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The 2021 Texas Power Crisis: What Happened and What Can Be Done to Avoid Another One?

Michael Giberson — Thu, 22 Apr 2021 04:02:00 +0000

The electric power system in Texas failed to meet customer needs during the extreme cold that descended upon the state in mid-February, 2021. The failures generated a lot of finger-pointing: too much wind power, not enough reliable natural gas, too little regulation, failed long-run planning, and too few connections to neighboring grids, among other targets. Most early complaints were wrong.

Extreme cold overwhelmed winter preparations in Texas: this is the main story. High power bills and other financial repercussions also have created challenges. The electric power system failures were severe, but any diagnosis of the failure or proposed remedy focusing solely on the Electric Reliability Council of Texas (ERCOT) will miss the mark. Electric power was not the only industry to see failures, and power systems did not only fail in the ERCOT. Natural gas wells and pipelines began freezing up. Municipal water systems broke down in several southern states. Roads were closed due to snow and ice. Ranchers and farmers saw severe losses from the cold.

This report focuses on ERCOT and the electric power system because the power outages were the proximate cause of many hardships suffered during the failures. No single cause was responsible and no simple fix will prepare the state to survive the next extreme cold weather event. Many details will only emerge with time, but this paper aims to provide a clear analysis of what is now known, along with a bit of background on how the system works, to help the public and policymakers understand what happened and what should be done next.

Table of Contents

Part 1 Introduction

Part 2 What Happened?

2.1 How Cold Was It?
2.2 Natural Gas and Electric Power Entanglements
2.3 Not the First Time

Part 3 How Did ERCOT Perform During the Emergency?

3.1 The Financial Fallout Continues

Part 4 What Can Be Done?

4.1 Winterization Requirements
4.2 Resource Adequacy Assessments
4.3 Does ERCOT Need a Capacity Market?
4.4 Interconnecting With Neighboring Grids
4.5 Microgrids, Battery Storage, and Other New and Improving Technologies
4.6 Analyzing the Financial Challenges

Part 5 Recommendations

Part 6 Conclusion: Looking Forward

Full Policy Brief — Texas Power Failures: What Happened in February 2021 and What Can Be Done

The post The 2021 Texas Power Crisis: What Happened and What Can Be Done to Avoid Another One? appeared first on Reason Foundation.

How To Prevent Another Texas Power Failure

Michael Giberson — Thu, 22 Apr 2021 04:01:43 +0000

This is an excerpt from the policy brief—The 2021 Texas Power Crisis: What Happened and What Can Be Done to Avoid Another One?

While the Texas power grid is back in business, the financial fallout is likely to continue for months, maybe years. Resolving financial problems as soon as reasonable will reduce uncertainty and likely help facilitate the investment needed to improve integrated energy systems in Texas. Much analysis has already identified specific problems in the Texas energy system contributing to the outages, but investigations should be continued. As the Texas Legislature was already in session at the time of the outages, hearings already have been held and bills already have been introduced in response.

The Federal Energy Regulatory Commission/North American Electric Reliability Corporation (FERC/NERC) 2011 Report will be one place to look for recommendations, updated to reflect the more extreme cold conditions experienced in 2021. FERC and NERC are collaborating on analysis and recommendations addressing Texas’ 2021 experience. Presumably, the degree of compliance with recommendations from the 2011 Report will be among the topics investigated.

Likely better to let investigations continue before imposing significant reforms. The high stakes of failure demand a well-informed and well-considered response.

What changes are called for to help the system improve reliability?

Recommendations

Winterization

More-stringent winterization requirements seem politically unavoidable, though again the degree to which winterization is needed depends on the critical assessment of the cold. The severity of failures in 2021 may lead the incautious to say any cost of winterization is justifiable, but that is not true. It is the potential severity of failures in the future that demand that resources be devoted to where they will be most effective. Benefit-cost analysis is the standard approach for answering the question, “Where should resources be devoted to secure the best overall protection?”

Winterization standards should allow power plant operators significant flexibility to adapt plants to colder weather. It may be reasonable to prioritize implementation for Texas power plants that failed in February 2021 or February 2011, and possibly appropriate to excuse plants that performed well through both events from any new rules. It may be reasonable to set standards differently in the northern and southern parts of the state. Whatever winterization requirements ought to apply to panhandle wind turbines, they are likely more stringent than those applied to coastal wind turbines. Rules will likely be tailored to generating technologies, with some rules targeting wind energy, others targeting natural gas generation, and so on. Care should be taken to ensure requirements do not unreasonably burden any one type of generation or region of the state.

Lack of fuel supply is a concern. The loss of natural gas generation came both from plant outages and from a lack of natural gas supply. Winterization standards should not neglect the natural gas production and distribution system. Natural gas plants can be adapted to allow the plants to run on fuel oil when gas is not available, and regulators should consider whether some minimum amount of dual-fuel capability is desirable. In addition, gas pipelines should take the opportunity to have their facilities listed as critical services during rolling outages in order to avoid unintentional cuts to otherwise available gas supplies. While gas generation contributed the largest share of outages, coal-fueled plants and nuclear plants also deserve attention.

In assessing Texas’ winterization requirements, the public and policymakers should be aware that owners of power plants have strong financial incentives to avoid failures and will take steps to improve their plants with or without added regulations. Each additional MWh of power a generator could supply during the grid emergency could have earned $9,000, an amount almost 300 times higher than typical market prices. Any power plant already contracted to supply power, but unable to do so because of the cold, was likely paying that $9,000 MWh price to replace the power they could not provide. The prospects of earning that revenue or avoiding that cost provide a strong market signal. The good news, then, is that regulations can be focused on systemic challenges beyond investments that will already happen.

A related issue arises with calls for “bailing out” companies hard hit financially by the failures. If bailouts provide cover directly or indirectly for losses suffered by generators, it will reduce generator willingness to spend their own money to prevent failures. If bailouts cover losses incurred by retail electric suppliers, then it undermines incentives for retail providers to engage in long-term firm contracts that can encourage investment in new power plants. Bailouts for residential customers struck by $1,000 power bills raise more complex issues, but having seen the risks residential consumers will likely be much more cautious about supply offers that expose retail consumers directly to wholesale prices.

As part of ERCOT’s winterization response, it should fully reassess its resource adequacy analysis and the manner in which that analysis figures into its operational decisions.²⁹ Scheduling of maintenance outages and reliability commitment policies for winter weather should be among operational practices updated. The PUC of Texas failed to produce annual reports on electric power winter readiness, as required in a law passed after the February 2011 rolling outages. Had it done so, potential failures may have been foreseen and avoided. As should go without saying, regulators should comply with the law.

Capacity Market

Installing a capacity market would achieve little without a better resource adequacy assessment, but how the resource adequacy assessment should be improved depends upon how and why the assessment was wrong. While the errors of the assessment are clear in hindsight, the relevant question concerns how it can be improved using information available as much as three to six months before the season arrives. Improvements in resource adequacy assessments are critical.

However, a better resource adequacy assessment combined with reasonable winterization of electric power and natural gas systems in Texas are likely adequate to the task. Fundamental changes to the Electric Reliability Council of Texas (ERCOT) market design could impose additional costs without predictable benefits.

Transmission Links

More substantial connections to neighboring grids would have reduced the depth and duration of the crisis. Proposals have been made, but appear to be mired in regulatory processes. The Public Utility Commission of Texas had directed ERCOT to prioritize rule developments needed for the Southern Cross proposal, but rules will mean little if the project cannot obtain regulatory permission from other states involved. FERC does not currently have authority to mandate transmission siting, but does bear significant responsibility for interstate transmission and wholesale power transactions crossing state borders. FERC’s authority over power flows in interstate commerce suggests it examine ways in which it can promote interstate transmission more effectively.

Many state legislatures, including in Texas, have granted existing transmission owners a right of first refusal (ROFR) over the construction of new transmission projects in their states. Supporters of ROFR provisions point to the benefits of working with experienced transmission owners. Critics of ROFR provisions say the provisions unnecessarily add costs and tend to discourage transmission expansion. If transmission expansion is part of the state’s response to the February energy emergency, the legislature may want to reconsider its ROFR law.

ERCOT and the PUC should ensure rules can accommodate Southern Cross and then are generalized for any subsequent link. The PUC and FERC should adopt standardized procedures for such links to add predictability to regulations. FERC should guard against the use of state regulatory processes to impede interstate commerce in power.

New Technologies

The ERCOT market design has demonstrated an ability to accommodate new and improving technologies from wind and solar to batteries to distributed energy resources. Retail market rules have allowed REPs to offer the most diverse selection of retail supply contracts available, including market-based net metering proposals and offers providing home energy management capabilities. Risks associated with retail offers passing through wholesale costs have demonstrated such contracts are not wise for most consumers, but they have not undermined the value of allowing experimentation by retailers. Rather, competition in the market should be protected to foster continued innovation as technology and communications improve and open up new ways of creating customer value.

These changes are not likely to provide more than modest improvements to winter reliability in the short run, but are nonetheless desirable and will continue. Resource adequacy assessments should reflect whatever reliability benefits new technologies offer.

Financial Reforms

Resolving financial problems surrounding the energy emergency will be a particular challenge. A quick resolution reduces uncertainty, which allows market participants to move forward more confidently. Few investors will be willing to put millions of dollars into a system in which billion-dollar obligations remain unresolved. But resolving problems quickly can raise the cost or force the liquidation of market participants that may otherwise have been capable of reestablishing their financial position.

Legislators and regulators also have to be concerned about imposing unnecessary costs on outside investors and financial market participants. The presence of purely financial market participants helps the market run more smoothly by making it easier for physical market participants to enter into both short-term and long-term contracts. Costs that do not reflect the costs associated with market participation will unnecessarily raise the cost of capital for market participants, slowing investment and ultimately resulting in somewhat higher prices for consumers.

Retail Competition

Some critics of retail competition in electric power took the opportunity of the Texas power outages to again state their case. One such article stated the point in its headline, “The real problem in Texas: Deregulation.” Reporters at The Wall Street Journal claimed that residential consumers in Texas had paid billions of dollars too much because of retail competition, although their calculations are inadequate to justify their conclusion. Adjusted for inflation, retail power rates in the competitive retail parts of Texas are lower than the rates charged in those areas when they were last regulated by the state PUC, which makes the overcharge claim hard to accept. The best economic analysis of Texas retail power prices, a peer-reviewed academic study published in the journal Energy Economics, found that retail competition brought cost savings to end consumers. Also, it is not the case that savings have come by cutting corners on reliability. Industry veterans Devin Hartman and Beth Garza report competitive markets have a superior reliability record overall.

Looking Forward

In responding to the power system failures, the identification of the root causes of failures will be critical. Many critics and analysts were quick to offer their long-favored prescriptions—limit renewables, add a capacity market, return to vertical integration—but the very rapidity of the prescriptions ensured they were not based on a deep understanding of what happened.

The days following the emergency have allowed a tentative picture of circumstances to be assembled, but more investigation remains. The weather was colder for longer across a larger portion of the state than ever recorded before. The widespread damages caused by a lack of access to electricity, including loss of life as Texans struggled to cope with the extreme cold, were disastrous, but examining ERCOT’s response shows that ERCOT did its job during the emergency.

