Trashing of QE – Plug In Energy Wasted? – Mechanism to choose power providers
A very poignant article by Citi supports my underlying thesis that QE will not be effective enough to outweigh the long-term implications. In summary the article highlights the adaption of people. The reduction of yield creates multiple choices, not a single choice of investment. Case in point is the VIG ETF, those stocks with high dividend are being rewarded as they have been seen as the “new” investment vehicle relative to the treasury.
As noted in the article; “It seems that the market is sending clear signals to companies “if you want your shares to outperform then distribute, don’t invest.” I would also add the traditionally larger and stable stocks are given an extra “safety net” as one could consider them too big to fail and we have seen what the government does for those types of investments. My own investment habits have changed and I am to be a “proud” owner of VIG as I just can’t have my money “SAFE” earning less than 1% in the bank. Also not noted in the article is the explosion MLP traded stocks. These stocks are forced to distribute earnings and investors are diversifying their portfolio with this type of stock as they give you significant yield.
QE is borrowing from the future growth. In some sort of selfish way one could justify it, assuming it was producing enough bang for the buck to reduce the near term misery in order for the future to have growth. However, I believe time will show that it will not be worth it.
On a lighter subject matter I came across this article largely from a tweet indicating “wasted” plug in power. What I found fascinating is the number one plug-in was aquariums. I consider myself an aquarist. At one time I had almost 10 aquariums active in my house with a large 75 gallon salt water tank. I had to get rid of most of them as I have become very busy. The “wasted” statement really struck me. To put the connotation of waste on using energy to have an aquarium is questioning discretionary entertainment.
Many would consider driving to a theater – whether movie or play – a waste of energy and money. In addition in the grand scheme of things in order to have something that entertains you year round, the energy portion of the bill is around $250 a year (2190kwh *0.15-0.10 $/kwh). A true aquarist would tell you the energy portion represents a very small part of your cost structure. They also note the high consumption of video game consoles XBOX and PS3. Of course the footnote on those are assuming you left them on 24X7. If we assume a more reasonable level of half that time we are looking at entertainment cost of less than $80/year. This amounts to much less than a weekly trip to Starbucks. I do agree with their one conclusion “Individually, the energy-savings opportunities of any given single plug load tend to be relatively small; only in aggregate do efficiency gains really start to make a difference.”
My other conclusion from the report is to highlight the value of electricity and how it has allowed entertainment to drift to the household in a very cost effective manner. Before we had to drive and gather significant funds to go to the arcade, zoo, aquariums, or theater now we can do much more in the comfort of your own home. Those wanting the quickest solution to being less “wasteful” need to think about increasing the cost of power. Based on my years of experiencing forecasting load for all parts of the country, electricity is one product which can buck the trend of economic growth, but at certain price levels people will change their behavior.
Last but not least, this relates to a recent job I did for my client. I had a client who was a relatively large energy consumer. I structured a quite competitive RFP for his energy load and saved them millions a year. Alternatively they could have gone to broker and had them help them. However the broker would have made the deal with his incentive tied to the provider plus have taken a much larger share of the savings. Case in point is this article describing the Belleville city aggregation which they later approved. I believe the statement made by the “consultant” is misleading –“ Good Energy does not charge the city for its services, McMorris said. The company’s consultant fees are factored into suppliers’ bids. “Our company is on your side… We are negotiating for you with the energy supply company,” McMorris said.”
Based on the statements, the “consultant” gets nothing unless the deal goes through. They are not acting as consultants, but I consider them aggregators/brokers. A real consultant will tell you the best decision for you AND not be incentivized to make you do something versus status quo. This is the position I have taken. I am trying to engage people and help them evaluate their energy planning decisions. And I want no part in getting compensation from the entity that has the greatest stake in making you change. Shopping your load is smart but you got to do it and to understand all the issues. If you are thinking about shopping your load AND you have significant quantities of load, please give me a call and I could save you millions – 614-356-0484.
I had a great year and have much to give, thanks to Thanksgiving. As always please do keep All Energy Consulting in mind for all your energy consulting needs – from market outlooks, to training , to engineering issues, and to energy planning.
Happy Holidays from Your Energy Consultant,
Road Tax (Electric Vehicle Issue), De-regulation (Natural Gas), & Gasoline prices
Given my fortunate position of being so busy that I can’t blog as much as I want; I am trying a new format for blogging. “Quick” summaries of blogworthy articles.
