Monthly Archives: March 2008

Peel-and-stick solar panels for Phoenix convention center

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Michael Giberson

This could be one of the gee-whiz, how-cool-is-that posts about advancing technologies that we do here from time to time. The Arizona Republic has a story about how the new Phoenix Convention Center, which was finished in 2006, will begin to generate some of its own power courtesy of some gee-whiz technologies: peel-and-stick solar panels. The city is going to put up about 2/3rds of an acre’s worth of the photovoltaic devices on the roof of one of the buildings.

So this could have been one of those gee-whiz, how-cool-is-that-posts, except that Scott Gustafson ran the numbers and posted the results on his Arizona Economics blog. Talk about raining on the city’s solar power parade.

The short version: Capital cost – $850,000; estimated power production, 150,000 kwh annually; current retail power costs avoided, 10 cents per kwh.

So, Gustafson concludes, that’s a 1.7% return on an $850,000 investment, ignoring maintenance costs and anything else.

The important thing, says Councilman Greg Stanton, is that the panels are a groundbreaking effort for Phoenix.

Well, city taxpayers may have other ideas about what “the important thing” is, but at least the city intends to carefully track exactly how much power the tiles actually generate. Maybe the Arizona Republic will follow up in a year or so, to see how the solar panels are paying off.

Think Alan Greenspan–only in Battlestar Galactica

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Michael Giberson

From Scientific American online, “What Can Virtual-World Economists Tell Us about Real-World Economies?“:

Eyjólfur Guðmundsson is the only economist on Earth who spends his days studying the fluctuating cost of warp-disruption batteries and T2 light drones. That’s because he’s the world’s first virtual-world economist.

This past August, Guðmundsson took up residence in EVE Online, a massively multiplayer online game, to report on its economy, research its society and coordinate with academic institutions on their entrance into virtual worlds.

Think Alan Greenspan–only in Battlestar Galactica. In EVE Online players buy, sell, trade, earn, steal and otherwise work to accumulate interstellar kredits (ISKs)–a currency that, officially at least, is only valuable inside EVE.

The article includes quotes from George Mason University economist Tyler Cowen, who says he is “skeptical about using virtual worlds to do economics, at least as it is now.” He says the simulations don’t much resemble the controlled laboratory work that experimental economists do, so he doesn’t quite see how economic analysis of virtual worlds will be useful. Cowen sums up, “Whatever result you get is interesting, but you don’t know what to make of it. You’re stuck.” (Though I recall just a week or two ago, Cowen offered praise for one of Edward Castronova’s books on virtual economies. Link here.)

I think Cowen is underestimating the creativity of young economists to apply their tools and training to new problems. Of course the economics profession — naturally dominated by, shall we call them, a group of very experienced economists — may be slow to recognize the value of work in virtual economies, so I wouldn’t try to make tenure on a handle of Everquest and EVE Online papers, no matter how clever they are.

FORGING NEW LINKS: The SciAm article may be the first to both mention Battlestar Galactica and cite a paper by Vernon Smith (with colleagues Stephen Rassenti and Bart Wilson) on demand-side participation in electric power markets.

RGGI picks uniform-price sealed-bid auction design for first regional CO2 auction in US

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Michael Giberson

The Regional Greenhouse Gas Initiative (RGGI) announced today that the first allowance auction in the United States for a mandatory CO2 emissions reduction program will take place on September 10, 2008. A second auction will take place December 17, with quarterly auctions thereafter; the compliance period will begin January 1, 2009. The announcement indicated that the following companies had been tentatively selected via competitive procurement processes to work with RGGI on aspects of the program: World Energy Solutions, Inc., Perrin Quarles Associates, Inc., ICF International, and the Greenhouse Gas Management Institute.

RGGI separately announced the basic auction design features that the RGGI states have agreed upon. As my title disclosed, RGGI has chosen a single round, uniform-price, sealed-bid auction — the design recommended by the RGGI’s auction design experts. However, RGGI indicated that “flexibility will be retained to transition to a multiple-round, ascending-price auction format if necessary to address evolving market conditions,” an alternative supported by Peter Cramton, among others, in comments on the RGGI auction design recommendations.

