The ethanol drag on consumer value and government revenue

Michael Giberson

As usual, Geoff Styles is worth reading:

Since the administration has apparently ruled out an increase in the gasoline tax to cover declining Highway Trust Fund revenues, it’s surprising that it appears to be giving serious consideration to a proposal that would raise a hidden tax on gasoline. This is even more perplexing, when you realize that this increase would actually reduce the government’s net take on every gallon of gasoline sold, while simultaneously diminishing the value of the product for consumers.

That “hidden tax”? A push by the U.S. ethanol industry to increase the percentage of ethanol allowable in gasoline from 10 percent to 15.  The effect, according to Styles, will be to “effectively raise the price by 3.4 cents per gallon, while reducing federal tax revenue by 2.2 cents.”

(Via The Energy Collective.)

Smart grid and renewables interconnection (Part 4 of 5)

Lynne Kiesling

One of the reasons why smart grid is generating so much interest right now is its ability to enable the integration of renewable energy into the electric power network, leading to a broader generation portfolio and potentially beneficial carbon implications. Lots of the discussion of smart grid in policy and media (including places like Greentech Media, Cleantech, EcoGeek, GreenMonk, and the New York Times blogs Dot Earth and Green Inc.) has emphasized the potential economic and environmental value from having investments in the electric power network that make the accommodation of renewables easier, reducing transaction costs and shifting the margin at which investing in renewables is profitable.

Integrating distributed renewables into a physical electric power network that was designed for the transportation of centrally-generated electricity is both an engineering challenge and an economic challenge; not only are renewable energy sources less intense in their capability to generate electricity, they are also less controllable and less dispatchable. When the sun shines and the wind blows, the renewables owner will generate power … but that time might not match periods of high demand. Furthermore, both sun and wind are intermittent, and we humans cannot turn them on and off in value-maximizing ways that coordinate demand and supply. Both Mike and I have discussed the renewables intermittency and supply/demand timing mismatch at KP in the past, and I also recommend Mike’s excellent posts on the connection between wind power and negative power prices in ERCOT. Moreover, if the renewables are highly distributed, such as solar panels on homes and plug-in vehicles, a network with that number and range of  resources is very, very different from a network connecting large centralized generators to end-use consumers. Those differences can be physically destabilizing because of the ways that the intermittent renewables go on and off the network, produce or consume power, etc. So renewables integration changes the voltage and frequency regulation requirements drastically from those from the centralized generation model.

Smart grid can help with the intermittency problem, and with the voltage and frequency regulation and destabilization issues that arise with distributed renewables. I’m not an engineer, but my take on the real benefit there is the use of digital monitoring, switching, and relays that can get the resource in phase so it can interconnect without disruption. Importantly, note that this use of smart grid technology to enable interconnection mostly occurs in the distribution management system, at the interface of the resource and the distribution network and has nothing to do with high-voltage transmission (more on that in a minute). Smart grid in and of itself does not help with the supply/demand timing mismatch — solving that problem (which will also go a  long way to resolving intertemporal price issues in wholesale markets) requires economical storage.

However, smart grid is a separate issue, and particularly a separate investment question, from high-voltage transmission. If we do build isolated wind farms in remote areas, then part of that investment will have to include the construction of high-voltage transmission to transport the power to areas of high demand, as the Pickens Plan and others are currently recommending. If, say, a large wind farm in North Dakota wants to connect directly to high-voltage transmission, then smart grid technology can help with that interconnection. But that is really the most important transmission-related and renewable-related smart grid technology interface. With respect to renewables, some of the federal policy discussion around smart grid falsely conflates smart grid investment with transmission investment and construction beyond what is actually accurate; for example, the clean energy summit that I mentioned last week involved both Senator Harry Reid and Representative Nancy Pelosi engaging in this false conflation. Another document that engages in this false conflation is the Center for American Progress’ National Clean Energy Smart Grid 101:

The current high-voltage transmission grid imposes constraints on the deployment of new renewable energy resources such as wind, solar, and geothermal power. It simply does not go where many of these renewable energy resources will be developed. And congestion bottlenecks hurt the reliability of the grid overall, particularly where it is needed to move large volumes of new power from remote generation areas (where renewable energy is created) to major urban and industrial centers—where demand for that energy is greatest.

The monitoring and control technology for both transmission and distribution networks is also weak and outdated. The lack of smart technology to provide utilities and consumers with better information in real time hurts the entire electricity system’s security and efficiency, and places unnecessary cost burdens on consumers. It also slows the adoption and integration of new technology such as solar panels on our homes, intelligent appliances to cut our energy bills, or micro-grids to help first responders cope with natural disasters.

While most of that is correct, it elides the distinctions between transmission and distribution as the places where smart grid investments will facilitate renewable generation. The fact that the current transmission network does not go where renewable resources are most productive is not necessarily a smart grid opportunity — it’s a transmission construction opportunity. The question of whether or not it is worthwhile to build more transmission is a separate question from the economic value of any digital communication capabilities in the high-voltage transmission network. I think the two most important ways that smart grid technology creates value in the transmission network are

  • Direct interconnection of large-scale resources into the network
  • Using remote sensing (and eventually, remote devices for the injection of dynamic reactive power) to increase network capacity by improving flow management

And smart grid regulation, sensing, and monitoring technology does not change the fact that long-distance transmission still involves line losses that average about 7%. Renewables proponents have to make the business case that the transmission construction has net present value on its own, without inaccurately cloaking it in smart grid rhetoric.

Smart grid does not necessarily mean more grid. Smart grid means a transactive network in which all consumers can choose products and services that meet their needs and reflect their values, and all resources, renewable and otherwise, can compete for their business. It’s the vibrant retail competition among products and services, including renewable products and services, that will reveal the true economic value of new transmission construction to connect renewables in isolated areas to areas of demand.

Tomorrow: Smart grid policy implications and recommendations

Other posts in this series: