Michigan GREEN - Letters from Readers

Below are a few letters received at EnergyBiz Insider on topics that appeared in the past few weeks. They capture the essence of how many readers say they feel.

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Capturing Carbon with Federal Money - August 04, 2010

Since coal-fired power plants provide about 50 percent of the electrical energy for the U.S., the government supports technology to improve future plants' environmental compatibility. The additional costs, however, may increase cost of energy production.

Implementing Integrated Gasification Combined Cycle [IGCC] significantly increases the cost of these types of plants. The IGCC power plant in Edwardsport, is expected to be in operation by 2012, will cost $2.88 billion or $4660/kw. The 602 MW Taylorville IGCC plant will cost $3.5 billion or $5800/kw. The 582 MW Kemper County IGCC will cost $3.2 billion or $5500/kw. If a traditional coal-fired plant was to be built for Kemper County, it would cost $2.4 billion or $ 4100/kw. In this case the additional cost to opt for IGCC raises power plant cost by about 35 percent.

The relatively lower and less-volatile cost of coal should dampen the consumer cost of electricity from these plants. In the long-run burning coal should remain a major component of the U.S. energy scenario.

Dr. Richard W. Goodwin, P.E.
Environmental Engineering
Consultant

Leading the Smart Grid Charge - August 06, 2010

Mr. Yeager is correct when he notes utilities have little incentive to help consumers change the way in which they use electricity. Regulators and politicians are key players here, but even they have some perverse incentives to maintain the status quo.

Rapidly declining costs for new equipment due to technological innovation in the early years are likely the reason electric power industry leaders insisted on being regulated. Ruinous competition meant everyone was losing money and investors were not happy about it. Eighty years later, technological and economic conditions have changed and a regulatory structure developed for the early part of the 20th century may no longer be suitable in the early part of the 21st century. For all intents and purposes, a utility's regulators are its customers, for it is regulators that control prices and terms of service, not the people who buy the product. Moreover, the iron grip of the monopoly franchise makes utilities (and to some extent their regulators) gatekeepers who can decide which products and services are allowed to flourish in their service territories and which ones are not. Utilities assert a level of ownership and control over customers, reinforced and abetted by regulators, that limits innovation and rational economic decision-making by customers. The parallel universe of utility economics leads to choices and policies whose fairness and equity is proportional to the political strength of the constituencies that get what they want. None of this is conducive to development of the Smart Grid envisioned by the Galvin Initiative and others.

I won't go so far as to claim unfettered competition is the perfect antidote for what ails our industry because even in the best of circumstances, competition has its own weaknesses. However if regulators are serious about demand management (aka demand response), energy efficiency, carbon reduction, wider adoption of renewable energy technologies and distributed generation, they are going to adopt policies that scale back the dominant role of utilities and open the markets for equipment and services to other firms. There need to be reasonable and appropriate protections for small consumers, though regulators should also avoid being too protective lest they create unnecessary moral hazards. Politicians will have to find other avenues for achieving some of their social goals. Consumers need at least one price option that reflects grid conditions so they can install the smart devices everyone is talking about and have those devices operate in ways that benefit the grid. Grid operators will have to don black mock turtlenecks and learn to think much differently about power system operations and control than they do today.

If the past is any guide to the future, it's as an indication that we're stuck in a rut and we need some new ideas.

Jack Ellis
Resero Consulting

Anyone can implement a Smart Grid if the government is going to spend our tax dollars on it or is willing to promise the utilities that if they build it, there'll be legislation to force the un-consulted customer to pay for it. However, without the rigor of having the customer or an investor vote with his own dollars, it has the very real potential to be a big white elephant. Contractors and manufacturers will all be richer, but the poor customer and taxpayer will be the ones left paying for it.

The big challenge with the Smart Grid or any other public initiative is to figure how to give the person who is going to have to pay for the new functionality a say in just how much he can afford to spend on it. If the utilities were promised they could keep all the money they save but have to put up their own money, they wouldn't implement very much of the Smart Grid. Similarly, if customers could opt in or out of the Smart Grid but would also get to opt out of the questionable benefits and the high tariffs, most would.

Neither group would likely see life cycle value in the transaction. It is not that easy for either investors or customers to harvest all the apparent value the Smart Grid is promising to generate. I'm not sure North America can afford another white elephant right now.

How come cellular phones, satellite TV and the internet were able to self-finance their phenomenal growth? It's because they have a valid value proposition. The investor takes all the risks that he'll build just enough network to be useful but not so much that he'll go broke paying back the bank. The end-user decides which features he wants, and just buys those. And the services have tangible, exciting features and value. It's not going to take me long to stop being excited that I know exactly how much my electricity is going to cost this second or that I should turn off my dishwasher for half an hour to save 40 cents. I'll probably be too busy talking on my cell phone to notice.