In November I wrote (“RGGI auction design flaw“):

Cramton, in his report on behalf of the New England and New York power markets, recommends a simultaneous ascending clock auction design. Worth reading if you are into these kinds of issues. Simultaneous ascending clocks pretty much are, as Cramton describes them, becoming the industry standard for these sorts of market situations… There is little doubt that such a design would do the job.

My sense of the RGGI situation is that their design issue could be remedied with a much less drastic accommodation. A linked sealed-bid auction would allow bids for the future vintage to specify the premium, if any, which they would pay to receive the current vintage product. Permits could be allocated using a surplus-maximization rule, with a uniform clearing prices for each of the products.

Actually, there is just enough vagueness in the description of the auction as a “single round, uniform-price, sealed-bid auction” to permit the linking of two simultaneous sealed-bid auctions such that the appropriate substitutions between two vintages is permitted. But I suspect they’re playing it simple to start, and then they’ll watch the “evolving market conditions.”

The key substantive issue now is for them to know what to look for in the auctions, so they will recognize whether or not separate auctions are causing inefficient results. The most obvious indicator of a problem would be if an auction resulted in lower prices paid for the better good. (The auctions will offer both a current vintage permit and a future vintage permit, but because a current vintage permit can be used to satisfy future year compliance requirements — but not the reverse — the current permit is a strictly superior product.) With access to all bid data it would be possible to produce a more sophisticated analysis of the effects of the separate sealed bid auctions on market efficiency.

The RGGI announcement will likely add a little extra context to the discussions at Wednesday’s half-day seminar at Resources for the Future, “Managing Costs in a US GHG Trading Program.” If you can’t make it over to RFF, the event will be webcast beginning at 8:30 AM.

More details from the RGGI design features announcement:

Auction Structure and Format: Allowances will be made available for sale on a quarterly basis in lot sizes of 1,000 allowances. The initial auction will offer allowances through a single-round, uniform-price, sealed-bid auction format. While the goal is to maintain a consistent auction format, flexibility will be retained to transition to a multiple-round, ascending-price auction format if necessary to address evolving market conditions.

Allowance Sale Schedule: Allowances will be identified with a vintage corresponding to the allowance’s respective allocation year. All allowances made available for auction by states, for a respective compliance period, will be offered for sale prior to the end of that compliance period. Future allowance vintages will be made available for sale in a quantity up to 50-percent of their respective annual allocation, and such offerings may be for allowances extending up to four allocation years into the future.

Participation: All market participants will be eligible to participate in the initial auction, provided they meet applicable qualification requirements, which will include provision of financial security. Flexibility will be retained to limit participant eligibility in subsequent auctions. Auction rules will establish a total limit for the number of allowances that entities (e.g., an organization and its affiliates and/or agents) may purchase in a single auction, equivalent to 25-percent of the allowances offered for sale in any single auction.

Reserve Price: A reserve price of $1.86 per allowance will apply to the first auction. After the first auction, a reserve price will be in effect that is the higher of $1.86 per allowance, as adjusted annually from 2009 onward based on the Consumer Price Index, or 80-percent of the current market price of the particular RGGI allowance vintage being auctioned. A reserve price based on the current market price will only be used if representatives from participating states determine that there are sufficient, reliable market data available to establish a valid current market price. The reserve price will be made known to prospective auction participants prior to each auction.

Unsold Allowances: Any unsold allowances will be made available for sale in future auctions in which a reserve price based on the current market price is being used. In 2012, as part of the first program review envisioned in the December 2005 RGGI Memorandum of Understanding, a decision will be made by the participating states as to whether to retire any unsold allowances from the first compliance period, or to offer these allowances for sale in subsequent auctions during the second compliance period.

Notice of Auctions: A public notice of auction will be provided at least 45 days prior to each auction. Such notification will be posted on a publicly available RGGI auction web site and will be made available by states in accordance with any applicable state rules, regulations and/or administrative procedures.

Each auction notice will provide at a minimum: the date, time, and location of the auction, the categories of eligible bidders, any requirements established for qualified participants, the quantity of allowances to be auctioned, and all other relevant information and procedures necessary for prospective bidders to participate in such auction.