The major failings happened before the bad weather hit. It may not prove to be cost-effective to fully weatherize every system component against the possible extremes of cold and heat experienced in Texas. Yet the severity of the failures, the lives lost to the cold, and the significant costs imposed on the state demand a careful look at the range of possible alternatives.

We should not overlook the point that the ERCOT power system has performed well under a wide variety of weather conditions. The regulations established promoting competition in ERCOT’s wholesale and retail market have served the state well. While these regulations must change in response to the failures of February 2021, this fundamental commitment to competition should be maintained.

Full Policy Brief—The 2021 Texas Power Crisis: What Happened and What Can Be Done to Avoid Another One?

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The Texas Power Fiasco Shows Need to Find a Balance With Wind Power and Other Renewables

Kenneth P. Green — Mon, 05 Apr 2021 04:00:45 +0000

Round like a circle in a spiral, like a wheel within a wheel
Neither ending nor beginning, on an ever-spinning reel…

The story of wind power has never been written so well as in the song “Windmills of Your Mind,“ by Michel LeGrand, with English lyrics by Alan and Marilyn Bergman. The song, written about a great movie, The Thomas Crown Affair, is about the world of high-stakes theft and subterfuge, where all is spin and nothing is as it seems. And the blame vortex surrounding the blackouts during the recent deadly winter storm in Texas is a stunning example of this kind of rotary obfuscation.

The battle lines on the “what we learned from Texas” debate were drawn practically before the rotors had stopped spinning, either on the wind turbines, or in the gas, coal, and nuclear power plants that Texas has historically relied on to keep the lights burning. (Let’s leave solar out of this, at 2 percent of power production, it’s not relevant.)

If you wanted to scapegoat wind power, for whatever reason, as Texas Gov. Greg Abbott did, it was supposedly as obvious as the sheaths of ice on the turbines, that wind was the culprit. Responsible for producing over 23 percent of Texas electricity generation at some points of the year, a lot of the wind power didn’t work so well in the deep freeze. So, the narrative wrote itself for those looking to blame wind. They suggested wind power is unreliable because the wind is unreliable, the weather is unreliable, and so is the climate that drives the weather. Adding insult to injury, you can’t store the power to use when the wind isn’t blowing, even with Elon Musk in Texas. So, to those people, it was a wind-power failure, QED.

On the other hand, if you love wind power and oppose fossil fuels or conventional power plants, the narrative from your perspective was equally clear. The “obsolete” conventional power generation sector (fossil fuels and nukes) was to blame for a whole bunch of reasons, including a lack of proper maintenance, a failure to weatherize equipment in ways that the state had previously been warned about, an isolationist power grid separated from the rest of the country, and so on. In the face of a predictable storm, Texas’ coal and natural gas power plants weren’t ready to do the job they’re supposed to.

Both narratives are in some aspects true.

Yes, many wind turbines weren’t producing power during the storm, but it’s also true that far more coal and natural gas-powered power plants were down and unable to meet the demand of Texas customers. The Austin-American Statesman reported the Electric Reliability Council of Texas (ERCOT) breakdown of the problem across the types of facilities on Feb. 17:

ERCOT said all types of facilities, not just the ones that produce renewable energy, were affected by the statewide outages.

As of Wednesday, 46,000 megawatts of generation were offline, with 185 generating plants tripped. ERCOT officials said 28,000 megawatts came from coal, gas and nuclear plants, and 18,000 megawatts were from solar and wind.

Energy demand reached a record high Sunday and didn’t taper off as electricity usage typically does during overnight hours. The issue became critical when several of the grid’s energy generation units began to go offline in rapid progression, affecting more than half of the grid’s winter generating capacity, according to ERCOT Senior Director of System Operations Dan Woodfin.

These failing sources largely included nuclear plants, coal plants and thermal energy generators. Frozen wind turbines were a factor, too, but Woodfin said wind shutdowns accounted for less than 13% of the outages.The problem in Texas was not simply about particular sources of power, nor the politics of power, the problem was a failure to properly blend the old with the new and balancing a system capable of meeting demand under those cold conditions…

An ERCOT report on generating capacity listed the top sources of power in the state:

Natural gas (51%)
Wind (24.8%)
Coal (13.4%)
Nuclear (4.9%)
Solar (3.8%)
Hydro, biomass-fired units (1.9%)

If you want a system that is heavy in intermittent power generation, like wind, you need to have adequate backup power standing by to kick in when the wind isn’t blowing. That’s obvious. What’s not obvious is that the problem is not when the wind fails to produce power, but when it actually succeeds at producing power because while that’s happening, the backup systems are operating at partial capacity, and they’re losing the money needed to maintain their ability to pick up the slack when the wind dies down. Add to that a general political climate that heavily disfavors properly maintaining, renovating, and upgrading conventional power generation or infrastructure, and you have some of the key contributing factors to the Great Texas Winter Blackout of 2021.

This challenge, balancing the economics of wind power and its effect on conventional forms of power generation is where the overall concept of replacing conventional power with renewable power is failing and will likely continue to fail. That’s not because there’s anything wrong with wind power, or conventional power. It’s a problem of cold, hard economics and governance. The various political actors steering power systems are often not interested or not capable of looking for a way to balance the speed of renewable deployment with a way to meet the economic needs of the established power generation systems that have kept the lights on when the wind doesn’t blow and the sun doesn’t shine. Striking that balance is the key to moving forward toward decarbonizing and expanding the electrification of power systems over time.

Spinning has always been part and parcel of using and generating power: wheels, axles, pulleys, crankshafts, generators, and so on. Similarly, spinning has always been part and parcel (cynically, perhaps the greatest part) of politics. And it’s those politics that led to the power fiasco in Texas. But there is potentially a ray of light. Hopefully, in the forensic aftermath of the Texas fiasco, more knowledge will be gained about how to strike the balance when integrating more renewables, both those we know and those we have yet to discover, into an existing system with massive economic momentum built up over decades of operation.

Politicians, activists, advocates, and opponents of wind, coal, gas, nuclear, hydropower, and even solar power, all need to stop spinning around this fundamental truth: Whether one likes it or not, intermittent forms of energy generation are just as subject to the laws of economics as every other form of energy generation. We have to stop pretending it’s all one way or the other, renewable or conventional, and strive to find the proper balance that keeps the system working and from failing its customers in deadly ways as it did in Texas. And that correct balance involves technology, economics, and, unfortunately, political rationality, which often seems more fickle than the wind.

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Testimony: Florida Considers Electric Vehicle Fees to Replace Gas Tax Revenue

Vittorio Nastasi — Wed, 10 Mar 2021 14:00:39 +0000

Senate Bill 140 would create annual flat fees for electric vehicles and plug-in hybrid electric vehicles in the state of Florida. It is paired with Senate Bill 138 which would direct the Florida Department of Transportation to create an Electric Vehicle Infrastructure Grant Program to distribute grants to various entities that apply, and have matching funds, in order to install electric vehicle charging infrastructure throughout the state, and would provide a one-time $5 million appropriation to implement the grant program.

There are approximately 66,700 electric (EV) and plug-in hybrid vehicles currently driven in Florida. Using this number, we can estimate that the new fees established by this legislation would equal roughly $9 million or more in revenue per year.

Fees such as that proposed in SB 140 are common across the country—26 states have imposed them already, and the fee levels proposed in SB 140 are about in the middle range compared to other states. States have been motivated to implement such fees mainly due to projections of lost transportation user fee revenue in the form of fuel taxes, which electric and hybrid vehicles do not pay or pay very little of relative to their use of infrastructure.

The Florida Department of Transportation in its EV Infrastructure Master Plan estimates fuel tax revenue losses by 2040 of between 8.4 percent to 30.0 percent, depending on how rapid the growth in adoption of EVs is. Needless to say, there will be no reduction in the need for roads and road maintenance as the mix of vehicles increasingly shifts to electric and the state’s population, economy, and vehicle-miles traveled continue to grow.

It is only fair that owners of electric and plug-in hybrid electric vehicles also pay for the building and maintenance of the roads they use. A new annual fee for these vehicles is an efficient way to do so. And the fee proposed in SB 140 will not discourage the adoption of electric and hybrid vehicles as their $1,650 average savings on gasoline per year is far more than the $135 or $150 annual fee.

Finally, the grant program in SB 138 would use the first five years of revenue from these fees to provide charging infrastructure for electric and plug-in hybrid electric vehicles, providing these drivers a direct user benefit for their user fee. In subsequent years, the fees would help pay for road maintenance in the state. Moreover, the proposed grant program uses a public-private partnership approach where private parties who need charging infrastructure for their workers or visitors share the costs of installing it with users via the state program.

These policies will help Florida achieve the growth in electric and hybrid electric vehicles that so many want to see for environmental reasons by improving electric charging infrastructure while simultaneously creating a system for those vehicles to pay their fair share for the roads they use in the years to come.

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Nevada Ballot Initiative Analysis: Question 6 (2020)

Geoffrey Lawrence — Mon, 28 Sep 2020 18:06:35 +0000

Nevada Question 6: Nevada Renewable Energy Standards Initiative

Summary:

Renewable Portfolio Standards require that regulated electric utilities collect a minimum percentage of electricity from designated renewable sources, such as wind turbines or solar panels. Nevada’s Question 6 would double the state’s Renewable Portfolio Standard (RPS), from the current 25 percent to 50 percent by 2030.

Nevada voters approved this question in 2018 in the first of two required votes to place it into the state constitution.

Fiscal Impact:

The true fiscal impact is unknown as of this writing. Critics suggest costs could be in the hundreds of millions when considering potential higher costs in energy generation, distribution, and higher consumer rates. Much of the additional cost would likely be borne directly by electric consumers, but state and local governments could face higher costs as well.

Proponents Arguments For:

Proponents argue that increasing Nevada’s Renewable Portfolio Standards is the best way to make the necessary move to more clean and renewable energy. Supporters say that moving to 50 percent renewable energy will add thousands of jobs and billions in investments to the state’s economy in the renewable energy sector. Question 6 would make Nevada a self-sufficient leader in renewable clean energy, taking advantage of its natural supply of solar and geothermal resources, and would dramatically reduce carbon and sulfur pollution in our air. Supports say now is the time to make this change because renewable energy is already more reliable than fossil fuels and it keeps getting more affordable. Nevada currently gets 80 percent of its electricity from out-of-state natural gas and this over-reliance on fossil fuels leaves Nevadans vulnerable to price spikes and supply disruptions that Question 6 would end, its proponents argue.

Opponents Arguments Against:

Opponents to Question 6 argue that a higher RPS will impose higher electric rates and lead to less-reliable power for households and businesses. Nevada already has one of the most diverse renewable energy portfolios in the nation, including 19 geothermal projects, 14 solar projects and roughly one dozen wind, biomass, hydro and waste heat renewable energy projects, with additional renewable energy products in the planning process. Forcing further shift to renewables before the market is ready will hurt consumers, opponents say. Furthermore prices of renewables are still high and the would cost jobs in manufacturing, agriculture, and tourism. Question 6 would impose the same type of RPS in Nevada that is partially blamed for California losing a large percentage of its industrial base since 2000, opponents say. California’s residential utility rates are 57 percent higher than Nevada’s and industrial rates are more than double, according to statistics from the U.S. Energy Information Administration. Putting Question 6 into Nevada’s state constitution means that if it turns out to be impractical to implement or too costly to the state’s economy, the only way to fix it would be with another constitutional amendment.

