product can ultimately provide a long-term independant solution is great, but once the subsidies morph into a long-term solution, you know that the taxpayers are getting screwed by a bad investment.

IMO, we need better oversight in how subsidies are implemented and how long they should last. This will obviously vary greatly on a case-by-case basis, but from what I can tell there’s currently very little strict oversight on how subsidies are used.

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By Benny BND Cole on March 25, 2010 at 2:55 pm

Rufus: Well, I want a V-8 convertible and a pretty blonde. What I get and want are two different things.

I would not be surprised to see PHEVs and BEVs mandated in China (a fascist-mercantile nation), and possibly in Europe (effectively, through taxes). I sure wish they were mandated in Los Angeles (air pollution). India might compel the use of CNG cars. I am pretty sure in 10 years Japan will be nuked up and PHEVs will be the dominant new car.

The oil thug states tried an unusual busines model: Treat your customers to erratic supplies, spikey prices, and an occasional dark threat of a cut-off, and one real cut-off.

Not a way to keep them coming back.

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By rrapier on March 25, 2010 at 2:56 pm

“At $80 a barrel, I don’t think we will ever see anough demand to drive prices up higher, baring a spike or fevered, manipulated market. But $80 a barrel is plenty high for huge profits from development.”

Ah, but Benny, $80 is almost 10 times what oil was at a decade ago. We are in a recession, and yet oil is still trading at these levels. So my assumption of rising oil prices – which has been my assumption for the past 7 or 8 years – has been quite accurate. At no time in the past 8 years have I felt like prices 5 years out would be cheaper than current prices, and I don’t believe that now.

RR

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By Among the cows in Io on March 25, 2010 at 3:22 pm

today we have a glut of refineires in the USA–not enough gasoline demand.

This is exactly what you would expect if there was a lack of oil to feed the refineries; high oil prices produce high gasoline prices and contracting demand. If oil prices were LOW and gasoline prices were high with contracting demand, then the problem would be a lack of refineries.

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By Marc Ferguson on March 25, 2010 at 5:10 pm

RR-

Thanks for your rebuttal to Benny. I was waiting for it. My added comments are – China has surpassed the U.S. in auto purchases and will never be caught, and the Chinese government subsidizes gasoline there, just as practically all Middle East countries do. In the M.E., it’s in the $.50/gallon or less range. And the population of the M.E. is now slightly larger than the U.S. OECD countries. Non-OECD countries will push total demand above 105 mbd and most educated on the supply side think that is higher than supply – even some oil execs, and with Brazil, Venezuela, and Iraq included. By that time, a mere 1 million EVs will be operating world wide. All of those countries that Benny thinks will shift to altneratives can’t begin to afford it. Do yourself a favor, besides reading Robert, pick up Friedman (Hot, Flat and Crowded) and Rubin’s Why Your World is About to Get a Whole Lot Smaller. Data Benny, data. As for biofuels. First generation ethanol a FLOP. Second generation an improvement, but still a stretch. And I have to disqualify myself on third generation – I am completely biased. However, I will say that RR’s essay above could not be more accurate.

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By rufus on March 25, 2010 at 5:30 pm

First gen. biofuels are supplying 9% of our fuel for our personal transport. Corn ethanol is selling for $1.55 in Chicago, today. And, that is before any “Blender’s” Credit is applied.

Doesn’t sound like a “flop” to me.

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By od on March 25, 2010 at 6:06 pm

All of those countries that Benny thinks will shift to altneratives can’t begin to afford it.

That’s interesting. The countries that Benny has listed are the ones that people have been saying will push demand much higher in the future. So, they are going to be able to afford even more oil at a much higher price, but they will not be able to afford any alternatives? Why is that? That, to me, seems to be a contradiction.

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By Kit P on March 25, 2010 at 6:09 pm

Can we assume Rufus that none of that
9% is coming from successfully executed RR business plans?

Sour grapes makes for a poor fuel.
Spend all your time studying failure and you still will not know how
to succeed.

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By Optimist on March 25, 2010 at 6:47 pm

Nations with leadership will reduce their exposure to such thug states.
Nice dream, Benny. Unfortunately reality is quite different. As the last 40 years of USA “leadership” have shown.

BTW, I agree, RR was WAY TOO pessimistic when he wrote about the end of cross-country driving. There are several factors in play:
1. How much are you willing to pay for the priviledge? At the right price the drive will always be available. Might be kinda lonely out there, though.
2. Volatility. In some ways consistently high oil prices would be the best thing for us oil buyers, as it would encourage workable alternatives, while smoking out the pretenders. But that up and down really hurts the development of alternatives.

Long term, though, it’s hard to disagree with RR: Oil prices aren’t coming down.

First gen. biofuels are supplying 9% of our fuel for our personal transport. Corn ethanol is selling for $1.55 in Chicago, today. And, that is before any “Blender’s” Credit is applied.
Let’s scrap the blender’s credit and the mandates. I think you know what happens next, Rufus. But I guess your lobbying gig pays pretty well…

Sour grapes makes for a poor fuel.
Vintage, Kit, adding nothing, as usual. Keep it up, Kit. I expected nothing more from you!

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By rufus on March 25, 2010 at 6:57 pm

Interestingly, Kit, the ethanol business is, basically, “amateur hour.” Small businessmen, and farmers. Their business model seems to be, “well, what do we do now?” Financing has been “feast, or famine,” and sales and distribution of their product has been at the mercy of those who most want to see them destroyed.

Two Horrible growing seasons, a brilliant campaign by their enemies to enlist the enviro-nuts, and a gut-wrenching plunge in Oil Prices, and they’re still alive, and doing reasonably well. Remarkable.

And, now, E10 is selling for between $0.10 and $0.13 below the cost of E10. That pays for the $0.045 tax credit, and the $0.055 for 2% loss of mileage, and still adds value. Quite a good story.

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By Kinuachdrach on March 25, 2010 at 7:09 pm

You can trust a thug state to do just two things: Screw themselves. Screw you.

Well, Benny, looks like you & I are living in a Thug State now. Government passing giant tax increases (OK, they call it “health care reform”, but we all know the truth) in the middle of what is shaping up to be a double dip recession, over the strongly expressed opposition of most of the people. That Saudi government looks better all the time, in comparison.

Which leads to RR’s & Sam Avro’s great point — don’t rely on subsidies. We are fast approaching “Peak Government”, and most of our debt-addicted over-spending governments are not going to be able to tax enough or borrow enough to keep the goodies coming.

Here’s an interesting thought experiment — Nix all subsidies and mandates (post-Peak Government). What “alternate” fuels will we be using?

Obviously, new wind construction would die immediately. Solar would take a big hit, especially photovoltaics, although some niche use would continue. Biofuels would shrink to a small niche.

We could expect to see rapid build-out of the remaining hydropower opportunities (screw the fish); massive increase in coal, as RR has repeatedly observed (screw the Alleged Anthropogenic Global Warming scam); and a big increase in nuclear power.

So what are we getting from subsidizing “alternate” energy today? Except for pumping money out of the pockets of ordinary people and into the pockets of the politically well-connected?

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By Kinuachdrach on March 25, 2010 at 7:13 pm

And how come some people get to post by adding 2+2, while others have to do a Fourier transform? Is someone trying to tell me something?

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By Benny BND Cole on March 25, 2010 at 8:36 pm

RR & Others–

I did not say the US would wean itself off oil. I said countries with leadership would. Actually, oil demand has been falling in the developed world for decades, a process that may accelerate.

Yes, crude prices are higher than the lows of the late 1990s, but are still lower than the late 1970s (adjusted for inflation). RR has terrific insights into oil markets–and is appropriately a conservative and cautious forecaster. I think RR tends to error on the side of caution, as a rule. Indeed, we should follow RR’s advice, and be ready for higher oil prices, and we should plan our energy programs accordingly–but I think there is a good chance higher prices won’t happen.

Ironically, one way to nearly make sure that higher oil prices do not happen would be to reduce our oil consumption, through much higher gasoline taxes, and promotion of PHEVs and CNG within appropriate levels.

(BTW, KINU–I would advovate lower income taxes to balance the higher gasoline taxes. But even Milton Friedman advocated consumption taxes over income taxes. It is a right-wing thing to do)

But, as I said, that would require intelligent leadership.

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By Kit P on March 25, 2010 at 9:11 pm

“Quite a good story.”

Like our annual road trip to visit our
son out west. Again, this is the 100+ trip and I think it is a great
American tradition. The only thing odd was the number of camping
trailers on top of an upside tow vehicle on dry days with little
wind. I attribute this to the number of over powered SUV pulling
camping trailers too fast. The hated VW van dead ¾ the way up
a steep grade has been replaced by RV doing 80.

We try to spend ½ the day
avoiding the interstate. Finding a lonely road to explore is not as
easy as it used to be.

Planning consists of avoiding rain and
flooding. Last year we went north and came south. The year before
the opposite. This year I plan to go through Wise County to see the
tragedy of strip mining on the way to West Virgina. It is not like
we have not taken that route but all we noticed a beautiful rural
areas but that was before told us of the horror of it all.

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By savro on March 25, 2010 at 9:12 pm

Kinuachdrach said:

Here’s an interesting thought experiment — Nix all subsidies and mandates (post-Peak Government). What “alternate” fuels will we be using?

Obviously, new wind construction would die immediately. Solar would take a big hit, especially photovoltaics, although some niche use would continue. Biofuels would shrink to a small niche.

We could expect to see rapid build-out of the remaining hydropower opportunities (screw the fish); massive increase in coal, as RR has repeatedly observed (screw the Alleged Anthropogenic Global Warming scam); and a big increase in nuclear power.

So what are we getting from subsidizing “alternate” energy today? Except for pumping money out of the pockets of ordinary people and into the pockets of the politically well-connected?

As intriguing as your post-Peak Gov’t world sounds (and I’m coming to love that term), I think we’d be shooting ourselves in the foot if we cut off all subsidies completely.

Like I said earlier, subsidies are very important –if used in the correct manner– especially for start-ups and emerging tech. The problem lies not with the overall concept of providing subsidies to enable the development of new technologies and products that would never come to fruition unless extended a crutch to lean on during their birthing and infancy, but in the freedom of how the subsidies are distributed (lack of any oversight) and in the length of time that they’re allowed to remain in place.

P.S. if you’re registered and logged in you won’t need to have a calculator handy for the 2+4 question. The spam protection feature was just switched off for registered members.

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By paul-n on March 25, 2010 at 9:40 pm

This business of chasing subsides/grant money is what has led to most of these bad assumptions being made. Companies can always try to mislead investors, but somehow when there easy government money involved, the investors are effectively able to pass the risk off to the government (i.e. Range Fuels)

There are plenty of countries that have shown leadership to get themselves off oil, or not get onto it in the first place – such as Sweden, Japan, their economies operate at almost half the per capita oil consumption of the US. Even Australia, (similar land area and “lifestyle” to US) uses only 2/3 oil per person.
Canada uses more, and in that regard is little better than most other oil exporters. Canada is as addicted to oil (exports) as the US is to imports.

