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Comments by Alan Rominger Subscribe

On AC vs. DC Powerlines and the Electrical Grid

I've seen advocates for infrastructure investment in the US argue for burying power lines.  For a case in point, see:

http://www.youtube.com/watch?v=7QSUuHXGhjE

The argument goes that burried power lines are better for infrastructure security.  We all know that after every major hurricane, snow storm, etc the power company has to scramble around to fix the downed lines.  But this reason is distinct from the economic argument for long distance transmission.

You mentioned that over 40 miles for HVAC is impractical, but is this a function of the voltage?  Can local distribution through burried AC lines then be practial?  As far as I know, no one has advocated for DC distribution up to the substation or household level, and that would likely be unworkable anyway.  Does DC have any place in distribution, or is the discussion limited to large interconnects for the forseable future?  If not, would there always be some intermediate level voltages that are too local to be DC, but too high voltage to bury as AC, so then they would be impossible to bury with current technology?

April 8, 2013    View Comment    

On Subsidies for Nuclear Power: Is It Really A Tax?

It is said that decommissioning costs on the order of $300 million.  I don't see information readily available on how much utilities have in these funds, but going by anecdotal information, utilities believe that it will cost significantly less than what they've saved.  The fund is thus a means for return of shareholder value.  The incentive for the utility is to decommission for as low cost as possible, and whatever is left goes to their bottom line.  The fund inherently has to be an overshoot, because the point is to prove existence of sufficient funds.  Because they plan to get the money back, the operators don't mind packing away too much anyway.  I've also heard it said that there are many plants out there that don't look very profitable, but they actually are because the earnings are being delayed by stashing it in the fund.

I don't understand the 20% myself.  Our corporate tax rate is 35% for the highest bracket (above $13 M per year, which is tiny) and 15% for the lowest.  As we often hear, however, the effective tax rate is much lower, at around 13.4%.  I would imagine that the quoted tax rate on the decommissioning fund would act in place of the corporate tax rate, but I can't say for sure.  Even assuming I've interpreted that right, whether the utility could have obtained a lower tax rate by absorbing the money into their general fund would be an open question.

Even so, that would be small potatoes compared to the fact that the fund has requirements placed on it.  Since the goal is to satisfy the NRC that they have sufficient funds, it's sure to be in relatively safe and low-yield investments.  That's not good for shareholders, and is really the opposite of a subsidy, although it may be a reality of decommissioning needs.  In fact, the loss of return due to the requirements on the fund may form the argument for setting a special tax rate in the first place.

The main lesson I learned from industrial economics is that corporations basically bleed money.  Deferring gains until later almost always incurs an economic penalty, since the rate of return you need to justify investments internally to a corporation is much higher than what we normally think of from personal finance.  I think a part of the reason is that tax it has to incur to get from the corporate balance sheet to the investor's account.  Worse still, we don't even bother correcting depreciation for inflation.  That means the return from an investment must be vastly higher than a single calculation with single rate would suggest.  Nuclear plants, as very long term investments, have extremely unfavorable depreciation schemes, and faster depreciation is sometimes noted as a subsidy to various renewables.  In the big picture, there are many ways taxes disincentive nuclear investment, although the decommissioning fund may or may not be among these.

January 3, 2013    View Comment    

On Simplifying the Planetary Boundaries

I think there's a hazard in changing the discussion about climate change to just the heat balance.  Sure, we're concerned about more greenhouse gases than just CO2, but the reality is much more complicated that this.  We have emitted a very non-trivial amount of gases that actually cool the atmosphere:

http://en.wikipedia.org/w/index.php?title=File:Radiative-forcings.svg&page=1

The logic that we need to address the heat balance of the Earth leads directly to geoengineering.  Balancing the heat flows to pre-industrial levels is a compatitively trivial task compared to reducing emissions, but yet, this doesn't garner the same support from scientists (or anyone I talk to for that matter).  In fact, the people doing the research on geoengineering are largely doing it for the purpose of motivating nations to commit to emissions reductions.

If we speak of the scenario where we accept geoengineering, the effects of extra CO2 is likely to have major effects on biodiversity in the oceans in particular.  In the grand scheme of things, our current problem with heat balance may prove to be a very small detail in a much larger story.