Discussion:

While Renewable Portfolio Standards may expedite the adoption of renewable energy, it does appear that this transition comes at a higher cost to customers. A recent comprehensive review of RPS by the University of Chicago shows a significant increase in costs alongside more mild gains in renewable energy use. This is in part because renewable sources like solar and wind are generated geographically further from the city centers they serve, resulting in higher infrastructure and transmission costs, but also due to costs imposed when energy companies are mandated to abandon old technologies and systems. Indeed, Question 6 could mean Nevada utilities have to abandon existing power plants before their useful life is completed. Furthermore, ratepayers will still be required to pay for those unused power plants.

There is also some controversy over what types of technologies would get designated as renewable. Hydroelectric dams, for instance, provide very renewable energy but do not qualify as an approved renewable source in Nevada. Generally, regulated utilities can generate power internally or purchase it wholesale from an independent power producer utilizing an approved technology. Regulated utilities have an incentive to own and operate their own power plants since their allowed rate of return is based on a percentage of equity. NV Energy has been criticized in the past for supporting plans to prematurely shutter its power plants and replace them with solar plants in part to increase the utility’s equity and rate of return for shareholders while causing rates to increase for businesses and households.

It is also possible an RPS could be optimally effective at lower rates than 50 percent. There is some evidence that these requirements have helped to lower the costs of renewable energy generation by giving manufacturers of solar panels and wind turbines a guaranteed market into which their products will be sold.

California has recently experienced rolling blackouts, in part, because of its abandonment of traditional power sources for renewable sources. Although solar panels tend to produce electricity reliably during peak hours, wind turbines have highly variable outputs that tend to peak during off-peak hours when it is less useful. By contrast, nuclear and coal-fired power plants can supply a steady level of baseload power and natural gas turbines can be quickly scaled up on-demand, as needed. Grid managers must balance the supply and demand for electricity at any given moment, which can be more challenging with renewable sources since the production of wind turbines especially can vary greatly over short time periods. If reducing carbon dioxide emissions is the underlying goal of Renewable Portfolio Standards, there are many ways of achieving the goal without specifying in the state constitution what utilities must do.

Voters’ Guide to Nevada’s Other 2020 Ballot Questions

Voters’ Guides to 2020 Ballot Initiatives In Other States

The post Nevada Ballot Initiative Analysis: Question 6 (2020) appeared first on Reason Foundation.

Hacking the United Kingdom’s Electricity Grid

Todd Myers — Thu, 07 May 2020 19:00:28 +0000

Kim Bauters, Ph.D., is an expert in artificial intelligence. If you want to know the best gelato recipe to use the ingredients you have on hand, he has developed a smartphone app that will help you. If you want to know the best recipe to make soap, he’s put AI to work for you with another app called Soap Genie.

If, however, you want to save electricity and reduce your carbon footprint, Bauters explains, that’s much easier “because there isn’t an artificial intelligence component.” So, he created an app that helps homeowners calculate the best times of day to use their appliances.

Bauters isn’t the only one helping people go green and save money. Karolis Petruskevicius, the founder of Homely Energy, used his parents as guinea pigs to see if the energy-saving technology he was developing would work. And Mick Wall taught himself several programming languages as he developed a web page showing the lowest-cost times to use household appliances.

Across the U.K., lone hackers, a term that has come to mean high-tech tinkerer, are creating ways to harness energy price and usage data that has only recently become available. Their creations tell people how to reduce CO2 emissions and save money by reducing their electricity use. Remarkably, by reducing electricity demand at specific times, they are also helping balance the electrical grid.

Two innovations made this possible. First, an electric and gas company called Octopus Energy created a variable-rate pricing plan called Octopus Agile that uses prices to reward customers for using electricity when supply is abundant and increases prices when demand is high. Second, Octopus made real-time price data available to anyone with enthusiasm and a little programming skill. Octopus encouraged everyone who would listen to create new tools for their customers.

The results are just beginning to appear, but these new innovations are attracting the attention of energy experts and managers in the United Kingdom. Thanks to the democratization of information, individual hackers like Bauters, Petruskevicius, and Wall can create, all by themselves, what used to require a team of experts with a big bank account. Octopus is also adding customers, thanks in part to these innovators who make trying this unique approach to electricity pricing less daunting and more rewarding.

Helping homeowners respond to fluctuations in price—encouraging them to use renewable energy when it is available—will become even more important as the National Grid Electricity System Operator moves toward the goal of operating Great Britain’s grid with zero-carbon by 2025. Meeting that goal while delivering power when people need it will be very difficult without the help of homeowners. That difficulty will become more pronounced as the U.K. adds increased demand for electricity from a growing number of electric vehicles.

In the midst of these large and challenging trends, we are increasingly likely to find individual hackers nibbling away at the problem with tools that can be as simple as sharing information to gadgets driven by artificial intelligence and complex algorithms. Without them, the transition to a carbon-free grid would be more expensive and difficult.

A new approach to electricity pricing

Nobody knows that better than Phil Steele of Octopus Energy, whose official title is “Future Technologies Evangelist.” His job is to proselytize about the need to create the technology and tools customers will need in the changing electricity landscape.

“It is all about trying to get consumers on to renewable energy,” he explains. The best way to do that is to help customers use electricity during the times of day when it is generated by renewables. Currently, that is a challenge.

On a typical day, the amount of electricity that people want increases in the morning as they wake up and head to work. It declines slightly through the middle of the day and then peaks during the late afternoon and evening as people return home, turn on the TV, and cook their dinner. This pattern, while fairly predictable, can double energy demand—or cut it in half—in just a few hours. That large swing requires grid managers to find more supply by turning on and off “dispatchable” sources of electricity, often natural gas or coal. The peaking plants that generate this electricity are not only less environmentally friendly, but they are also the most expensive. Shifting demand away from peak hours would not only cut CO2 emissions, but it would also reduce the need for the most expensive sources of electricity.

Few people, however, realize how expensive it is to turn on their tumble dryer or dishwasher during those peak hours because they have been protected from big fluctuations in the prices electric companies must pay to meet that demand. When customers did not have the capability of following real-time price fluctuations, a stable rate structure made sense. Most electricity rates protected customers, charging based on simple price schemes that often had only two price tiers—one for the daytime, and one for overnight. Most electric companies in the U.K. still use a similar system.

Recognizing the new opportunities created by information technology, Octopus created their Agile rate which varies every half-hour during the day. “We launched Agile Octopus to encourage households to shift their consumption from the daily peak energy demand period of 4 p.m. to 7 p.m. when we’re paying very high wholesale prices,” said Steele. If the electric company can buy less energy when wholesale prices are high, they can pass the savings on to the customer. And the savings can be significant.

For example, at 3:30 p.m., customers could be paying less than three pence for a kilowatt-hour (kWH) of electricity. A half-hour later that price might jump to 17p per kWh. When 7:30 p.m. rolls around, those prices plunge down to eight or nine pence. Price changes during the rest of the day are less dramatic, but they can go from 1p up to 4p in just 30 minutes.

Perhaps most remarkably, prices can even become negative, when Octopus actually pays customers to use more electricity. This typically happens in the middle of the night, when demand is low and there is an excess of wind power. Last December, when Storm Atiyah blew in, the amount of wind energy on the grid, enough to power about 15 million homes in the U.K., doubled in 24 hours.

That electricity had to go somewhere. Rather than turning other generating stations off, which is expensive, Octopus decided to pay people to use the short-term surplus. Between 1:30 a.m. and 6 a.m. on Dec. 8, 2019, Octopus paid customers about 1 pence per kWh. As Octopus staff wrote on their blog, “overnight storms triggered the energy equivalent of an ‘everything must go’ sale.” If you owned an electric car, you hit the jackpot. Imagine what would happen if filling stations paid to fill your tank with petrol.

Grid managers noticed what Octopus was doing. The director of operations for the GB grid tweeted “a big thank you” for helping create demand to balance the excess supply.

Paying people to use electricity, however, doesn’t make a difference if nobody knows about it. To help customers, Octopus publishes its rates online, as well as making them available to programmers using an Application Programming Interface, or API. Put simply, the job of an API is to answer questions asked by another app. Programmers send a query to the API— a more technical version of “what will tomorrow’s electricity prices be in London” —and the API returns the data.

Programmers can ask for the prices customers will pay during the next 24 hours. They can check the energy usage for individual meters. Octopus encouraged programmers to find new ways to use all this data. In 2018, they hosted a “Hack Day,” attracting more than 100 computer programmers and tinkerers. “We wanted to enable other tech innovators in the energy sector access to this incredible data,” Octopus staff explained, “so we …cracked open our Agile Octopus API for public development.”

Individuals have taken up that challenge, and the results are beginning to appear.

Tools to empower energy customers

The most basic way to help consumers adjust to the Agile pricing is to provide timely and useable information. When Mick Wall started playing with the Octopus API, he only wanted the information for himself. His home already had solar panels, so he appreciated the value of using electricity when it was available. As an Octopus customer, he wanted to know more about pricing but the detail he wanted was not available. “You could download small amounts of Agile tariff data for a single U.K. region from the Octopus website,” he said, “but not my region.” That’s when he started his “journey of discovery.”

Teaching himself several programming interfaces, he created a program that downloaded the data into a spreadsheet. Since he already managed the web page for his running club, he created energy-stats.uk and shared what he found. Soon, people began asking him to generate graphs and over his Christmas break, he added the ability for visitors to download the data. The simplicity of the site, providing electricity prices for regions of the U.K., is what makes it useful. When I asked him what innovations were next, Wall said he liked it the way it was. “I fear adding more stuff will take away from what the site is good at, just delivering the Octopus pricing data each day,” he said.

He’s probably right. He notes that the basic information on his site changed how he uses electricity and says many people have been in touch to thank him, saying it has helped them save money too. “The Octopus Agile tariff is a game-changer,” he says. “I defy anyone not to change their habits when they know they can save lots of money.”

That is also what inspired Kim Bauters to put his knowledge of computer science to work. He knew the price data was available, but, “People in my family found it was hard to track, so I decided to create an app.” Initially, he created an app called Octopus Watch for the Apple watch but has now added versions for the iPhone and Android. Unlike his other apps that use AI to create soap and gelato recipes, the programming for Octopus Watch was straightforward – take the data provided by the API and make it digestible. “All of these incentives don’t necessarily translate into a user doing something,” he said. The amount of data could be overwhelming.

“It is like the Google problem of having too much data,” he said, referencing the trend toward “big data,” where individuals and businesses are inundated by the information. Octopus Watch takes all that data and translates it into simple guidelines about when to turn on energy-intensive appliances like clothes dryers and dishwashers. Before the app, “we didn’t use timers on any appliances,” said Bauters, “but now we routinely use the app to find the best slots.” It is paying off.

The combination of the Octopus Agile prices and his app is yielding a “fairly consistent 35 percent savings,” he told me. For owners of electric cars, the savings “tend to be much more toward 60 to 70 percent.”