I tend to agree with Kinu’s reasoning, get the government out of the fuel mandate/subsidy business and then see what happens. There must still be appropriate environmental/safety measures, be they for coal mining or vehicle exhaust, but once you have set the rules, let the payers play them. I suspect we would still have corn ethanol, until food shortages elsewhere in the world mean it is again worthwhile to export corn as food.

There will be some good niche markets, like food waste to ethanol, waste oil to biodiesel, in fact waste anything to useful energy is a good thing. Ultimately, i think we’ll start to see a lot more intelligent use of “waste” of all sorts, especially sewage effluent and sludge. This stuff has been largely ignored by agriculture as you can’t really use it for food crops, but it is perfect for biofuel crops, you just have to get it to them.

But biofuels of all stripes just can’t supplant oil at anything like current levels of consumption, and for all the efforts to make them, there is relatively little real effort going into reducing demand for transport fuel in the first place.

Business as usual will continue with changes at the margin, until either a major innovation happens in transport, or a major supply shock happens in oil supply. Until either of those events occur there is little real motivation to change.

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By rrapier on March 25, 2010 at 11:50 pm

“Sour grapes makes for a poor fuel.”

That’s something anti’s do, Kit. Throw out misguided barbs while adding nothing to the conversation. What was it you once said? Focus on the positive? When was that last time you found yourself doing that? You love to whine about negativity, yet can’t see the irony in that negativity permeates nearly everything you write.

“Spend all your time studying failure and you still will not know how
to succeed.”

Hey Kit, did you ever have a look at any of my patents? I don’t suppose you have your name on one of those, eh? No, I imagine you are too busy mocking those with your confused definitions of success and failure. Keep in mind that my track record is public. You are just some anonymous hack throwing barbs on the Internet and making claims that nobody can substantiate.

RR

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By russ on March 26, 2010 at 12:54 am

RR – Not to worry – Kit P does the same on other sites İ read as well. Probably comes from getting old without achieving anything positive.

The development of the direct reduction process for iron ore is a great study for what you are describing – Worked on for ever while many big boys tried and failed (US Steel, Davy McKee, Exxon, Krupp, Thyssen, Allis Chalmers, Purofer) and by luck two small companies managed to put it together.

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By anan on March 26, 2010 at 5:02 am

We are no where near peak oil. Iraqi oil production is likely to rise to 12 million barrels/day from 3 million barrels/day + add shale oil + add oil sands + add unpredictable technological innovation + add new exploration in many parts of the world that have seen little exploration.

Also note that the primary competition for biofuels comes from LNG, not oil. LNG at $4 per thousand cubic feet = the equivalent of $22/barrel of oil.

How can any 2nd or 3rd Gen biofuel compete with LNG?

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By rufus on March 26, 2010 at 9:11 am

200 Million people run their cars on 9% Ethanol. How many run their cars on any % LNG?

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By od on March 26, 2010 at 11:42 am

We are no where near peak oil. Iraqi oil production is likely to rise
to 12 million barrels/day from 3 million barrels/day + add shale oil +
add oil sands + add unpredictable technological innovation + add new
exploration in many parts of the world that have seen little exploration

That might be true if you believe the peak to be 50% of oil in place is reached. Indeed we are not near that, but if you believe peak oil means a peak in production, I believe we have either reached that or will within 5 years. All those things you listed are well and good, but they will just be replacing the decline in exsisting fields. I think the chances of Iraq pumping 12mbd is about the same as Saudi doing it… not very likely!

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By paul-n on March 26, 2010 at 1:39 pm

I would add that the chances of any real production of oil from shale, at anything less than $200/bbl are pretty much zero.

Anan, LNG (or CNG) is a viable alternative to gasoline, for sure, and yes, it has to compete with ethanol, biodiesel, DME and any other alternatives. And, much as I wish it were otherwise, NG is just not making any real headway for vehicle fuels. It is growing for dedicated fleet vehicles, and we may see some use for fleet trucks and trains. But just because it is $22 equivalent is meaningless. Like any other fuel, you then have to get it to the vehicle drivers, in a form they can use (compressed or liquefied), and add in your retailing margin, pay off the compression equipment etc.

Look up prices for CNG, at the pump, and you will find it is about 2/3 that of gasoline, not 1/4 as the $22/80 would suggest.

The biofuels can compete because they are liquid fuels and require little or no changes to vehicles or fuel storage/delivery systems. CNG requires significant changes to both. Not that it can’t be done, and I’d like to see it, but there is a non trivial up front cost to create the system. Biofuels fit right into the existing system and that’s why they are actually winning over CNG today.

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By Kinuachdrach on March 26, 2010 at 2:50 pm

“subsidies are very important –if used in the correct manner– especially for start-ups and emerging tech”

OK, Sam — the key question. Name some successful currently tax-paying technologies that benefited from subsidies? 3 or 4 would be fine, but don’t hesitate to list more.

But really, this discussion is academic. Peak Government is almost upon us. US Social Security goes cash flow negative this year. The last couple of US Government Bond auctions have been disappointing. Astonishingly, investors now see corporate bonds as less risky than US Treasuries. And the Administration still plans to spend 50% more this year than it takes in. Let’s not even talk about the financial meltdowns in Iceland, Ireland, Spain, Greece and the UK.

Governments which are being forced to cut social spending are not going to keep on subsidizing Big Ethanol or Big Wind. Not for long.

Still, as an academic discussion, there is certainly a case for carefully-structured taxpayer subsidies. Back in the 18th Century, the UK Government got a great return from its Longitude Act prize — big bucks to the first guy to build a reliable timekeeping device for maritime navigation. The Ansari X-Prize certainly stimulated commercial activity in space. The key is to dis-empower the bureaucrats. The Government defines the objective criteria it wants to have met, and leaves it to entrepreneurs & inventors to figure out how to get there. This stimulates creativity & innovation. In contrast, bureaucratic subsidies tend to freeze technology, and lock out innovation.

Mandates are worse than subsidies, because they hide the costs. But one form of mandate which works is for the Government to mandate itself to create a new market. A good example is the US Air Force committing to buy jet fuel from alternate sources at above (fossil) market prices, through competitively awarded contracts.

Taxpayer support for basic research has also laid some very good foundations in the past. However, President Eisenhower warned in his famous 1960s “Military-Industrial Complex” speech about the dangers of political control of scientific research, if politicians & bureaucrats become the main source of research funds. Certainly, the disgusting mess of what is jokingly called “Climate Science” shows just how right Eisenhower was. We need to find a less politicized way of providing taxpayer support to basic research — maybe giant tax-breaks to private sponsors of research?

howver, this is all academic. As Peak Government hits, the politicians will be looking for sources of tax revenue, not places to subsidize. That is part of the reason that Euroland has such a dismal record on energy innovation, and why the EU is by far the largest fossil fuel importer in the world – governments need to keep those high fossil fuel taxes coming.

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By klr on March 26, 2010 at 3:02 pm

Rufus said:

I don’t know, Benny; if you look at the oil “megaprojects” data at wikipedia it looks like 2010 will be the last year in (maybe, the history of the world) that oil brought online will equal the decline from existing wells. And, China, India, Opec “Demand” doesn’t look to me as if it has any intention of stalling.

For the 2010 Peak Oil Report Skrewbowski provided larger numbers than what is in the Wiki.

	ITPOES	ITPOES Net	Wiki	Diff	Wiki Net
2009	6200	2200	4742	1458	1024
2010	5700	2100	3240	2460	-515
2011	3200	200	3114	86	-679
2012	3400	-200	2275	1125	-1556
2013	4400	300	2400	2000	-1469
2014	4200	200	2050	2150	-1858
2015	2400	-1200	2530	-130	-1417

Net for Wiki assumes 3718 kb/d decline in 2009 growing by 1%/year thereafter. Net for ITPOES was provided in their paper I think; it is much steeper than my figure, which I’m taking from the TOD WEO 2008 analysis.

Excellent site: http://www.iangv.org Their stats section has country by country details of NGVs 2002-2008 and overall fleet size.

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By rufus on March 26, 2010 at 3:30 pm

Kinu asked,

“Name some successful currently tax-paying technologies that benefited from subsidies?”

Easy one. The U.S. Oil industry. Why DO you suppose they formed the “Texas Railroad Commission,” and passed the “Oil Depletion Allowance?”

Or, gave them a tax credit on profits made overseas, or gave them $13 Billion for “Deep Sea Drilling?”

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By savro on March 26, 2010 at 4:13 pm
Kinuachdrach said:

OK, Sam — the key question. Name some successful currently tax-paying technologies that benefited from subsidies? 3 or 4 would be fine, but don’t hesitate to list more.

The argument here isn’t whether the subsidies are being managed in the correct manner. I think most of us are in agreement that it’s a total free-for-all.

All I’m saying is that subsidies can be an essential component for keeping an industry afloat during trying times or lending help in the short-term for a developing technology to become viable in the long-term.

Absent of any clear-cut rules and goals, the concept of subsidies is pretty foolish. Companies end up depending on subsidies and other forms of government assistance as if Uncle Sam is really their rich uncle.

While reading up on the subject of subsidy accountability, I came across the following information which I hadn’t seen previously:

The Minnesota Solution: Subsidy Accountability

Minnesota’s first-in-the-nation subsidy accountability law requires:
- Communities and public agencies that provide economic
  development subsidies must develop uniform criteria for all their subsidy deals, including a specific wage floor for these jobs;
- Public hearings must be held before business subsidies worth more than $100,000 are awarded;
- All businesses receiving more than $75,000 in loans or $25,000 in other subsidies must enhance jobs or create a net increase in jobs in Minnesota within two years; subsidies to retain existing jobs are permitted only if the job loss is “specific and demonstrable;”
- Businesses receiving subsidies must continue operations on the site for at least five years;
- Businesses that fail to meet job creation and wage goals must repay the subsidy with interest and face other financial penalties, and be barred from receiving future subsidies in the state;
- Subsidy agreements, including the type, public purpose, and amount of assistance, as well as specific job and wage goals and the date they need to be reached must be disclosed annually to the public;
- Progress in achieving the goals of each subsidy and information on businesses that did not meet goals must also be disclosed.
Make sure to read through the “Results So Far” portion on the following link: http://www.drummajorinstitute
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By od on March 26, 2010 at 4:48 pm

I would add that the chances of any real production of oil from shale, at anything less than $200/bbl are pretty much zero.

I believe Anan was referring to shale oil and not oil shale, the former being stuff like the Bakken and the later well.. not really oil at all and to which you are correct.

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By od on March 26, 2010 at 4:56 pm

Net for Wiki assumes 3718 kb/d decline in 2009 growing by 1%/year
thereafter. Net for ITPOES was provided in their paper I think; it is
much steeper than my figure, which I’m taking from the TOD WEO 2008
analysis.

I wonder why there is such a huge discrepancy? If i’m readin the numbers right, ITPOES figures have production being 3.6mbd higher in 2015 than today, after depletion is deducted, is that correct? So we may have a new peak?

Wiki is saying we will be in the red by over 6.4mbd in the same time frame.

Who to believe.. very interesting.

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By paul-n on March 26, 2010 at 5:18 pm

Sam, That Minnesota scheme sounds like a hell of a lot of paperwork on the part of the subsidy receiver. I look at that and think that the subsidy is not worth the onerous conditions attached to it. For exaample, the requirement to carry on business at that site for five years. What if conditions change and that site is now losing money? By accepting this subsidy, a director could put the company in a position where it could be forced to operate while going broke – wonder what the shareholders (and corporate lawyers) would have to say about that?

Or requiring a minimum wage level? What if market rates drop, and labour is available cheaper? Again, the company is unable to react to market conditions.

In effect, the company has to accept political goals and give up some degree of management and control of their own affairs – you are doing business then for the benefit of the government, not the company.

This suggests this type of subsidy program is a really a job creation one, and what it the value in that if there is no real need for the job – you are then destroying wealth.

The Minnesota government should take a harder look at what, exactly, it is subsidising and why. If it does not need to subsidise things then it might consider lowering its taxes and letting the private sector create jobs -they are much better at it.

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By rufus on March 26, 2010 at 5:20 pm

KLR,

I had never read that link, Thanks.

Let’s face it, just about All analysis leads to the same place. We’re going to be getting “short” fairly soon: and, “how soon” depends a lot on China, and the rest of the non-OECD.

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By paul-n on March 26, 2010 at 5:30 pm

Rufus, that’s two, count ‘em, two, posts in a row where you have NOT mentioned, or referred to, ethanol! I think that deserves a shot of Jack Daniels (which is an example of a successful, non-subsidised ethanol business)

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By rufus on March 26, 2010 at 7:08 pm

Best idea all week.

*Hic*

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By petes on March 26, 2010 at 7:42 pm

Kinu wrote:

Back in the 18th Century, the UK Government got a great return from its Longitude Act prize — big bucks to the first guy to build a reliable timekeeping device for maritime navigation.

If I remember right, they then reneged on the prize, and attached all sorts of post hoc qualification conditions to it. Poor old Harrison eventually got the prize, but decades later when he was in his old age.

Hopefully future prize-givers will realise that approach only works once.

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By Kinuachdrach on March 26, 2010 at 9:56 pm

“If I remember right, they then reneged on the prize”

You do indeed remember correctly. Never underestimate the ability of the Political Class to screw things up good & proper — even though the Political Class of 18th Century England were giants of virtue compared to the sleazeballs of today.

Then ask yourself — why would I want the current kind of politician anywhere near something as important as energy supplies?

If alternate energy is to get out of the gutter, it first of all has to give up its hopeless addiction to subsidies.

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By Kinuachdrach on March 26, 2010 at 10:04 pm

Rufus wrote, of industries created by subsidies: “Easy one. The U.S. Oil industry”

Sorry, Rufus. Go straight to jail. Do not pass Go.

There is no shred of evidence — none, nada — that the Pennsylvania oil industry got started via subsidies to consumers. Indeed, just the reverse. The “Rock Oil” industry got going in the Mid-19th Century by offering people a cheaper cleaner alternative to whale oil for lamps. (You did know, Rufus, that the oil industry saved the whales from being hunted to extinction for their oil? Let those useless poseurs in Greenpeace eat their hearts out!)

Now, if Big Ethanol could offer consumers a product that was cheaper & cleaner & more convenient than gasoline (without subsidies or mandates), then we would not be having this discussion. But you knew that, Rufus.

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By Kinuachdrach on March 26, 2010 at 10:22 pm

Paul N suggested, of Minnesota: “If it does not need to subsidise things then it might consider lowering its taxes and letting the private sector create jobs …”

Don’t forget regulations, Paul. Regulations may be having an even more deleterious effect on employment and tax revenue than “Wrong Side of the Laffer Curve” tax rates. It is so much easier to move the business to China than to deal with Minnesota’s bureaucrats.

But now that we are on the brink of Peak Government, it might be worth considering what comes next.

Bankrupt countries can’t afford to pay for imports, and bankrupt governments can’t afford to pay unemployment benefits. As the central Administration collapses into well-deserved oblivion, it is possible that cities & entire states will rip a page out of Berkeley’s book. Instead of declaring themselves a sanctuary for illegal immigrants, jurisdictions will start to declare themselves sanctuaries for industry. Regulations will get thrown out; coal will get dug up; minimum wages will get tossed on the trash-heap; industries will grow up to produce replacement products for now-unaffordable imports; jobs will get created; and the phoenix will rise from the ashes — looking a little bit like the 19th Century.

That’s the optimistic scenario.

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By rufus on March 27, 2010 at 12:10 am

As I posted earlier, Kinu, E10 is selling for $0.13 Less than E0. That’s a better deal for the consumer however you want to figure it.

Deduct $0.045 for “subsidy to oil co., and $0.055 for 2% less mileage, and it beats straight gasoline, hands down.

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By armchair261 on March 27, 2010 at 12:31 am

Rufus,

“Why DO you suppose they…. passed the “Oil Depletion Allowance?” Or… gave them $13 Billion for “Deep Sea Drilling?”

Possibly to stimulate additional investment in US oil and gas exploration?

I think you confuse a freebie with an incentive. Without these programs, domestic production would almost certainly be less than it is today. How much less I don’t know, but if you tell oil companies that they suddenly will be paying less taxes if they conduct deep water exploration, you’ll see the marginal field size reduced, and more wells drilled, in deep water.

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By paul-n on March 27, 2010 at 1:08 am

Kinu, I think that Peak government would be a good thing, although past episodes of peak government (English Civil War, French Revolution etc) have ended badly for the Political Class, although the American one was relatively clean.
The day the government realises they don’t need to do everything, and try to please everyone we’ll all be better off.

The subsidy just described is a good example of excessive regulation, though nothing can compare to California for this.

As for John Harrison (the longitude guy) he never actually got to “win” the prize, as the Board of Longitude kept on playing silly buggers – in the end it had to come via a special Act of Parliament. I do believe most insurance companies follow this business model, of delay until you are ordered to pay, and hope the claimant dies in the meantime.

I learned the other day that there was no income tax in the US until 1913, and only then by constitutional amendment, as it was expressly forbidden. Amazing to think the country prospered, greatly, for 140 years without excessive taxation and intervention – what a concept!

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By paul-n on March 27, 2010 at 1:08 am

[double post - too many JD's]

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By Douglas Hvistendahl on March 27, 2010 at 8:34 am

This would be worth running some scenarios on. If it can be gotten out of the lab into the real world, it could make a useful way to use up all the off-hour kilowatt-hours that we produce or can produce. Especially if combining it with Nocera’s more efficient electrolytic production of hydrogen allows turning carbohydrates into hydrocarbons.

At present, anything along these lines needs many assumptions!!!

http://www.energyboom.com/emer…..clean-fuel

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By Kit P on March 27, 2010 at 8:37 am

“Name some successful currently tax-paying technologies
that benefited from subsidies?”

Easy number two, nuclear power. Today there are 104 cash machines
making electricity at 20% of the cost of making electricity with
natural gas on a good day for natural gas prices. Fifteen years ago
some nuke plants were closing because they could not compete.

When and when new nukes get built in the US depends on the
federal, state, and local incentives provided. Incentives provide
confidence to investors that the government is not against the
project.

Incentives are also justified because they taxpayers. Providing a
property tax break on a nuke benefits local tax payers. Having
stable electricity rates benefits the state.

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By Douglas Hvistendahl on March 27, 2010 at 8:48 am

BTW, not all alternatives are impractical. I’m running summer fans connected to a thermostat to move air through the basement and into the house during warm weather. Cheap cooling – and the dirt under the house (2″ under the surface) is 3 degF warmer than last year at this time. After a few years, I no longer have any problem with pipes in the basement freezing. (Old house)

I think with inflation on the horizon, some investing into low cost solar heat designs can pay off. At least it has for me! )

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By Kinuachdrach on March 27, 2010 at 9:53 am

Kit P proposed another energy source stimulated by consumer subsidies: “Easy number two, nuclear power”

Well, Kit, there has not been a number one yet, since Rufus’ suggestion of Oil failed the reality test.

Nuclear power certainly benefitted from taxpayer support for the basic physics. However (and please correct me if I am wrong on this), commercial nuclear power did NOT get subsidized prices for consumers, mandates on utilities that they had to buy all the electricity produced by nuclear power plants whether needed or not, and further mandates forcing the utilities to pay the highest price they would pay to any other producer (or more). The situation was quite the reverse at the beginning – people were talking about nuclear power plants generating electricity which would be too cheap to meter.

So, no, nuclear power was not stimulated by consumer subsidies.

After the first flush of nuclear enthusiam, left-wing politicians passed laws designed to allow obstruction, and wealthy extremists paid high-priced lawyers to throw sand in the gears. The first nuclear power plant built in the US took 5 years to build – the last took 25 years. Interrupting construction once money has been invested and forcing redesigns half way through construction are good ways to render any project uneconomic. Current “subsidies” for nuclear power are really just insurance against more politicial interference from those extremists who want to keep us all poor & hungry.

So we are still waiting for any now-successful technology which was originally stimulated by the kind of consumer subsidies given today to Big Wind and Big Solar and Big Ethanol.

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By Kinuachdrach on March 27, 2010 at 11:45 am

Some more on the dead hand of bureaucracy. Are greenies now reaping what they sowed?

http://www.greentechmedia.com/…..ling-solar

“… “We want to avoid BLM,” said Rob Morse, the finance director for Mojave. …”

“… Although Secretary of the Interior Ken Salazar and the Department of Energy have promised to streamline federal land use policies, environmental regulations and bureaucratic inertia tip the balance in favor of going after private land and circumventing the feds whenever possible. The regulatory tangle in some states, perhaps most notably in California, is also hampering the industry. …”

“… Citing a Lawrence Berkeley Laboratory study, Muller said that soft costs like paperwork consume 30 percent of the budget for commercial projects and 40 percent of residential projects. …”

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By paul-n on March 27, 2010 at 12:17 pm

Kinuachdrach said:

The regulatory tangle in some states, perhaps most notably in California, is also hampering the industry. …”

That is why Texas is way ahead of California for wind energy, and probably will be for solar too. One company, whose name escapes me, was looking at a wind energy site in Texas, and another one in California. Three month approval process in T and three years in C, more if someone starts a lawsuit to slow you down, which they always do. Guess where they went?

This is one of the problems for renewables – the regulatory and legal minefield is the same whether your project is 10MW or 1000MW, and other than hydro, there are no renewable projects in the hundreds or thousands of MW. So you go through the same pain for less gain.

