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New Jersey solar installers seek “Endless Summer” at ratepayer expense

May 20, 2012

Michael Giberson

A crisis is coming for the New Jersey solar power installation industry. Stringent solar power purchase requirements imposed on electric utilities (i.e. on electric utility ratepayers) has turned the state into the nation’s second largest for solar power capacity installed, behind only sunny California.

But now that installed capacity is sufficient to meet current requirements, the installation business is expected to drop way off.  (The purchase requirements actually increase each year through 2021, but the rate of growth is slowing.) That expected drop off has lobbyists for both the solar power industry and unionized solar installers descending on the state capital, pleading for imposition of still higher purchase requirements on electric power consumers. The rallying cry has been to “save the jobs” created by the solar power purchase mandate.

Here is one report, “NJ looking to rescue ailing solar industry“:

New Jersey has long been known as the Garden State, but during the last five years, it could have easily been known as the Solar State from all the sunlight-absorbing panels that have cropped up nearly everywhere.

They’re on the roofs of schools, churches, municipal buildings and sewage treatment plants. They’re in farm fields and attached to utility poles. Even one of New Jersey’s trademark diners recently went green and installed panels.

But all is not well with New Jersey’s once-thriving solar industry, which has grown so big, so fast, that it’s now in danger of collapsing on top of itself.

The industry’s future could hinge on the work of the state Legislature during the next several months as lawmakers look to craft a bailout bill that rescues the solar market and the thousands of jobs it created.

A bailout bill was approved by the Senate Environment and Energy Committee on Thursday, but Bill S 1925’s chances of becoming law are far from certain as it relies largely on making power companies buy more electricity from solar generators.

Critics warn that doing so could mean higher bills for the state’s ratepayers. Supporters say without government help the entire industry will likely collapse.

“We have a crisis, and the crisis is this: If the market stays the way it is, there will be no new projects in the future, and the ones out there now will fail,” Sen. Robert Smith, D-17th of Piscataway, said Thursday at the onset of the lengthy hearing on the bill, which drew hundreds to the Statehouse, many of them union members who work in the industry.

At issue is the market for the electricity that solar panels produce, which has crashed during the last year because of an oversupply of solar development.

Under state law, utilities must obtain part of their electricity from solar generation. To do so, most must buy solar renewable energy credits, or SRECs, from solar panel owners.

The market for the credits originally boomed and helped New Jersey become the nation’s second-largest solar power producer behind California. All that development caused a glut in the market that has seen SREC prices decline from $650 or more in 2010 to less than $100 at times this year.

“We’ve become a victim of our own success,” Smith said. “We’ve had so much solar built in New Jersey that the market for SRECs has crashed.”

Historical SREC values are charted at the Flett Exchange.

The crash in the value of an SREC has cut into revenues projected for private businesses and public schools that have had solar panels installed. Banks have become less willing to loan for solar projects as subsidy revenues have dropped off.

A bill circulating to bail out the industry would both increase the mandated purchases, cap the size of solar projects built, and require projects gain approval from state regulators before they are built. The bill has failed, or at least stalled, on the issue of regulator review – the industry wants all existing projects exempted from regulatory review while the Governor’s office and some others insisted on no exemption.

All hope is not lost for the industry, even should the legislature fail to raise the cost imposed on ratepayers in order to bail out the New Jersey solar industry. The chairman of the New Jersey Board of Public Utilities has said if legislators don’t act then the BPU might simply impose a higher solar mandate on its own authority.

BACKGROUND: For an extended assessment of solar power incentives in state Renewable Portfolio Standards see Ryan Wiser, Galen Barbose, and Edward Holt, “Supporting Solar Power in Renewable Portfolio Standards: Experience from the United States,” Lawrence Berkeley National Laboratory, Berkeley CA, October 2010. LBNL-3984E.

Posted in Electricity, Energy markets, Environmental policy, Regulation | Tagged , , | 5 Comments »

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Great strides have been made combating price gougers in Venzuela

April 24, 2012

Michael Giberson

Venezuela “President” Hugo Chávez  has put his government strongly behind efforts to combat price gouging, which in this context means selling a good for more than the government’s permitted price. The policy has had the usual effects: shortages of ordinary consumer goods and queues reminiscent of Soviet-style communism.

The New York Times reports, “With Venezuelan Food Shortages, Some Blame Price Controls.” Obviously those “some” are greedy capitalists and their economist lackeys, but Chávez isn’t buying into such corrupt and self-serving claims by economic elites. Instead, “[Chávez and his ministers] blame unfettered capitalism for the country’s economic ills and argue that controls are needed to keep prices in check in a country where inflation rose to 27.6 percent last year, one of the highest rates in the world.”

That’s the ticket: the more problems the government creates, the more reasons the government claims it is needed to solve problems.

HT to Paul Walker at Anti-Dismal, who offers a curated selection of quotes from the article.

MORE: A news story from 2010, “Venezuela closes price-gouging shops.”

Posted in Economics, Liberty, Politics, Regulation | Tagged , , | Comments Off

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Pat Wood: The Texas Tribune Interview

April 23, 2012

Michael Giberson

Pat Wood, the former FERC chairman and former Texas PUC chairman, was interviewed recently by The Texas Tribune. Wood is surely one of KP‘s favorite ex-regulators, so of course we’re linking to the interview. Here’s just one bit:

Wood: … There is also a lot that can be done, particularly on the energy demand side. By that I mean more aggressive conservation programs where you let market signals encourage customers that have the ability to shut down for a certain small amount of hours in the day to get paid to do so.

TT: Do you mean even individual consumers can potentially do more — or be helped to do more — to save energy?

Wood: They could, but if you went from the current penetration we have today, which is focused on the largest customers, to then focus on the medium-sized customers  — and by that I mean grocery stores, shopping centers, Target, customers like that — you can pick up a whole lot more responsive load before you need to get to the residential customer. The residential customers comprise about 40 percent of the [electrical] load at peak. Industrial and commercial are each about 30 percent. That’s a lot of lower-hanging fruit to pick before you get to residential.

And in discussing this, I’m not saying that Target would have to bid to shut down a store to get paid; it would maybe curtail 20 percent of its demand from 4 to 6 pm [when electricity usage peaks].

This capacity tightening may force that day to come sooner rather than later, which I think is a great thing for Texas, to latch onto this smart-grid investment that we’ve been making statewide over the past couple of years into a level of demand responsiveness that really moves our grid to 21st century capability well ahead of the other states.

Wood also addresses the lack of incentives to build new plants in Texas, the prospects for wind and solar in the state, energy storage, and among other things the role of the Public Utility Commission after the state “moved the dial from 10 to 4 in terms of regulation.”

Posted in Electricity, Energy markets, Environmental policy, Regulation | Tagged , , , , , | Comments Off

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Reasons to end the War on Drugs. Now.

April 20, 2012

Lynne Kiesling

Today in Forbes Art Carden has an essay arguing that we should end the War on Drugs and make marijuana legal, now. He’s right. Here’s why.

  • As Art argues, the War on Drugs is a policy poster child for unintended consequences, because the inelastic demand for the regulated good means that stronger enforcement leads to more profits from selling the good. The War on Drugs increases drug dealer profits.
  • Because of those profits relative to other alternatives, the War on Drugs just doesn’t work. An example: here in Chicago we had a recent spate of unusual gun violence, and even though new police chief Garry McCarthy said last year that he thought the War on Drugs was ineffective, after this violent weekend he joined mayor Rahm Emanuel in promising more vigorous and aggressive enforcement and targeting of drug transactions. Note at the head of the lede that Mick Dumke says “The first time I heard a police officer argue that the war on drugs wasn’t working was in 1994.” Law Enforcement Against Prohibition has been saying it since 2002.
  • The War on Drugs violates the fundamental individual right that humans have of self-ownership; individuals have the right to choose their own actions without interference as long as their actions do not violate the fundamental individual rights of others.
  • The War on Drugs has created horrific law enforcement violations of individual rights: police brutality, increased police militarization, no-knock raids resulting in property destruction and death of innocent citizens when they get the wrong addresses, civil asset forfeiture rules that police departments have incentives to exaggerate so they can sell assets to raise revenue. The actions that the police rationalize using the War on Drugs increasingly are the actions of a police state.
  • The War on Drugs has virtually eliminated the constitutional protection of individual rights against unreasonable search and seizure, and is seriously eroding judicial due process rights.
  • The War on Drugs has costly and socially corrosive blowback in other areas. If you think that the invasive actions of the TSA are solely related to the War on Terror, you haven’t been paying attention. When the TSA crows about its “successes” in airport security, they are often items of “contraband”. The War on Terror is in part a red herring for the War on Drugs, and the two combine to give law enforcement officials substantial discretion in the militarization, unreasonable search, etc. mentioned above.
  • The War on Drugs has destroyed the fabric of urban families and communities much more than drug use would, through the disproportionate incarceration of young African American men (see above point about how regulation increases the profits from the drug trade).
  • In addition to the immorality of the War on Drugs described above, as a matter of public policy it fails benefit-cost analysis. Jeffrey Miron estimates the net effect annually of reducing enforcement, legalization, and taxation of marijuana to be $15 billion — an increase in tax revenue of almost $7 billion and a reduction in enforcement costs of $8 billion. The net social savings from extending legalization to other drugs is even larger. Think about the other uses of those resources — revenue for deficit reduction, reallocation of law enforcement activity to some other area where it may actually have meaningful beneficial impacts (like, say, intelligence gathering, community development, cops walking the beat).
  • The beneficial budgetary effects and reduced social corrosion that Miron suggests have actually happened recently in Portugal, which has liberalized its drug trade and consumption, with net beneficial financial and social effect.
  • The hypocrisy of the War on Drugs is astounding, particularly the president’s recent heavy-handed opposition to legalization after his admission in 2004 that the War on Drugs is a failed policy. In the face of the fact that the health effects of alcohol are more negative than of marijuana and the fact that general social mores have moved so that more than half of the U.S. population believes that marijuana should be legal, this hypocrisy is downright absurd.

Nick Gillespie says it well in this reason.tv video:

We cannot afford the War on Drugs, either morally or economically. End this costly, ineffective, corrosive policy. Now.

 

Posted in Economics, Liberty, Regulation, Uncategorized | Tagged , , , | 3 Comments »

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Zwolinski: “Is price gouging immoral? Should it be illegal?”

April 19, 2012

Michael Giberson

Five minutes of Matt Zwolinski on price gouging (from Learn Liberty).

If you think price gouging should be against the law, watch this video. Are you persuaded by Zwolinski? Let me know in the comments.

MORE: Zwolinski has written serious philosophical works on price gouging,which makes the clarity of his position in the video all the more surprising. :-)   See links to some of Zwolinski’s work on the topic in previous KP discussions here and here.

Posted in Economics, Liberty, Politics, Regulation | Tagged , , | 1 Comment »

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Oil speculator witch hunt, 2012 edition

April 18, 2012

Michael Giberson

Steve Mufson at the Washington Post reports:

President Obama proposed measures Tuesday to step up oversight of energy markets and boost by tenfold the penalties for market manipulation, in an effort to blunt political pressure over the 20 percent increase in gasoline prices since the beginning of the year. [Links in source.]

Not that the administration has turned up any evidence of problems in the market:

A senior administration official said the president wants to increase the number of “cops on the beat” to stop illegal speculation and market ma­nipu­la­tion…. But neither Obama nor his aides pointed to any examples of such illegal activity or to any evidence that oil speculators had, in fact, been responsible for raising prices recently. The senior official said that oil prices have been rising mainly because of growing global demand and political uncertainty in the Persian Gulf. Obama cited “global trends” in his announcement. Lawmakers on both sides of the political divide have alleged that “speculation” is partly responsible for the jump in oil prices over the past year, but they have not offered any examples, either.

See also: the Wall Street Journal‘s article; the New York Times on the topic; and from The Nation, “Obama Announces Empty Crackdown on Oil Speculation.”

The Nation‘s piece is interesting, essentially claiming that the President is right on the merit of his proposals, but just pandering to the public with symbolic gestures since five out of six of his proposals require Congressional action the President knows he won’t get, and the President refuses to do the one thing he can do that would work (in the author’s view): telling the attorney general to start subpoenaing oil traders and begin actually uncovering oil market manipulation.

Of course you may recall that a year ago the President did tell his attorney general to constitute an Oil and Gas Price Fraud Working Group. Last month the Attorney General reported on its many great successes.

Just kidding, they’ve got nothing. Here is what the Attorney General actually said on March 9, 2012:

Since last April – when I established a new part of the Task Force known as the Oil and Gas Price Fraud Working Group – we’ve also been focused on identifying civil or criminal violations in the oil and gasoline markets, and ensuring that American consumers are not harmed by unlawful conduct.   This Working Group’s latest meeting was held at the Justice Department just this morning – and its members discussed a variety of topics, including the role of speculators in the market; recent reports and enforcement matters by various Working Group members – such as the FTC and the New York State Attorney General’s Office; as well as ways to improve information sharing between Working Group members and partners; and where we go from here.

I can also report that one of the Working Group’s members – the Federal Trade Commission – is currently conducting an investigation, with assistance from other Working Group members, into whether gas prices have been affected by any antitrust violation or market manipulation by refiners, oil producers, transporters, marketers, physical or financial traders, or others.  Working Group members stand ready to act if the FTC learns anything that implicates the laws they enforce.

So in short, they’ve held meetings, talked about stuff, and are working on better “information sharing” (always a popular task for interagency task forces because you get to have new processes requiring new paperwork so you can justify new staff to handle the added work load). Oh yeah, the FTC is conducting an investigation. (Which has been known since at least last December and so far no results. More from McClatchy on the OGPFWG. A blogger at Think Progress is seriously disappointed in the administration’s lack of commitment to rooting out oil market manipulators.)

Like before, a shameful, pandering witch hunt in search of short-term political advantage. (And by the way, the GOP is no better in their beating of the political drums trying to pin high gasoline prices on the President’s failure to approve the Keystone XL pipeline and reductions of oil output from federal lands.)

Posted in Energy markets, Politics, Regulation | Tagged , , | 3 Comments »

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NYT Energy For Tomorrow Closing Plenary video

April 16, 2012

Lynne Kiesling

Last week the New York Times hosted a conference called “Energy For Tomorrow”, and they have made video from all of the sessions available; there are several sessions discussing energy efficiency, natural gas, renewables, etc. I watched the closing plenary on Friday, for which the topic was subsidies in any or all energy industries (sorry, WordPress and the embed code aren’t playing well together). Among the speakers it features Rice economist Amy Myers Jaffe  (to whom we have linked here before), as well as friend-of-Knowledge Problem Branko Terzic from Deloitte Consulting.

The discussion was good and very informative, raising many of the aspects of the pros and cons of subsidies depending on their form and how they are implemented. Naturally, much of the discussion addressed solar and the unintended (but easily anticipated) costs illustrated by Solyndra and by Spain, whether subsidies generate more overall net benefits than a carbon tax would, and whether subsidies should focus on driving down costs and getting to grid parity or on R&D. I’ll let you form your own conclusions on those topics.

I found that Amy Myers Jaffe’s comments were the closest to what I would have said if I were on the panel. She critiques the use of subsidies very effectively, and encourages an energy policy focus on “targeting the externality” and pricing it in the market. Branko’s comments highlight the political economy of subsidies and whether subsidies are hidden or in plain sight.

Recommended for easing into your Monday.

Posted in Economics, Electricity, Regulation | Tagged , , , | 1 Comment »

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Measuring success by how much you spent on the program: A renewable energy example

April 10, 2012

Michael Giberson

In general, in public policy analysis, you’d like to judge ultimate success or failure of a program by its net results, by actual benefits less the costs involved in achieving those benefits. Admittedly sometimes benefits are hard to measure, but ultimately the point of a policy change is to bring about some improvement in something somewhere. Ultimately it would be nice, once a program is done, to try to find and measure that improvement.

What we often get instead, however, is an attempt to infer a benefit based on the expenditures on the program: how much money was spent, how many people were employed, how many miles of ditches were dug, and so on. This is, more or less, what we see this week from the U.S. Department of Energy in the study it commissioned from the National Renewable Energy Lab on the impact of the Section 1603 Treasury Grant Program.

The Section 1603 grants were payments made to qualifying renewable power projects in lieu of those projects claiming the Investment Tax Credit or Production Tax Credit subsidies for which the projects would have otherwise qualified for. The NREL study looked at the $9.7 billion in program spending up through November 10, 2011; by the time the program ended it’s three-year run in December 31, 2011 over $11 billion in federal funds had be committed.

The DOE asked NREL to estimate the effects of the 1603 program on jobs and economic expenditures. In NREL’s report they explicitly state that their work is an estimate of “gross jobs, earnings, and economic output.” This means that they don’t consider any private sector crowding out, any disincentives from the taxation needed to support the program, any consequences from duplication of other government incentive programs, and so on. They simply treat the federal resources as if it were manna falling from the heavens, and the jobs, capital, and industries that became involved in building renewable power plants would have otherwise sat idle. (Note that I’m not criticizing NREL in performing just a piece of the overall analysis, they just did the work that DOE asked for and paid them to do.)

But note that this is primarily a study which just measures the expenses of the program and a part of what the expenditures bought. So, it is a partial study of the costs of the Section 1603 program, and not any kind of estimate of any of the benefits of the program.

Nonetheless, in the DOE press release accompanying publication of the study, they said the study found “the program has been a huge success.” How does it justify its claim of success? By noting how much was spent, how many people were employed, and how many things were subsidized by the program.

The DOE is not the only one to claim success. At Climate Progress, Stephen Lacey’s assessment is titled, “Grant Program Supported Up To 75,000 Wind And Solar Jobs: Congress Killed It Anyway.” Lacey’s post does mention some of the construction activity might have happened even without the grants, and he observes it estimates just the gross impact (and, by implication, doesn’t reflect any negative effects due to the crowding out of unsubsidized economic activity). But along the way Lacey keeps claiming the program was a success. How does he know? Well, he summarizes from the NREL report: the government spent a lot of money, hired a lot of people, and subsidized the purchase of a lot of things.

Great, but resources consumed is not a measure of success. Any fool can spend money, but spending it well can be a challenge. Is there any evidence in the NREL report that the money was well spent?

If the answer to that question is “no,” then we can’t conclude that the program was a success.

ADDITIONAL LINKS: Reactions to the NREL report from North American Windpower, Solar Industry magazine, and Clean Technica. Rep. Ed Markey (MA) cited the report in calling for Republicans to support “revisions to the tax code that level the playing field for clean energy.”

Posted in Energy markets, Environmental policy, Politics, Regulation | Tagged , , | 3 Comments »

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RTO forward capacity markets are unlikely to succeed

April 6, 2012

Michael Giberson

The Gulf Coast Power Association meetings earlier this week included a debate over the future of resource adequacy within the ERCOT power system. Debate moderator Eric Schubert, BP Energy Company, introduced the issue with a critique of capacity market structures that is heavy on its reliance on Hayek’s knowledge problem. It is a topic dear to our heart here at the Knowledge Problem blog, so I thought we’d share a bit of it.

Here’s Schubert:

Hayek’s “Knowledge Problem” and its optimal solution – decentralized commercial markets – provide the best lens for regulators to see the fundamental issue in electricity market design in response to rapid technological change and increasingly diverse groups of buyers and sellers. As the procurement and use of electricity cross a complexity threshold, as a few customer classes are transformed into a multitude of individual market participants, the electricity market design needs to move away from centralized planning to a decentralized procurement of resources, to be both sustainable and efficient.

… In trying to adapt the centralized forward capacity mechanism to changing market and technological conditions, regulators and RTOs play a never-ending game of “whack-a-mole” because they can never overcome the “Knowledge Problem.” Even worse, under centralized procurement or any type of explicit “top-down” procurement of new resources mandated by regulators, unintended consequences of centralized procurements arise at the speed of markets and are corrected at the speed of administrative law.

Both long-standing economic theory and recent economic practice suggest that centralized forward capacity mechanisms are very unlikely to succeed. If they fail, state and federal regulators in the US will be forced to choose between the two known solutions to the “Knowledge Problem”:

  • A return to full integrated resource planning conducted by regulators, or
  • A move to fully decentralized wholesale and retail markets where individual customers make their own choices.

… Integrated resource planning, however, solves the “Knowledge Problem” by suppressing it. Having regulators in charge of integrating 21st century technologies would prevent consumers, retailers, and other market participants from using their local knowledge and ingenuity to find the next killer app or great idea that would provide all of us cleaner, more efficient and thoughtful use of energy. Or put another way, would we even have I-Phones today if regulators had never broken up Ma Bell?

[The alternative approach is that] with the proper price signals, buyers and sellers in ERCOT’s energy-only market will procure and manage sufficient resources to meet their individual needs and preferences while keeping the market resource adequate. Such decentralization of decision-making is the most efficient solution to the “Knowledge Problem.” The challenge of this path, however, is keeping the lights on during the transition; none of us can fully understand at this moment how the integration of the new technologies will happen, and what new ways of doing business and managing electricity use will spontaneously emerge over time.

By the way, in that first ellipsis I excised a reference to and quote from a great paper by Kenneth Rose that takes a detailed look at RTO capacity market structures.

Schubert’s full introduction is publicly available on the GCPA website, but only for the next month or so. Get it while it’s hot (and available).

Posted in Electricity, Energy markets, Regulation | Tagged , , | Comments Off

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Net metering in Indiana sees exciting 50 percent growth

April 3, 2012

Michael Giberson

From the Indianapolis Star, “More Hoosiers reap benefits of generating their own electricity“:

[M]ore and more people around Indiana are starting to generate their own electricity, motivated by environmental concerns and feelings of energy independence.

The arrangement is known as “net metering,” allowing customers to offset part of their energy costs and feed the excess back to the utility for credit.

From 2010 to 2011, the number of Indiana customers taking part in net metering rose from 199 to 298 — a 50 percent increase, according to the Indiana Utility Regulatory Commission.

Sounds exciting, right? Okay, granted that in a state with about 2.6 million eligible retail electric customers, a move from  0.7 one-hundredths of one percent up to 1.2 one-hundredths of one percent of customers is not exactly a big deal.

The “big” jump in participation came mostly because the state allowed commercial and industrial customers to participate along with residential customers.

But at least a few customers are getting a great deal, right?

The system was expensive, about $30,000, or about as much as a new car. And so far, the savings are relatively modest, a few hundred dollars a year. So even with federal tax credits and a small grant from IPL, the system will take decades to pay for itself.

Decades to pay for itself, for a system with a projected lifespan of maybe two and a half  or three decades tops.

Posted in Electricity, Environmental policy, Regulation | Tagged , , | 2 Comments »

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