To take the next step in energy savings, however, people will probably need a little help. You may not need artificial intelligence to find the best time to dry your clothes, but it is handy when trying to keep your home comfortable amidst daily price fluctuations. That is the problem Karolis Petruskevicius and his colleague Ignas Bolsakovas wanted to solve.

A Ph.D. candidate in power networks, Karolis has been focusing on modeling electricity prices in the U.K. with a growing number of residential heat pumps and an increase in power production from intermittent renewable sources such as solar and wind. Working with his advisor, he developed a model and he wanted to test it. His parents had a heat pump and he decided to make them his test subjects.

Ground-source heat pumps are expensive to install but can be extremely efficient. Taking heat from the pipes in the ground, heat pumps return about four units of heat for every one unit of electricity. “You are getting three units of energy for free from renewable sources,” Karolis explained. “It is going to be key to decarbonizing.” The problem is to decide when to use electricity to run the pump.

The algorithm he developed turned on the heat pump before prices jumped during peak demand, relying on the home’s insulation to keep temperatures at a comfortable level until prices fell again. “When price is low you slightly overheat the home. What it would do is overheat the house slightly before 4 p.m. and then let temperatures drop until 7 p.m.” With the tolerance of his parents, he found the system worked.

Monitoring the heat pump is more than most people can do on their own. Partnering with Ignas, a computer scientist, he launched Homely Energy, and created a smart thermostat for heat pumps that uses Octopus Agile price data. Their app also works with heat pumps that are already internet-connected, turning them on and off based on the same price algorithm he used at his parents’ home. “We think that we can save up to 30% compared to fixed tariffs,” he says.

If his projections are right, the market for Homely’s thermostat and app could grow dramatically. Petruskevicius cites estimates from the National Grid that half of the population of the U.K. could have a heat pump by the year 2050. He believes that as people see the economic and environmental benefits of heat pumps, more people will give them a try.

Another person who is convinced is Jan Rosenow, the European Program Director at the Regulatory Assistance Project, an independent energy think tank. “The main reason I chose Agile is that we installed a heat pump,” he told me. “The interest was to see if we could get benefit out of load shifting.”

Where does one of Europe’s leading experts on energy demand turn for information about how to manage his personal energy use? “I rely on third-party apps,” he answered. Prior to switching to Octopus Agile, Rosenow was paying about 14 p per kWh on average. Now, thanks to the price information, he says he pays about 7 or 8 p per kWh.

Rosenow is optimistic about the ability of market prices and consumer information to help adjust to the changing electricity market in the U.K. and Europe will see in the future. He explains that the main benefit of using prices and information to change the way people use electricity is to “shift that additional load outside peak hours and absorb renewables or solar during the day.” By charging an electric car during the day, rather than when people get home, it not only avoids the hours of peak demand, it uses solar energy that is available during the middle of the day. Users get two benefits at once – cheaper energy and smaller environmental impact.

Open data for green energy

The U.K. is just beginning to see these innovations make a difference, and there is still a long way to go. As the number of innovators grows, they realize they are part of a community. Mick Wall is building a list of devices and apps that work with the Octopus API. These range from intelligent plugs like Ecopush, to chargers for electric cars. More innovations are most certainly coming.

The catalyst for those creating these tools that take advantage of Octopus’s variable rates was to make the data available. “Without the APIs we wouldn’t be able to do what we are doing,” says Bolsakovas of Homely Energy. That data is also helping improve the performance of future innovations. “We also need more accurate data to make our algorithms work properly,” and instead of just using data from Petruskevicius parents’ home, they can now use the enormous amount of data provided by the API and their hardware. “The more open data we have the better.”

This seems like small stuff, but the potential is huge. A study by Octopus found that customers with Agile pricing and an electric car, shifted their energy use from the more traditional pattern – peaking around 7 p.m. – to peaking in the early morning hours around 2 a.m. This shift reduced their total electricity use during peak hours by nearly 50 percent.

Open data also means an increasing diversity of solutions to suit the needs of customers. Not everyone has an electric car or heat pump. For many people, the primary electrical draw may be a clothes dryer. Whatever the case may be, from a simple web page like energy-stats.uk to a more sophisticated controller using data-driven algorithms like the Homely heat pump controller, customers can already find something that suits their needs. As more electric companies introduce similar pricing systems, the number of customers who can benefit from these tools will grow, and so will the incentives to create more apps.

Octopus seems to agree. After Storm Atiyah moved through, the company managers wrote on their blog, “For years, the mainstream thinking was that renewable or sustainable products were expensive or niche. Over the weekend, a combination of smart meters, smart energy tariffs and a couple of windy nights helped us make the U.K.’s greenest energy the cheapest too.”

Petruskevicius wants to be part of undermining that mainstream mindset. “I think it is the future,” and services like Homely Energy’s will be more necessary “when we have a lot more loads like batteries, EVs and heat pumps.”

These early energy hackers did not intend to overturn the mindset and change the way the U.K. – and, perhaps, others in Europe and North America – think about and use electricity. Curiosity and self-interest were their primary motives. As the changes in electricity generation and markets accelerate, however, hackers like Wall, Bauters, and Petruskevicius will be pioneers in that important transformation.

The post Hacking the United Kingdom’s Electricity Grid appeared first on Reason Foundation.

What The World Needs Now Is A Free Market for Oil

Robert Dillon — Wed, 15 Apr 2020 04:03:32 +0000

The age of managed oil markets is dead. If that wasn’t apparent before now, Mexico’s decision to unfurl the black flag when asked to contribute to reducing global oil production by 10 percent and risk scuttling the shaky détente between Saudi Arabia and Russia was the final nail in the coffin.

First Russia, then Mexico.

Russian President Vladimir Putin sparked the current price war with Saudi Arabia and other members of the Organization of Petroleum Exporting Countries (OPEC) more than a month ago with a nyet to further limits on Russian output. In a snit over Russia’s snub, Saudi Crown Prince Mohammed bin Salman (MBS) opened the taps and increased global production by 20 percent almost overnight.

Oil prices plummeted in response, decimating national budgets and compounding the economic pain caused by the global response to the coronavirus pandemic.

With the world’s biggest economies against the ropes, Putin and MBS agreed to put down their drill-bits and play nice, which is when Mexico’s President Andres Manuel Lopez Obrador decided to cause trouble.

To a market managed by this lot, good riddance.

Even though the Saudi-led OPEC and Russia eventually struck a bargain late Sunday to reduce production by 9.7 million barrels a day, Mexico’s ability to turn global oil markets into a telenovela—with an equally unbelievable resolution—begs the question, why does the world put so much power in the hands of a cartel?

Every oil-producing country involved in the unprecedented negotiations attempted to get a leg up on the competition. Mexico was even able to extract a promise from President Trump to cover most of its portion of the cuts so that it could carry on with plans to rebuild its oil and refining sectors.

It is time to accept that collective international action will not overcome the national self-interest of individual politicians and that attempts to intervene in the market are doomed to deliver bad results. The answer to countering this type of national self-interest is simple—let the market work.

The market is far more efficient at solving the problem of supply and demand than governments—the ongoing international circus of tweets and virtual meetings influencing markets is all the evidence needed to end the debate about that.

The problem is that markets can be brutal and they don’t play favorites.

Left alone, the market will reward the lowest-cost producer and punish producers with higher breakeven costs. Those forces could lead to more failed companies and job losses in the U.S. oil sector, and in other places with robust private energy sectors (Canada, looking at you), but those jobs are being destroyed now by the decisions of a tiny group of authoritarian leaders.

Do we really want to continue to leave our economic and national security vulnerable to the whims of Putin or Saudi Crown Prince Mohammed bin Salman or Mexico?

The traditional argument in favor of active management is that wild fluctuations in the price of oil have global implications because of its universal importance to defense and heavy industry. In that case, we either need to find better management or diversify our energy supply.

On a global free market, national oil companies that benefit from generous state support could have an unfair advantage over private companies—if they are well managed. The oil world is littered with examples to the contrary. If Mexico wants to keep pumping out 1.6 million barrels of oil and building refineries instead of buying lower-cost gasoline from its northern neighbor, best of luck to it.

The United States is one of the few countries without a national oil company, so a free market for oil will require adequate protections against states that subsidize domestic production and then export it. But every market requires clear rules and strict enforcement mechanisms to ensure a level playing field.

Supply is not the immediate challenge, though. Removing 10 million or 15 million barrels a day from global markets will at best establish a floor below which prices won’t fall further. That price, though, may still be too low for a great number of U.S. oil companies to continue to produce, especially small and mid-sized independents that have traditionally been at the forefront of new discoveries.

A global agreement on production levels will result in a price that works for Russia and Saudi Arabia—and in the economic strangulation of those U.S. companies. Better to live and die on the free market where a company can decide its own fate.

Restore demand and the market will right itself. Prices will eventually rise as excess oil is drained off, making room for new competitors to enter the market. Real competition will encourage innovation and efficiency, hallmarks of U.S. producers.

In the meantime, global leaders should stop squabbling over who gets the biggest slice of the oil market and focus on developing a vaccine to the COVID-19 virus so we can lift the global quarantine and get back to work.

Restart economic activity and demand for oil, along with demand for everything else, will likely follow. Massive infrastructure projects require lots of labor and fuel, so governments could prioritize planned maintenance and expansion projects as well. Modernizing transportation, energy, and communication infrastructure would help work off the build-up of crude in storage and the growing spare tire many of us have acquired after a month of watching Netflix’s “Tiger King” from our couches. And when the bill comes due, hopefully, we’ll have far fewer potholes and crumbling bridges to contend with.

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PG&E’s Settlement Won’t Fix Its Problems and Consumers Deserve Choices

Geoffrey Lawrence — Fri, 20 Dec 2019 05:01:44 +0000

Pacific Gas & Electric is finalizing a $13.5 billion settlement that would go to individuals impacted by deadly fires in the state in recent years, including the Camp Fire in Paradise that killed 85 people. PG&E’s recent decisions to proactively create blackouts and shut off power to various parts of the state were an effort to avoid a repeat of its deadly mistakes. PG&E’s transmission infrastructure is so outdated that many fear it could cause more wildfires. It turns out the median age of a PG&E transmission tower is 68 years old and some are over 100 years old. The towers have a useful life of about 65 years.

As PG&E looks to emerge from Chapter 11 bankruptcy, there’s a lot of debate about what to do now. In response to the power shutdowns that had many people comparing California’s electricity infrastructure to that of a third-world country, Gov. Gavin Newsom may have threatened a state takeover of the utility, saying, “All options are on the table.”

Similarly, two dozen mayors, including those in San Jose, Sacramento, and Oakland, are recommending converting PG&E into a publicly-owned co-op. The plan would potentially put taxpayers on the hook for damages related to future fires caused by PG&E’s equipment.

PG&E CEO Bill Johnson recently admitted that it could take another decade for the utility to improve its grid enough that it no longer has to conduct power shutoffs to avoid causing wildfires. “I think this is probably a 10-year timeline to get to a point where it’s really ratcheted down significantly,” Johnson said of the blackouts.

