Is the electric sector capable of rapid, large scale reform? Many policies implicitly assume the answer to that question is No, especially when it comes to greenhouse gas (GHG) emission control.

The result is a policy conversation that hinges on the assumption that it is hard to change. How much must we spend to accelerate new technology? How many decades should we allow for a phase-in of new regulations?

As it turns out, the industry can change—and indeed, has changed—at a much faster pace than you might think. Contrary to conventional wisdom, it turns out to be quick and fairly painless to replace meaningful fractions of our power fleet in very short time frames.

Why should that be surprising?

The electric sector is arguably among the most regulated part of the U.S. economy. From municipal light boards to state utility commissions to the Federal Energy Regulatory Commission (FERC), there are layers upon layers of regulatory bodies designed primarily to ensure electricity reliability and cost recovery for what have historically been monopoly franchises. What those bodies were most certainly not created to provide is a rapid rate of change.

By and large, those bodies have delivered on their promise. They’ve kept the lights on, kept electric utility profits low enough to protect consumers but high enough to attract capital, and maintained a fairly sleepy industry with very little default risk, virtually none of the “creative destruction” that idles assets in competitive industries, and virtually no significant technological innovation. (The power plant serving your town today not only looks like the power plant that served your town 50 years ago, but most likely is the same power plant.)

While these regulations have maintained predictability within the regulated industry, they have not prevented innovation and change external to the industry. Like flood levees, these regulations have kept the external weather at bay—but they haven’t changed the weather. From new generation technologies to smart grids to emerging concerns about the environment, volatility outside of the regulated enterprise has been persistent, invisible to customers of regulated utilities only to the degree that the regulatory levees hold.

Every once in a while, the levees are breached, exposing regulated markets to the volatility those of us who live in normal markets have come to take for granted. Perhaps unsurprisingly, those historic events have brought about the most dynamic periods in the industry. GHG regulation is, without question, a massive external change to the regulated enterprise. As such, rather than presuming a static, lumbering industry response, we ought to be looking at what happened the last time external changes breached the regulatory levee.

Specifically, let’s look at two recent events: the advent of wholesale market competition in the late 1990s and the creation of capacity markets in New England in the early 2000s.

1992 EPACT and FERC 888

In 1991, the U.S. had 581 GW of combined coal, natural gas, and nuclear capacity (307 GW coal, 174 GW natural gas, 100 GW nuclear). New additions were essentially zero, as the combination of Three Mile Island, the Clean Air Act, and a high fleet reserve margin gave little incentive for new construction. Meanwhile, a broader political push for deregulation was afoot. Into this environment came the 1992 federal Energy Policy Act (EPACT), which—among other things—provided full market access for any electric generator. (Previously, such access had been limited to regulated utilities and the narrow suite of technologies allowed under the 1978 Public Utility Regulatory Policy Act, or PURPA.)

After EPACT became law, there was essentially no discernible impact on new generator deployment; by 1995, we still had 100 GW of nuclear, had 311 GW of coal, and were up to 196 GW of natural gas.[1] It became apparent that while generators were now allowed to sell into deregulated power markets, access to the transmission grid—which was still largely controlled by regulated monopoly utilities—was being constrained for non-utility generators. FERC responded with Order 888, mandating non-discriminatory access to the transmission system for all power plants in 1996. That ruling was contested in the courts, but became final in 1998.

Within just 10 years after the final implementation of Order 888, nearly 200 GW of new generation capacity was added to the U.S. power grid, or 20% of the entire fleet. Nearly all was natural gas. This is a remarkable statistic: having taken nearly a century to build the first 800 GW[2] of total U.S. generation, it took us just one decade to build an additional 200 GW. Moreover, our generation fleet, which had to that point been dominated by coal, was now dominated by gas.

This is a massive rate of change in any industry, but especially in one that is supposedly resistant to quick change. Today, we take it for granted that much of our power grid is gas-marginal, but it was not self-evident that this would happen in 1995 (or, for that matter, in 1991). Arguably, we didn’t even have the lens to contemplate this type of change prior to deregulation.

Note, after all, that the big, capital intensive plants that had historically been built by regulated utilities (coal and nuclear) weren’t built prior to EPACT/888 and weren’t built after. In that narrow sense, our belief that the industry was incapable of quick change was correct; what we failed to recognize was the scope of innovation that would occur once new players entered the industry. Those 200 GW of new gas plants were built largely by unregulated companies with fundamentally different appetites for risk than the companies that had heretofore dominated the space. And while many of those new entrants subsequently ran into financial constraints, it bears noting that in many parts of the country, the lights are on today precisely because of this unpredicted, largely unregulated construction of new natural gas facilities.

Building out 20% of the generation fleet in 10 years was a remarkable and unprecedented rate of change. But just as the deployment of new natural gas assets was starting to level off, ISO-New England would make that rate of change look downright glacial.

ISO-NE Forward Capacity Markets

In the early 2000’s, ISO-New England began to consider markets for capacity services (e.g., MW, as distinct from MWh), the better to encourage long term investments in the New England grid. The Forward Capacity Market (FCM) that was ultimately developed had several noteworthy features:

1. It had a low cost-of-entry, to facilitate participation from smaller resources.
2. It explicitly recognized the value of “negawatts,” allowing load-sited resources and conservation to participate on the same terms as remote power plants.[3]

ISO-NE has now completed two years under their FCM, and two corresponding forward capacity auctions (FCAs). As of their most recent auction, they had brought forth a total of 2,936 MW of demand-side resources. To put that total in perspective, the peak demand on the New England grid ranges from 19,000-24,000 MW in a typical year, with the all time peak demand recorded on August 2, 2006 of 28,130 MW.[4]

In other words, in just 2 years, the FCM program has brought forth more than 10% of the all time peak capacity demand on the New England grid, without building a single central power plant. Put another way, that’s equivalent to bringing on line more than two Seabrook Nuclear plants (a 1200 MW facility in New Hampshire) in just 24 months.[5]

Note the similarity with the natural gas fleet deployment in the wake of EPACT/888. In both cases, minor market reforms allowed non-traditional entities to participate in power markets, and in both cases, the rate at which those entities engaged vastly exceeded any historical precedent.

What it means for GHG policy

Successful greenhouse gas policy will require, first and foremost, a massive reallocation of capital in the electric sector. Electricity generation accounts for over 40% of U.S. CO2 emissions, thanks to an antiquated, inefficient, fossil-fuel dominated fleet. The discussion of possible CO2 policies tends to be framed around a handful of technologies (coal, nuclear, renewables, carbon sequestration, etc.), most of which have historically been dominated by regulated monopolies. Noting the slow pace of change in that sector, this conversation inevitably turns to near-term winners and losers, with the presumption that there will be no short-term change in the fleet—just a differential dispatch order as we migrate to lower-carbon sources.

But as the two examples above show, this assumption doesn’t wash. Like New England’s FCM, GHG pricing is nothing more than the monetization of an externality that was previously subsidized by the system. Like EPACT/888, it contemplates revenue streams and market participation by a host of companies and individuals who are not currently a part of the traditional power industry. Both factors suggest that the pace of fleet overhaul will be vastly quicker and cheaper than we anticipate. Will we replace 20% of the fleet in 10 years, like we did after 888? Will we move 2.5 times as fast, as we did in New England after FCM? Might it be possible to move faster still?

The one thing that is certain is that it will be decidedly faster and cheaper than we think.

Conclusions

In addition to speed, there are two broad lessons that can be taken from the examples above.

First, note that in neither case did the reform require a drain on government coffers. Governments did not have to throw money at natural gas generators, nor at demand-side resources. They simply needed to modify regulations to allow market participation by non-traditional actors.

We ought to bear this in mind as we move towards a national GHG policy. Regulators and commentators, schooled in the merits of cost-benefit analysis, have a chronic temptation to assume that any GHG reduction will cost money, and fiscal prudence demands that those costs be minimized per unit of CO2 reduction. That’s a healthy approach, but one that paradoxically tends to overlook the lowest cost forms of CO2 reduction—namely, those which cost nothing more than the political capital necessary to remove existing regulatory barriers. In a market as heavily regulated as the electric sector, one can safely presume that massive volumes of private capital stand ready to invest as soon as those barriers are removed, even before providing any explicit fiscal incentive.

