Archive for April, 2009

As posted to CleanTechBlog.com

I don’t know if it’s a myth, but I’ve heard it said that a city’s suicide rates and average wind speeds are correlated. According to the claim, there may be something fundamental about human biology – perhaps within the inner ear – that makes windiness tend to drive people crazy.

Whether it’s true or not, it’s indisputable that where there’s lots of wind, there tends to be few people. And vice versa: Where there’s a lot of people, there tends to be little wind.

A casual look at a U.S. wind map confirms this: Most of the best wind resources are in the middle of the country, from West Texas in the south to the Dakotas in the north. If you’ve ever driven in any of these parts, you know that this is an endless expanse of desolate, sparsely populated land.

Unsurprisingly, it’s also the case that, where there are few people, there tend to be few electric transmission lines. Logically, it follows then that there is little electric transmission capacity in the places where wind resources are greatest.

So when parts of the Great Plains get touted as the “Saudi Arabia of wind,” it may be true, but imagine the need to build a big set of pipelines to get that useful wind energy to customers in Minneapolis, Chicago and points further east and south.

Ask any wind developer about their business prospects and it doesn’t take long for the conversation to turn to transmission – or, more precisely, the lack of enough of it.

Look at the study “20% Wind Energy by 2030,” released in 2008 by the U.S. Department of Energy to envision the implications of supplying 20 percent of the nation’s electricity needs by 2030 from wind. Oh, there’s plenty of wind to actually supply the electricity, no problem. It’s just that tons of new transmission capacity would be needed.

And there’s the rub. It’s only marginally easier to site and build a new transmission line than a new nuclear powerplant. Transmission lines take many years and sometimes even decades to get done, due to a variety of NIMBY forces and overlapping regulatory regimes at the local, state and federal levels. And they cost a fortune, easily a million dollars a mile, often considerably more.

So that “pipeline” from the Dakotas to Chicago is on the order of a billion dollars of merely enabling infrastructure – and since there are many pinchpoints in the national power grid, that wind power probably couldn’t go much further than the terminating point anyway.

(From a technical standpoint, I’m massively oversimplifying here by comparing the power grid to a commodity pipeline, but the gist of the conclusion is essentially sound.)

Last year, most of the transmission grid operators from the eastern half of the U.S. convened for the first time (that’s scary, isn’t it?) to develop what has come to be called the Joint Coordinated System Plan (JCSP) 2008. The JCSP report suggests that 10,000 new miles of transmission lines, at an investment of about $50 billion, will be needed east of the Rocky Mountains over the next 15 years just to meet expected load growth and current renewable portfolio standards on the books. Little of this required expansion is much beyond the drawing board.

The JCSP’s 20 percent wind scenario is even more daunting: 15,000 miles and $80 billion of capital. The map associated with this scenario is especially intriguing, with three major new hypothetical 800-kV DC corridors drawn right across Northeast Ohio to New York City. (No doubt, the nightmare of the August 2003 Northeastern blackout still sends nightmares through these transmission planners.)

Sorry, I just don’t see this happening in my lifetime.

In passing, the authors point out that neither energy efficiency nor offshore wind resources were investigated to alleviate these transmission requirements. My guess is that inclusion of these possibilities would change the results – a lot.

Significant penetration of energy efficiency could probably seriously reduce the quantity of new wind generation required to make up 20 percent of the region’s supply. Instead of nearly 230 gigawatts (!) of projected new wind capacity in the eastern U.S. by 2024, my guess is that concerted exploitation of cost-effective energy efficiency opportunities could cut that investment requirement in half.

As for the 100-plus gigawatts of new wind turbines in the eastern U.S., it might be cheaper overall to put higher-cost installations offshore in the Great Lakes and in the Atlantic to avoid facing the perhaps impossible prospect of building lots of expensive new transmission lines to import onshore wind from the Great Plains.

The inability to expand transmission is a major impediment to the onshore wind business, and while it might be mitigated (slightly) with some regulatory reform, I don’t see it going away. Offshore wind may have its own development challenges, but for those in the wind industry, going offshore should become an increasingly interesting way to skirt the gridlock problem.

As posted to Huffington Post

Last week, I wrote a sizable check to the IRS. I wasn’t exactly happy about it, but I was happy for the fact that it stemmed from a nice payday in 2008 from one of my investments. Ah, the joys of capitalism, and the obligations of responsible citizenship.

This particular investment is advancing the cause of clean energy, as it involved the sale of interests in a pre-development windfarm to another firm that will (hopefully) take the project to fruition.

Clearly, the public sector played some factor in the fundamentals of my investment. States have imposed renewable portfolio standards driving the market for new windfarms to be developed, and the federal production tax credit represents a significant portion of the financial value of an operating windfarm to its owner.

But by and large, it was the forces of the marketplace – entrepreneurs, suppliers, landowners, financiers, customers – that drove the underlying business opportunity, the transaction, and its associated value creation.

I hope those days aren’t long gone.

Over the past year, there unquestionably has been a shift toward more government intervention in virtually all markets. It’s far beyond the scope of one blog post to delve into all of the causes and effects and all of the pros and cons of this shift.

In the cleantech realm, the tendency for increased intervention has been especially aggressive. The chatter in political circles is the notion of pushing forcefully toward the new energy economy – to achieve the admirable environmental benefits, but more for the prospect of creating some arbitrarily large number of so-called “green jobs.”

Though I admire visionaries like Van Jones, who brought the green job notion to the forefront of the public discourse just a few years ago, I’ve decried the excessive hype and the weak analytics behind the claimed magnitudes of green jobs that may or will emerge. I don’t doubt that many new green jobs will emerge, and I think they will be great for this country. It’s just that I don’t put any validity on any of the estimates of job creation, and I also acknowledge that there will be some job losses in other sectors that also need to be considered (but often aren’t).

I also lament the way in which many public sector leaders talk about “creating” green jobs, as if the job positions can somehow be invented by the government itself through the stroke of a pen or the wave of a wand.

Unless we want to move to a command-and-control economy where the government dictates the majority of all economic activity (remember the Soviet Union?), large-scale job creation is a private-sector phenomenon. In turn, the private sector (i.e., investors) must spot an opportunity to earn favorable returns, to generate attractive profits, in order for them to incur the costs of hiring people to perform work. In other words, value creation (or at least the promise thereof) must precede job creation.

If a government throws money at inventing jobs that the market won’t somehow sustain after they’re created, this can’t legitimately be called job creation; it’s “make-work.” (And never forget: the government doesn’t have any money of its own; it’s actually your money the government is spending.)

In my humble opinion, the role of government is not to try to create jobs. Rather, governments should establish the playing field in such a way that the private sector will operate in its ruthlessly efficient manner to exploit – and in so doing, hire a lot of people.

Governments can never match the intensity and innovation of millions of properly motivated private sector actors. Instead, governments should focus on aligning and harnessing these interests in ways that drive the system toward outcomes that are good for the public.

To be sure, the government has a key role – indeed, a responsibility – for setting policies that serve, advance, and protect the public’s interests in transitioning toward an energy system that is more sustainable from both a supply and environmental standpoint. But in the name of green jobs, the case is sometimes being stretched too far. An article in the April 4 edition of The Economist is particularly illuminating.

Spain is often touted as a model for how the public sector can exert leadership in setting a whole host of progressive policies (mainly generous subsidies) for rapidly pushing a move to green energy and creating many jobs while doing so. Yet according to a recent study by a professor at King Juan Carlos University in Madrid, this way of building an industry is more than twice as costly on a per-job basis than if the private sector were to act on its own. Put another way, the study finds that, for every green job created by public sector prodding in Spain, more than two run-of-the-mill jobs were destroyed in the private sector. Ouch.

