I have one comment for today:
That is all.
Stephen Hadden and Shannon Messer, writing at Energy Central/T&D Automation:
The concept of an intelligent electric utility infrastructure or “Smart Grid” is attracting wide interest among utilities, consultants, regulators, and other utility stakeholders. The widespread interest, however, is accompanied by widely differing expectations about when Smart Grid will emerge. Some consultants and vendors confidently proclaim that the Smart Grid is here or “just around the corner.”
… [But] we may never be able to declare that we have achieved the Smart Grid. The very concept of a Smart Grid is likely to continue to evolve with the developing grid automation technology. Today’s Internet is more than the vision of the National Information Infrastructure (NII, remember that?) described 15 years ago. But no one rang a bell when we “achieved” the NII. Today’s vision of the information superhighway remains ahead of us, yet to be attained … Similarly, by the time our operating electric distribution system becomes what we now call Smart Grid, the concept of Smart Grid will have been further advanced and the “finish line” will have moved ahead of us into the future.
But as they explain, just because the finish line naturally keeps moving, that doesn’t mean it isn’t worth racing toward Smart Grid goals.
Word is, the Alaska natural gas pipeline is just about ready to get started. The thing is, it has been just about ready for 30 years. In the Energy Tribune, Alaska-born Ron Oligney diagnoses the problems that have kept progress on the Alaskan gas line at bay. Posturing by populist politicians plays a big role, but Oligney’s analysis is deeper and richer.
The common theme for these governors … was that they were “seeking the highest good for all Alaskans.” The current governor is better than any of her predecessors … in that she has an almost unbelievable approval rating of 90 percent. She has charmed the masses, which in Alaska means a few hundred thousand people. The problem is that Alaskans and their politicians feel quite certain that they are just one BP-Conoco news release, one governor, one special session away from getting The Gas Line. A common statement in Alaska is, “Have you heard the news? The Gas Line is getting ready to take off.” And so it has been. For 30 years.
The principle of “highest good” is a lopsided concept in a state where there is very little private ownership of land or minerals. Just as in a foreign country, the game is one of inducing investment from those with the money (oil companies) and then changing the rules as necessary to extract the maximum benefit for the locals. Stirring up the mob against the evil outsiders (oil companies) keeps the populist in power. In foreign countries, the end game is nationalization, sometimes once per generation. In Alaska, taxes are the proxy. (Note: the situation in Texas and Oklahoma is much more intrinsically stable because of private land ownership – many legislators and some of the voting public are also mineral owners.)
Google’s blog has a post describing their new investment in BrightSource Energy and linking to lots of background information on their renewable investments. BrightSource does large-scale solar.
This is part of Google’s RE < C initiative, through which they channel their investments with an objective of making renewable energy cheaper than coal-fueled energy. Their FAQ gets at the question of why Google would be doing this:
This initiative is not just about creating clean, affordable electricity for Google – though we are keenly interested in making our business as environmentally sustainable as possible. If successful, this effort would likely provide a path to replacing a substantial portion of the world’s electricity needs with renewable energy sources. We want to do our part, but that won’t be enough alone to thwart climate change; we need a worldwide green electricity revolution to do that.
OK, fine. But what’s the return to Google? They clearly don’t see it as a short-run bottom-line reduction in their own energy costs. So what’s motivating it? Brand capital and reputation capital? I have my ideas, but I would like to hear yours.
The WSJ Environmental Capital blog has been doing a great job of keeping up with the wind power industry in the U.S. lately. Today’s post about Iberdrola’s planned investment in wind power in the U.S. is a good summary, with links to some of their other recent posts on the subject.
How to read this? For starters, it’s another sign the U.S. wind power market is going great guns regardless of what Congress does for clean-energy tax credits. As we noted last week, the Department of Energy figures wind power could provide 20% of U.S. electricity by 2030–with or without subsidies. And T. Boone Pickens put the first $2 billion down on his $10 billion bet on the world’s biggest wind farm in Texas last week, without waiting for the tax credits to be renewed.