Second, note that neither of the reforms that led to these investments were preconditioned on the removal of the entire regulatory edifice. A common skepticism with respect to the potential for barrier removal derives from the sheer scale of regulatory barriers. We have 100 years of regulated power monopolies in this country, with regulations at the state and federal level (not to mention jurisprudence in courts and utility commissions) designed to sustain that model. The sheer magnitude of those barriers compels one to question the hubris of anyone who thinks that reform is easy.

However, if we stand back to look at the data above, we discover the obvious: you don’t need to tear down an entire dam to restore the flow of a river. You need only remove enough bricks to let the water pressure behind do the rest of the work for you. Modest regulatory reform, targeted only at the critical barriers, is sufficient to unleash massive energy sector reform.

Both lessons are cause for great optimism. Fundamentally changing the GHG signature of our economy will undoubtedly be easier, cheaper and faster than we think … once we start.

——-

[1] Data here and throughout on generator fleet capacity taken from U.S. DOE/EIA.

[2] I’ve omitted hydro and oil capacity from this discussion, which account for the remaining ~200 GW up to the 1998 800 GW base (and were largely unchanged during the period in question).

[3] In fact, load-sited resources participate on more favorable terms than central plants, as the FCM explicitly recognizes the savings in line losses and reserve margins innate to locally-sited capacity investments.

[4] Source: ISO-NE website and personal correspondence.

[5] For comparison, 14 years elapsed between the issuance of Seabrook’s permit in 1976 and full power production in 1990, and was directly responsible for the bankruptcy of Public Service of New Hampshire.

Note: This first appeared on Grist.

Two interesting observations:

1. 50% of U.S. power generation (in MWh) comes from coal, while only 20% comes from natural gas.
2. 32% of total U.S. power generation capacity (in MW) is coal-fired, while 42% is gas-fired.

When it runs, the natural gas fleet emits just 50% of the CO2 of the coal fleet, which raises a rather interesting question: what would we have to do to make it run harder? And how big a difference would that make in our national CO2 footprint?

MW vs. MWh

So why, if we have more natural gas generation capacity, do we get more of our power from coal?

Simple: we have a lot of gas-fired generation (449 GW, as of 2007), it doesn’t run very often. The coal fleet is comparatively smaller (336 GW), but runs a lot more frequently. It is as if our vehicle fleet were dominated by Priuses, but they stayed parked while we drove our Escalades to work.

We have a huge resource that is already built that could massively lower CO2 emissions. Taking a page from the NRA, what if the problem isn’t that we need to build more low-carbon generation, but that we just need to make better use of what we have?

Environmental potential

To understand the opportunity, let’s look at a bit of simple math.

In 2006, the gas fleet generated 816,441,000 MWh, or 20% of what it could have produced if it had run 24/7/365.

The coal fleet, by contrast, generated 1,990,551,000 MWh, or 68% of what it could have generated if it had run 24/7/365.

If we never built another gas-fired power plant, but simply increased the annual capacity factor of the gas fleet up to the coal fleet’s 68% capacity factor, it would generate an additional 1,845,485,000 MWh, effectively displacing 93% of our coal fleet without the construction of a single new power plant.

Looking at the comparative CO2-signatures of those two fleets, that would reduce total power sector CO2 emissions by 37%. Since the power sector is responsible for 42% of U.S. CO2 emissions, that implies a 16% reduction in total U.S. CO2 emissions, just from changing generator dispatch order.

That’s a massive opportunity. What would it take to get there?

Economic considerations

There is an obvious limitation to the Prius/Escalade analogy: it’s cheaper to drive a Prius per mile, but it’s more expensive to generate a MWh of power from a gas plant than a coal plant. That, after all, is why the gas fleet doesn’t run as often.

But historic dispatch choices were made in a world in which the costs of CO2 pollution were not monetized. So the real question becomes: how big a CO2 price would be required to change dispatch order?

Intriguingly, while the environmental potential is huge, the economic cost to realize that potential turns out to be quite small.

The great economic disadvantage of gas-fired generation relative to coal is that gas is more expensive per unit of energy. The great economic advantage of gas-fired generation relative to coal is that it is more fuel efficient: while the U.S. coal fleet has an average generation efficiency of about 27%, the gas fleet has an average efficiency of about 38%.

The gas fleet also tends to have much lower non-fuel operating costs (less $ for fuel handling, fewer moving parts, etc.). Taking these factors into consideration—and assuming $2.50/MMBtu coal vs. $6/MMBtu natural gas—the variable costs (e.g., exclusive of capital recovery) of a coal plant are about $18/MWh lower than a gas plant (1.8 cents/kWh). Obviously, that is very sensitive to fuel price assumptions, but this range is hardly unreasonable for current markets.

But remember, the gas fleet has a much lower CO2 signature than the coal fleet. On a fleet average basis, every MWh shifted from coal to gas reduces CO2 emissions by 0.56 tons. So if we look at a $18/MWh cost differential to achieve 0.56 tons/MWh of CO2 reduction, that implies a (18/.56) = $32/ton CO2 price would be sufficient to tip the scales. That’s not insignificant—but not implausible either. And—here’s the key point—massively less than what any reasonable person might think it would take to shutter most of the coal industry.

Finally, note that this doesn’t require a carbon price of $32/ton to happen; it simply requires a net change in the relative costs of coal and gas-fired generation equal to $32/ton. You could get there by giving the gas guys nothing and hitting the coal plants with a $32 fine, but you could also get there by giving the gas guys $10 and hitting the coal guys with a $22 fine. A functioning cap-and-trade with bilateral rights will allow some sort of transaction between those two parties and—without speculating on those specific rules—one can assert with confidence that a $32 delta between coal and gas does not need anyone to buy or sell carbon credits at a $32/ton price.

Practical constraints

To be sure, we’re never going to shut down 93% of the coal fleet just by running gas harder. There are parts of the grid (like West Virginia) so devoid of gas assets that there’s no way to maintain voltage stability if you rely on far-away gas. And of course, there is the supply and demand issue (booming gas demand + slumping coal demand is almost certainly incompatible with $6 gas and $2.50 coal).

On the other hand, the gas fleet is hardly capped out at 68% capacity factor. Moreover, if we started the switch, we’d start by running the most efficient gas plants harder and the least efficient coal plants less so the first 20% is much cheaper, per ton of CO2 reduction, than the last 20%.

Of course this isn’t a panacea. You can’t get to the end game only with gas any more than you can get to the end game only with solar. It’ll take a lot of steps. But what’s fascinating about this analysis is that the gas fleet is uniquely able to quickly and—at least initially—quite cheaply make a huge dent in our CO2 emissions. It’s a tool we ought to use, and we ought to examine our proposed CO2 regulations carefully to make sure it gets put to use. Free allowances to coal plants don’t get you there …

Note: This first appeared on Grist.

First I said that we shouldn’t confuse wealth transfers with economic pain. Then I said that a $20/ton carbon price works out to a 1.4 cent/kWh rate increase. Astute readers may have noticed a disconnect. (Isn’t 1.4 cents/kWh economic pain?) Which brings me to the third and final part of this little series.

Carbon prices v. use of carbon proceeds

Let’s review the electric sector math. In 2006, the sector was responsible for some 2,784,805,000 tons of fossil fuel-derived CO2 emissions. If we had a carbon policy in place at that time charging $20/ton of emissions,  electricity generators would have had to pay some $56 billion in pollution fees. Which is a big number. But, as noted previously, that works out to about 1.4 cents/kWh. A small number.

But that math was sloppy, as it violated my own insistence that we not confuse taxes and wealth transfers. After all, $56 billion only works out to a 1.4 cent rate increase to the degree that (a) it all gets passed along to consumers and (b) the government uses that $56 billion for a great big Money Fire. After all, even if you have a deeply cynical view of government and presume that only 25% of all the money government spends goes to a useful purpose, you’d still have to conclude that the total “cost” to the rate payer from that policy is just 75% x 1.4 cents, or 1 cent/kWh.

