Tuesday, August 19, 2008

Grove's plan

Now I've read Andy Grove's plan (at The American, or via Wired) to fix our energy dependence national security mess. Mr. Grove thinks, as I do, that national security is the most immediate problem we face.

There are flaws in both Grove's and Pickens' plans, but we can take good ideas from both and act on them immediately.

There are two steps to either plan:
  1. Switch our vehicles to a non-petroleum energy form
  2. Make that energy domestically
With Pickens' plan, we switch to natural gas to power cars (step 1), and simultaneously free up domestic methane production by building wind turbines (step 2). If we do step 1 without step 2, we end up switching from imported petroleum to imported natural gas, which suits Pickens quite well because he has lots of gas to sell us.

With Grove's plan, if we do step 1 without step 2, we've got a bunch of electric cars which will plug in at night. The extra demand at night will drive utilities to produce more baseload power -- coal, wind, or nuclear, in that order, all of which is domestic. The advantage of Grove's plan is that step 2 is handled by the market.

The problem with Grove's plan is that converting cars and trucks to electricity instead of natural gas is more costly. The added cost will cripple the plan in two ways:
  1. It is so much more costly that the conversion will happen more slowly. Per year, less petroleum imports will be displaced.
  2. Fewer vehicles, in the end, will be converted.
I think there are good ideas in both these plans that we should isolate and exploit immediately.

There are no forseeable battery technologies that will work on long distance trucks. The obvious substitution here is to move long distance freight by electrified train. We already have most of the rail infrastructure (rights of way are the big issue here), and the nation is already switching some cargoes back to rail. But railroads have been sick for a long time, and we have to fix them before they can help America.

Rail's crushing disadvantage compared to trucking is it's capital structure -- the fact that the same companies own the road and the trucks. Long distance trucking works because multiple companies run trucks over the same routes, which are owned and paid for by the U.S. government via tolls on the trucks and taxes on the diesel they burn. We should change rail to use this structure. The rail infrastructure should be electrified in the process, so that the independent trains can choose to run on cheaper domestically produced electricity where it is available. All the technology necessary is already developed and in production.

The good idea in Pickens' plan is to build lots (many tens of thousands) of wind turbines. Wind turbines displace imported natural gas with domestic labor, and that is the most useful part of his plan. If you then convert cars to run on natural gas rather than petroleum, you in turn displace some imported petroleum with some imported natural gas. This second step is a fine thing too, as petroleum costs more than natural gas per unit energy, but the first step is what is most important.

The United States made a terrible mistake during the 1990s by building nearly a terawatt of natural gas-fired turbines. The choice was driven by utilities who know that fuel costs can always be passed to the consumer, so that cheap gas turbines minimized investment and so maximized return on investment. The problem here is that utilities were allowed to make investments with large externalized costs. Market forces do not work to the advantage of most citizens unless the market is set up to internalize the costs that matter to the citizens. Because utilities have no sons and daughters to send to war, they cannot be allowed to make investment decisions that force us to send our sons and daughters to war.

Electric freight trains and wind turbines will not fix America's imported energy problem. Both, however, can be pursued immediately, are solid steps in the right direction that will not have to be reversed, and will make market-affecting changes in our consumption of imported energy. Both options will buy us some time during which we must develop better options.

In the medium term, we can build more nuclear power plants. These take longer than wind turbines to come on line, but the eventual impact can be much larger. The public discussion of our nuclear options is becoming more sensible, and I am beginning to hope that we may be able to begin building this infrastructure again after a two decade hiatus that has cost us terribly.

Nuclear power generation, if pursued in a sensible way, can drive the cost of electricity in the U.S. down below the cost of coal power in China, in a predictable, long-term way, which I think should be an explicit goal of our national energy policy. This will have the effect of "onshoring" basic industries that we have been moving overseas for decades. The onshoring effect is actually more powerful than displacing imported petroleum, because the imports that are replaced for a given amount of investment have higher added value.

