I live in California. That gives me a front seat to virtually every new initiative and trend related to saving the planet, whether it is about turtles and plastic straws, banning single-use plastic bags, electric vehicles, or green energy. Although not the first state to adopt a Renewable Portfolio Standard (RPS), California has been one of the most aggressive in its timetable for replacing fossil fuel based electricity with carbon-free. In 2018, California updated its RPS to the requirement to achieve 60% of electricity sales from renewable sources by 2030 and 100% by 2045. Of course, California’s aggressive push toward renewables has triggered a wide range of reactions. For example, Michael Shellenberger of Environmental Progress has been pushing the idea that California’s electricity rates are significantly higher than the rest of the US (see Figure 1) and rising significantly faster because of its dependence on renewables. His culprit is renewable energy and his solution is to keep nuclear plants open. In contrast, Roger Sowell, who blogs about renewable energy issues, argues that California’s unique climate, geography, and large population make such differences to be expected.
The data in Figure 1 appears to show that California rates are higher than US averages by between 2 cents and 4 cents per kWh, but this has been the case for at least 25 years. It’s impossible to identify any causation from raw prices, which is why I was very interested when the Energy Policy Institute at the University of Chicago released its “Working Paper: Do Renewable Portfolio Standards Deliver?” on April 22nd. The paper summarizes the impact of 12 years of experience with RPSs on renewables adoption, electricity price, and carbon emissions reductions. Based on a quick read of the summary, the report is a pretty damning characterization of such a renewable energy policy, particularly one which is being implemented by a wide range of US states. In particular, it appears to imply that the push toward renewables has dramatically increased electricity prices for average Americans and failed in its effort to cost effectively reduce carbon emissions. As a supporter of renewable energy, this troubled me, and I decided to dig more deeply into the paper to make sure I understood the issues. What I found troubled me even more than the initial summary – either the University of Chicago (of which I have high regard) erred in their conclusions, were selective in their data choices and analysis, or poorly presented their results. Or possibly a combination of all three.
To start, let me quote the online summary: “…Using the most comprehensive panel data set ever compiled on program characteristics and key outcomes, we compare states that did and did not adopt RPS policies, exploiting the substantial differences in timing of adoption. The estimates indicate that 7 years after passage of an RPS program…average retail electricity prices are 1.3 cents per kWh, or 11% higher…the comparable figures for 12 years after adoption are…a price increase of 2.0 cents per kWh or 17%. These cost estimates significantly exceed the marginal operational costs of renewables and likely reflect costs that renewables impose on the generation system, including those associated with their intermittency, higher transmission costs, and any stranded asset costs assigned to ratepayers.” (Note: I’ve removed some items for the sake of brevity to focus on the issue of cost to ratepayers.) In an attempt to understand how the researchers arrived at these conclusions, I downloaded the working paper, then read through and analyzed the full document.
Figure 2 is taken from the working report itself (labeled therein as Figure 2). From the report: “Figure 2 plots the number of RPS programs passed into law in each year…Figure 2 also plots real national average retail electricity prices (right y-axis) which declined from about 12 cents per kWh to 10 cents per kWh from 1990 through 2002 but by the end of the sample in 2015 returned to 12 cents per kWh.” Let me point out here that although the figure doesn’t state it, the report specifies these rates as “real”, i.e., after removing the impact of inflation. This is the only place in the entire 51-page document where any distinction is made between real and nominal electricity rates. The importance of this distinction can be seen in Figure 3, which plots EIA electricity rate data over a time period that encompasses the range of dates examined in the study. Here we see a similar pattern, but with somewhat less variability from a low of about 11 cents per kWh in the early 2000s to 12 cents in 2016. The EIA quotes “The average retail price of electricity in the United States has risen about 1.5% per year between 2006 and 2016, about the same as the 1.6% per year general rate of inflation over those years.” In any single year, the inflation rate has been as low as about -2% and as high as about +10% per year. Nowhere in the report does it indicate how this highly variable and critical factor was accounted for in their evaluation.
Now let’s look at Figure 4 (which is taken from the working report Figure A.2b) and forms the basis for the claim regarding electricity cost increase due to RPSs.