I am a bit surprised that Berkeley came up with 30% for paperwork, though in California that may be true – someone has to pay for Berkeley to do these sorts of studies.

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By takchess on March 27, 2010 at 12:21 pm

Companies who are looking for technological breakthroughs and trying to figure it out is the domain of the Venture Capital Community. High Risk High Reward . By definition, failure should be rampant. If I was a VC , I would want the government to pick up this costs. As a taxpayer, I don’t think it’s a great idea.
Bad assumptions regarding economic price of oil and biomass is an avoidable risk. I’m not sure that the technology risk of scaling lab experiments to larger scale and misestimating the learning curve is avoidable. How do we avoid this better engineering ? better research? limiting the scope and expense of the production plants? perhaps it can be better managed . Reusing of older failed plants for new ventures. It seems this is what LS9 is doing here spending 2 million on a 80 million book value company. Smart business perhaps the influence of Chevron?
http://www.greentechmedia.com/…..in-diesel/

Is part of this people overly investing in bad ideas a sign of a poor market of places to invest money that are not energy related ?

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By rufus on March 27, 2010 at 12:45 pm

Part of it, I imagine, is just that Companies are “Cash Rich,” right now. Corporate Profits Surged to $1.47 Trillion in the 4 th quarter.

http://www.bloomberg.com/apps/…..rqXG5sfGeY

They can’t “Sit on” that Cash, forever.

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By takchess on March 27, 2010 at 3:48 pm

Rufus,
An interesting point . In the book talent is overrated, the authors speaks to excess cash being used to buy back stock as a shortage of ideas of how to make money in your own company…

Hopefully this link works

http://books.google.com/books?…..mp;f=false

an interesting book if you like this sort of thing.

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By Takchess on March 27, 2010 at 3:56 pm

Rufus,

As an IT sales person, that is the best news I have seen in a long time. Thanks for posting it.

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By rufus on March 27, 2010 at 5:08 pm

You’re welcome, Takchess.

While I’m at it, I’ll give you a little bit more “Good News.” Tax collections are picking up, and Uncle Sam will be borrowing quite a bit less money from here on out. That means the Banks will have to start making an honest living again (lending to businesses, and the public.)

That means “Hiring.”

Even with higher gasoline prices the economy is starting to “look up.”

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By Kit P on March 27, 2010 at 9:33 pm

“please correct me if I am wrong on
this”

Pretty much Kinu. The first commercial
reactors were small (50-75 MWe) prototypes and similar to navy
reactors. GE, Westinghouse, and Combustion Engineering all had big
navy contracts too. This was before my time so I did not track the
money.

“people were talking about nuclear
power plants generating electricity which would be too cheap to
meter”

Which people? Not the people at
utilities that made electricity. All the current nuke plants
operating were built by regulated utilities. If your utility did a
good job of building power plants and operating them, you had lower
rates than poorly managed utilities. The first Gen II nuke plants
made nuke power look easy with reasonable costs.

Kinu is correct when he says that a
huge number of Gen II nuke plants were ordered because of the
reasonable costs factor. Too many were ordered because demand growth
was overestimated. At least 1/3 of the canceled orders occurred
before TMI. High inflation rates during construction and design
modification further increased the cost of nuclear.

In any case, until recently Gen II nuke
plants had higher O&M than coal. The current subsides for a few
new nukes are similar to those for renewable energy. They were put
in place by the Bush administration to restore the nuke option for US
generation. It is a coincidence that nuke plants now have a lower
O&M than coal.

“Big Wind and Big Solar and Big
Ethanol”

Sorry there is only tiny solar,
insignificant wind, and small ethanol. Since the cost associated
with wind and ethanol are very reasonable, I would characterize
current incentives as good investments for American tax taxpayers
which keep are options open.

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By Kinuachdrach on March 27, 2010 at 10:51 pm

“people were talking about nuclear power plants generating electricity which would be too cheap to
meter”

Before my time, Kit. My understanding is that the technology of the time required meter readers, physically reading meters every month. The nuclear boosters claim was that the marginal cost of electricity would be so low that electricity would be like local phone service — just pay a fixed monthly charge, regardless of use. Save the costs of having meter readers for domestic users. Of course, it never happened.

But if you were there and saw things differently, I bow to your direct experience.

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By Wendell Mercantile on March 27, 2010 at 11:11 pm

Corn-based Ethanol Divides Obama Cabinet

On one side is Energy Secretary Steven Chu, who has been a long-time opponent to the corn-based gas. When asked about his favorite “blue-sky technology” in a Newsweek interview released today, Chu listed “a new generation of biofuels that are direct substitutes for gasoline—so, better than ethanol—using agricultural waste: weed straw, rice straw, corncobs, wood surplus.” Ouch.

That puts him at odds with USDA Sec. Tom Vilsack, an Iowan and fervent ethanol supporter, and with the American Coalition for Ethanol, a powerful lobby and strong Obama backer.

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By rufus on March 28, 2010 at 8:38 am

John McCain ran against ethanol, and not only lost the “battleground” states of Iowa, and Ohio, but even lost the traditionally Solid-Red State of Indiana.

I doubt seriously that that result was lost on Obama.

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By Kit P on March 29, 2010 at 8:36 am

Kinu

The too cheap to meter argument is most
often made by anti-nukes who claim that the nuke industry lied and
nukes are subsidized. Most discussion about things being subsidized
are emotional and not based merit or good policy. The arguments Kinu
makes sounds very similar to anti-nukes except Kinu is anti-ethanol.

For all practical electricity made with
gas, coal, or nukes is too cheap to meter. Imagine, if you will, a
menu like at a fast food restaurant or movie theater that allowed you
to use an honor system to pay for your energy use. It would look
like this.

Use a refrigerator for a day: 15 cents

Take a hot shower: 10 cents

Take a long hot shower: 15 cents

Run the AC for a day:: 50 cents

Heat your house for a day: $1.00

Keep your house toasty warm for a day:
$1.50

Then there are the clueless: Keep your
house toasty warm for a day while heating the neighborhood: $50.00.

In the context of the building boom for
nuke plants we used lots oil to make electricity and heat our homes.
I could buy four gallons of gasoline with my minimum wage job at a
gas station. My mom’s house has been converted from coal oil for
heat. It was in northern Indiana and had no insulation whatsoever.
Ten years later when I was getting out of the navy, heating oil had
increased by a factor of ten. Her heating cost were more than her
monthly income.

In Virgina, my off base house (fully
insulated) was also heated with oil. Thanks to POTUS, I could not
afford to heat my house either. I know others that lived off base
had a $1000 higher bills.

If you lived on base, energy was too
cheap to meter. Base housing did not have meters. We visited some
friends in base housing in New England. The curtains would flutter
when the wind blew.

So you could say that living off base
was subsidizing the navy’s energy costs. However, since my house
increased in value $10k per year I was better off in the long run.

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By Wendell Mercantile on March 29, 2010 at 10:07 am

John McCain ran against ethanol, and not only lost the “battleground” states of Iowa, and Ohio, but even lost the traditionally Solid-Red State of Indiana.

Rufus~

Corn Belt politics has always been what’s wrong with corn ethanol. Had corn ethanol been allowed to make it or fail based solely on thermodynamic merit, we wouldn’t be burdened now with the corn ethanol albatross.

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By Kinuachdrach on March 29, 2010 at 10:38 am

“The arguments Kinu makes sounds very similar to anti-nukes except Kinu is anti-ethanol.”

Not anti-ethanol, Kit. Anti subsidized mandated ethanol.

For the record, I am also anti subsidized mandated wind factories, and anti subsidized mandated solar.

If anyone could prove that unobstructed nuclear would be a net tax-subsidy recipient over its life cycle, I would be anti that too.

Basically, I am against technologically-uneducated & economically-illiterate politicians & bureaucrats & environmental extremists dictating that our scarce resources get diverted away from productive use into unsustainable schemes to pump money from the pockets of ordinary people into the pockets of Friends of the Administration.

If fuel ethanol could survive & grow without mandates & subsidies, I would be very pleased.

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By Kit P on March 29, 2010 at 8:04 pm

“If anyone could prove ..”

Good luck with that!

“pump money from the pockets of
ordinary people into the pockets of Friends of the Administration.”

Do you regularly question people
ethics? You do a lot of name calling without being well informed.

I get tired of productive people who
work hard being called names. Wind farms produce electricity. Wind
farms produce electricity cheaper than the natural gas generation
they offset. This reduces the price of natural gas benefiting all
Americans.

It is pretty cheap to throw up SSGT and
charge Kinu what the freight. If you live in California or Texas do
not blame mandates from the high prices of electricity. It is the
cost of NG.

A similar story with ethanol. It looks
like better policy every years.

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By Kit P on March 29, 2010 at 8:47 pm

Texas and California are icons for bad
assumptions. Both states assumed that deregulation and low NG would
keep electricity cheap.

In Texas, a small mandate for wind got
the ball rolling about 1998. By offsetting NG they can sell the NG
to California.

California has a huge mandate for
renewable energy. California has demonstrated that it is more
economical to supply renewable energy from wind in other states.
California has done a good job of creating jobs and tax base in other
states.

The first 25 new nuke plants are a no
brainer. Well maybe, what if a boat load of $2/MMBTU NNG is
discovered or demand drops 1% a years even after the economy
recovers. Show me a town with 2 reactors and I will show you a town
that wants 4 reactors. Each new reactor brings 500 high paying jobs
and $15M in annual property taxes.

Two new reactors will be in Texas and
no new reactors will be in California.

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By paul-n on March 29, 2010 at 11:55 pm

Kit wrote

“Texas and California are icons for bad
assumptions. Both states assumed that deregulation and low NG would
keep electricity cheap.”

But at least both states actually deregulated. So customers learn that using too much electricity for their AC and swimming pools causes rates to go up – who knew?

We have deregulated markets for houses, food, oil, stocks, even money, so why should electricity be any different? Surely you would agree, Kit, that having deregulated electricity, so suppliers can
choose to sell, or not, and customers can choose to buy, or not, at the market rates, is a good thing.

One Canadian province (New Brunswick) is now paying the price of years of cheap, regulated power, because they did not make enough to properly maintain the generators (including one nuclear plant) and no one was willing to invest in new ones because their was no money in it.

So now the provincial utility is deep in debt, has a shut down nuke with massive refurbishment cost overruns, and no one, not even Quebec hydro, willing to invest. The ratepayers will probably face a 100% rate increase over the next few years to make up for the subsidised power they have been getting.

There is an example of a town that has one nuke that wishes they had zero. It may provide high paying jobs for a few, but the many have been paying the price.

Surely we can agree that the more government tries to “insulate” anything from real world realities, the worse (more expensive and less efficient) it becomes. Wind energy is in no need of subsidy, and subsidising solar pV is a joke. yes, it os only a small amount of money (compared to say ethanol), but it has created the culture where EVERY “new” technology feels they are entitled to it.
In the mining and oil industry the sole purpose of startups/juniors is to find enough of something to make themselves worthwhile for someone larger to buy them up. With the green energy startups, their sole purpose has, so far, been to make themselves attractive enough to get government funding/mandates/subsidies, and nothing of real value gets produced.

Let the energy developers/investors make their bets on the supply/demand/capital costs/fuel supply/taxes/env rules/etc as they see fit, the same as in any other industry. Then, and only then, will it thrive.

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By Kinuachdrach on March 30, 2010 at 10:06 am

Paul N wrote of California & Texas: “But at least both states actually deregulated.”

Don’t know about Texas. But I did hear a lady lawyer later try to explain to a basicly friendly audience how she and her smart buddies in California’s regulatory apparatus had screwed up so badly with California’s deregulation. (Of course, it was not their fault. Reality had deviated from plan).

In essence, California did not “deregulate” — they merely changed the existing regulations into an even more complicated mess. They “deregulated” wholesale prices and allowed the utilities to pass savings on the wholesale level on to retail customers. But they continued to regulate retail prices with caps on prices.

At the time, there was over-supply & competition at the wholesale level. It apparently never crossed the regulators’ well-educated minds that such a state of affairs might not be permanent. And so they “deregulated” (i.e regulated) on the assumption of permanence. When droughts & other forces led to reduced supply and higher prices at the wholesale level, utilities went bust trying to fulfill their obligation to keep the lights on — buying high & selling low.

Just another historical proof that the real world is beyond the intellectual capacity of well-meaning regulators to control. And that is a lesson we should consider when tempted to ask for subsidies and mandates.

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By paul-n on March 30, 2010 at 1:41 pm

“Just another historical proof that the real world is beyond the intellectual capacity of well-meaning regulators to control.”

Quite so. I had forgotten the half job Cal did on regulation. It is indeed pointless to deregulate supply and regulate retail prices, unless you are prepared to accept that suppliers may choose not to supply at all – which is effectively what happened.

For some reason, regulators get hung up about electricity, gas, water, anything delivered by a “grid” and assume if they don’t regulate that all sorts of corporate evil will follow. This largely ignores the flipside that when they do regulate, they kill innovation. Imagine if the personal computer, or software market had been “regulated”.

The only thing they need to regulate is technical, safety and environmental standards, and leave the rest alone. If they are going to put a further caveat on utilities, which they do, of “utility must supply”, effectively meaning the utility can’t say “we’re sold out and there is no more” then they must let the utilities recover the ridicuous marginal costs involved. I work with some water utilities regulated by the Cal PUC and I have to say it is the worst bureacracy I have ever seen, and I’m told I haven’t even seen the worst of it.

We have deregulated prices for fuel and food, and both those systems seem to work very well – they are always available, the price is clear and understandable, and both customers and suppliers can choose to play, or not, according to the prevailing prices. And it has worked fine, no price regulators required.

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By Kit P on March 30, 2010 at 7:42 pm

“We have deregulated markets for
houses, food, oil, stocks, even money, so why should electricity be
any different? Surely you would agree, Kit, that having deregulated
electricity, so suppliers can choose to sell, or not, and customers
can choose to buy, or not, at the market rates, is a good thing.”

No PaulN I would not agree, If fact it
is insanely stupid concept. Seductive but stupid.

The reason is electricity is different.
First you can not store electricity. Second, it takes a large
amount to planning to ensure an adequate supply.

Third there are not a lot of
substitutes. There is no garage sales for electricity. You can not
grow electricity in the family garden. There is no beans and rice of
electricity.

I provided a menu of prices earlier.
If it cost 10 cents to a hot shower when you want it, will you set
your alarm to take a shower at 2 am if it cost 5 cents?

Fourth, electricity is a very cheap
commodity.

Paul writes a typical statement,

“It may provide high paying jobs for
a few, but the many have been paying the price.”

Well Paul, I suppose you can tell me
what the price is. I really get tired of people with $50k cars and
$500k houses who eat ant expensive restaurant talk about big greedy
utilities.

Tell me what your electric bill is and
how much electricity you use. See PaulN you already have the choice
to not use electricity. It does not matter if it is regulated or
not.

I suppose PaulN lives on a planet where
there are no old people in cold climates that actually need
electricity to stay alive.. Especially in Canada.

So PualN a electricity provider can not
turn of power and let people die.

Providing electricity is a public
service.

This not to say some place do a better
job than others meeting the public need. Responsible utilities need
to educate regulators. Politicians need to not use electricity as a
class warfare issue.

[link] [reply]
By paul-n on March 30, 2010 at 11:52 pm

Kit, I used to operate an electric utility (and a gas one, and a water one, and a sewer one, all at the same time), I am well aware that the utility is an essential service and you can’t just turn off the power. However you missed my point – if customers are going to demand an unlimited amount of electricity, should you have to supply it all the same rate, regardless of what it costs to buy? Is that really a good model, for anyone, to have to sell, unlimited amounts, at a rate less than what it costs to buy? Does this encourage conservation, or waste?

If I am a generator, as opposed to the utility distributor, I can, should and do have the right to sell, or not. Many generators, particularly hydro and NG ones, decide to sell only during peak times and not during off peak – we both know that requiring them to sell 24 hrs is pointless and wasteful. This is part of what makes the electricity industry so efficient, that suppliers can do this.

AS for my comment about jobs for the few and the many paying the price, you missed the point that it was in reference to nuclear power. The history of nukes in Canada has been one of political interference, preferential treatment of well connected contractors, delays by lawsuits from envrionmentalists, cost and time overruns etc. They have not delivered good value for money compared to the likes of to the coal, hydro or even NG plants. Canada has plenty more potential for hydro, but the government pushed nukes in the hopes of being able to sell them overseas. I have no problem with well paid electrical workers – I have a problem with government forcing nukes when other options were (and still are) better. I have never said anything about greedy utilities, all I have said is that they should not be price regulated. I think a better system is like the NG utilis, where the commodity purchase cost is a flow through and the util makes it’s money from delivery charge. You can regulate the delivery charge if need be, but the commodity cost is what it costs.

As for this;

if it cost 10 cents to a hot shower when you want it, will you set
your alarm to take a shower at 2 am if it cost 5 cents?

No, but I will invest in an off peak water heater to heat the water at night so I can use it during the day. I will also wait until 10pm to run the dishwasher. I have a timed start on my washer-dryer (both functions in same unit, Euro style) so I set it to start at 5am and it is finished when I have breakfast at 7. There are many, many ways to use cheap off peak electricity that are no inconvenience at all, if the utility is allowed to give you on/off peak rates. But most regulators do not allow this, or require such an onerous process to implement it that many utilities do not bother – thus more (price) regulation means less innovation. This theme holds true for almost every aspect of the energy industry.

[link] [reply]
By Kit P on March 31, 2010 at 6:58 pm

PaulN

I do not know much about nukes in
Canada and I suspect neither do you. The idea of the CANDU reactor
is to have a nuke program that does not depend on the industrial
might of the US to manufacture large components and enrich uranium.
Then market to places that do not want to depend on western countries
or the USSR. I suspect world events have pasted the CANDU by and
there is not much purpose in studying the Canadian models as a good
business model.

When it comes to supplying electricity,
I am old school, If it is not broken, do not fix it. A large
reserve margin is really cool.

“I can, should and do have the right
to sell”

No do you have such a right. I suspect
you use that word loosely. If you are in the business of providing a
public service you have the responsibility to provide that service.
As such I do not have a problem with independent power producers
(IPP) who are good at running power plants and understand their
responsibility to their customers.

“No, but I will invest in an off peak
water heater”

Like I said, I am old school. If you
want to compare what works with silly hypothetical ideas fine but
maybe there is a very good reason ‘most regulators do not allow
this’.

I would like to mandate a device that
turns off the power to hot water heaters of elected officials,
regulators, and all those who work against a reliable system. A few
cold showers taken by wives and teenagers would make their
responsibility easier to understand.

[link] [reply]
By paul-n on April 1, 2010 at 2:04 am

Kit, I agree, the Candu is likely obsolete soon if not already. The part that I have objected to is the Cdn gov’t efforts to force it upon utilities, when it is not always the best business decision. Many of the refurbishments have resulted in shutdowns of several years – that does not enhance reliability.

AS for not relying on the US, I think you are right on the mark, but if I was a foreign buyer, I think I would rather go with the Japanese.

As for the right not to sell, I guess it depends on who the “supplier” is. A nuke that is shutdown for two years for refurbishment simply cannot sell, same for a hydro dam that is out of water – should they then be obligated to buy power from somewhere else to replace their own production, or is that actually the utility’s job to manage the various suppliers? Depends on the nature of the IPP contract, of course

For the utilities, they are indeed an essential service, and provide 99.9% availability, my one did and yours probably did too. Too bad the health care industry doesn’t see themselves the same way.

As for peak/off peak, I would hardly call “hypothetical” a system works remarkably well in every country I have lived in that has it (Aust/NZ/Britain) and it worked very well when my utility was able to participate in it too. Peak/off peak pricing is used by almost every other industry that cannot “store” their product, like airlines, hotels, fruit growers. It minimises waste and rewards customers who can shift/manage their loads – otherwise everyone adds to peak loads and that makes the system less reliable – overloads, by definition, do not happen during off peak times, so the more usage you can move to off peak the greater margin of safety you have – but you already knew that.

Regulators don’t allow it because they worry that utilities will make money from it, their primary objective is to keep rates as low as possible, not keep the system as reliable and sustainable as possible. Forced low rates leads to unprofitable generators/utilities, which then leads to underinvestment, deferred maintenance and ultimately, a less reliable system, but you knew that too.

[link] [reply]
By Kit P on April 1, 2010 at 7:25 pm

“I would hardly call “hypothetical”
a system works remarkably well in every country I have lived ..”

PaulN I would be interested in some
literature on that. I have read a lot on the topic and it is all BS
.

Let me explain world class using the
example of two utilities in the PJM that have supplied my electricity
and I have watched for many years.

Base load power is produced at less
than $20/MWh for O&M and load following electrical is produced at
less than $50/MWh for O&M. These utilities have enough capacity
that they never need to buy electricity.

Neighboring utilities produced at more
than $50/MWh for O&M and load following electrical is produced at
more than $80/MWh for O&M.

So my average price for electricity is
low without having to worry about when I use. However neighboring
utilities are always promoting gimmicks that do not work hoping that
it satisfies customers that their rates would be lower ‘if only’
customers would change their habits.

So when neighboring utilities can not
buy from the well managed utility, they have to start buying from
those who have cost at $100/MWh, then $200/MWh, and for a few days a
years $1000/MWh.

I have watched this over and over in
the same state and same regulators. One thing poorly managed power
companies are good at, the blame game.

