Pickens new plan: Not to build the world’s largest wind power farm

Michael Giberson

[UPDATE: Pickens now says he is delaying, not dropping plan to build his wind farm.]

Boone Pickens is dropping his plan to build a huge, 4,000 MW wind power farm in the northeast corner of the Texas Panhandle.  Among the reasons: his plan to build his own transmission line fell through, the transmission lines planned under the state’s CREZ process won’t go quite the way he wants, the credit crunch has impeded financing, and low natural gas prices have dropped electric power prices in the Texas markets Pickens planned to sell into.

From the Dallas Morning News (link above):

Shortly after announcing the plan, Pickens ran into roadblocks. Natural gas prices took a dive, bringing electricity prices down with them, and making it difficult to finance a new wind farm.

“You had them standing in line to finance you when natural gas was $9″ per million British thermal units, he said. “Natural gas at $4 doesn’t have any people trying to finance you.”

But, he said, he’s lined up financing.

He couldn’t easily line up a transmission line.

He still has a substantial number of turbines on order from General Electric, so now his company is looking around for new homes for the turbines. They may end up in a dramatically scaled down wind farm in the area originally planned (he has contracts to develop wind power on about 200,000 acres in the area), or on other sites in Texas or points north.

See also similar reports in the New York Times Green Inc., Washington Post, and the Associated Press.

ASIDE ADDED: Hey Boone, if you’re feeling charitable, or just have more turbines showing up than you can put to good use, I know of a university-based wind power research project to be built in the Texas Panhandle that might be able to use a few good turbines.  Call me.

CFTC to consider position limits on energy futures contracts

Michael Giberson

The chairman of the Commodity Futures Trading Commission, Gary Gensler, has announced that the agency will hold a series of meetings in July and August to consider how it can use its existing statutory authority to “ensure the fair, open and efficient functioning of futures markets.” The first of the meetings will focus on “whether federal speculative limits should be set by the CFTC to all commodities of finite supply, in particular energy commodities, such as crude oil, heating oil, natural gas, gasoline and other energy products.”

The New York Times presents the story as a reaction to swings in oil prices in recent months and as “part of a broader shift toward tougher government oversight under President Obama.” The cynical voice inside my head suggests that only when oil prices swing upwards do federal regulators get concerned about speculation and “market integrity.” BTW, I’m not sure what “market integrity” is, exactly, but it sounds like something good so we probably want more of it.

Admittedly, oil prices have been volatile in recent months (as discussed here yesterday), but what theory and evidence suggests that speculative limits set by the CFTC would make oil prices less volatile.  I think it reasonable to believe that much of the volatility in the market simply reflects general uncertainty about the immediate and medium-term future of the economy as a whole and the oil industry in particular.  If this is the case, wouldn’t dampening market signals in futures markets just “shoot the messenger” while at the same time hampering the ability of the futures market to help resolve that uncertainty?

Banning futures trading in onions – something the United States did back in the late 1950s – was intended to reduce price volatility in onion markets.  Evidence is that it didn’t work.  I’m not familiar with all the details of the literature on futures trading in agricultural products, so I wonder if there is any evidence that “market integrity” has been improved by the use of limits on speculative holdings.

In his statement, Gensler also announced upcoming changes to the agency’s weekly Commitment of Traders report.

The Economist, Computer World on building the smart grid

Lynne Kiesling

Recently the Economist included a thorough smart grid story in their Technology Quarterly issue; if you are looking for a good overview of the state of play in smart grid at a high level, this story will give you that background, running the gamut from distribution automation to interoperability standards.

Another recent overview article from Computer World illustrates some of the benefits of smart grid investments and provides some good background links.

One thing to which I’d like to draw your attention is an excellent summary of the opportunity cost argument for smart grid investment — a quote from Ahmad Faruqui in the Economist article:

Reducing peak demand in America by a mere 5% would yield savings of about $66 billion over 20 years, according to Ahmad Faruqui of the Brattle Group, a consultancy that has worked with utilities on designing and evaluating smart-meter pilot programmes. Moreover, studies have shown that the best in-home smart-grid technologies can achieve reductions in peak demand of up to 25%, which would result in savings of more than $325 billion over that period, calculates Dr Faruqui. “Technology is expensive,” he says, “but not using it will be even more expensive.”

Innovation in incandescents

Lynne Kiesling

Want some evidence for why technology mandate legislation is fraught with difficulties? This New York Times article on innovation in incandescent light bulb technology is a datum:

When Congress passed a new energy law two years ago, obituaries were written for the incandescent light bulb. The law set tough efficiency standards, due to take effect in 2012, that no traditional incandescent bulb on the market could meet, and a century-old technology that helped create the modern world seemed to be doomed.

But as it turns out, the obituaries were premature.

The article goes on to describe the energy efficiency improvements in newly-designed incandescents, with the implication that the 2007 legislation mandating efficiency standards induced the innovation. Incandescent innovation is occurring in a very dynamic context, with simultaneous developments in compact fluorescents and LED lighting. As the NYT article notes,

Despite a decade of campaigns by the government and utilities to persuade people to switch to energy-saving compact fluorescents, incandescent bulbs still occupy an estimated 90 percent of household sockets in the United States. Aside from the aesthetic and practical objections to fluorescents, old-style incandescents have the advantage of being remarkably cheap.

But the cheapest such bulbs are likely to disappear from store shelves between 2012 and 2014, driven off the market by the government’s new standard. Compact fluorescents, which can cost as little as $1 apiece, may become the bargain option, with consumers having to spend two or three times as much to get the latest energy-efficient incandescents.

The reality is that we have this efficiency legislation, and by focusing on performance it’s better than an outright ban on incandescents, which would be incredibly distortionary, given the consumer welfare attached to the different light qualities and low price associated with incandescents (dimmable compacts anyone? Not so much.).

But I have to ask: isn’t this yet another situation in which we implement government regulation as a counterweight to the distortionary consequences of existing government regulation? If our individual electricity consumption were more transparent to us, and we had better and more timely information about the electricity consumption of the various appliances and systems in our buildings, AND if we had more accurately timely electricity pricing that wasn’t infused with state legislative social policy, would incandescent light bulbs have stayed this inefficient for this long? If we had those changes in the retail electricity industry, would we need Congressional energy efficiency legislation? How much energy efficiency improvement could we get through organic market processes, without the economic distortions and the restriction of individual autonomy that accompanies such government intervention?