There’s a lot of talk in Washington about industrial policy these days. I’m a skeptic. I see Japan, and while it’s true that the Japanese industrial sector was the world’s envy in the 1980’s because of strong government intervention, I also see nearly 20 years of uninterrupted economic stagnation now.

In sum, I just don’t think the public sector actually can build an industry better than the private sector can. In my ideal world, I would like to see the government intervene in the energy markets, for environmental and supply security, in one (and only one) simple way: high taxes on fossil fuel burn, to account for the social costs of climate change and dino-resource depletion.

High fuel taxes! The horror! The horror!

It’s lonely for me to write this, but the biggest problem facing the U.S. energy system is the enduring insistence of a “low price at any cost” energy policy, and the customer entitlement that bestows.

I see public service announcements about the little things a viewer can do to become green, like changing from incandescent to fluorescent light bulbs, or using a reusable canvas shopping bag instead of use-and-chuck plastic bags. I understand the average American needs to get engaged and feel like they can do something, even if it’s something simple and small, to contribute to the solution, but…please. Really. Enough feel-good talk about these piddling things.

I’d like to see some frank PSAs that confront the big issue head-on: higher energy prices, get used to it.

Obviously, a move to higher energy taxes will be unpopular, so we need some set of respected or well-liked voices in the public starting to lay the groundwork for its actual desirability, if not inevitability. In the grand scheme of things, shifting the U.S. mindset on the topic of energy taxes is much more important than urging people to put a recycling bin in the garage.

With energy prices that are predictably much higher via a big jump in fossil fuel taxes, the private sector can go to work, busily eliminating wasteful energy consumption and developing new technologies that reduce fossil fuel requirements.

The twist is that the revenues collected from higher energy taxes can be offset by dramatic reductions in income and capital gains taxes. The way I figure it: we shouldn’t be heavily taxing things that are supposed to be good – such as income and savings – while undertaxing things that are supposed to be bad – like burning non-repletable fossil fuels that damage the atmosphere.

In the future, I want to get more good-sized checks from my cleantech investments, and I want all of you to get some checks from cleantech investments, too. I also don’t want to send as big a chunk of those checks to the IRS. In return, I am willing to spend a lot more at the gas pump and in my utility bills.

Besides, I use my credit card when I buy those things, so higher energy prices means accumulating more points. In the move to the green economy, it’s important always to be looking for the silver lining in every cloud encountered.

As posted to CleanTechBlog

Over my spring break vacation, I had the pleasure of reading “The Big Rich: The Rise and Fall of the Greatest Texas Oil Fortunes,” by Bryan Burroughs. It was one of those books I just couldn’t put down.

“The Big Rich” profiles the saga of the so-called Big Four of the Texas oil bid-ness: Roy Cullen, H.L. Hunt, Clint Murchison and Sid Richardson. Though hardly household names, these four amassed ginormous fortunes under the radar screen during the 1930s and 1940s while the rest of the U.S. and the world were focused on the Great Depression and World War II.

Only Hunt Oil remains as a direct consequence of this era. However, in their heyday, the Big Four were responsible for some major forces that continue to shape the world we know today, including:

• Supplying the preponderence of oil to fuel the Allied war machine in World War II – a huge factor in the success in defeating the Axis
• Launching the religious right as a force in American media, culture and politics
• Setting the precedents to ensure that large quantities of money from the oil industry became an enduring feature of the American political process – propelling the careers of Dwight D. Eisenhower and Lyndon B. Johnson (and, of course, the Bush dynasty)
• Elevating conspicuous consumption to a form of high art to be envied by the masses, as a result of their affiliations with Hollywood and the Dallas Cowboys
• Accelerating the shift of the U.S. power base and population out of the Northeast and down to the Southwest

A native Texan, Burroughs casts an unflinching eye at his home state. The book is essential reading for those who want to truly understand the U.S. in the early 21st century.