Just for the record, rolling reserve is
always required for grid regulations and for events like a plant
tripping off line. If you could (and you can’t) flatten out the
peak, you still need rolling reserve.

[link] [reply]
By Paul N on April 4, 2010 at 2:20 am

Kit,

If you have read literature that says time of day pricing does not shift demand, then I’m sure in those cases it did not.
When my utility aprticipated in BC Hydro’s comercial time of use trial, they saw significant load shifting.

Here is a link to an Australian study on the subject;
http://www.energy.wa.gov.au/2/…..anageme.pm

I am not suggesting you don’t need the rolling reserve, or that Calif has done a good job af managing their system.. Indeed, it seems to me the problem with “system management” in different states/provinces/countries is that the various government’s can;’t resist price control. They can, should and do set standards for system operation, reliability, safety, “utility must supply” etc and I have no problem with that. But they are always trying to manage the price for political ends, and I am yet to see this being successful.. It usually ends, as you point out, to overconsumption and undersupply, with the inevitable economic results that you outlined.

I a firmly of the opinion that the governments should set the rules, but let supply and demand set the prices, as they in most other commodities. Peak/off peak pricing is a useful way to influence demand (and supply). At some point, if the off peak price is cheap enough, people and businesses will start changing their practices. At my resort, one of the best changes we implemented was dual fueling of some heating systems – adding gas to electric and electric to gas, so we could choose the cheapest fuel at the time, and off peak, elec beat propane (our gas) every time. We over-heated snowmelt systems in driveways etc, and reduced the set point at 8am. Same with the the resort’s hot pools. We also had installed a Siemens control system that monitored and controlled the heat and hot water in 500 rental condos/hotel rooms. WE were able to do things like temporarily shut these things off when we started the snowmaking system (3MW of pumps and compressors). We convinced private property owners to put time of day controllers for their heat and hot tubs. Some things you can;t control, of course, and that’s fine.

After two years of implementing load/demand management we had 30% of peak demand that was dispatchable. OIn the process, we had also identified many wasted loads which were eliminated altogether. Our average load factors increased considerably (as did our power factor), and our total annual purchasing costs went down. Even after the time of use rates trial ended, we were still much better able to manage our demand peaks. This allowed a deferral of a capacity expansion on our one and only supply line (11 miles of 3ph 25kV). Ten years later, the resort is still within this capacity.

So,as far as I am concerned, pro active management, at both commercial and residential levels, can reduce demand peaks. Some things can;t be retrofitted (not easily) and have to be built in to new buildings, but still, there are a lot of things that can be done. An aggressive peak/off peak rate schedule will do that. By aggressive, I mean the ratio needs to be at least 2:1, if not 3:1. Some TOU schemes I have seen involve 20-30% differentials, and those will be largely ineffective.

Like most conservation measures, it can be done, but if not done properly, it will achieve little. When governments get involved in pricing, that almost always seems to be the case…

[link] [reply]
By Kit P on April 4, 2010 at 9:30 am

“BC Hydro’s comercial time of use
trial”

Commercial! Well then Paul that is not
your hot water heater is it?. What is your plan to get a million or
so people to change their habits and stick to it to save a small
amount of money?

Come on PualN you might take a shower
in the middle of the night to save 10 cents. Maybe you might invest
(?) a few hundred dollars to shift your peak but PualN not many will
make such poor decisions. I suggested an efficiency improvement when
I worked at a utility in California. It was rejected because ROI was
too low. However, low interest loans were provided to customers to
make even worse investments.

From PaulN link:

“peak demand is a costly exercise due
to the capital investment”

Pure BS!

“around 130 MW of demand management
was offered, and accepted”

So PualN what is the capital cost of
250 MWe SSGT used to load following? If it is designed correctly it
can be converted to a CCGT when more base load is needed.

“overconsumption and undersupply”

Living in the PJM ISO, I am wondering
what planet PaulN is living on.

“At my resort, “

Welcome to the planet of the left coast
liberalism. Party jets, party boats, and lear jet environmentalists
who want $7000 rebates for their electric cars are running things
now.

For many years, the western North
America has an over supply of hydroelectric power. As a consequence
of over supply, utilities were poorly managed because good management
was not required. With natural gas at $1/MMBTU, making up the
difference with a SSGT was pretty cheap too.

Of course things change. Did PaulN
consider bull dozing the resort? We can save lots of energy by
closing resorts in BC and Las Vegas. I am serious PualN, how much
industry have we lost to China because of thinking like PualN.
Projecting the low hanging fruit of conservation and TOU to the
larger world is a load of bull hockey. There was a time when
Washington State needed 3000 MWe of new capacity. My company was
building 1000 MWe using CCGT technology which happened to be the last
of pipeline capacity (my company owned that too) and state officials
just assumed that their was enough NG without checking.

Lots of industry got shut down in
Washington State and those good jobs are gone forever.

“Demand management accounts for
between 2 – 3% of the market and there appears to be substantial
opportunity for further demand management to be offered in the
future.”

While PualN provided an excellent
example of DSM, it works so badly that it really means your job is
gone.

[link] [reply]
By paul-n on April 5, 2010 at 12:20 am

Kit, if you are going to debate me, at least spell my name right.

Kit, if you think that the cost of handling demand is pure BS, then I would be very interested to see how your utility is designed. In my world, every line. switch, transformer, etc is sized for peak demand = the bigger the peak, the bigger the equipment, and the bigger the cost. If your utility can do bigger peak with less cost then good for you, I, and every electric utility would like to know hopw you do that.

So, how much does the peak capacity cost – about $700/kW for SSGTamd about $1000/kW for CCGT, not very expensive at all, really.

For my system, to add one MW of generation would then cost about $700k-$1m, but of course, as a power purchaser, I don;t have to pay that.

BUt to take my system from 10MW to 11MW or more, would require upgrading the supply substation and 11 miles of power line, all of which I would have to pay for. But you don’t upgrade from 10 to 11MW caapcity, you go to 20. So, my cost was going to be several millions for all that, even though the load growth would take decades to pay for the extra capacity, leaving my utility deep in debt and then needing people to use more electricity to pay for these upgrades. A much better decision is to manage the load to stay within the existing constraints, which we did, saved several $100k each year and avoided millions of capital (not including any turbines). IF, in your world, that is not a sensible business decision then we do indeed live in different worlds.

So let’s see if I understand the Washington situation correctly. You ran out of NG pipeline capacity, and then you company threw it hands in the air and said we can;t do any more, so industry had no option but to leave – well managed!

A concerted effort to reduce peak (and overall demand) would have reclaimed some capacity to keep some of that industry (assuming it is not related to the lumber industry, as that industry, in the US, has killed itself). BUt your world seems to be that the only way is to increase capacity, but it does not matter how cheap an NG turbine is, you said you had no more gas to run it. So, with the easy option not on the table, what then did you do Kit, to meet the State’s electricity needs, which are now greater than supply? My solution was to manage demands to keep all businesses in my utlility going – what was yours? Sounds like no solution was implemented if the industry left for lack of power. However, I’ll wager it was cheap labour that took the industry to China, not cheap power.

If your only answer to a supply limit is to always get more, I would not want you running the utility that serves me, as what happens when the day comes when you cannot get more, or someone else will pay more for it than you can?

When you cannot get more, rationing/conservation is your ONLY option, if you had ever had to manage an “island” system you might understand that. And if you can do demand management there, you can do it anywhere. Doesn’t mean that it’s cheap, or easy to implement, but it can be done, and good utilities will find a way to do it. Sounds like yours was not up to the challenge and so Wash State is the worse off for it.

[link] [reply]
By Kit P on April 5, 2010 at 9:42 am

Well PaulN I am not trying to debate
you, I am trying to educate . I have been hearing DSM BS for 30
years. It is all about people who do not make electricity telling
those who do how to do it. I choose my words carefully.

DSM is not a reliable way to reduce
peak. You still have to design your system very conservatively.
Look at the last major blackout in the US/Canada. This blackout went
right around PJM. If you have over built generation and transmission
you will have cheaper more reliable power.

What did they do in California after
the 2000/2001 rolling blackouts. They built more generation closer
to the load.

]

The most expensive and polluting MWh,
is the MWh not available when needed. You have to look at the big
picture. How many 20 year resource management plans have you read
PaulN.

PaulN is taking a micro example and
applying it to the macro system. Show me a poorly managed wasteful
system, and I will show a great example of doing things better. Now
PualN show me a 2000 MWe of examples, guaranteeing no growth for 20
years; then maybe I will buy your micro example of not upgrading.

In California, they were very proud of
meeting a peak load 2000 MWe of conservation. The press release was
BS. Random equipment failure resulted in 2000 MWe of lost demand.
The cause of equipment failure was age and overload. Well managed
utilities keep the power coming to the customers and do not wait for
failure to replace equipment. This is very expensive.

“10MW to 11MW”

We have pumps bigger than that. I
understand the theory PaulN. Several ISO I follow peak above 100,000
MWe. It is matter of scale and complexity. We have experts that
will help you. Do want our billing rate?

“so industry had no option but to
leave”

If BC can sell electricity to
California for more than the aluminum industry can pay what does
industry do. If those greedy Canadians build a pipeline to the US
Midwest so they can jack up the price of NG, where does the ammonia
industry go?

“well managed!”

No! Like myself, many of the people I
work with have east coast experience. The power industry has to work
with political leadership to understand the reality but the best I
could see was the governors in both California and Washington State
were in denial about the end of over supply.

The year I left California, 5 million
also left. The year I left Washington State, Washington State lost
3% in jobs and Virgina grew 5%. California and Washington State
have lowered peak demand by being business unfriendly not DSM.

“I’ll wager it was cheap labour that
took the industry to China, not cheap power.”

Then you would lose your wager. My
company is investing in facilities in both China and the US.
However, while Washington State was considered for billions in
investments, the investments went to other states.

When comes to energy, China is in the
same boat as the US. The cost of making electricity is going up.
China is going up.

What PaulN fails to realize is American
industry and power production is very efficient already. The low
hanging fruit of DSM is gone. BC is apparently almost as backwards
as China.

“what happens when the day comes when
you cannot get more”

Left coast liberalism! Never had a
problem producing enough electricity. Have you heard of nuclear
power PaulN?

It is the people that talk like PaulN
that say we can close down nuke plants and not build any new ones if
we just conserve.

Not a new idea. So how has that turned
out? When PaulN was not looking, they built a lot of NG fired power
plants. The cheap NG is gone.

“if you had ever had to manage an
“island” system you might understand that.”

My island systems has two nuke reactors
supplying 4 steam turbines. Also had two diesel generators. The US
navy still has hundreds of island systems.

“rationing/conservation is your ONLY
option”

How stupid is that? Yes, maybe
California and all the places that PaulN lived have been a study in
stupid. However, PualN maybe like I suggested you may want to study
the PJM.

http://www.pjm.com

[link] [reply]
By paul-n on April 5, 2010 at 8:33 pm

It is all about people who do not make electricity telling
those who do how to do it

Kit, if this is your idea of DSM, then you need educating. By definition, it means getting customer to use less of it. This has NOTHING to do with how it is generated.