November 5, 2012    View Comment    

On Future Direction of Oil Prices May See a Major Shift

Isn't it a little wrong to present a graph of crude oil demand?

It seems to me that the prefered economic model would be where consumers will consume some given number of barrels per year and a certain price level and that producers will produce some given number of barrels per year at that price level.  In the most correct way of speaking regarding economics, both the demand and consumption (minus storage effects) are exactly equal and determined by the price signal.

Now, some have people have tried to model demand with different time components.  The Oil Drum, for one, comes to mind where someone had actually tried to fit a semiemperical model of demand with a number of time constants that adjust to the price level at different rates.  This makes sense because there are both short-term and long-term decisions that will affect the rate of oil consumption of any customer or business.  You could look at specifically long-term components (more structural changes) to demand and formalize some consumption rate that best represents a psuedo-demand, but no such thing is done here.

Is anything really known about what the "demand" number in graphs like these are showing?  Do we have any reason to take such a metric seriously in the absense of further specification?

June 12, 2012    View Comment    

On Commodity risks – how energy suppliers manage them can make a big difference

This is a very major issue in my mind.  If we are facing impending insufficency of supply for several energy commodities, then from an instutitional standpoint, the problem can be mitigated through the financial instruments available, which is a fact that almost everyone ignores when making arguments about the choices of energy technology (just look at the current Energy Collective front page).  For instance, arguing that prices of natural gas will go up is not a valid argument against building a natural gas plant, at least for a 10 year time frame.  The reason is that you can hedge the purchases over that entire time frame.  Nationally or globally, in a discussion of energy policy and our general wellbeing, the future volitility of prices is a valid point, but when the ability to hedge those future prices exists for a specific facility, it's really not a valid argument.

I was very surprised by these arguments when I was reading Oil 101, as it was argued (by the commodities trader who wrote the book) that corprate management has a responsibility to manage their exposure to commodity prices in the future through the futures market.  I have a particular hesitation with the argument on the corpration level.  If you are an airline company, for instance, people trade your stock based on the assumption that you effectively have a short position on the future price of oil.  If an airline company were to fully hedge against future price changes in jet fuel, then trading strategies built on the assumption that they don't have this hedging will then be undermined.  If a stock holder wanted to minimize their exposure to future jet fuel prices they would either not buy airline stock or hedge against it themselves.  Now, I might be one of the few people who hold this perspective, but I'm really not sure because I don't hear people talk about this often.

 


As a technical note, you wrote:

"You can access the CCRO paper for a fee here. There you will also find perspectives on energy risk management from companies such as PPL and NRG Energy and consultants such as PWC."

When I tried to download what I thought was looked like the right paper I got this message:

"Document not available right now. It is currently being approved for final publication. If you are a CCRO member, please login at the top of the page. Otherwise, check back here for lastest information."

April 20, 2012    View Comment    

On The EPA's coal mandate: An opportunity for nuclear, a giveaway for natural gas

True that, as stated, the regulation seems incomplete.  One would also think there would be a more elegant way to draft this legislation than to make such a cutoff.  The cutoff isn't arbitrary but it doesn't take into account the other factors about the purpose of the units.  As a case for grid reliability, a OCGT can't really be argued with provided there is a need for it.  I don't think we have any other good options for 5% capacity units.  I think most energy storage (like pumped hydro) still comes in at $1,000s / kW installed, which would demand a rather high capacity factor, or else we'll be paying an extravagant amount for planning for the low probability moments of super high demand.

April 2, 2012    View Comment    

On The EPA's coal mandate: An opportunity for nuclear, a giveaway for natural gas

Wait, I read the EPA number wrong.  They gave 1000 lb/MWh, compared to the g/kWh I was using.


That translates to 453 g/kWh.  I like these units since it's what the discussion about global warming on a international scale uses, although it doesn't matter.

But let me take back what I just wrote (and hopefully they'll approve both these comments).  No, you can't build simple combustion turbine gas plants.  Sorry.

March 29, 2012    View Comment    

On The EPA's coal mandate: An opportunity for nuclear, a giveaway for natural gas

That is a good question!  I tried to look up numbers for this, and I think the answer is "no", and I think this topic might deserve its own post sometime.