If it were just a few bucks, no one would care, but we're talking in the trillion of dollars. Even the research funding already spent and committed is in the tens of billions. We need to give our collective heads a shake. Let's give the customer the quote ahead of time and see if he still thinks he wants to spend his money that way.

Allen Crowley

Analyzing Coal's Future - August 11, 2010

There is a basic economic problem with coal/carbon capture that gets far too little attention. Namely, it is the only low/zero carbon generation technology that requires an increase in fuel combustion. As a practical matter, this means that carbon capture will never be economic in any world that provides an incentive for low-carbon generation to come forward -- so long as one assumes that carbon will ultimately be priced in some sort of a market, bid up to the marginal cost of supply. Nuclear, renewables and energy efficiency all have their own economic strengths and weaknesses, but all have innately lower operating costs than a coal plant with CCS, and once built will necessarily cause the price of CO2 reduction to clear below the level required to justify the operation of a CCS facility. One doesn't need to be quantitative to prove this point -- it is sufficient to note merely that the parasitic loads required to operate a CCS plant will increase fuel use, and no one is giving away fuel for free.

For CCS to play a role in CO2 reduction therefore requires that two things will happen: (1) technology development will eventually bring capital costs down to a level necessary to sustain investment and (2) every other CO2 reduction strategy we deploy will be insufficient to meet our CO2 goals and we will have to also run CCS. (And that we will run CCS facilities sufficiently hard to generate revenues necessary to recoup the original investment.) The first might be possible, but is by no means guaranteed. But the second virtually guarantees that the first will never happen. Why would any investor commit to investing in a technology that loses money on the margin? Absent such investor belief, how will we gain sufficient experience to drive capital expenditure down?

By all means, let's get CO2 emissions down. And by all means, let's chase fuel efficiency (including efficient use of coal) as a part of that strategy. But let's be much more skeptical of claims that reducing the efficiency of coal-fired power is the key to an economically-sustainable, carbon-constrained future.

Sean Casten
President & CEO
Recycled Energy Development, LLC

Your article is right on the money; increasing power generation efficiency is, in my opinion, a viable option for reducing GHGs, as suggested in the GAO report. You then go on to list mitigating actions that might bring us closer to this goal, but these all seem to be out there in the future somewhere. My concern is, what do we do in the meantime? You mention plant efficiencies starting at 35 percent "of the energy input converted to electricity". Whatever happened to the remaining 65 percent of this energy? I would like to set the record straight on this issue.

Without going into the intricacies of plant heat balance, it is generally accepted by the engineering community at large that almost 62 percent of this unused energy, or 40 percent of the total energy input, is lost via the steam condenser cooling system. This is more than the plant's output; what a bonus it would be if we could turn at least a portion of this energy into additional electricity. And it would be non-disruptive, meaning that some of the other proposed technologies could still be added at a later date, thus increasing plant efficiency even further.

Well, there are some farsighted companies tackling this very issue. We have Recycled Energy Development and Ormat Technologies, active in waste heat recovery in some other fields. And there are indications that the list might be growing; I sincerely hope so.

In closing, I urge everyone not to overlook the potential of waste heat recovery as a sort-term means for reducing GHGs or, for plant owners and operators, just a common sense approach to increase revenues.

Alan E. Belcher

Interesting article. However, let's not forget that gas plants emit CO2 also, albeit about half the amount per MW as coal. So, gas plants are CO2 polluters too. Something needs to be done with CO2 from gas plants as well! Gas plants are not so CO2 "innocent".

Charles Diestel

You use the term "harmful emissions" in your article. I'm still puzzled by the placement of CO2 in that category. I recently read a CO2-oriented question to the effect of "What environmental benefit may be achieved by mandating permits to limit a uniformly distributed, constituent of clean air, vital to all life, that is emitted by all productive activities on Earth?" If alarmists were to turn the global warming hysteria in the direction of the most abundant greenhouse gas, we'll soon be banning water vapor. I should apologize for mentioning this because it may well plant a seed with the current Administration and especially the EPA, which seem to do a great job of fostering this hysteria with ill-conceived initiatives, while allowing through their own negligence, catastrophic environmental events such as the recent Gulf oil spill.

Don Drumm

China's Opportunity - August 13, 2010

There is no opportunity for U.S. companies in China. When will the U.S. Government and Companies realize that China has no intention of encouraging foreign company participation in their energy markets?