According to the notes from the figure “Blue lines show the point estimates and gray lines contain the 95% confidence interval.” I have four fundamental issues with this figure: 1) again, it is silent on the question of real vs nominal values; 2) in year 12 the point estimate appears to be 1 cent per kWh increase from time of passage, and there is no way to link the results to the summary which quoted an increase of 2 cents per kWh; 3) the 95% confidence bands range from a decrease of about 0.3 cents per KWh to an increase of about 2.3 cents, i.e., some scenarios in their model show a decrease in cost; and 4) the report makes no effort to explain the significant drop at the high bound that occurs from year 10 to year 12 and is not mirrored in the low bound.
Based on the information supplied, I would argue that the small increases supposedly identified, less than 1% per year, are lost within the noise of inflation. Back to California, Figure 5 (from Sowell) shows EIA rate data, both real and nominal (adjusted by the consumer price index (CPI) to 2014 values.
California’s rates increased nominally from about 13 cents per kWh in 2002 (first year of its RPS) to about 16 cents, whereas the real cost decreased from about 17 cents to 16 cents. Then throw in the complexity of the electrical generation and distribution system in California, the impacts of drought on hydro power generation, the cost of repairing infrastructure damaged by forest fires, the disruption of the traditional power utility business model from the adoption of rooftop solar, etc., and it seems hard to get excited about a possible 1 cent per kWh variation with no clear causation.
My conclusion is that the University of Chicago has presented an incomplete analysis based upon a limited set of data. However, let me give them the benefit of the doubt. Let’s say that their conclusions are spot-on, and that the adoption of RPSs has resulted in an increase in electricity costs to residents of those states. Let’s look at the two key drivers of that increase:
And, finally, if I step way back from the numbers and look at the big picture of global warming and climate change, I find it very hard to get concerned over a 2 cent per kWh increase in the average cost of electricity. Another venerable institution, the Massachusetts Institute of Technology (MIT), which has been on the forefront of investigation into climate change, has recently become much more negative on the chances that the world can dramatically reduce carbon emissions in time and cap the increase in global temperature to Paris Agreement levels. In fact, MIT researchers see strong evidence that the process of global warming has accelerated, and they are now promoting adapting to the new world that is coming. More extreme views are even using the phrase “climate apocalypse” to describe the impact on world civilization.
So, while I will continue to disagree with the University of Chicago’s conclusions until I see more details of their work, more importantly, I believe those results are meaningless in the larger context of global impact.
Guest blog by S. A. Shelley In the first blog of this series, I summarized the huge energy resources of Canada. In the second blog, I showed how most of those resources have been or are being squandered and how governments with good intentions, at times more often than naught, deliver bad outcomes. While statistically bad outcomes can be unintentional, in Canada a lot of bad outcomes are actually the deterministic result of government strategy. Coupled with the breakdown of the rule of law at the highest levels, Canada is in bad shape. That unfortunately is the very big ugly in Canada. Other factors resulting in Canada’s bad energy situation are the focused actions by small groups of well-funded opponents and the apathy by the populace who have been habituated to the sweet lucre of government largesse. Canadians are generally kind and polite people, but at the governing level, the plotting and duplicities surpass a Shakespearean tragedy. The Russians probably learn by watching what happens in Ottawa.
The biggest warning that I have is that the path that Canada is on will more likely lead to Canada becoming the next Venezuela – corrupt, ineffective and when in trouble, doubling down on failed collectivist ideas, instead of returning to integrity, order and prosperity.(more…)
Guest blog by Mr. R. U. Cirius: Here are some interesting and somewhat offbeat energy stories that haven’t gotten much media attention during the first three months of the year.
California wind turbines contribute to unprecedented wildflower outbreak
This year California has experienced what many are calling a “superbloom” of wildflowers that hasn’t been seen in decades (Fig. 1). While most attribute this to heavy winter rainfall following several years of drought, Dr. Marko Ramius from the National Wind Energy Laboratory (NWEL) has identified another contributor to the phenomenon – California’s ubiquitous wind turbines. Dr. Ramius has released his surprising findings that show the role of what he calls the “turbulence boundary interface”. This is the boundary of the turbulent mass of air downstream of the turbine’s rotor that generally hovers just off the ground. He has found that this boundary traps moisture close to the earth, which then enhances and prolongs the period of flower bloom. He is currently in discussion with major turbine manufacturers to incorporate blade tip misters into their designs that could provide moisture during drought periods and hopefully make such superblooms a more common occurrence.