3 comments:

  1. Hey Iain, interesting stuff. A few (non-comprehensive) comments:

    Re natural gas: It’s also struck me that the big problem with all these plans is all that gas-fired capacity that was just built. I’m not convinced that it was a mistake (without that capacity, we would have had a lot more California-style power crises), but it’ll certainly make it harder to switch our power sector to renewables as per Pickens/Grove/Gore, wiping out all that capital investment. It’s ironic that, twenty years ago, when power deregulation was becoming popular, the fear was that gas-fired generation would wipe out sunk investments (esp in nukes) in a marginal price market. The solution then was to declare those sunk costs “stranded” and allow utilities to recover them in rate surcharges, thus negating many of the price benefits of deregulation. Similarly, if today we taxed carbon emissions or otherwise mandated a switch to renewables/nukes, we’d probably still have to pay for the capital already invested in fossil fuel generation. That doesn’t mean the carbon benefits don’t exist or are not worth it, but it would be damn expensive. Also, I don’t get the connection between gas-fired generation and war. It’s true that we import a lot of gas and will import much more in the future, but I don’t see us fighting with Canada about it.

    Re wind: I think you meant to say that converting to wind power is like switching from imported fuel to domestic (or imported) capital, rather than labor. Capital is a much greater component than labor of the amortized cost of wind power. That still may be a good trade to make, since we have a lot of capital (less than a year ago, but still a lot) and we’re running out of fuel.

    Re rail: Interestingly, some of the reforms you suggest have already been tried, as a part of the New Deal, but (I think) were rolled back in the 1970s. I don’t claim to be an expert in transport policy, but it’s fascinating how this debate ebbs and flows.

    Re electric cars (not in response to your post, but a pet peeve of mine): if Grove or any other random billionaire thinks it’s a good idea to “switch” to electric cars, why don’t they just buy GM and do it? The whole company costs barely six bills.

    PS: how’s the family?

    George

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  2. All the gas-fired capacity that was just built was a bad investment, as gas prices are now high. Oops. The important thing there is that the investors in the companies that screwed up get stuck with the loss, rather than ratepayers.

    The problem with ham-fisted government regulation, as you describe with "stranded" sunk costs, is that ratepayers end up paying for but not owning big assets like nukes. I guess I have not yet seen the right kind of free market for electric power producers, that properly aligns their best interests with those of the public. As it is I think the flat demand curve makes utilities' interests opposed to the public good.

    It's not the gas we import from Canada that's a problem. It's the gas from Venezuela. And since LNG tankers make it a worldwide market, even the gas from Canada indirectly funds regimes with interests opposed, perhaps violently, to our own.

    That said, gas imports don't fund Hezbollah or Al Queda, and oil imports do. So, it's a weaker link.

    Re: capital vs labor

    If I pay for a continuous average kilowatt of wind power, I'm mostly paying the interest on the $3,000 of capital used to purchase those windmills. I think this is your point.

    However, that $3,000 largely went to people who had to manufacture and install wind turbines. Compare that to purchasing $500/year of natural gas. A fair bit of that money goes to governments which tax the gas and capitalists who own the production rights in various areas.

    I can't form a good argument right now, but I'm pretty sure that there is a difference that I care about between the $3,000 loan and the government/private ownership of gas fields.

    Re: kids

    We're building a pool, doing our part to make the energy crisis worse. I'm driving the contractors nuts because everything is so different from what they are used to: it's a deep pool (10.5 feet), it has a diving board, the shell is insulated, the solar panels are metal and glazed, and the main pump is going to be running at 150 watts 24/7.

    Kids are great, running around in bathing suits all the time because they think they're going swimming soon. As we're just digging, it'll be a few months yet. Kathleen has started kindergarten. Recently (16-Sep), she came up with this nugget:

    "The tooth fairies take care of God. They tried to hold him but he was too big so they turned him into a fairy. Then they gave him wands for his hands and he became king of the fairies.

    "When the earth falls we're all going to grow wings."

    I wonder if someone's been reading the Bible to her.

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  3. The problem with both plans is the failure to recognize that:
    1 Even if the USA decided to adopt either plan immediately, the additional cost (supplied on credit?) and additional energy required to transform the current oil-based infrastructure in the USA into a clean, sustainable, and internally-supplied system is probably not achievable in the time-frame required.
    2 Both plans are based on maintaining the current energy-hungry lifestyle of citizens of the USA-led 'western' world, i.e. retaining the root-cause of the problem.

    My worry is that the rush to implement a "green" solution in a free-market environment could produce more "bio-fuel" type disasters - people in third-world countries burning down rain-forest to grow fuel for US cars.

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