One interesting aspect of Iberdrola’s investment plans is how the New York Public Service Commission’s concerns about electricity prices may influence some of their investment decisions:
But the New York Public Service Commission, the five-person body that has to give the final green light, is leery. It’s worried Iberdrola’s deal could harm consumers by raising power prices; it argues the deal would give Iberdrola a virtual monopoly, since the Spanish utility could control both generation and transmission of electricity. So, the New York commission is proposing that the world’s biggest wind-farm operator divest some of its wind farms to win regulatory approval.
The post then goes on to note that those who are interested in environmental policy are upset about the NYPSC’s objections, because their highest priority is increasing renewable energy capacity to meet New York’s goal of having 25% of their power generated from renewable sources by 2013. I think increasingly we will see the tension between the regulatory objective of low electricity prices and the regulatory objective of reduced fossil fuel generation that is evident in this example.
Early in third period, Penguins 6, Flyers 0. Marian Hossa has 1 goal and 3 assists. He is my new BFF.
UPDATE: On to the finals! This is the first time since 1992, which is a series I remember fondly (and for which I still have a t-shirt!). Woo hoo!
Technology and the Internet are beautiful things; the Pittsburgh Penguins Eastern Conference champions shop was online 10 minutes after the end of the game. Love it.
A casual weekend post … I know that some KP readers are fellow triathletes, and I appreciate your interest in my training and racing plans. Here’s a summary, with more below the fold.
Race plans. I am doing two triathlons this summer: the Tri Shark sprint triathlon on 7 June and the Pleasant Prairie olympic distance triathlon on 17 August. It’s a light race season, but that’s because in late June I am doing a 987-mile bike ride over the first third of the Lewis & Clark trail. So the balance this summer is shifting a little to cycling and off of triathlon.
Training. Not surprisingly, given above, it’s been cycling-centric. The weather this winter was pretty bad for outdoor cycling, so it’s been rollers for me! Sadly, I still can’t stand doing more than an hour on the rollers, even with the best DVD on the planet in the player. But what I’m finding this spring more than in past springs is that just getting in the saddle frequently is the most important thing for me, just to get the body habituated to being in the saddle. I think that’s because I kept up a pretty decent level of base fitness over the winter. My swimming is as it always is — I’m a strong swimmer, so I’m doing enough swimming to be fit, but I’m really focusing on the cycling this season.
More below the fold …
At yesterday’s open meeting of the Federal Energy Regulatory Commission, the Commissioners established a hearing to determine whether Energy Transfer Partners, L.P. and its affiliates engaged in market manipulation in violation of FERC rules. At stake is a possible penalty of over $200,000,000 in proposed fines, recovery of “unjust profits”, and interest.
As was discussed here before (see link below), the companies are alleged to have manipulated wholesale gas prices at the Houston Ship Channel to benefit ETP’s financial positions and other physical positions between December 2003 and December 2005. In addition, ETP’s pipeline affiliate is alleged to have discriminated between affiliated and non-affiliated companies in the provision of transportation services, in violation of related laws and regulation.
At the heart of the manipulation charge is this claim:
Enforcement Litigation Staff asserts in its brief that voice recordings and trade data demonstrate that ETP manipulated wholesale natural gas markets in Texas during the period of December 2003 through December 2005 by: (1) orchestrating its financial and physical portfolio to profit from lower prices as HSC; (2) selling fixed-price gas for prompt month delivery at HSC for less than a competitive price; (3) reporting these artificially lower prices to Platts Inside FERC, which included them in its monthly HSC index (IFERC HSC index); and (4) benefiting from lower prices reported in the IFERC HSC index. (Paragraph 7 from the FERC order)
The anti-manipulation regulation at issue is section 284.403(a) of the Commission’s regulations as it was at the time of the actions. Section 284.403(a) stated:
Any person making natural gas sales for resale in interstate commerce pursuant to §284.402 is prohibited from engaging in actions or transactions that are without a legitimate business purpose and that are intended to or foreseeably could manipulate market prices, market conditions, or market rules for natural gas.