Thus, routine power outages and rolling blackouts appear to be Californians’ new normal for at least another decade. Rather than accept this failing status quo, and instead of increasing taxpayers’ risk or government’s role in PG&E, California should give serious consideration to an entirely different model—competitive electricity markets.

The state’s regulated monopoly approach has failed, resulting in tragic deaths, massive property damage, not to mention some of the highest energy prices in the nation, and unreliable service.

Texas offers an interesting counterpoint. In 1999, Texas launched an effort to bring competition and consumer choice to its electricity market. Since that time, rates in its competitive market have declined by 31 percent and Texans now have access to some of the cheapest electricity in the country. For comparison, according to the most recent data from the US Energy Information Administration, the price per kilowatt-hour across all sectors is $0.09 in Texas and $0.19 in California.

Additionally, as competition increased in its electricity market, Texas also became a leader in renewable energy. “Texas continues to dominate the nation’s wind energy production, adding far more generating capacity than any other state last year and having more installed wind power capacity than all but five countries in the world,” the Houston Chronicle reported last year.

California’s politicians and customers may still have bad memories from the disastrous results of the state’s last flirtation with energy deregulation in the early 2000s. But that complex effort wasn’t deregulation— it only attempted to deregulate prices on the wholesale market while holding them fixed on the retail market. It also prohibited retail providers from signing long-term purchase agreements with power producers to safeguard against price volatility. In short, the poorly designed system paved the way for market manipulation and the rolling blackouts and high prices that consumers faced at the time.

Since then, however, a dozen states have successfully implemented consumer choice into their electricity markets. As a whole, they’ve fared well, cutting prices and expanding options for consumers. Instead of accepting a decade of blackouts while PG&E struggles to modernize and improve its infrastructure, this is an opportune time for California to reconsider the direction of its electricity markets. Californians deserve better than what they’re getting, and competition would deliver choices and alternatives to consumers.

This column originally appeared in the Orange County Register.

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The Truth About Electric Choice in Nevada

Geoffrey Lawrence — Mon, 01 Oct 2018 12:00:09 +0000

With a campaign season upon us, politicians and other usual suspects are again in full swing, promoting over-the-top rhetoric about how the world will end if we don’t vote a certain way. One area of unusual focus this year has been Question 3, a proposed amendment to the Nevada Constitution that would require the Legislature to create “an open, competitive retail electric energy market.”

It’s rare that citizens get a chance to vote on their right to choose among electricity providers. In the states that have established competitive retail markets for electricity, it has never been accomplished at the ballot. As a constitutional amendment, the measure must pass the ballot twice consecutively. It already garnered 72 percent of the vote in 2016, so, if a simple majority of Nevada voters approve Question 3 this year, it will become law.

This reality has led NV Energy, the state’s current monopoly electricity provider, to pour nearly $12 million into ads intended to scare Nevadans about the implications of choice and competition.

The most oft-cited example is a half-hearted and botched attempt at implementing a retail electricity market by California nearly 20 years ago. But that’s a poor example because California’s regulation included so much price-fixing and needless mandates that it’s hard to characterize the effort as a real attempt at providing consumers with electric choice to begin with.

Essentially, California prohibited any movements in the price of retail electricity but deregulated prices on the wholesale market. It simultaneously required utilities to purchase power from independent power plant but prohibited them from signing long-term contracts. The entire framework was poorly constructed and destined to fail from the outset.

The good news for Nevadans is California’s botched attempt is an extreme outlier in the world of electric choice. At least a dozen states have created competitive retail electricity markets, according to the U.S. Department of Energy, and no others have experienced the crisis that California lawmakers created for themselves with their poor design.

In fact, ending the monopoly structure for electric utilities has been a huge success in most states. Texas created electric choice in 2002. Last year, the Texas Public Utilities Commission reported that retail electric rates have declined by as much as 63 percent since 2001. Texans now face electric rates as low as 4.5 cents per kilowatt-hour, compared to a national average of 13.45 cents. Meanwhile, Nevada’s monopoly structure has led to an overall price increase of 23 percent over the same timeframe and a price of 11.7 cents per kilowatt-hour today for residential customers, according to data from the Department of Energy.

Further, contrary to claims from opponents who say choice is incompatible with so-called “renewable” power sources like wind and solar, Texas’ power generation mix has grown to include more and more renewable sources in the years since its choice program was established.

Nearly every argument being offered against electric choice is little more than a straw man. Of the total $11.9 million raised in opposition to the measure, NV Energy has contributed almost all of it, using money earned from ratepayers. The existing monopoly framework is good for NV Energy, because its profits are broadly determined as a percentage of its costs. As a result, NV Energy knows it can be inefficient and less responsive to its customers than businesses that must compete to attract and retain customers. After all, being tired of dealing with a costly, subpar electricity provider is why Nevadans have forced this issue onto the ballot to begin with.

This column first appeared in the Las Vegas Review-Journal.

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Permitting is Making Residential Solar Expensive and Reforms can Change That

Krisztina Pusok — Sun, 10 Jun 2018 10:25:51 +0000

California recently became the first state to require that homebuilders install solar panels on almost all new houses. In California, most homes built after Jan. 1, 2020, will be obligated to have solar energy panels and systems. The mandate is bad policy for multiple reasons. It will drive up the state’s already astronomical housing prices by an estimated $10,500 per home, according to the California Energy Commission’s own estimates. It is also likely to add layers of government bureaucracy in an area where the state’s typically overzealous regulatory streak has been surprisingly restrained — solar energy.

The cost of installing residential solar electricity generation in the United States has declined significantly over the past few years, due mostly to innovations that have reduced the cost of photovoltaic panels. But, nationwide, American consumers are still being charged far more for solar panels than the average consumer in other countries.

Antiquated regulations, primarily at the state and local levels, are costing American consumers about $70 billion per year. Permitting and other regulations vary significantly from state to state, but onerous permitting processes, strict building codes, and various tariffs cause U.S. consumers to pay, on average, nearly double what consumers abroad pay for installing similar solar systems. That amounts to nearly $10,000 more in costs for a 5-kilowatt residential solar system. The contrast with Australia, where there is no permitting process at all for solar, is stark. Solar installation costs in the U.S. are $3.25 per watt, compared to just $1.34 per watt in Australia.

California, not typically known for being a leader in government reform and efficiency, has actually been leading the way in streamlining its solar permitting process. The state has taken a number of steps to standardize its permitting process and has modernized outdated laws and regulations that were impeding Californians’ ability to adopt solar.

Assembly Bill 2188, passed in 2014, requires all local and city governments in California to follow the permitting processes included in the “Solar Permitting Guidebook,” which lays out standards and best practices for governments to reduce barriers to entry and cut costs. And the state has seen remarkable progress, with many local governments updating their books, reducing installation and permitting fees, and/or waiving them entirely. Each step taken locally to modernize outdated and onerous regulations is one step closer to ensuring the solar market is competitive and attractive to the ordinary consumer.California’s improvements have played a role in the price of solar in the state plummeting 55 percent over the last five years. And California is expected to lead the nation in solar production in the next five years, with a projection of 13,402 megawatts of solar according to the Solar Energy Industry Association.

These successes should be spurring California to continue streamlining its solar process so homebuilders, businesses, and consumers voluntarily select it. Instead, the state is implementing a mandate that may not scale well or generate positive returns since California is already experiencing periods where it has more solar power than the grid needs. Meanwhile, there is one very obvious negative. Piling on another $10,500, or more, in the costs of a home only makes the region’s housing more unaffordable for first-time homebuyers and middle-class families.
In March, the median home price across Southern California’s six counties was $519,000, according to CoreLogic. In Orange County, the median price hit a record $725,000 and in Los Angeles County the median price was up to $585,000.

Instead of the solar mandate, California would be much better served to continue focusing on reducing the cost of permitting and other regulations that have helped drive down the price of solar. Doing that can help solar installations become cheaper and more attractive to a wider swathe of consumers without pushing sky-high housing prices further out of reach for most Southern Californians.

This column originally ran in The Orange County Register.

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Voluntary Energy Standards: ISO 50001 and the Superior Energy Standard

Krisztina Pusok — Wed, 04 Apr 2018 04:01:40 +0000

Firms continuously seek to improve their energy efficiency in order to reduce their costs and thereby remain competitive. In addition, some firms may seek to improve energy efficiency to signal to consumers their commitment to environmental protection. Some larger firms have implemented energy management systems (EMSs) in order to achieve one or both of these objectives. Over the course of the past decade, EMSs have been developed by the International Organization for Standardization (ISO) and U.S. Department of Energy. The aims of these EMSs are (1) to provide incentives for innovation and (2) to provide information to ease decision-making among end-consumers.

Although these EMS programs are voluntary, the U.S. Department of Energy (DoE) has been involved in their development and diffusion. This brief considers the extent to which the standards are likely to achieve their aims and the role of DoE in advancing these standards.

Parts 1 and 2 describe the ISO 50001 EMS and the DoE’s involvement in its proliferation, which resulted in the creation of the Superior Energy Standard (SEP) standard.

Part 3 discusses the intended benefits of EMSs and whether DoE’s involvement is conducive to achieving those benefits.

Finally, this report offers recommendations for restructuring the programs sponsored by the DoE.

Full Brief: Voluntary Energy Standards: ISO 50001 and the Superior Energy Standard

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The Effect Of Corporate Average Fuel Economy Standards On Consumers

Julian Morris — Sun, 01 Apr 2018 04:00:52 +0000

Corporate Average Fuel Economy (CAFE) standards require manufacturers to meet minimum fuel economy requirements for their fleets of vehicles sold in the U.S. As a result, manufacturers adjust certain vehicle attributes in order to comply with these standards. Among the many vehicle attributes that a manufacturer may adjust are weight, power, and drivetrain. Such adjustments have consequences for the cost and performance of vehicles, which affects consumers.

In their assessment of the likely effects of CAFE standards, the National Highway Traffic Safety Administration (NHTSA) and the Environmental Protection Agency (EPA) claim that the new standards introduced since 2011 generate substantial benefits for consumers. Underlying that claim is an assumption that consumers fail adequately to take into consideration the economic benefits of more fuel-efficient vehicles when making purchasing decisions. However, a slew of recent studies questions the assumptions made by NHTSA and EPA. This brief assesses the effects of CAFE standards on consumers.

Proponents of CAFE standards claim that they benefit consumers by reducing the total costs of purchasing and using vehicles. The evidence contradicts this claim. Consumers generally purchase vehicles with characteristics that meet their needs, including their expectation of the total cost of future gas purchases. CAFE standards distort manufacturers’ incentives, forcing them to produce new vehicles with lower gas consumption than would be preferred by consumers. As a result, the range of vehicle options available to consumers is limited and many consumers are effectively forced to purchase vehicles that are less able to meet their preferences.

Among the most adversely affected consumers are those, predominantly in rural areas, who seek to purchase used pickups. The distortions created by CAFE standards artificially raise the cost of these vehicles by more than the average savings from reduced gas usage, increasing the total cost of ownership. Given the steep rise in the price of used pickup trucks that resulted from CAFE standards for the 2012–2016 period and current increases occurring as the 2017–2021 standards are implemented, it is likely that prices would rise at an even faster rate if the agencies were to implement standards along the lines of those proposed as “augural” for 2022–2025.