Conversely, even if you have a really charitable view of government, you probably still don’t believe that every dollar government spends accrues to the benefit of tax payer. (Salaries for certain members of Congress come to mind. Or, on a larger scale, tax breaks for domestic oil production, certain pentagon line items, etc.) The point here isn’t to be political, but simply to note that if every dollar paid to pollute goes back to DC for redistribution, both sides of the aisle would probably agree that the electricity consumer realizes less than a dollar worth of offsetting benefit.

There are many ideas about how to fix this. Cap & dividend and/or payroll tax reductions are probably the most widely noted, but those both have their flaws as well—most notably in the way that they sever cause from effect. (What after all, is the logic for providing the same $ to individuals with wildly different carbon footprints if the fundamental purpose of that $ is to provide an economic signal to reduce carbon emissions?)

Same math, with output-based standards

My personal preference, as regular readers know, is output-based standards, in which an allowance is only provided up to some level of emissions per MWh (set to something < the current 0.68 ton/MWh average, so as to create an implicit cap) and anyone who emits above that level is required to procure credits from anyone below. No federal intermediary, and no dilution of impact. If you emit a ton, you have to pay a $/ton rate that is identical the revenue realized by those who are acting to lower the CO2 intensivity of the grid. Many more details in the hyperlink above, but here’s the point on the math:

If coal plants have to buy credits from nuclear plants (or any other high/low carbon combo you’d like), the net increase in cost to the coal plant is exactly matched by a net reduction in cost to the nuke. Societally, no change in overall power prices, unless two conditions are met:

• The allowance level is set below the current average (as it must be, to drive the overall emission down), and
• markets are totally static (e.g., there is no shift in generation patterns as a result of the new economic paradigm).

The first item is a necessity of good policy, and always true, but the second is an impossibility given human behavior. As a result, it is almost certainly true that a properly designed output-based system with full economic participation leads to no net change in energy costs. (It might even lower them.)

That said—and as I noted before—no one can accurately model a dynamic world. So let’s just look at the math in a static world, and assume we set an output-based allowance at 0.6 tons/MWh. We’ll again assume a $20/ton pollution price, but applied only to pollution above the allowance level (and paid to those below the allowance level, pro rata to their benefit).

First, the coal industry pays less. They emitted some 2.2 billion tons of CO2 in 2006, but—since they get an allowance for the first 0.6 tons—only have to pay for 1.06 billion tons worth of pollution. So instead of seeing a $23/MWh increase in their operating cost, they see a $11/MWh increase in their operating cost. In total, that’s a $21 billion payment they have to make. Not to the government though: to zero/low carbon sources, pro rata with their carbon benefit. In other words, that’s a $21 billion stimulus package to the clean energy sector, exactly offsetting the increase in power prices that would otherwise have to be passed onto rate payers and/or divvied up in DC.

For a zero carbon source, that works out to a net reduction in their operating costs of $12/MWh. And at an aggregate level (since we are assuming a static world), the overall impact to all US rate payers is an increase in power prices by just $1.72/MWh, or 0.2 cents/kWh.

The point here is not to suggest that output-based standards are a panacea to all the world’s woes (although it’s hard to argue for any non-political reason that they aren’t miles better than everything else on offer). Rather, it’s to point out that if we insist on carbon policy that transfers wealth from the dirty to the clean, we can create massive economic incentives to lower carbon without economic pain. Why shouldn’t we set that as a goal?

Note: This first appeared on Grist.

Yesterday, I explained why we shouldn’t confuse wealth transfers with taxes. Today, I fulfill my promise to follow up with math. (Contain your excitement!) On the theory that you should (a) stick with what you know and (b) avoid speculating on shoddy data, I’m limiting this math to the electric sector, but the conclusions are generalizable.

How much does carbon pricing cost us on our electric bills?

The surprising answer? Not much.

In 2006, there was a total of 4,058,285,000 MWh of power generated in the US. 49% came from coal, 20% from natural gas, 19% from nuclear, 7% from hydro and the remaining 4% from a mixture of renewables, petroleum, and various waste gases.