I have been telling people to look, re-examine the economics for non-traditional gasoline/diesel vehicles and make sure it includes some sort of recovery for the loss of tax revenue. Many show the calculation for comparing electric vehicles, assuming the gain from tax revenues will be there forever. I am surprised it is coming to the forefront this early with penetration of alternative vehicles still in the low single digits. Article on electric and hybrid vehicles draining dollars from road tax
My neighbors always ask about who they should choose for their energy provider. In many markets, the ability to choose a provider for natural gas and electric generation is now available. The system is still not fully de-regulated given the providers still have regulated rates of distribution which will be paid to the incumbent utility, commonly called non-by-passable cost/rates/riders. In theory, the open choice concept will reduce the inefficiencies in a regulated company by offering a form of competition. By doing so the consumer in the long run should save.
However, like most things involving customer decisions, it is more complicated than that. Many things influence the decision of the consumer and as the article alludes to the key thing is knowledge. Knowledge is not just information but the ability to understand the information to make informed decision. The consumer has significant amount of information available to them via the internet. I would suspect information is not the issue, it is the consumer who does not have the ability to really convert the information to knowledge, particularly given their decision will only impact them less than their monthly cell phone bill.
As I point out to my neighbors, I don’t have time to analyze each of their choice for them, but I do suggest not doing anything about their gas bill. Why would I do that? Natural gas really offers no competition in order to weed out inefficiencies that a utility may build up. In electricity, there are many opportunities to make inefficient decision making. An example of poor decisions is building a coal plant assuming natural gas prices will be greater than $8/mmbtu. Natural gas is natural gas. Commodity risk is limited through hedges. The pipeline and delivery cost has to be recovered through the regulated rate portion which all providers must pay. The ability for the gas utility to make a poor capital allocation is limited compared to electricity. Alternatively a provider in natural gas can only give you so much of their margin before they are equal to the competing regulated utility. Article demonstrating natural gas choice as a failure for the consumer
Word of caution for the administration – don’t take credit for the lower gasoline prices. Each year around this time the administration takes a look at the gasoline prices and starts taking credit for lower prices. However the market is seasonal; prices typically always come off in the fall and into the winter time period when people drive less! Article falling gasoline prices
We positively and evocatively challenge the current thinking involving any aspect of energy use. We look for projects that offer meaningful, transformative, with impactful outcome to the marketplace or society. Please consider and contact All Energy Consulting for your consulting needs.
Your Energy Consultant,
614-356-0484
Positive Externalities Exist
Ed Dolan recently posted on his blog: “Why do we Need Government to Tell Business to be Energy Efficient?” .
Of course, I wouldn’t blog about it if there wasn’t something I could highlight. Thanks Ed for the inspiration to write something – I have had bloggers block. The first issue to comment on is the following:
“…stopping government subsidies that make the prices of some inputs artificially low. For example, without subsidies to corn farmers and ethanol blenders, we would use less corn ethanol in our automotive fuel. According to most studies I have seen, less ethanol would mean a more efficient fuel mix.”
The thing here is that Ed is not relating the context of why the subsidies in ethanol must occur. Clearly every action is not about efficiency or even energy itself. It is a balancing mechanism – though not the best – for the subsidies that occur in several middle east countries for petroleum. In those countries their citizens are paying a fraction of the world market prices. As Ed should know those areas are also seeing one of the largest growths in petroleum demand. We have seen an unprecedented price rise in petroleum prices in such short time period. The cure for high prices has been high prices. However if the areas observing the greatest growth for petroleum do not see the high price signal then the responsibility for the demand destruction lies on economies like the US. Our continued purchases of the high prices support/subsidizes them. Without stronger trade restrictions, a subsidy on what we produce the most and what the rest of the world needs makes sense; in this case it is corn. In essence the US is swapping food for oil to balance out the trade and price discrepancy issue. It is not perfect, but until we come up with a better way, I wouldn’t want it to go away.
“…fixing government policies that allow businesses to take resources without paying for them. Promarket economists like my early mentor Murray Rothbard have long argued that pollution is a form of “taking” via uncompensated harm to other people and their property. That means harm to people and property owners who live downstream or downwind from a specific factory or power plant, and in the case of some pollutants, it means harms that are felt even more widely, even globally….Look at it this way: A business owner is like a dog owner. Just as the burden of cleaning up the dog’s poop is the owner’s responsibility and becomes part of the cost of owning a dog, the harm that pollution does to downwind residents and property owners is a both a moral and an economic responsibility of the businesses”
This thinking has become very common – the values of externalities need to be incorporated into the price of energy. However most people assume externalities are only negative value. I will agree there are negative values for downstream/downwind people who are not directly consuming the energy – e.g. particulate matter. However even the downstream/downwind people are seeing positive value ,even though they are not directly consuming or paying for energy. What are those values?