In addition, as noted in a previous paper, fuel economy and greenhouse gas emissions standards for vehicles are a very inefficient way to address issues related to fuel consumption and emissions. Ideally, the federal government would scrap the federal CAFE and greenhouse gas emissions standards. However, this option is not currently on the table.

Ideally, the federal government would scrap the federal CAFE and greenhouse gas emissions standards. However, this option is not currently on the table. Nonetheless, the agencies implementing the standards do have the option of setting future greenhouse gas emissions and CAFE standards at the same level currently set for the model year 2021. That would certainly be preferable to the alternative of raising the standards further. In addition, to the extent that other extant EPA and NHTSA regulations serve as barriers to the introduction of vehicles that better suit consumer preferences, it behooves the agencies to seek ways to remove these barriers. One example noted herein are the essentially arbitrary and unnecessary differences between U.S. and international standards for a variety of vehicle parts. Harmonization of these standards would likely result in the production of vehicles that better serve consumers at a lower price. In addition, to the extent that the threat of anti-trust action impedes collaboration between manufacturers in the development of new technologies, a simple process for the granting of anti-trust waivers could facilitate more rapid innovation, not only of more-efficient vehicles but also in many other aspects of automotive technology.

Full Brief: The Effect Of Corporate Average Fuel Economy Standards On Consumers

Related Research:

CAFE and ZEV Standards: Environmental Effects and Alternatives

Climate Change, Catastrophe, Regulation and The Social Cost of Carbon

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Florida Says No to Power

Adrian Moore — Thu, 29 Mar 2018 17:05:13 +0000

Florida’s Constitution Revision Commission recently denied a promising proposal that would have given consumers the right to choose their electricity provider and the source of the electricity they consume.

Such a shift would usher in a wave of competition that would lower prices for consumers, bring in new technology and unleash innovative renewable and green energy products and services, all of which would benefit Florida’s residents.

Floridians have virtually no choice in their electricity provider. Indeed, even putting in rooftop solar is virtually impossible under current state policies. When consumers don’t have choices, when there is no competition, prices are higher and customer service is less than when there is competition. That’s not just economic theory, as Texas illustrates.

Texas has the most competitive electricity market in the United States. Texans can pick from whom to buy their electricity from and from where that electricity comes from. One result is lower prices — for example Texas electricity prices have been appreciably lower than other big job-growth states like California, New York and Florida and are currently about 15% lower than in Florida. Moreover, electricity providers in Texas work with consumers to help them utilize their own solar or wind power. There, it’s about what the customer wants, not what the utility wants.

Competition would also further the adoption of new technologies. Just like taxicabs did not innovate or adopt new technologies until ride-sharing companies like Uber and Lyft blew the market wide open with competition, electric utilities are not developing or adapting new technologies in electricity.

In the few states with competitive electric markets, we see the electricity grids going digital, increasing energy efficiency and making the system more flexible. We also see an explosion in distributed generation — small sources of electricity serving a building or a block with service they can control to meet their needs. And we see micro grids, small autonomous grids connecting generation sources and consumers operating independently of the main utility grid.

All these innovations help reduce costs and improve the customer experience for electricity consumers who choose them. More importantly for Florida, they can provide a lot of resilience in the face of natural disasters like hurricanes. After Hurricane Harvey the parts of Texas with digital grids and distributed generation sources linked by micro grids were the fastest to recover.

The same is true of renewable energy. The costs of renewables have come down considerably, especially for solar. Florida has vast potential for use of solar power, but in fact uses very little. The large-scale solar useful to a giant electricity monopoly is not that viable. But distributed solar power would work well here if we had the policies and updated technologies that, say, Texans, enjoy. Texans can choose renewable energy sources, so it’s no surprise they consume almost twice as much solar power as do Floridians.

Many consumers want renewable energy and competition allows them to choose it; such demand will increases the share of renewable energy far more effectively than any tax credit or incentive will in the current system.

It is time for Florida’s leaders to look at what competition in electricity has wrought, consider the technological changes starting to shake up the industry and the many benefits of letting consumers choose and pay for renewable energy. Improved energy technologies are coming, but they will come first to states with open and competitive electricity markets.

While the Constitution Revision Commission decided not to pursue this admittedly difficult but ultimately inevitable policy change, Floridians should be looking to their leaders to deliver on it anyway. It’s time to open up the Florida electricity market to competition.

Adrian Moore is vice president at the Reason Foundation and Spence Purnell is a policy analyst. They live in Sarasota. This column first appeared in the Sarasota Observer.

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Federal Fuel Economy Standards are Costly, Inefficient and Harm the Environment

Julian Morris — Fri, 11 Aug 2017 14:54:23 +0000

New vehicles sold in the U.S. must comply with increasingly stringent Corporate Average Fuel Economy (CAFE) standards. Originally intended to reduce reliance on oil imports, the new standards focus mainly on reducing emissions of greenhouse gases. But even the federal government’s own studies show that CAFE standards are an extremely costly and inefficient means of achieving these objectives. In a review now under way, the Trump administration has an opportunity to reduce these costs by leaving the standards unchanged after 2021.

In 2012, the National Highway Transportation and Safety Administration (NHTSA) and the Environmental Protection Agency (EPA) issued new CAFE standards for vehicles manufactured in the years 2017-2025. Under these rules, the minimum fleet wide average fuel economy for passenger cars would rise from 39.6 mpg this year to 55.3 mpg in 2025. For light trucks, minimum fuel economy would rise from 29.1 mpg this year to 39.3 mpg in 2025.

Final rules were only set for model years 2017-21, with subsequent rules to be established after a mid-term evaluation. In that evaluation, EPA and NHTSA found that between 2016 and 2028 the standards would reduce total carbon dioxide emissions by up to 748 million metric tons. In its regulatory impact assessment of the new CAFE standards, NHTSA estimated the annualized cost of implementation at between $5.4 billion and $7.6 billion. Even at that low end — $5.4 billion per year — the CAFE standards represent an implicit cost of $87 per ton of carbon dioxide (CO2) reduced. That is higher than most estimates of the cost that carbon dioxide imposes on society – and more than twice the EPA’s own estimate (since withdrawn by President Trump).

Additionally, these estimates almost certainly overstate the benefit of the new fuel economy standards and underestimate their costs. When consumers buy more fuel efficient cars, they typically drive more because their per-mile cost of driving is lower. And many other consumers prefer large, powerful vehicles. Because the new CAFE standards drive up the cost of new large vehicles disproportionately, consumer demand for older, large “gas guzzlers” rises and those vehicles stay on the road longer than they might otherwise. In combination, these two factors could reduce the effectiveness of CAFE standards by as much as one-half of EPA and NHTSA’s estimates.

Even assuming a more modest total effect, the new CAFE standards might optimistically reduce CO2 emissions by around 50 million metric tons per year, which equals just one percent of total U.S. emissions.

Researchers at the Heritage Foundation found that the costs of meeting the new CAFE standards could range from $61.2 billion to $186.1 billion per year. The higher figure represents approximately 1 percent of U.S. GDP – a staggering cost. If the true cost of the new CAFE standards is even $50 billion per year and the true emissions savings were as much as 50 million metric tons a year, CAFE standards would represent an implicit cost of $1,000 per ton of CO2 reduced – making them among the least efficient ways to reduce CO2 emissions.

CAFE standards distort the market, forcing companies to build vehicles that are more fuel-efficient than consumers want. When consumers purchase these more-expensive-than-necessary vehicles, they have fewer resources to invest in other things, including conservation and other practical environmental improvements. Moreover, companies forced to invest in the development of more fuel-efficient vehicles have fewer funds to invest in more useful innovations, such as the development of autonomous vehicles, which are likely to save fuel and reduce emissions and traffic congestion.

NHTSA recently announced plans to prepare an environmental impact statement for CAFE standards for model years 2022-2025. One of the options under consideration is to keep the fuel economy standards at the levels set for the model year 2021. Doing so would reduce market distortions, save consumers billions of dollars, and enable companies to invest more in the development of improvements that actually benefit consumers and the environment.

This column first appeared in the Hill.

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Ohio State University Approves $1.165B Energy Management PPP

Austill Stuart — Tue, 18 Apr 2017 15:38:16 +0000

Earlier this month, Ohio State University’s (OSU’s) Board of Trustees approved a long-term lease with a private consortium to operate the school’s power, heating and cooling systems over the next 50 years, ending a three-year process that initially saw 44 participants wanting the opportunity to power one the nation’s largest universities.

A consortium comprised of French firm ENGIE and the Montreal–based firm Axium will operate those systems, as well as manage the university’s energy purchases from outside providers.

The agreement provides a $1.015 billion upfront payment to the University that provides an immediate 25% increase to its endowment, plus another $150 million in academic collaboration support. In return, the university will pay the consortium annual fees for its operations and improvements in three categories:

A fixed fee that starts at $45 million per year, with 1.5% annual increases for inflation
An operating fee tied to the 3–year annual average of OSU’s operating and maintenance costs, which starts at $9.2 million
A variable fee, tied to any returns on capital investments made by the consortium

The fee structure was designed to resemble what the school pays currently for its power, heating and cooling, while also providing incentives for energy conservation.

As reported in Reason Foundation’s Annual Privatization Report 2016: State Government Privatization, OSU spends $100 million per year on energy and faces $250 million in needed energy efficiency projects to meet the school’s sustainability goals, prompting the pursuit of a public-private partnership to tap private financing for the upgrades, as well as reduce current power expenditures.

The energy deal follows OSU’s agreement in 2012 with QIC Global Infrastructure for a 50–year lease of the university’s parking system, which provided a $150 million upfront payment to the university.

Such asset leases allow universities greater control over their core missions—education and research—while allowing expertise from outside to help provide goods and services that falls outside of those core missions. As OSU senior energy adviser Scott Potter said earlier in the process, “We’re a university. We’re not a building company. At our pace, we can manage five, six seven buildings a year. We have 450 buildings. We’ll never catch up.”

Declining commitments from the state over the past few years have further hindered OSU’s finances, leading for a need to search for other sources for financial resources. Former OSU president Gordon Gee once quipped, “If you can’t give us money, give us freedom — the flexibility to manage the institution, be agile and to use creative resources.”

As universities all over the country face budget uncertainties and demands for greater amenities from faculty and students, Ohio State is demonstrating that non-core assets can be leveraged to help improve a university’s ability to deliver its core academic functions. While OSU is only the second major university to lease its energy systems to the private sector (the University of Oklahoma became the first in 2010), demands for more and cleaner energy over the coming years appear to make private sector expertise in managing energy of greater potential benefit.

The widespread industry interest in the OSU proposal further signals a private sector ready and willing to meet universities’ energy challenges in the coming decades. Letting the private sector manage energy for universities can enhance the ability of higher education institutions to focus on their core academic missions, and tying lease terms to standards of performance can ensure greater control over those outcomes most important to university officials.

More information on the OSU energy PPP is available here.