Looking just at the fossil fuel uses (to estimate the CO2 release per sector), during the same year the electric power sector burned 1,053,783 thousand tons of coal, 131,005 thousand barrels of petroleum, and 7,404,432 thousand Mcf of natural gas. Taking some middle-of-the-road estimates for CO2 content by fuel type (2.14 lbs/lb of coal, 0.13 lbs/scf of natural gas and 922 lbs/barrel of oil), that works out to a total fossil (e.g., non-renewable) CO2 release from the electric sector of 2,784,805 thousand tons.

(Wonk note: For any given year, there are lots of estimates available from the EPA and elsewhere of sector-specific CO2 emissions. I’ve chosen not to use those here only to avoid any questions of data integrity, since not all data sets treat non-CO2 GHGs in the same way, cross-border trades with Canada & Mexico, transmission and distribution losses, etc. I don’t suggest that my math here is precise, but rather that if we draw all data from the same EIA dataset, we at least have the benefit of internal consistency.)

OK, now for some multiplication and division. Dividing CO2 emissions by power generation, we get an average CO2-intensity for the whole U.S. power grid of about 0.68 tons/MWh. In other words, for every $1/ton of price on carbon, there is a total increase in energy costs of $0.68/MWh. So if we assume that carbon prices will work out to something like $20/ton (note that Waxman-Markey has a $28/ton cap as currently formulated), that means an increase in total electricity costs of $13.60/MWh, or 1.4 cents/kWh.

Let’s put that in perspective: that’s the difference in retail electric rates between Maine (13.9 cents/kWh) and Massachusetts (15.3). Or, if you prefer, a tad less than the difference between the prices in Kentucky (5.6) and Tennessee (7.1). To argue that this increase in retail electric rates is economically unpalatable is to argue that the Tennessee and Massachusetts economies are doomed to suffer a mass exodus across their northern borders unless they can get their rates down.

Alternatively, given the current average U.S. power prices of 9.75 cents/kWh, that $20/ton carbon price works out to a 14% rate increase. Nothing to sneeze at, to be sure, but compared to the massive rate increases that utilities like AEP are asking for even in a pre-carbon world, you’ll hardly notice.

That’s not to make light of the impact on people’s wallets from power price increases, but rather to acknowledge that the impacts we are talking about pale in comparison to the economic impacts caused by much more mundane issues (like which side of the Tennessee/Kentucky border you live on).

So why all the fuss? Not because 1.4 cents/kWh is going to kill our economy. Rather, it’s a big deal from the perspective of a power plant owner. A $20/ton carbon price imposes something like a ~40% reduction in the profits of a modern coal-fired power plant unless they can pass it along to their customers. And let’s be very clear: it is not the concern for their customers’ wallets that has driven the coal industry to demand a free right to pollute (no matter how much their PR departments claim otherwise).

That’s why the fuss. Not because of economic disruption, but because of wealth transfers from the politically-powerful coal industry to the (comparatively weaker, and much less well-organized) renewable, gas, and nuclear lobbies. The politics may be distasteful, but that doesn’t make it any less real.

That said, when politics stands in the way of good policy, it behooves us all to demand better. It behooves us all to do the math.

Note: This first appeared on Grist.

It’s an article of faith that cap-and-trade will raise our energy costs, but it’s not necessarily true.

The ubiquity of this faith makes clear that the Smart People who write, talk, and vote about CO2 policy don’t really understand the issues. A quick discussion, and then some math to clarify.

There are two core problems with the theory that carbon pricing schemes will raise energy costs:

• We habitually confuse sector-specific wealth transfers with economy-wide pain; the two are not necessarily the same.
• Rather than admit our failure to imagine how the world would adapt to carbon pricing, we tend to assume stasis, thereby overstating the costs of compliance.

Discussion on both points follows.

Taxes vs. wealth transfers

First, a statement of the obvious: no one likes to lose money, and we’re all hypocrites, me included. Speeding tickets I have to pay are a drag on the economy and a diversion of police resources from more socially urgent activities; speeding tickets you pay are but a small drag on your income, offset by massive intangible social gains.

This love of money and hypocrisy is no less true for businesses. My reasoned argument against speeding tickets for Sean (or as I call them,  “fun taxes”) is different only in degree from the coal company that argues CO2 regulation will be a tragedy for low-income rate payers.