Monitoring: The participating states will retain a professional independent market monitor to monitor auctions and subsequent market activity. The independent monitor will observe the conduct of the auction qualification process and the conduct of the auction itself. Based on such monitoring, the independent monitor will provide the participating states with a timely report of whether the auction was conducted in accordance with the regulations established by participating states and the noticed procedures and requirements that apply to qualified auction participants.

Auction Results: Upon approval by the participating states of the auction outcome and upon payment in full by successful bidders to the respective participating states, each state shall transfer the corresponding CO2 allowances to each successful bidder’s applicable account in the CO2 allowance tracking system. States will retain full regulatory authority for transferring allowances from their respective state accounts to winning bidders, contingent on approval of auction results and financial settlement.

Within a reasonable period of time following each auction, the participating states shall publish on the RGGI auction website the auction clearing price and the total amount of allowances sold in such auction.

Related: The WSJ’s Environmental Capital blog discusses the RGGI announcement in the context of other greenhouse gas allowance markets.

Environmental Economics points out, via Grist, that the USEPA has released a report on economic impacts of the Lieberman-Warner Climate Security Act.

Foreseeing $105/barrel oil: a reason to love an economist

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Michael Giberson

At Platt’s The Barrel blog, Dave Ernsberger writes that, “no one particularly loves an economist, especially the ones that work at Wall Street banks.” But then he recalls that, about three years ago when oil prices were about $55/barrel, Goldman Sachs economist Arjun N. Murti briefly became famous in energy and finance circles (or notorious, depending on your perspective) for forecasting that the price of oil would reach $105/barrel.

When the report came out [in late March, 2005], the oil market rallied by more than a dollar as word of his forecast reached the floor of the NYMEX. A day later, crude hit a new record high of $58 per barrel — small change compared to Friday’s settlement of $110.21.

Murti, who was at the time described by Fortune magazine as “press-shy by nature,” became a strange sort of celebrity — largely because commentators thought he was a crank. He became a lightning rod for angry investors, and energy regulators around the world who thought they had found a smoking gun to support the theory that hedge funds and banks were somehow tied up in a conspiracy to drive up prices.

Some accused Goldman Sachs of manipulating the market through the report to benefit its energy-trading desk.

There were calls from some commentators for a government investigation. Hank Paulson — then CEO at Goldman Sachs and now the US Treasury Secretary — himself stood up to defend Murthi at an annual shareholders’ meeting.

So imagine the satisfaction if you are Murthi now.

Rather, imagine the satisfaction if you – as a CEO – listened to Murthi then, and re-positioned your portfolio, hedged your company against the prospects of rising prices, and otherwise took steps to be prepared for the march of oil prices over these last few years. Now that would be a reason to love your economist – or at least to listen to your economist with a little more respect.

Of course, Murthi’s forecast was disputed back then, no doubt by exactly opposite reactions from other economists. A Business Week special report published a month after Murthi’s $105 forecast collected economists’ opinions about the likelihood of $100+ oil and the probable effects of such high prices, some of which forecasts can – with the benefit of hindsight – be fairly called as off the mark.

If crude costs $100 or more a barrel, gas prices will hit at least $4 a gallon. And prices at the mall will have shot up long before oil reaches the $100 mark, says Mark Zandi, chief economist at Economy.com.

Why? After all, even at today’s price of roughly $50, oil costs twice as much as it did two years ago, yet consumer prices have risen a mere 5% since then. The reason is that productivity gains and cost savings from technology investments in the late 1990s have allowed manufacturers to better absorb the impact of more expensive oil. And some producers have chosen not to pass along increased costs to avoid losing market share.

But manufacturers and retailers can contain costs only for so long. By now, most factories are so lean they haven’t any room for further cost cuts or productivity gains. “They have squeezed all the juice out of productivity efficiencies in the past few years,” notes Mark Baxter, director of the Maguire Energy Institute at Southern Methodist University’s Cox School of Business in Dallas.

Crude oil prices are above $100/barrel, yet gasoline prices currently average $3.27 nationwide, so apparently there was a little more efficiency juice to be squeezed out over the three years since the article was published. (See more data on gasoline prices at the Energy Information Administration.)