If BC can sell electricity to
California for more than the aluminum industry can pay what does
industry do. If those greedy Canadians build a pipeline to the US
Midwest so they can jack up the price of NG, where does the ammonia
industry go?

So what are you suggesting here, that the alum. industry has some right to buy power at less than market prices? Than Canada should sell it’s electricity at a less than market rate purely for the benefit of a business in another country? Will you take that same argument to your electric utility, that it should sell power to Quebec alum. smelters at less than market rates to “keep the Quebec indstry going” , I’d like to see how that would be received. If you are in the aluminium smelting business (and I have worked for one of the largest) then you take steps to ensure your power supply, if the Wa smelters did not, then that is their problem, no one else’s. As for the NG, yes, we greedy Canadians really dictate where and how the US gets it’s energy. It must really suck that even though we only 16% of your NG requirements, that we can control the price! And if you believe that, I’ve got a California utility I want to sell to you…

I have never said anything about closing nuclear plants (except for the overbudgeted, politically motivated Canadian ones), and I don’t really care whether US utilities build plants powered by nuke or NG or people on treadmills. Of course, you get most of your uranium from Canada too, so we will tighten that noose as well…

To say all the low hanging DSM fruit is gone, you should go for a drive around LA or Vegas on a summer day and see how many places are running their air conditioners. But I have no problem if the US doesn’t want to do DSM either – we are very happy to sell peak hydro to you at high rates, and buy it back off peak at less than half price. We are very happy to do our own DSM to keep money in our pockets while simultaneously taking more out of yours.

While I have never been on a nuclear powered Navy vessel, I am sure they are a good case in DSM. If any ship allowed uncontrolled demand growth, sooner or later, there would be an overload. But I am sure the Navy pays very careful attention to what is installed to avoid just that, as I am sure that is easier than upsizing the existing reactor on a vessel. If no DSM is employed on a ship, and the load exceedes the generation caapcity, what is your solution?

The PJM looks like a well organised group. They are looking at various aspects of supply, transmission and demand, as a good industry body should. They even have this;

PJM SPONSORS SYMPOSIUM ON REDUCING ELECTRICITY BILLS

THROUGH PRICE RESPONSIVE DEMAND (Oct 09)

That sure sounds a lot like DSM to me….

[link] [reply]
By Kit P on April 6, 2010 at 8:23 am

I will say it again PaulN. The way to
ensure a reliable supply of electricity is to ensure an adequate
generating capacity. Works 100% of the time and those places that do
it that way have low electric bills. My electric bill is low because
I do not waste electricity.

There is lots of talk about DSM but it
works 0% of the time to ensure a reliable supply of electricity.
Saving are marginal unless you are already wasting lots of energy. I
have spent time in LA and Las Vegas. Good luck on getting them to
stop wasting energy.

If you want to trade off saving money
with reliability you are risking marginal gain for big problems.
Like I said I am old school. That means I have been practicing
conservation 40 years before you started but the most important
issue.

[link] [reply]
By paul-n on April 8, 2010 at 1:53 am

Well Kit, I guess we have different objectives. I do not argue that adequate capacity (both generation and transmission) makes for a reliable system, neither would I suggest compromising reliability.

What I am saying is that DSM can make good business sense for both utility and customer. Having ensured a reliable system, the objective here in BC is then to minimise wastage and shift demand to maximise exports. That has worked well, though there is much more that can and is being done. Both customer and utility are winners there.

There are, of course, some extreme, and extremely successful examples of DSM. Daylight saving being one (originally introduced in WW2 to save energy), and then extended by GWB a few years ago. So, daylight saving is actually saving energy for six months a year – your utility probably even has some stats on that.

Since you clearly have no interest in DSM, I will not try to convince you. Since DSM (water) is what I do for a living, and it works, I will keep doing it

[link] [reply]
By Kit P on April 8, 2010 at 11:00 pm

“Since DSM (water) is what I do for a
living, and it works, I will keep doing it”

That is fine and DSM is interesting.
Is DSM a less than 0.5% contribution or a 5% solution? I know of 3
water agencies that have pretty nice utility grade PV systems.
However, if you are going to promote something you got to know if you
are promoting Micky Mouse or King Kong.

[link] [reply]
By paul-n on April 9, 2010 at 12:00 am

Kit, there are probably many more water agencies that have wasted money on solar pV, especially in California. Electricty production should be left to the electric utilities, unless there are some good cogen opportunities (like hydro).

On my projects, DSM averages 30% reduction per customer, though we have had over 50% in numerous cases. Where we have done entire systems, we get up to 30% reduction. The whole point is to avoid expansions, or increase “activity” (customers, population or economic production) for the same supply, where expansion is not possible.

Just because I am in PNW, does not mean that all my work is here (much is in Alberta and Calif.) and it also does not mean that systems here can’t run out, or have unlimited ability to get new supply.

This crisis happened in a place that gets 10′ of rain a year (though not in summer)

http://www.canada.com/vancouve…..7596c94c57

Thankfully, you don;t hear about places running out of electricity nearly as often as you do about water. If there was a regional “water grid”, this would happen a lot less, though people would then have to pay the real cost for it. As you know, a high reliability/redundancy factor does not come for free.

[link] [reply]
By Kit P on April 9, 2010 at 9:37 am

PaulN

You sound like hippie liberal who has
been forced to get a real job. My hair was long and I wore bell
bottoms before going the navy and they let me keep the latter.

“This crisis ..”

Have you ever seen the sign on people’s
desk that says,

“Your failure to plan is not my
crisis”

PaulN, I can not tell you what days
will be very hot or very cold in the PNW. I can not tell you what
year will be drought year. However, if you do not plan for know
events, you are stupid. The odd thing is that many of these stupid
people passed law school and the bar exam and are in positions of
responsibility.

Because I sail which makes me a student
of the wind, I can tell you that PNW do not make electricity on hot
days in California.

Twice I have been at nuke plants that
have been at 100% power but were not ‘commercial’. The grid operator
could expect (or demand) the plant be on line. As soon as we
scrammed from 100% power, the plants would declare ‘commercial’.
That was my job that day (it does not get any better than that).

One day was a very ugly winter day in
the northeast. The other a record hot day during a drought year in
California. The ramifications of tripping the plant would have been
a million home without electricity when it was needed most.

Of course we stayed on line buy later
the lawyers told us that the power plant was not needed.

I will give you a couple of examples of
DSM. Cow produce milk every day. If you do not have electricity or
NG to process the milk, you dump the milk in a field. I got a phone
call from an irate customer, her AC has been turned off radio
controlled DSM. I told her to go down to the lobby where she paid
her bill. Our AC was still on. That was 25 years ago, so inept
utilities have been practicing DSM for a long time.

It is sad that the lights have to go
off, the water runs dry, the sewage flows into the street causes our
lifestyle to be diminished 1% but it is not a crisis. More than a
billion do not have clean water, electricity, and are often starving
to death.

So PaulN in all your travels, you have
not been any places with limited resources unless you have spent time
in China and India.

The root cause of the ‘crisis’ is poor
planning not limited resources.

[link] [reply]
By russ on April 9, 2010 at 12:14 pm

Hi Kit P – Sometimes you are the safety officer – other times you seem to want to sound like the engineering department – other times you sound you are the operator while other times you sound like you think you are management. The things you list that you personally have accomplished or done are quite something.

Just what are you?

[link] [reply]
By paul-n on April 9, 2010 at 12:39 pm

Kit, I could care less what you think I am, or what my political inclinations are, or aren’t.

You might be surprised to learn that farmers have been milking cows, making cheese, etc long before NG and Electricity were around, that there was actually a world before electricity. No dairy farmers I know would pour their milk away, there is always another use for it, if not on their farm, then on someone else’s. But then, making best use of resources does not seem to be on your agenda.

the ramifications of tripping the plant would have been
a million home without electricity when it was needed most.

you have
not been any places with limited resources unless you have spent time
in China and India.

So then, is your million (American) people without power not a crisis then – is that the point you are trying to make?

You might be surprised to find that places other than China and India have limited resources. I do not disagree that poor planning seems to be widely practised – part of that is not realising what limits there are to various resources. Sometimes you can get more, as seems to be your first choice, but that does not always make it the best choice.

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By russ on April 9, 2010 at 2:01 pm

What’s wrong with a liberal hippie that was forced to get a job anyway?

Kit P – İt seems we have now learned that you were enlisted when in the navy – bell bottoms and all.

Don’t know about China – never been there but İ know İndia well. Definitely a shortage of resources and it will stay that way for a long time to come – no political will to improve the situation – all talk and no action. The difference with China is that they do have the political will to accomplish something.

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By paul-n on April 9, 2010 at 4:58 pm

Russ,

Shortage of resources in India, or excess of people?

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By Kit P on April 9, 2010 at 6:24 pm

“No dairy farmers I know ..”

PaulN, is it possible I know something
you do not. If fact, you do not have to be limited by your own
experience, you can learn from others. The milk dumped was in
California at the dairy (processing plant). Most of the dairy
farmers I know have more than a 1000 cows. They also had emergency
generators.

“But then, making best use of
resources does not seem to be on your agenda.”

Once again Paul you have come to an
incorrect conclusion. I never had a job melting snow.

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By paul-n on April 9, 2010 at 8:17 pm

Kit, you wrote, the first time;
Cow produce milk every day. If you do not have electricity or
NG to process the milk, you dump the milk in a field.
And now you are saying;

The milk dumped was in
California at the dairy (processing plant).

Which is really quite removed from cows and fields, so which is it? And, if it us dumped at the plant, I expect it likely went down the drain.
More importantly, if your idea of DSM is cutting off the customer so that they have to dump product, or because they haven’t paid their bill, then it is no wonder your utility(s) have had zero % success rate! The idea is to improve their operation/life, not compromise it.

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By Kit P on April 9, 2010 at 9:35 pm

“Just what are you?”

Now, I am an old desk jockey with bad
knees designing new nuke plants. Forty years ago I was going to
college and working in a warehouse when I won a lottery for which I
did not have to buy a ticket. I joined the navy and they made me a
machines mate, made E-6 (MM1) in under 4 years. Always looked for
opportunities to do new things. While I learned to operate a steam
propulsion and make electrical on my first ship, a WWII DD, I also
learned to run oil boilers. Also got to dive on a WWII diesel sub.

The navy sent me back to finish my
degree and become an officer. My first salute was from a 40 year
veteran Master Chief still in the active reserves. He accomplished
surviving being stationed at Pearl Harbor in December 1941, anti-sub
warfare out of Iceland, and the South Pacific. He was the only
survivor of two plan crashes and briefly being taken prisoner by the
Japanese while shuttling wounded marines back to the carrier. Did
not work out very well for 5 Japanese. He was recalled to active
duty for Korea, the Berlin air lift, and VN. Interesting characters
were always showing up.