Your heat rate for a coal plant sounds extremely good.  I imagine this could be attainable for a new IGCC plant, and I'm guessing that's what you meant.  It should be noted that such a plant would pass the current EPA rule being discussed.  I'm not sure the exact validity of these numbers, but I'm going to add the CO2 intensity by fuel.

  • Bituminous coal: 0.0924 g CO2 / Btu
  • NG: 0.053 g CO2 / Btu

I don't know for sure, but I think these numbers should be invariant of the plant type.  There is the reality that much of the fuel is unburnt, but that's the combustion physics/chemistry that I never formally studied myself.


Multiply these numbers with the numbers you posted and you find that all of them come in under 1000 g CO2 / kWh.  The only thing that is at real risk of not meeting the requirement are advanced coal plants like pulverized coal plants that are not quite as good as IGCC.


NG CT still comes in at less than 600 g CO2 / kWh, and this makes pretty good intuitive sense.  So build away according to the EPA.

March 29, 2012    View Comment    

On Tom Friedman’s False Narrative On Oil Dependence

I think this matters for more reasons than what are mentioned in the article.


I don't really see mentions of security.  Although you can build an economy that relies on imports for 100% of their energy consumption, that gives you full exposure to future price changes.  The inelasticity of energy consumption is a seriously concerning issue.  It's difficult for the economy to maintain GDP at constant levels with energy consumption falling by a significant fraction.  Japan is undergoing this experiment right now.  By the summer it may be forced to meet electricity demand without contributions from any nuclear plants whatsoever.  That will result in the need for conservation measures and a reduction in the total energy being used.  Will they produce as much as last year or the year before when they had considerably higher availability of their nuclear plants?  This is testable, and the answer will probably be "no".  Their export-driven model is already struggling.

Ultimately, an energy importer only makes money based on the difference between the raw material cost and the product.  The United States is currently engaged in a (relatively quiet) debate about how much natural gas export infrastructure the government will allow to be built.  If the location premium dictates that energy costs are dramatically lower in energy producing locations, that premium can collapse the margins in places like Taiwan.  That is extrordinarily bad for the Japan, Taiwan, and South Korea economic model.

We are going to transition away from oil to other resources.  This, again, is disasterous for energy importing nations because compared to other enegy commodities, oil is very fungible - probably the most fungible.  Freidman is right that the energy importer economic model has worked so far.  But titanic shifts in worldwide energy markets could crater those economies.  I'm not talking about a small hit, I'm talking about a devistating blow.  That's what I worry about.

March 19, 2012    View Comment    

On New Data: Nuclear Down, Carbon Intensity Up in Japan

I didn't take time to read this entire post, but I just want to post an image I made and blogged about in comparision to the overall Carbon-intensity graph here.

Nuclear generation

Your image:

You know, sometimes graphs are so illustrative that they leave almost nothing else to say.  Find March 11 on both of those graphs... and the story is clear.

February 15, 2012    View Comment    

On Universities Become Natural Leaders In Renewable Energy

This is some exciting subject matter, I'm considering doing a blog post about it myself.

Universities have started to become very savvy to the sustainabiity rhetoric, which I think is in large part due to the fact that so many people excited about sustainability are already naturally around those communities.

NC State itself recently put out a large deal of media pertaining to their cogeneration plant, and I want to blog about that in particular.  It's a 5 MW plant with cogeneration capabilities, although in many cases it's devoting the majority of its combustion to direct heating with a smaller fraction going to electricity production.  There's more than just 1 facility, and I think there's a big picture to be put together from it all.

February 15, 2012    View Comment    

On The End of Natural Gas Price Volatility?

To the extent that we look at contract prices, I don't think any commodity can be said to have short-term volatility.

Just like with electricity, a flat price paid by a customer does not indicate that the price of providing that supply is anything close to constant.  But to address the point that we have the ability to hedge prices, I agree completely.   The potential price movements can be irrelevant.  If I'm looking to invest in a chemical plant that buys NG and I can enter into sufficient contracts to supply the entire lifetime of the facility right now, then the future price of NG is actually completely irrelevant.  That's why it's important to have a thick futures market for the purposes of planning and price realiziation.

February 13, 2012    View Comment