Societal stability through economic prosperity. As complicated as tracking negative externalities, there is a complex web for tracking positive externalities. I will state a few potential examples. Because the upwind region has local energy to consume, though potentially polluting to downwind. Their ability to use the local resource limits the population from migrating downwind and potentially causing instability through crime, disruption of supply/demand of other resources, etc… Also there is value that the upwind region is consuming a source of energy. If they did not consume the local source of energy they may demand the source that the downwind region is using. This will likely cause economic harm to the downwind region particularly if the upwind region has more capability to buy the resource. There are numerous examples I could come up with among the numerous examples discussed for negative value externalities.
The value for the negative externalities is as real as those of the positive externalities. And how to value each of them is complicated. The dog poop example Ed brings up really doesn’t work unless you add more reality to the situation. The caveat could be: by allowing the dog owner to have the dog, you are reducing your chance, the owner would be a grumpy and potentially go postal on you one day. Therefore potentially an occasional poop missed is worth the trade-off on not allowing him to have a dog because he doesn’t always clean up. There is some level of pollution that balances the trade-off. What that balance is becomes very variable and will depend on the situation and societal choices. Ed does note at the end:
“to safeguard the integrity of energy pricing we can use government fines, or pollution charges, or taxes, or whatever you want to call them. So much per ton of SO2, so much per ton of carbon and so on. Yes, in some philosophical sense, that is a second best, a less elegant solution than one that internalizes all pollution costs through voluntary contracts and the enforcement of property rights. Yes, it is hard to get the prices just right. But I see it as the best hope we have for making our planet cleaner, healthier, more sustainable and–importantly–more efficient.”
However society needs to know all the facts not just the negative side of things. In Ed’s article, he did not balance the negative externalities with the positive externalities. How will the price ever be close to being “right” if we don’t have a comprehensive dialogue’s of both the pros and cons?
I take pride in making sure I take a 360 perspective. One always needs to challenge one’s own thinking to make sure all bases are covered. If you are looking for an unbiased well-rounded perspective on energy issues please, consider contacting All Energy Consulting.
Your Energy Consultant,
614-356-0484
Southern’s Georgia Power Advanced Solar Initiative (“GPASI”)
Southern’s Georgia Power Advanced Solar Initiative (“GPASI”) has been making headway among the renewable press with much praise. However, as we all need to recognize the devil is in the detail and depending on your perspective; this may or may not achieve what you desire. I know many people do not have time and we depend on our journalists. However, every now and then, one needs to check on the thoroughness of the journalists. I went ahead and downloaded the complete filing.
Southern has done a fine job getting ahead of the mandate. In fact, this is what most utilities should strive for. In essence they have pre-crafted the legislation in a more intelligent way than any lobbyist or legislature could have done. The have covered the basics of dealing with cost, the associated fees of solar, taken care of performance concerns, and made it clear how they plan to recover their cost.
Key statements: “We do not intend to build or own solar facilities as part of this GPASI program…. Georgia Power will earn no profit or return.”
These are noble statements from the local utility. In order to make such bold statement, they must be anticipating the volumes not to be worthy of a return. However it is a large enough cost threat that it would be nice to guarantee cost recovery. In this area Georgia Power did a great job outlining the cost and hassle of solar power and making sure the responsibility and the cost will be borne by the developers.
Cost Capping
Key statement: “Each RFP will require bidders to bid a “not to exceed” price of 12 cents per kWh, the calculation of which will include a capacity benefit that will be benchmarked to current market pricing obtained in the 2015 RFP in Docket No. 34218” “Under the Small-Scale option, purchases will be for a fixed energy amount at a levelized solar price of 13 cents per kWh for a term of twenty years”.
They have set a price cap for the solar. I believe this figure will be hard to meet. By getting this level approved ahead of time, they won’t have to deal with projects being forced to reduce their cost structures.