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Obama’s Clean Power Plan Is Bad News for California

Tom Tanton — Fri, 28 Aug 2015 20:42:00 +0000

The White House recently released its Clean Power Plan, which aims to reduce the nation’s carbon dioxide emissions by 32 percent by 2030. Almost immediately, California Gov. Jerry Brown praised the plan, claimed it should be the model for international agreements and touted California’s own statewide plans. But California’s carbon control program should be a warning to the rest of the country, not an endorsement of the president’s plan.
California’s Assembly Bill 32, passed in 2006, mandates the state to lower greenhouse gas to 1990 levels by 2020, mainly by forcing utilities to purchase one-third of their electricity from renewable sources and by imposing a convoluted carbon cap-and-trade system. Before AB32, California had some of the least reliable and most expensive electricity in the nation, the most expensive gasoline and among the highest rate of unemployment. AB32 made each of those problems worse, not better.
California’s gasoline prices are typically $1 a gallon more than most other states and electricity prices are 33 percent higher than the average of other states. Higher energy prices, coupled with stagnant employment numbers, have contributed to California’s poverty rate being much worse than the rest of the country. Other states are likely to suffer a similar fate if they follow California’s lead by implementing the Obama administration’s Clean Power Plan.
Like California’s AB32, the Clean Power Plan envisages a significant increase in the proportion of electricity supplied by renewable power, much of which will allegedly come from intermittent sources such as solar and wind. When the wind doesn’t blow, and when it blows too hard, wind turbines must stand idle. Wind power cannot be stored up for when you need it. Similarly, the sun doesn’t shine at night and storing solar power is expensive. To keep the state’s lights on and the air conditioning functioning – even when the wind is not blowing and sun is not shining – power grid operators must rely on power from additional sources, usually gas turbines that can rapidly be spun up.
Even so, maintaining stability on a grid using intermittent sources subject to unpredictable and rapid changes in supply is challenging. The North American Electricity Reliability Corporation notes that solar and wind tend to reduce grid reliability, meaning outages and blackouts occur more frequently. As the proportion of power from intermittent sources increases, grid operators will be forced to spend billions of dollars on new technologies that enable them to balance power generation with demand.
While some Californians may be tempted to smirk at the idea of other states suffering the same energy fate as us, the reality is that the federal energy plan will worsen California’s woes. The state currently imports over 30 percent of its electricity – even more in summer months when air conditioning loads peak. While a third of that is carbon-free hydroelectric from the Northwest, most of the rest comes from coal-fired power plants in the Southwest. But the Environmental Protection Agency’s new plan will force many of these coal plants to shut down. That will hurt California – leaving it vulnerable to brownouts and blackouts.
You might think there must be some benefit from these disastrous costs. Well, maybe, but not much. Even assuming that the prognostications of the administration’s climate pessimists prove correct, the Clean Power Plan would reduce temperatures maybe by approximately two-hundredths of a degree. Meanwhile, California’s plan would reduce global temperatures by less than one-hundredth of one degree. Such changes are, for all intents and purposes, unmeasurable – and are certainly not enough to affect rainfall or sea levels.
While political leaders in Sacramento and Washington, D.C. have put Californians on a carbon reduction diet, the leadership in China, India and other emerging industrial giants have made no such commitment.
Just as AB32 has forced California to outsource its energy production to other states, the Clean Power Plan will ultimately force America to outsource more of its energy-intensive industrial production, and the jobs that go with it, to other countries. That’s potentially a lot of pain for very little or no environmental gain.
Tom Tanton is senior fellow and Julian Morris is vice president of research at Reason Foundation. This article originally appeared in the Orange County Register.

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Assessing the Social Costs and Benefits of Regulating Carbon Emissions

Julian Morris — Thu, 06 Aug 2015 13:00:00 +0000

Atmospheric concentrations of greenhouse gases (GHGs), which include carbon dioxide and methane, have been increasing for more than a century. Rising human emissions of these gases, especially from the combustion of fossil fuels and from agriculture, appear to be the primary cause of this increase in concentrations. The temperature of the atmosphere has also increased over the past century. Some of that increase is likely the result of the increase in concentration of GHGs.

Such an increase in temperatures has various consequences, some of which are likely to be beneficial, others harmful. In the late 1970s, economists began assessing the impact of rising greenhouse gas concentrations-and the consequences of restricting emissions. The framework they adopted for this analysis is called “cost benefit analysis.” The objective of such analysis is to identify policies whose benefits exceed their costs.

In 1993, President Clinton signed Executive Order 12866 which, among other things, requires agencies of the U.S. government to “assess both the costs and the benefits of the intended regulation and, recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs.”

Starting in 2008, in compliance with this executive order, some agencies of the U.S. government began to incorporate estimates of the “social cost of carbon” (SCC-see box) into their regulatory impact analyses (RIAs). However, not all agencies were using the same estimates of the social cost of carbon, resulting in regulatory impact analyses that were inconsistent. In response, the Office of Management and Budget and the Council of Economic Advisors convened an interagency working group in order to establish a consistent SCC for use in RIAs relating to regulations that restrict emissions of these gases.

In February 2010, the Interagency Working Group (IWG) published “Technical Support Document: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866.” In that document, a range of estimates was given for the SCC. The SCC was calculated at five-year increments from 2010 to 2050 and it is expected to rise over time. As with all U.S. government estimates of costs and benefits, future costs and benefits are discounted (that is to say, future amounts are reduced by a certain percentage per annum to give their current dollar value).

However, unusually, the IWG did not discount at the rate recommended by the Office of Management and Budget (7% per year), instead choosing to use a range of lower and variable discount rates (these averaged 2.5%, 3% and 5%). In addition, while most of the estimates provided are for the average (in this case, median) forecast of future costs and benefits, the IWG also gave an estimate of the “95th Percentile”-that is, the estimate that is above 95% of all forecasts, or in other words the estimate that is expected to occur with only 5% probability. The IWG has revised its estimates three times since 2010. In the first revision (May 2013), the range of costs shifted upwards dramatically. In the second revision (November 2013), the costs were revised downwards slightly compared to the May 2013 revision. In the third revision (June 2015), the costs were again revised down slightly.

Study Outline

This study seeks to assess the Interagency Working Group’s estimates of the social cost of carbon (SCC). It begins with a discussion of the framework that underpins the SCC, i.e. cost-benefit analysis.

Part Two provides a brief history of economists’ attempts to estimate the social costs and benefits of carbon.

Part Three reviews some of the estimates of the social cost of carbon that have been derived using integrated assessment models (that is, the types of models used by the IWG).

Part Four describes the methodology adopted by the IWG for calculating the social cost of carbon and assesses some of the criticisms of that assessment.

Part Five focuses on two key factors affecting the “damage function”: the sensitivity of the climate to increases in greenhouse gases and the ability of society to adapt to climate change.

The final section draws conclusions and recommends that policies and regulations predicated on the assumption that the SCC is different from zero should be adjusted to reflect an SCC of zero.

Attachments

Full Study: Assessing the Social Costs and Benefits of Regulating Carbon Emissions

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Rebutting the Obama Administration’s Clean Power Plan’s Claims

Julian Morris — Mon, 03 Aug 2015 19:00:00 +0000

The Obama administration released its new clean power plan today. The White House Fact Sheet claims: “The Clean Power Plan is a Landmark Action to Protect Public Health, Reduce Energy Bills for Households and Businesses, Create American Jobs, and Bring Clean Power to Communities across the Country.”

It would be more accurate to say that, “The Clean Power Plan is a centralized plan for electricity generation in the United States that is likely to harm public health, increase energy bills for households and businesses, destroy American jobs, and cause blackouts in communities across the country.”

Here are a some thoughts on the plan’s main claims:

1. The White House asserts, “The Clean Power Plan, and other policies put in place to drive a cleaner energy sector, will reduce premature deaths from power plant emissions by nearly 90 percent in 2030 compared to 2005 and decrease the pollutants that contribute to the soot and smog and can lead to more asthma attacks in kids by more than 70 percent.”

Indeed, in its regulatory impact assessment of the original Clean Power Plan rules, these public health benefits accounted for the majority of all benefits.

But these benefits do not come from reducing greenhouse gas emissions: they come from reducing other emissions, such as particulates. Yet these “public health benefits” would be achieved far more cost effectively by targeting harmful emissions directly. The Environmental Protection Agency (EPA) is already targeting such emissions. To claim such benefits for the Clean Power Plan is either double counting or misdirection, or both.

2. The White House asserts that the Clean Power Plan will, “Create tens of thousands of jobs.”

This may be true, but it will also likely destroy hundreds of thousands of jobs.

Given the enormous capital cost of implementing the plan, it seems highly likely that the net effect on jobs will be negative.

3. The EPA claims that these jobs will be created, “while ensuring grid reliability.”

This is surely a joke, since the Clean Power Plan envisages a significant increase in the proportion of electricity supplied by “renewable” power, much of which will come from intermittent sources such as solar and wind, which as the North American Electricity Reliability Corporation notes, tend to reduce grid reliability. To compensate, grid operators will be forced to spend billions of dollars on new technologies that enable them to balance power generation with demand.

4. The White House asserts that the final rule will, “Drive more aggressive investment in clean energy technologies than the proposed rule, resulting in 30 percent more renewable energy generation in 2030 and continuing to lower the costs of renewable energy.”

The rule does indeed require more electricity generation from “renewable” sources – from about 13 percent today to 28 percent by 2030. That will likely drive innovation, lowering costs of such technologies over time. But this will come at the cost of investments in other forms of innovation that would likely have greater benefits to society. The history of attempts to plan the direction of innovation is replete with white elephants. There is no good reason to think that this time is any different.

While the effectiveness of different sources of renewable generation varies according to climate and geography, we estimate that the maximum that could be produced using the current generation of intermittent technologies (that is, technologies such as wind and solar that are not capable of producing continuous power) is about 10 percent. Currently, solar and wind account for about 5 percent of electricity generation. Taking this to 20 percent or above will require heroic feats of engineering that may simply be impossible – and certainly will be enormously expensive. It is highly likely, therefore, that the Clean Power Plan will result in a substantial increase in the number of brown- and blackouts.

5. The White House claims that the plan will, “Save the average American family nearly $85 on their annual energy bill in 2030, reducing enough energy to power 30 million homes, and save consumers a total of $155 billion from 2020-2030.”

This assertion is based on the assumption that consumers will install energy saving devices because of the rule. In reality, the rule will almost certainly increase the cost of energy considerably over the next 15years, and beyond, as a result of the massive increase in investment in costly “renewable” generation that is required by the rule. While this will likely encourage consumers to be more frugal in their use of energy, it is entirely disingenuous to claim that this will “save” them any money: consumers will almost certainly spend more in total on energy and energy saving devices than without the rule.

6. The White House claims that the rule will, “Give a head start to wind and solar deployment and prioritize the deployment of energy efficiency improvements in low-income communities that need it most early in the program through a Clean Energy Incentive Program.”

While it is no doubt true that people living in low-income communities would benefit from energy efficiency improvements, it is far from clear that a federal rule is the best way to stimulate such investments. Meanwhile, increasing the proportion of energy generated by wind and solar power is likely to be highly regressive – harming the poor more than others.

Poorer consumers spend a higher proportion of their income of energy, so any policy that increases the cost of energy will disproportionately affect such poorer consumers, who will spend more on energy and have less available for other items. In other words, it will make poor people poorer. Since poverty is associated with health, the Clean Power Plan will almost certainly adversely affect the health of those who are already poor.