As an officer, I served on two nuclear
cruisers. I wanted to be on subs but I failed the physical. Up to
that point I had never got caught cheating on the eye test. Aside
from supervising the operations of nuke reactors, I had duties as
safety officer for various things. One of the last things I did
before getting out was grade a missile exercise. Arriving on a ship
by helicopter on the end of cable was not something they mentioned
when I volunteered.

After getting out of the Navy I went to
work for GE supervising power testing of new boiling water reactors.
Senior reactor operator certified on 4 new plants. Anyhow ended up
back in the PNW (Seattle was one of the places I lived as a kid) at
Richand. We loved it there and it is a great place to raise kids.
While working on my masters in environmental engineering, I became
more interested in local environmental problems than Hanford
cleanup. Since my company was doing renewable energy back east, I
got them to come out and look at biomass opportunities in the wast.
So for a few years I got to work on renewable energy business
development. Next our engineering group got sold to my present
company who unfortunately did not do renewable energy at that time.
They were also the second largest employer in the areas so we move
our office inside their facilitates. It did not take me long to find
lots of work even though I worked for a different group.
Unfortunately, those new facilitates are in Ohio, Kentucky,
Tennessee, and South Carolina. If we going to move anyway, we
decided to take a job designing new reactors. Good work if you can
get it.

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By Kit P on April 9, 2010 at 9:39 pm

“The idea is to improve their
operation/life, not compromise it.”

Nice idea, too bad reality is so
different.

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By russ on April 10, 2010 at 12:02 am

Paul N said:

Russ,

Shortage of resources in India, or excess of people?

Shortage of resources – the peasant class and poorer, which are most of the country, has nothing to operate with electricity.

Some 10 years back the entire western grid was only 20,000 mW. That covered a very large area and many areas have power cuts daily. Any industry of any size has it’s captive generation plant. We ended up going with DC arc furnaces for the steel mill as the grid was not large enough to support AC. At the time they were the largest DC arc furnaces in the world – 185 mt per heat.

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By paul-n on April 10, 2010 at 12:50 am

Kit, that is quite a career, I am suitably impressed, and a fellow master in Env. Eng – who knew! I will defer to you on technical questions on nukes – though I retain the right to criticise the Cdn govt on its handling of them. Did you get any of the renewable projects going in PNW, other than the cow manure?

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By paul-n on April 10, 2010 at 1:02 am

Russ, I do believe the Indian steel companies are now among the world’s biggest. A chemical engineer friend of mine travelled around there a few years ago and his comment was that they were very good at finding low tech ways to get things done on a large scale. Unfortunately that also often meant unsafe working conditions – but that is how it has always been there.

I remember in high school in early 1980′s learning they had 600 million people – now they have 1.2bn – have added 2x US population in three decades! That is an amazing amount of people!

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By russ on April 10, 2010 at 4:34 am

Over the 15 years İ was there the company İ worked for went from 0 to 10 million mtpy – The government plants tend to be low tech but the private mills realize you have to be on the leading edge to make money and survive. They are still expanding.

İt doesn’t hurt the İndian companies that environmental restrictions are very tough but almost never enforced. For a few Rs the inspector remembers that he has to go elsewhere – shameful but that is the way it is. İ always laugh when at Copenhagen, Rio and other locations the İndian minister of the environment is telling the world what they should do – he has no idea as none of this is done at home.

İn steel making today you have to melt quicker, cast faster and roller thinner than the next guy if you want the market. You also have to maintain strict control over specific consumptions and no one does that better than the İndians. They can pinch a penny until you get a dollars worth of change. İt helps that İndia has a lot of high grade iron ore so the new mills end being able to make product that you have trouble making from scrap.

The government companies pile on the employees but the private companies are generally fairly lean and mean.

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By Kit P on April 10, 2010 at 1:05 pm

“a fellow master in Env. Eng”

Would you like to discuss transport of
fission products from spent nuclear fuel in the vadoze zone during
the next period of glaciation in the Great Basin?

“Did you get any of the renewable
projects going in PNW, other than the cow manure?”

No, and the cow manure was was with a
dairy farmer who wanted to work with us but we got out of the
business before I could make it happen. At the time we has half a
billion in dairy farm digester projects lines up with acceptable
ROI. The board canceled our presentation stating that the company
was going to focus on natural gas protects. This was after $35m in
development costs.

I did a root cause of the our business
failure and determined that executive back east that work in a
skyscraper did not care about investing in the environment of the
PNW. I developed a marketing plan (although I did not know what one
was) to target PNW utilities. I would learn what the concerns were
and learn about the their business development people. Then I would
just ‘happen’ to run into them at some conference. My marketing
plant was more of a guide of how to look for opportunities to help
the PUD customers who had environment problems. One PUD was
interested in waste biomass co-generation. Another latched onto
dairy farm digesters.

At the time they were flush with cash
from selling power to California and looking for new generation.
However, things got ugly because of ENRON. If you are being
litigated your cash gets tied up and decision making becomes very
conservative. Then 9/11 happened. Having a forest health hat and
manure handling hat just was not an immediate concern.

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By paul-n on April 10, 2010 at 7:53 pm

the vadose zone – haven’t heard that for a while. In Australia we used the far less sexy term of unsaturated zone. But since you bring it up, my background is in hydrogeology, and contaminant transport. I worked on investigating and cleanup of contaminated soil and groundwater at mine and smelter sites when I worked for Rio Tinto – most interesting one was cyanide contaminated groundwater at their smelter (sitting on glacial till) in southern NZ . Fortunately, in Australia, there are no fission products in the soils, (only one small research reactor and now power nukes there) and I would hope that they aren’t getting into the soils here either – but I am not a nuke expert so I wouldn’t know.

You were obviously on the right track with the dairy farmers, as there a quite a few such projects now – I saw one in Bakersfield last year, and they are putting them in on most cattle and pig feedlots in Alberta – they finally realised it was cheaper than doing sewage treatment on the stuff before it went in to the local creeks

I can sympathise with you about the man in the skyscraper, that was why I “left” Rio Tinto, when they came to the conclusion that they did not need an environmental engineering group. Our existence implied that they had environmental problems, which of course they did and still do, but getting rid of the group was easier than solving the problems, so that is what they did.

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By Kit P on April 11, 2010 at 8:27 am

“Fortunately, in Australia, there are
no fission products in the soils”

Well you are wrong about that too.
Thanks to the Russian and above ground testing of fission products in
the soils are ubiquitous. However, exposure is insignificant unless
you happened to be a child in the Ukraine in 1987.

PualN would have been correct if he had
said there are no fission products in the soils from commercial nukes
in Australia. The same is true for commercial nukes in the US.

There never should be either. When
spent nuke fuel is put in Yucca Mountain (a legal requirement that
Obama and Reid do not want to follow), the fission products will
decay before reaching the environment. If you at what might show up
several hundred thousand years from now, it is the stuff that the
French, Germans, GB, Russia, and Japan reprocess out and reuse. In
the US we recycle harmless plastic but not fissionable material.

“my background is in hydrogeology,
and contaminant transport”

Then you may find reading about Yucca
Mountain interesting. If you go back 12 years, you will find my
signature on several documents.

“conclusion that they did not need an
environmental engineering group”

Guess what? My old company decided to
stop trying to be like ENRON. Got out of California. Got out of NG
(including Canada). Got out of energy trading. My present company
is about to start construction of a biomass power plant in Washington
State partner with two of my old companies. I have old pictures of
me and other dorky engineers in shirt sleeve shirts signing a
contract between the companies. This time it is top tier executives
in suits signing the contracts.

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By rrapier on April 11, 2010 at 5:31 pm

Paul N said:

Kit, that is quite a career, I am suitably impressed, and a fellow master in Env. Eng – who knew! I will defer to you on technical questions on nukes – though I retain the right to criticise the Cdn govt on its handling of them. Did you get any of the renewable projects going in PNW, other than the cow manure?

Paul, Kit does not have a master’s in Env. Eng. Trust me. He likes to leave implications like that. “Working on my masters” in his case could mean he took some freshman courses with the intention of some day getting a masters. He desperately wants people to think he is an engineer, but you can take it to the bank that he is not a degreed engineer. Degreed engineers who I know and who have engaged him are pretty unanimous in their view that his grasp of engineering is superficial.

RR

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By BilB on April 18, 2010 at 7:13 am

A good article. It is a tough stretch to get manufactured biofuels to production. My pet is algal oil, and I have a very good mechanism to perform the task with very little infrastructure. It took a little while to discover that the fundamental problem is the very small amount of CO2 in the atmosphere. Just under 0.4%. Nature does a phenomenal job producing the vegetation that we take for granted. So there is the real challenge, to find a CO2 concentration process that uses very little energy. After that the rest is relatively easy. But the above article is a very good reality check list.

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By Kit P on April 18, 2010 at 10:18 am

“So there is the real challenge, to
find a CO2 concentration process that uses very little energy. After
that the rest is relatively easy.”

Every fossil fired power plant produces
huge amount of concentrated CO2. Many have lagoons, cooling lakes
and other small bodies of water.

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By BilB on April 18, 2010 at 1:36 pm

Good point, Kit, but the idea is to come up with a process that is site independent. The intention is that fossil fuel powered industry will not be common in the future. The process can require energy as long as that energy is solar created within the footprint of the total process. My main algal growth process uses very little water and is not pond or tank based.

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By Kit P on April 18, 2010 at 3:53 pm

Biomass electricity generating stations
also produce CO2. Some have exhausted some to the CO2 to green
houses to promote plant growth. Plenty of those around.

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By moiety on April 30, 2010 at 7:16 pm

Robert Rapier said:

Here are some other assumptions that have doomed, and I believe will continue to doom, prospective renewable energy companies:

Results in the lab can be replicated at a larger scale.

One or two technical breakthroughs will be achieved.

Reported results are typical.

As you scale your technology and climb the learning curve, costs will go down.

The problem is not necessarily bad assumptions but rather lack of experience. We can take an example of companies solely relying on cellulosic technologies. Regardless of their perceived success, they are all research companies. They are trying admirably on many cases to create a technology that will advance us to the future.

I am being a bit bold but if you class these companies and others (e.g. hydrogen, fuel cells, fusion…) as a research entity the reason for bad assumptions becomes clear. Mostly one is so close to the technology that when a positive challenge comes across, it is rejected despite the possible advances it may make to the technology or to their career. The fact being that because one is so close, one cannot make such a challenge.

And thus you have the paradox. If you do not pick a winner, you pick nothing at all. The true value of a company is one that is

willing to make assumptions (bad or good) and then realistically (or pessimistically) describe the issues you mention above. However we have to remember that no man or company can be all things; but then again if they do not listen and still get supported, that is another issue.

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Bad Assumptions

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