A related article on “winners and losers” in the Business Week special report predicted that Starbucks could be among the losers if crude oil prices rose above $100:

As energy gets costlier, those little extravagances in life like, say, a three-buck-a-cup flavored coffee drink could slowly get crowded out. “I think people who drive would stop getting their Starbucks everyday,” Cohan says. “They’d probably make their coffee at home.”

At least in my case, I did make coffee at home this morning. Then later, this afternoon, I drove more than ten miles to get to the Grape + Bean in Old Town Alexandria (Virginia), to pay nearly $2 per 6 oz. cup for coffee, because they have one of these machines. I drove past several Starbucks on the way, so maybe it is bad news for the company.

But I won’t be able to make a regular habit of paying so much for coffee (over $42/gallon!), if gasoline prices continue to be high. Unless, of course, the market starts showing a little more love for energy economists.

Alternative energy: John Doerr calls it the largest economic opportunity of the 21st century

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Michael Giberson

The WSJ’s Environmental Capital blog reports that venture capital firm Kleiner Perkins Caufield and Byers (early backers of companies like Sun Microsystems, Amazon.com and Google), has become excited by clean technology. Kleiner partner John Doerr said the company hoped to cash in on what it believes will be a multi-trillion-dollar market for alternative energy over the next few decades. Doerr said, “This is the largest economic opportunity of the 21st century.”

But when pressed on what new investment possibilities he found enticing, Mr. Doerr said making power from the methane produced by livestock would be a good opportunity. “It’s on my list,” Mr. Doerr said. However, when asked if he was looking at specific animal-methane startup, he turned coy. “In the Central Valley of California, there are big pig farms,” he said. “And I’ll let it lay there.”

Just methane from animal waste? There is so much more than can be done in the way of generating energy from animal waste, as a post here yesterday described. Maybe Doerr should get in touch with Professor Clifford Fedler.

Xcel will make Boulder Colorado its first “Smart Grid City”

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Michael Giberson

According to the Xcel Energy news release:

The advanced, smart grid system – when fully implemented over the next few years – will provide customers with a portfolio of smart grid technologies designed to provide environmental, financial and operational benefits. Xcel Energy anticipates funding only a portion of the project, and plans to leverage other sources including government grants for the remainder of what could be up to a $100 million effort.

From the Wall Street Journal, additional details:

Departing from the norm, Xcel isn’t seeking permission from regulators to recover its costs in advance, but will wait until “we have proven the benefits,” says Mike Carlson, Xcel’s chief information officer. Xcel has units in eight states.

The utility also intends to install equipment upstream of consumers, on its energy-delivery system, such as in substations, that will boost grid intelligence and reliability, squeezing out some of the inefficiencies that push up costs.

One of the first things consumers will see is installation of 25,000 advanced meters, enough for half the city’s homes, during the next year. The remainder of homes may be retrofitted at a later date. The meters will be capable of two-way communication and will provide a gateway allowing the homeowner — or, with permission, the utility — to remotely control furnaces, lights, air conditioners and other devices.

The meters also could give the utility the ability to dynamically price electricity — in the future, they could allow Xcel to assign different prices to electricity used at different times of the day, or for electricity used for different purposes. It could charge one price for basic lighting and another for running air conditioners or recharging batteries of plug-in hybrid electric vehicles, expected to be marketed in three years or so. These pricing plans would require approval of state utility regulators, something Xcel hasn’t yet sought.

Most meters on U.S. homes today simply log electricity consumption and must be read monthly by human meter readers.

It sounds like Xcel is doing many things well: two way communication with meters (not just automated reading, remote control ability by the customer or with permission the utility, considering how rate structures can enhance the benefits, integrating the changes with complementary upstream improvements, and so on. Boulder seems well-selected, too. Should prove to be a very useful project.

The Denver Post also has a story on the project.

“The first widespread pocket desktop computer”

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Michael Giberson

David Pogue in the New York Times:

I can’t tell you how huge this is going to be. There will be thousands of iPhone programs, covering every possible interest. The iPhone will be valuable for far more than simple communications tasks; it will be the first widespread pocket desktop computer. You’re witnessing the birth of a third major computer platform: Windows, Mac OS X, iPhone.

Lynne sees herself as “an early-but-not-bleeding edge adopter.”