Ancillary Cost (Headaches of solar)
Key statements: “…bidders will be required to pay a fee of $0.25 per kW bid to participate in the RFP to help defray the program costs.” “Bidders will be responsible for the cost of all metering to be installed, owned, operated and maintained by Georgia Power and would be required to provide performance security”. “Costs to interconnect will be provided to the bidder and are the responsibility of the bidder.” “Each bidder is required to make separate applications to interconnect to the distribution or transmission system. Participation in the RFP does not initiate interconnection activities.” “Georgia Power will make it clear to every bidder that the bidder is solely responsible for ensuring the technical, regulatory and financial viability of its project.” “The Company will install metering for the Participant’s solar facility. The Participant will enter into a contract with the Company to cover all incremental metering (e.g. poly-phase meters, trans sockets, dual-gang sockets, etc.) and interconnection costs. Additionally, the Participant must pay the monthly metering cost for the facility.”
All the statements above deal with the headaches of a solar mandate. They are attempting to stop the developers using a shotgun approach by charging a fee to participate in the RFP. All the nuisance costs of installation will all be on the developer including the meters and interconnections.
Performance
Key statement: “If Participant’s monthly capacity factor is less than 10 percent, Participant must make necessary adjustments or repairs to improve the monthly capacity factor to greater than or equal to 10 percent. If the monthly capacity factor for any four months within a calendar year is less than 10 percent, the Company has the right to terminate this agreement.
“If the capacity factor is greater than 20 percent, the Company has the right to inspect the facility to ensure its applicability. Due to the limitations of current solar photovoltaic technology, if the monthly capacity factor is greater than 20 percent in a second month, the Company may ask the Participant to explain the greater than 20 percent capacity factor. If the reason does not justify a capacity factor greater than 20 percent in the Company’s reasonable discretion, the Company may consider the resource to be in default and has the right to terminate the agreement.”
Solar performance and any lack of consistency is now the responsibility of the developer. They are essentially forcing them to perform the needed maintenance (window washing). In addition they are dealing, ahead of time, with some of the shady business practices like running other generation through the meter.
Recovery Method
Key statement: “Payments for energy purchased through this program are a recoverable fuel cost of the Company”.
This makes it clear how they plan to recover the cost. It will be on the fuel cost component. This is a very crucial point because most of the plans developed by legislature do not make that part clear.
In the end, I expect everything outlined would reduce the amount of solar that would have been done if it was legislated. Now that ALL the cost and fees of connecting and operating solar is to be paid by the developers, it will be hard to produce significant volumes within their price caps. So for those pro-renewables folks, I suspect they might not be too happy. For the utilities around the country, this is a great starting point to make sure all the headaches around solar are not yours and there is a clear cut method of recovering your cost.
I have many years of experience in evaluating various technologies, planning, and developing an integrated resource plan. If you are looking for some insights or additional points of view into future technologies or power markets, please consider contacting All Energy Consulting.
Your Energy Consultant,
614-356-0484
Surveys Can Easily Be Used to Mislead the Public
A new survey hitting the public that is not related to the presidential election. It focuses on the low-income group as it relates to Smart Grid initiative. This survey done by the Smart Grid Consumer Collaborative (SGCC) is purported to support continued Smart Grid investments since the low-income survey “demonstrated” value and interest from them. The SGCC is made up of the various participants that have much to gain from the Smart Grid initiatives. I am in no way suggesting a group of participants cannot gain and have the best in mind for society. There are several parts of the Smart Grid which make sound and practical sense. However, this article is not focused on that issue, but the fact misleading survey and reporting by media can produce false evidence to support unsubstantiated claims.
If you take the time to download the survey it shows the numbers of respondents and goes through the report quite well. However I immediately paused on page 12. Out of the 1001 which surveyed in the low-income group, only 150 had a clue what Smart Grid was about. Only 220 had a clue on Smart Meters. However when you start looking at the questions in regards to Smart Grid and Smart Meters ,they had more respondents than the numbers above. Case in point, page 15 shows the favorability of Smart Grid and Smart Meters. The responses for this question amounted to 371 and 423.
Are we to assume and take note of 221 (60% of response) and 203 (48% of response) who are self-admitted clueless from this subject for the respective category? Now perhaps there was some form of education after admitting their cluelessness. if so, the report should have told us what education was provided.. I certainly would like to know SGCC explanation of smart grid and meters to a clueless low-income group. Did they really discuss all the pros and cons for them? Did they discuss the meter cost will be the same whether you are in 5000+sq ft mansion or 300 sq ft shack? Did they discuss those who used more energy will save more – similar argument with tax cuts – those who pay more taxes will likely get more of the benefit in a tax cut? Did they really have the time to inform the clueless to get them to produce a legitimate response?