So let’s agree to be more honest. If taxpayer X suddenly has a new $1,000 cost, it’s only a drag on the economy to the extent that the money disappears into non-productive activities. If the Fun Police give me a $200 ticket and then set my money on fire, it’s a clear economic drag. On the other hand, if those proceeds go to fund public safety measures that we all benefit from, then my personal economic pain is partially/wholly offset at a macro level. This is no less true with carbon regulation. If a coal company suddenly has a billion dollars worth of annual penalties it has to pay, but that billion dollars is used to bring an equivalent volume of clean energy forward, the wealth transfer isn’t necessarily a drag on the economy.

(I’m obviously over-simplifying a complicated story, but directionally, if the effect of a carbon regulatory regime is to replace high capital cost / low variable cost coal with an equivalent MWh production of high capital cost / zero variable cost renewables, then you could well end up with bankrupt coal companies but cheaper power and a stronger economy in the long run.)

This suggests that as we assess carbon policy, we shouldn’t be asking whether the price is high enough to impose meaningful penalties, but whether the result of the payment is a socially-benefical wealth transfer - as opposed to a socially-detrimental Money Fire. The basic problem with the vast majority of carbon regulatory models is that they fail to ask this question, even as they fall in love with the proceeds that CO2 auctions will send back to political bodies for redistribution. Political bodies historically have a certain preference for Money Fires.

Statics vs. dynamics

While it’s analytically easy to show possible scenarios wherein a CO2 regulatory model yields an economically-neutral wealth transfer, it’s impossible to guarantee that outcome, for the simple reason that none of us have a crystal ball. I can articulate plenty of scenarios wherein dirty MWh are displaced by clean ones, with the economic pain necessary to shut down the former is sufficient to incentivize construction of the latter. But I can’t guarantee that those possibilities will materialize. (As a friend at NREL once told me, “the great thing about writing laws is that you see behavior change immediately. The lousy thing about writing laws is that you don’t have any good way to predict how behaviors will change.”) Humans are too clever, and our behavior too dynamic, to allow accurate predictions.

That’s fine, except that when it comes to carbon regulation, we end up falling into one of two traps—either assuming omniscience (e.g., “This bill will change behavior as follows”) or stasis (e.g., “Assuming no change in behavior in response to this bill, economic impacts are as follows”). A classic example of this is in the “scoring” process that the Congressional Budget Office uses, wherein tax breaks are calculated based on their cost to the treasury. CBO analysis assumes that the only impact of the bill will be to reduce tax receipts—with no offset for increased demand for product and corresponding growth in personal and corporate income tax receipts. (Or, for that matter, any monetization of the social benefit sought by the tax break.)

The result is that all our predictions are wrong. Moreover, at least in my experience, the assumption of a static world is much more common, meaning our predictions are generally skewed in an unfavorable direction. Speeding tickets do make me drive slower. Likewise, putting a price on CO2 emissions will cause power plants and industrials to look for lower-carbon ways to stay in business. And yet we frame our analyses as if the only impact of a $20/ton CO2 price is a $20/ton increase in the price of power. It’s one thing to acknowledge our inability to predict the future, but something else entirely to presume that the human instinct not to lose money will suddenly go away once a carbon bill is passed.

Stay tuned!

Here’s the point: When you factor in both of these issues and run some pretty simple math, it becomes apparent that good carbon policy has the potential to be a massive wealth transfer that is damned near economically-invisible. Which in turn means that the hand-wringing and political horsetrading going on in DC right now as we debate CO2 policy is, while perhaps politically necessary, ultimately irrelevant. That’s a cause for some optimism.

Math coming in part II of this post.

Note: This first appeared on Grist.

It seems to me that we suffer from a failure of imagination.  We dream of a low-carbon world, but can’t quite fathom how to get around the massive lobbying clout (and inertia) of the coal lobby.  We dream of a world with no more utility obstacles to energy efficiency, but can’t imagine how to undo laws in fifty states (plus the feds) that would be required to undo utility disincentives.  And we dream of a renewable future, but find it implausible that the tiny amount of solar currently on the grid can be scaled up to a level that matters in any reasonable time frame.