Not me. I mean, sure, I love a good gadget. Sometimes I crack open Wired purely for the technolust frisson. But I’m usually happy keeping my technolust fantasies on a virtual level. I don’t need to own the things to enjoy the feelings of wonderment and coolness that come with knowing these things are out there existing in the world. I don’t “love a good gadget” so much as love the ideas of all the good gadgets out there in the world. In fact, owning actual, physical things often spoils the fantasy.

My current cell phone is a beat up, two or three-year old (I forget which) Motorola with a weak battery. No built-in camera, no music player, no web browsing. Apparently it can download ring tones, but I’ve not been too keen on running snippets of popular song through the tinny little speaker. I believe it is possible to upload images to the tiny little screen, but don’t believe it is worth the trouble to figure out how.

More from Pogue:

The release of iPhone 2.0 is over three months away, but I’ll stick my neck out and make a prediction: it will be a gigantic success, spreading the iPhone’s popularity both upward, into the corporate market, and downward, into the hands of the masses. iPhone 2.0 will turn this phone into an engineering tool, a game console, a free-calls Skype phone, a business tool, a dating service, an e-book reader, a chat room, a database, an Etch-a-Sketch…and that’s on Day One.

I just may have to risk my technolust fantasy and actually enter into a physical relationship with one of these devices.

(Maybe I should have included the warning message that Pogue started his column with, “this column is about the iPhone. If you’re one of those people who are sick and tired of hearing about the iPhone, then scroll on while you still can.” Oh well. If you were one of those people, you be gone by now.

If you are still reading iPhone stories, but haven’t yet read Lynne’s more substantive post commenting on the technology and economics of Apple’s iPhone SDK release, you should read it.)

Turning cattle, swine and poultry waste into electric power

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Michael Giberson

Via Texas Tech Today:

If all of the cattle, swine and poultry waste across the United States could be collected and converted to electricity, the resulting energy could produce 80 percent of the nation’s current electrical power needs, while also generating marketable high-end plants and extracts.

And the system works, at least on a smaller scale, according to research by civil engineering professor, Clifford Fedler.

Eighty percent seems like an awfully large number — enough to replace all of the coal, oil, and natural gas fueled generation currently in place — but I can’t find a supporting research article online, so I don’t know what data and assumptions generate that conclusion.

More is explained in this YouTube video:

Analysis out of the Carnegie Mellon Electricity Industry Center

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Michael Giberson

I’m swamped with work and have a lot of reading stacked up in the queue, so I haven’t had a chance to check out all of the good stuff that has been coming out of the Carnegie Mellon Electricity Industry Center lately.

Here are a couple of recent working papers:

Seth Blumsack, Lester B. Lave, and Jay Apt, “Electricity Prices and Costs Under Regulation and Restructuring.” The report makes another run at computing the effects of restructuring on retail prices. According to the abstract, they “conclude that restructuring has been beneficial to companies that restructured, but the evidence is far less clear concerning benefits to consumers.”

Sompop Pattanariyankool and Lester B. Lave, “Optimizing Transmission from Distant Wind Farms.” The paper addresses the question of proper sizing of transmission lines to link power consumers to distant wind farms. The introduction said, “Using current estimates of the cost of a wind turbine and the cost of a transmission line, we estimate that the cost of delivered power from a wind farm with about 33% capacity that is locate 1,000 miles from the customer will be about $150/MWh with almost 2/3 of the cost due to transmission. This cost does not include measures to solve the moment to moment variability of wind turbine output or the intermittency of output.”

Paul Hines, Jay Apt and Sarosh Talukdar, “Trends in the History of Large Blackouts in the United States.” A scan of the article suggests it provides a fairly thorough examination of blackout data. Not surprisingly, blackouts are more frequent during summers (high loads, thunderstorms, and late summer hurricanes) and winter (rain, snow and ice storms). Somewhat surprising to me, the duration of a blackout is nearly uncorrelated with the blackout size. These findings and many others are elaborated in the paper.

And while I’m mentioning the Carnegie Mellon Electricity Industry Center I should also note that they are hosting the Fourth Annual Carnegie Mellon Conference on the Electricity Industry, today and tomorrow. If you aren’t already there (and I’m not, see that aforementioned work swamp), it is probably too late to book a flight to Pittsburgh, but get on their mailing list for next year.