In my initial review of a industry trade journal article that alleged manipulation I said I wasn’t too impressed with the case. The case built up in the article was reasonably detailed but mostly circumstantial, with comments from anonymous traders thrown in. However, unlike FERC, presumably the reporter did not have access to company voice recordings and proprietary trading data. If the allegations prove justified, I guess I’ll have to be impressed by that part of the initial article.
The original article also included assertions of a possible “regulatory gap” that may require legislative action to cover, but investigations by FERC and the CFTC apparently have not been hampered by lack of legal authority.
The CFTC also pursued ETP on related charges. In March 2008, the CFTC announced it obtained a $10 million civil penalty as part of a consent order settling charges against ETP and three subsidiaries. An announcement made by the company points out that the “agreement between the CFTC and ETP contains no findings of fact or conclusions of law.” Which is not the same thing as claiming they didn’t do it, of course.
No doubt consumers think oil prices are too high. For the moment I’m wondering if oil prices are too high even for OPEC.
High prices induce a number of adjustments, some of which have long term repercussions. Last time there was an oil price shock at all comparable to the present was around 1979-1981, when world oil prices reached near $100 (in $2008). High prices then helped support continued growth in non-OPEC oil supply (which really got started during the oil crisis of 1973) and spurred substantial consumer interest and investment in energy efficiency. Over time the adjustments contributed to a nearly 20-year long period (roughly 1986-2004) of prices below 1973 prices in real terms.
Additional evidence comes from a paper, “OPEC’s Demand Curve,” by Marc Vatter. Vatter estimates world demand for oil, the effect of oil prices on world income, and non-OPEC supply in order to calculate the net demand for oil faced by OPEC. Vatter suggests that while oil price shocks can be profitable for OPEC – no surprise there – to the extent consumers and non-OPEC suppliers see the price increases as long lasting, they make adjustments which reduce OPEC’s income in the longer term.
Most of the article itself is focused on explaining and defending various statistical assumptions and devices employed in the process of generating his estimates of supply and demand, but even a non-specialist reader may benefit from scanning the article. He sums up his estimates by saying, “we should not expect prices to fall below [$81 a barrel in $2008] for long” given current non-OPEC supply and world oil consumption. Below $81 a barrel, OPEC net income falls.
Vatter doesn’t explicitly peg the upper end of OPEC’s desired oil price range, and possibly the recent economic growth around the world – most obvious in China and India – makes his data analysis over the period 1974 to 2005 less than dispositive, but I would guess a price above $100 in real terms reduces the net present value of long term income for OPEC nations.
If real prices fall below $80 in the next few years and stay below $80 for a while, that will be reason to believe that oil prices now were too high even for OPEC.
We’ve played the food-into-fuel answer to the title question in previous posts, but Ajay Shah posts a deeper, more thoughtful explanation in which biofuel subsidies and mandates just barely warrant a mention.
He is not persuaded by the hypothesis that the “pike in world food prices is caused by increased demand in China and India, particularly the shift towards consumption of meat as people get richer.” Not persuasive, he says, because it doesn’t explain why “the price index for major food crops was stable … from 1990 till 2005, and spiked thereafter. China and India had a massive transformation of incomes and the structure of the food basket from 1990 to 2005.”
As he develops his story, it turns out that growth in China and India does play a central role, but the role is more nuanced that the simplistic version he first considers. Speculators, storage, and the Irish potato famine all get a mention. Worth reading. (HT to Marginal Revolution)
It is also worth remembering, as an anonymous commenter mentioned here a few days ago, that at the root of the rise in the price of oil (and the point applies to food as well) “is a positive development: an unprecedented boom in the world economy” as India, China, and other nations see transformational booms in economic activity.