Click here to learn more about wind energy.(more…)
Guest blog by S. A. Shelley In the previous blog about energy in Canada, I presented evidence that Canada has abundance of energy, ranging from hydrocarbon to existing renewable energy supplies. In essence, Canada has similar potential to Norway and even at a larger scale. Norway, like Canada, has been a prolific producer of oil and gas and continues to be so, but Norway is already in a position to be able to transition fully to renewable energy and has undertaken steps in that direction and to curtail fossil fuel consumption (see Independent.co.uk, and Fortune.com).
But where Norway has long term vision and broad social and political consensus, Canada has acrimony, mismanagement and corruption.(more…)
Guest blog by S. A. Shelley If there is a poster child in the world for energy wealth, it’s Canada. Folks are dumbfounded by what the Europeans are achieving with renewable energy and decarbonizing, folks quake at the vast untapped oil and gas reserves of Russia, and folks are stunned at how technology and finance combined to bring about the prolific U.S. tight oil and gas production which is upheaving world energy markets. Wow, eh?
Instead, folks should be looking at Canada, that half frozen land of log drivers, curlers and exporter of Hollywood A-listers, and be awestruck by the energy resources that have somehow fallen under the Dominion of Canada.(more…)
Guest blog by S. A. Shelley In my previous two blogs I have offered views on oil supply and the (macro) social changes that are resulting in a slowdown of growth in oil demand. In this blog, I’ll look at some of the technological (micro) factors that that will contribute further to a drop in demand. This combination of oversupply and drop in demand will have significant and far-reaching impacts on oil companies, petro-nations, and all the companies and people who are a part of the industry.(more…)
Guest blog by S. A. Shelley Surf into any news or finance website and one can find almost everyone commenting about oil demand (see Reuters, OilPrice.com). It can be contradictory and confusing at times, especially when variables are changed and data is parsed in a myriad of ways. I will try to clarify things by separately looking at societal changes (this blog) and then technological changes (next blog). But there is one thing that I have to make clear right away: Oil demand is not going to zero any time soon. The end of the oil age is nigh upon us, but not quite yet, though there are foreboding changes in society (this blog) and technology (next blog) that will affect oil demand in the most unpleasant manner for producers.(more…)
Guest blog by S. A. Shelley Many readers are probably wondering what is happening with oil prices, especially with all the efforts by OPEC+ to curtail supply and all the efforts by various trade groups and governments (e.g., Denmark and China) to affect demand. Every year in January, big companies (BP, EXXON) and big organizations (OPEC, EIA, IEA, OECD) release their energy reports. I don’t have quite the scale or resources that they do, but I try my best. Back in 2016, when I wrote about oil demand peak, I included a chart of a possible oil price path for the next few years (Fig. 1). I was under on the demand and supply a bit, and relied upon the 2016 futures prices to guide my price thinking, but I was damn near bang on with the timing of the most recent collapse of oil prices, Q3 of 2018.(more…)
Guest blog by S. A. Shelley Californians do not need big and very expensive offshore floating wind farms. In fact, nobody needs big and very expensive offshore floating wind farms. Fixed offshore wind farms started out very expensive, requiring significant government subsidies, but small. They have since matured to allow for big inexpensive offshore wind farms with no government subsidies of any kind. The latest fixed offshore wind farms are producing and supplying electricity to their grids at a cost competitive rate compared to the current supply, and this is a result of technological evolution, improved execution strategies and increasing turbine size (power output). However, floating offshore wind technology is still in the nascent, small and heavily subsidized phase of the technology lifecycle. Yet, for some reason, various consortia are pitching huge floating wind farms right off the bat to California. That’s a big problem and folks in California need to watch that they do not get forced to subsidize those projects.
By W. H. Luyties, editor OWOE. It seems that bashing Tesla is the favorite topic for the financial news media. Whether it’s a story about Tesla’s profitability, production woes, product quality, lack of a real market, impending competition from “real” automakers like Volkswagen, or the behavior of Elon Musk, the message is clear – Tesla is all hype with no substance and destined to fail. Apparently, the only question is when. In the present world of “fake news”, social media “bots”, and a news climate that only values the bad, how does a normal person wade through all the BS and make a good decision on what car to buy? Well, I have the answer…just go drive a Tesla Model 3. Until you have the experience of driving a Tesla, you won’t truly understand how it has changed the concept of an automobile.