I really couldn’t absorb all the conclusions the group and many of the media are expounding from this survey. Once I saw the amount of clueless people, which is understandable since many of them are just trying to get by and have many other more important issues; it just didn’t seem to make sense to draw conclusions from the responses.In my opinion, they would have done a better job of the survey to only show the 150 and 220 answers rather than continuing to show the clueless responses.
Surveys need to be carefully designed and administered. The processing of the results should also be well thought out. If you are looking for some insights and or additional points of view into the future technologies and/or power markets, please consider contacting All Energy Consulting.
Your Energy Consultant,
614-356-0484
Solar Tax Breaks – if it were only that simple
Solar tax breaks is the big talk in some parts of the country. A new report published by the US Partnership for Renewable Finance (US PREF), a program of the American Council On Renewable Energy (ACORE), highlights, the extent of campaigning to promote subsidization of the industry. The analysis leaves much room for skepticism and criticism. Before I delve into the depths and details of the report, it would be easy and clean to simply say giving a tax break promotes more tax revenue – trickle down economics. The basis of their analysis is based on trickle down economics which many have justifiably become distrusting given the economic condition of the US with the significant tax breaks over the past decades. The theory is: in lieu of the tax credit, the company would not exist therefore no tax revenue will come from the company. And the theory goes on to say the on-going tax revenue will make up for the initial loss. You can note I did not have to specify an industry. This logic could apply to about everything. The positives about solar versus other industry is possibly it is the gift that keeps on giving via clean energy. There are certainly externalities that exist beyond the product itself.
However the world/US is not that simple to conclude giving tax breaks pays off – particularly when you are running deficits. In affect a credit to any industry in the time the country is running a deficit is certainly at least valued at the interest cost to society. Currently we are fixing our interest rate through monetary policy so the rate is quite low. Secondly the opportunity cost to produce more debt for future growth has a full range of items e.g. autos, homes, roads, etc… Will someone develop a capital allocation model to identify the top 10 investment that would be best for the economy? Personally I don’t know if solar would be in that list in terms of returns for the next 10 years. In the PREF analysis they do show positive returns (though skeptical on results), but I am sure many other industries would tout the same thing if given the chance. Thirdly, the government policies that encourage certain outcomes are typically design and sold as social just expenses – not requiring full economic principles e.g. welfare, tax on cigarettes, home ownership etc… Perhaps we could categorize solar/renewable policies as a social just expense. It would certainly merit it in terms of cleaner energy and potentially long-term value if something were to happen to fossil fuel supply.
If we were a country without much opportunity for other forms of energy I would see it easily being a top 10 investment. However the US is the land of the bountiful not only in land, but food and energy. We are led to believe we are short on energy. This is not the case. We have chosen to limit the amount of domestic energy use by creating national parks and restricting drilling. These choices are worthwhile choices given the ability to let others pillage their resources at prices which we deem too low to think about pillaging our lands. In addition, because of the abundance and relatively cheap cost of energy, we consume more than we “need”. I am sure if push comes to shove we can consume much less without much change in our happiness. This abundance of energy does put into question the motivation and the desire to advance solar for the benefit for other countries not blessed with our resources. On a global warming basis I certainly can see the value. But as I pointed out in my other articles , society is not ready to plan for the long-term.
In terms of the paper itself, they left out many economic and mathematical concerns. Here are my litanies of concerns: Why no discount rate? At the very least should not be the value of interest? On a nominal basis many investments will payoff in 30 year. Another reason to do it on a real basis is they have energy price escalators all in the realm of inflation. The study basis on generating revenue lies on the premise creating a leasing deal promotes a good tax policy since the leaseholder is seeing taxable revenue. With this logic, the government should promote all types of leasing – why not give tax credits to lease cars. The Excel file shows the assumption that PPA will be signed not only on premium price relative to current market conditions, but the utility would continue to pay additional cost each year via an escalator. Most solar PPA deals I have seen are at fixed cost. Solar does have a fixed cost component (land management, solar cleaning, inverter repair/replace) which will occur over the 30 year period and is missing in their economics.
Let me leave you saying I agree that promotion of solar could produce a long-term value for society. I don’t have all the answers, but I don’t shy from the tough questions. However the article and many people involved in these issues are not talking about all the facts and concerns to make a decision for the best of society for the long haul. Without a complete discussion of the pros and cons, people end up cherry picking information to support their own internal biases which in most cases supports ones self-interest regardless of society value.
I have many years of experience in evaluating various technologies, planning, and developing an integrated resource plan. If you are looking for some insights and or additional points of view into the future technologies and/or power markets please consider contacting All Energy Consulting.
Your Energy Consultant,
614-356-0484