An article in the Washington Post -- "Solar plan in China's Inner Mongolia highlights pitfalls for U.S. firms", is a classic example that everyone should take notice of and read. Their intention is to dominate the market within and outside of China and they are relentless. We are the fools for thinking otherwise. China continues to steal intellectual property, sell knock-off products, and systematically drive our economy toward a second-rate status.

The so-called green energy promise of jobs is fast becoming a dream that won't come true because we are allowing China and other countries to compete for green energy projects here while we have little reciprocity in other countries. When will we wake up? We have an unemployment problem and that can't be solved without good manufacturing jobs. In the last 10 years the jobs in manufacturing have gone from over 17 million to around 11 million. If you don't make widgets, you cannot create wealth. China understands that and we do not.

Ronald A. Corso

Meeting at FERC's Place - August 16, 2010

The transmission discussion is trapped in a small box and you have allowed yourself to fall into it. Allow me to illustrate by paraphrasing one of your paragraphs:

"The regulatory changes could not come fast enough. Railroad investment has declined in real terms -- adjusted for inflation -- from 1890 to 1913. While there have been increases since 1913, The ICC says that the level is still less than what was invested in 1890. Over the same time period, however, the demand for transportation has increased greatly. That's resulted in a significant decrease in railroad capacity, requiring new lines get built."

Leave aside that the last sentence must have meant to say that capacity has been growing, just more slowly than the market for electricity, or transportation. The parallel here is one that needs to be considered. Hydro plants and large nuclear plants required a lot of electric transmission to reach their markets. Coal is economic to transport by wire and there is a desire to disperse coal plants, rather than have them ring our large cities. But natural gas-fired power plants have a very different economic geography. It is less costly and more reliable to move energy in pipelines than over wires. Natural gas generation is so clean, especially now, there is no real problem in having it sited near cities. An intelligent discussion would address energy transportation, not just one sub category of it. Wind is like hydro when it comes to the use of transmission. But unlike hydro, it requires either gas-fired peakers or energy storage to complement it. Where should those be located?

In the 1980s, the California PUC concluded that using natural gas for air conditioning on a commercial scale has a lower societal cost than using electric air conditioning. But the the rate structure the PUC supported, and continues to support, says the opposite. Nothing changed because in this industry true efficiency, and the real fairness to customers it brings, is consistently sacrificed to political goals and influence that are dressed up as "fairness." Distributed generation, be it solar or gas-fired, further reduces the need for transmission (and distribution). Electric transmission has as many growing competitors today as railroads had 100 years ago. But regulators and commentators of the electric industry are not being as smart about it as people were 100 years ago.

The ton-miles of freight carried by railroads still increases every decade, but we use a diverse set of transportation technologies to satisfy our modern requirements. It's a good thing we redirected most of our transportation investment to other uses once the railroad backbone was largely complete. Real thinkers recognize that the first question today about electric transmission is how does it fit into the larger picture hinted at above. It is unfortunate that this industry is so lacking in real thought, so constrained within yesteryears' little boxes. You owe it to your readers to ask the bigger questions.

Dick Maclay

California's Solar Lead - August 18, 2010

"With the globally-installed solar base rising 50 percent from 2009 to 2010, the question then becomes what rules and regulations will facilitate that growth while keeping electricity prices reasonable."

Nice afterthought. Are we to assume from this bit of wisdom that $0.175/kilowatt-hour currently borne by Southern California residential ratepayers is reasonable?

Don Giegler

Sorry to be harsh, because I generally appreciate your columns, but your "California's Solar Lead" article is riddled with errors:

California already has a 33 percent by 2020 renewable energy mandate, put in place by Gov. Schwarzenegger last year in an executive order. SB 722 is a current bill designed to codify this mandate into law.
FERC did not rule against state-mandated prices for renewables. Rather, FERC ruled in favor of state authority under PURPA to set avoided cost pricing for renewables and made it very clear that it would defer to states in setting such prices.
SCE's solar program is completely unrelated to the FERC proceeding on feed-in tariffs, and SCE's application for this program was filed with the CPUC two years ago and approved last June.
PG&E's similar solar program was already approved by the CPUC, earlier this year.
SCE and PG&E will roll above-market prices for solar into their ratebase, which has exactly the same effect as the German feed-in tariff surcharge; California also has a similar surcharge already, known as the Public Goods Charge, that pays for energy efficiency and renewable energy programs in California, as do most states.
Last, this isn't an error so much as a mistake in judgment: Julie Blunden is rabidly anti-feed-in tariff because SunPower, like all companies that have figured out how to play the game well under current rules, is vehemently opposed to effective feed-in tariffs that would put in place a robust democratized renewable energy market and thus allow us to emulate Germany's amazing success. And she gets her facts wrong.

Tam Hunt, J.D.
Community Renewable Solutions, LLC

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