7. Finally, the White House claims that the rule will, “Continue American leadership on climate change by keeping us on track to meet the economywide emissions targets we have set, including the goal of reducing emissions to 17 percent below 2005 levels by 2020 and to 26-28 percent below 2005 levels by 2025.”

This is perhaps the most bizarre claim of all. First, it is by no means clear that the targets set for reducing emissions would pass an impartial cost-benefit test. The Obama administration’s current estimate of the “social cost of carbon,” which is used by the EPA to justify these cuts, is almost certainly higher than is justified by an impartial assessment of the costs and benefits of emissions of carbon dioxide, as we show in a paper to be released later this week.

Second, carbon dioxide emissions have been falling in the U.S. largely as a result of an autonomous switch from burning coal to burning natural gas, yet instead of assuming that this trend will continue, the revised Clean Power Plan rule requires states to focus on increasing the amount of power that will be generated by “renewable” and nuclear power. This is simply illogical.

Julian Morris is vice president of research at Reason Foundation.

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California Is the Wrong Energy Model for the Nation and World

Tom Tanton — Mon, 27 Jul 2015 13:00:00 +0000

California Gov. Jerry Brown has hailed the Golden State as a model to be followed when United Nations climate negotiators convene in Paris this year.

If my experience working for the California Energy Commission taught me anything, it’s that the California way is more a cautionary tale than a model for the world.

In 2006, California aimed to make a splash when it passed AB 32, its landmark energy law requiring greenhouse gas reductions to 1990 levels by 2020. The centerpieces of the plan are an energy mandate forcing utilities to purchase one-third of their electricity from unreliable renewable sources, and a costly and convoluted carbon cap-and-trade system.

Instead of environmental gains, the plan resulted in lost prosperity for residents in the form of soaring electricity, gasoline prices and joblessness, all among the highest in the nation. Higher prices and stagnant employment have led to, on a cost-of-living basis, California’s poverty rate being much worse than the rest of the country.

Now Brown is promoting legislation that will make things even worse, requiring that half the state’s electricity come from renewables while cutting petroleum use in vehicles by 50 percent. This new legislation would accelerate California’s trend of rising energy prices and unemployment rates, yet offering zero climate benefits.

If the Obama administration gets its way, California-style energy policies, and the harm they cause, would be spread across the country. In the coming months, the Environmental Protection Agency (EPA) is scheduled to finalize its so-called Clean Power Plan requiring states to reduce carbon dioxide emissions by 30 percent by 2030.

The EPA has called on states to submit their “own plans” to outline how they propose to adhere to the new rule. To achieve these strict reductions, states can choose only from an EPA approved set of “building blocks.”

Under threat of withheld federal dollars for everything from transportation projects to sewer treatment facilities, each state will be forced to follow California’s “lead” by imposing costly taxes, carbon trading and mandates on energy. In practice, states that succumb to the EPA’s plan will be following California’s lead into economic purgatory. Beyond quality of life concerns, there are simple reasons the California way isn’t a model for the nation.

The state is blessed with mild temperatures, so heating and cooling expenses take less of a toll there than most other places. But it still manages to have higher energy prices than most of the country due to nonsensical policies.

For the rest of the country to comply with the EPA’s Californication of the electric grid, states will be forced to switch from affordable, reliable coal and natural gas to costly, unreliable and patchy sources. NERA Economic Consulting estimates residents of 43 states would see double-digit rate hikes under the EPA rule.

The spike in energy prices will harm all Americans, particularly the poor, who spend more on energy and will thus have less to spend on basic necessities such as food and medicine, compromising their own and public health.

The EPA’s rule also subjects states to electric reliability problems. Currently, California imports much of the power it needs. Its own grid operator has warned that, with the increasing reliance on unreliable renewable resources, “the system becomes increasingly exposed to blackouts.”

The EPA is moving quickly to finalize its costly climate rule before the Paris summit. This is because, by itself, EPA’s climate regulation is purely symbolic. By EPA’s own calculations, it has a negligible impact on global temperatures.

To achieve its symbolic victory, EPA seeks to submit all states to the threat of high energy prices and a less reliable grid. Instead of surrendering to the EPA, states should do everything in their power to resist.

Tom Tanton is a senior fellow at Reason Foundation and former policy advisor at the California Energy Commission. This article originally appeared in Investor’s Business Daily.

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Obama Administration Report Overstates Wind Power’s Potential, Understates Costs and Limitations

Julian Morris — Tue, 24 Mar 2015 14:41:00 +0000

The U.S. Department of Energy just released a report in which it claims that consumers and the environment would benefit from increasing the proportion of electricity derived from wind power. As the White House press release puts it:

“The report shows that with continuing technological advancements, cost reductions, and siting and transmission development, the nation can deploy wind power to economically provide 35% of our nation’s electricity and supply renewable power in all 50 states by 2050.”

The “continuing technological advancements” and “cost reductions” mean the White House’s estimate is based on hope – hope that some as-yet unimagined future technology will change the economics of wind power, making it more cost effective than fossil fuel-based generation. That’s not impossible – but it is very unlikely. And hope without change can be both costly and unpleasant.

A 2012 report from Reason Foundation examined the economics of wind power as it exists, not the one we hope for. The study found it isn’t economically feasible to expect wind generation to produce more than 20 percent of operating electricity capacity, and even that is stretching it. The Department of Energy study assumes that the 35 percent capacity (up from about 4.5 percent today) would be reached by some combination of “low wind costs” and/or “high fossil fuel costs.”

However, as the Reason Foundation study points out, expanding wind penetration beyond about 10 percent requires a significant increase in the amount of available “spinning reserve” – instantly available power generation from an alternative source that can be brought online whenever the wind is too strong or too weak to supply enough power into the grid. That need for backup increases the capital costs of wind power because the spinning reserve generating capacity must be available even if it is not being used. In addition, since the spinning reserve is likely to be in the form of natural gas (because it is the lowest cost source of power and the one that can by brought online most quickly), the cost of fossil fuels has a much less significant impact on the cost competitiveness of additional wind generation.

The White House also claims that the expansion of wind power would result in “more than 500 U.S. manufacturing companies across 43 states,” and thereby “boost America’s competitiveness, help launch new businesses across the country, and secure the future of thousands of U.S. manufacturing jobs.”

The installation of 11 gigawatts of wind generation capacity per year – which is what the Department of Energy report estimates is necessary to achieve 35 percent by 2050 – would almost certainly require some new manufacturing in the U.S., with associated new jobs. But such a massive investment (reaching $70 billion in 2050) would divert hundreds of billions of dollars away from other investments that would have created other jobs.

Wind energy is obviously not the only possible investment that could be made with those billions and on the basis of our current knowledge it is almost certainly not the best and most productive investment. Imagine some of the other investments that could be madebut might not be made because the money is being spent on wind turbines:

New drugs to prevent, alleviate, or cure diseases ranging from neurodegeneration to heart disease to cancer;
New agricultural technologies that enable more and better food to be produced on less land, improving nutrition while reducing the impact on wild species;
New materials that enable the production of better, stronger, less expensive vehicles, buildings, computers, and all manner of other devices.

And that is just a small selection of innovations that are easily imagined because they are similar to innovations that have recently taken place. There are surely many other innovations that will occur but which are more difficult to imagine. Many investments in such innovations have the potential for far higher returns, generating greater benefits to a larger number of companies, and providing more and better jobs.

Simply asserting that investing in wind generation will yield the benefits claimed without considering other investments that could create greater benefits is economically naïve. Decades of evidence shows that government directed investment tends to yield lower returns, resulting in lower rates of growth, and generates worse and lower paying jobs than private sector investment. There is no empirical reason to think government is suddenly going to improve on this record and much reason to think that it will not.

The Obama administration further claims that:

“Today, average wind energy costs nationally are approaching cost-competitive levels. Backed by stable policies including the production tax credit and the EPA’s Clean Power Plan, costs will continue to drop as the industry scales up and innovates.”

Taking into account the capital costs of wind’s spinning reserve, wind energy is not cost-competitive with fossil fuels by a wide margin – even the Department of Energy’s own estimates put the levelized cost of wind at 20 percent higher than natural gas. While some wind projects may be cost-competitive, many are only proceeding because of the production tax credits and state renewable energy mandates imposed by government. In other words, taxpayers and energy consumers are being forced to subsidize the owners of wind generators.

The White House asserts, “Wind is anticipated to provide nearly $280 billion consumer savings by 2050.” But even under its wind power scenarios, the White House study says the cost of electricity is expected to rise at least until 2030: In other words, the White House wants us to incur almost certain costs for the next 15 years in return for highly uncertain benefits – benefits that are entirely dependent on the development of new technologies that dramatically reduce the cost of wind generation – sometime after 2030.

The White House goes on to list a series of “key findings.” It begins with the claim that “Wind power could help America combat climate change by avoiding more than 12.3 billion metric tons of carbon pollution cumulatively by 2050, equivalent to avoiding one-third of global annual carbon emissions.”

This is both confusing and highly implausible. It is confusing because it compares a single year of global emissions with 35 years of emissions reductions from the US. Even if the absolute reduction in emissions were accurate, it would amount to a reduction of less than one percent of global emissions annually. But this is likely a vast over-estimate: Reason Foundation estimates that at most wind could reduce carbon emissions from electricity generation by 18 percent, which would amount to around 100 million tons per year, or 3.5 billion tons by 2050.

But the strange claims don’t end there. The White House continues: “Wind energy could save approximately 260 billion gallons of water by 2050, by side-stepping the water-intensive processes of conventional energy production. At deployment levels examined in the report, the nation’s electric power sector could consume 23% less water.”

That sounds great, but again ignores alternative solutions. Where water use in the electric power industry is a major concern (for example, in more arid parts of the U.S.), there are existing technologies that could be used to reduce water use far more cost effectively than by switching to wind generation.

Finally, the Obama administration asserts that:

“This growth in wind power could lead to approximately $108 billion in savings in healthcare costs and economic damages. This estimated saving is made possible through cumulative reductions in air pollutants, including sulfur dioxide, nitrogen oxides and fine particulates that could otherwise cause nearly 22,000 premature deaths from respiratory ailments and other diseases by 2050.”

Reducing the health effects of electric power generation is desirable. But as Reason Senior Fellow Tom Tanton and I have pointed out in relation to an assessment of state renewable portfolio standards, most if not all the reduction in damaging health effects claimed by the White House would happen anyway, as a result of power generation companies complying with existing regulations. In addition, it is likely that generation will continue to shift to natural gas, which is a far cleaner fuel than coal. Over the past decade, the proportion of electricity produced from natural gas has nearly doubled and now stands at about 30 percent. If that trend – which has been driven almost entirely by the lower total cost of new gas generation – continues then emissions will fall even further without any new regulatory intervention. In other words, most of the health improvements and associated $108 billion in alleged savings are illusory.

It is quite possible that the costs of wind power generation will continue to fall as the White House hopes. But that is more likely if wind is forced to compete in the market and far less so if it continues to receive subsidies.

Julian Morris is vice president of research at Reason Foundation. This article originally appeared at RealClearMarkets.

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