And so we scale back our ambitions.  Rather than confront the coal lobby, we craft carbon bills with escape hatches and allowances to buy-off the biggest carbon sources.  We encourage decoupling, but don’t confront the regulatory paradigm of regulated utilities.  And we throw a few incentives out for renewables, but still send most of the DOE budget to the nuclear industry.

That’s not to suggest that big scale changes are easy, or that it wouldn’t be massively naive to assume that you can force the economy to change course on a dime (much less the federal government).  But that doesn’t mean big, rapid changes aren’t possible - it just means that we don’t anticipate them.

This limitation isn’t limited to policy endeavors; I’d argue that as a species, our ability to predict the future tends to be hugely biased in favor of a linear extrapolation from the last few datapoints - and as a result, we do a really lousy job of predicting non-linear trends.  It’s why we find compound interest so fascinating (and global warming so frightening).  As Nicholas Taleb put it in The Black Swan, we’re like a turkey on the day before thanksgiving who reviews the last 364 days and concludes that tomorrow will be a great day, full of sun and cracked corn.

And so when we see massive barriers to reform, we look at the size of the barrier, evaluate how much work it would be to take the barrier down and conclude that we’ll never be able to mobilize that degree of effort - so we leave the barrier intact, and fiddle around the edges.  But here’s the deal: that’s not how barriers come down.  If you want to knock down the Hoover Dam, you don’t need to remove every brick - you just have to knock out a couple in the middle and let the force of the water behind the dam do the rest of the work for you.

In a perverse way, that’s a cause for great optimism.  Our energy and environmental policy is rife with barriers to the deployment of low-carbon, low-cost technologies.  There’s a lot of water behind that barrier, waiting to get through if only we’d loosen a couple bricks - and that means that it’s probably nowhere near as hard as we think to make rapid, massive changes in our energy infrastructure.

Want proof?

• When the Federal Energy Regulatory Commission passed Order 888 in 1998, mandating non-discriminatory access to any power plant, there was a nearly instantaneous and massive deployment of natural gas turbine-generators.  In the 10 years prior to 1998, we’d added 40 GW of gas-fired power plants.  In the 10 years after 1998, we installed 200 GW, or 20% of the entire US generation fleet.
• ISO-New England is about to enter their third year of their forward capacity market program, which provides cash payments to energy consumers who invest in efficiency, demand curtailment and on-site generation.  Today, they have 2000 MW of participating demand response, or about 7% of the entire New England power grid.

Those are truly amazing numbers.  In 10 years, we built a fifth of the entire US generation fleet - and it took us 100 years to build the first four-fifths.  It is no exaggeration to say that in many parts of the country, your lights wouldn’t be on today but for FERC 888.  In less than three years, New England has figured out how to bring on the equivalent of two nuclear plants worth of generation (avoiding new generation investments in the meantime), cutting 7% of demand out of the system.  New England is now just about the only place in the country that isn’t facing capacity constraints, thanks only to a decision to pay people for the demand reduction services they provide.

And in both cases, success didn’t come because of years of patient barrier removal, and it didn’t come gradually.  It came in one massive deluge once the critical brick was removed - unencumbered grid access in the first case and monetization of a previously-subsidized externality in another.  But did anyone think that pace of change was possible before hand?  I rather doubt it.

So can you imagine going into Congress today and saying “I’ve got a very simple regulatory reform, that will cost the government nothing and within a decade will completely transform our electric grid to drastically reduce it’s carbon signature and give everyone a rate cut”?  Can you imagine anyone taking you seriously?  Probably not - because it doesn’t comport with what we dream is possible.  But that’s only because we’re not good dreamers.  As someone said recently: yes, we can.

Note: This first appeared on Grist.

There is, however, another parallel set of objections that is no less pernicious, although it is a bit less public.  These objections come from bad thermodynamicists.

Sadi Carnot…

Sadi Carnot was one smart dude, and the godfather of the 2nd law of thermodynamics.  The first law says that all energy is conserved (e.g., you can’t build a perpetual motion machine), while the second law says that as a practical matter, you’ll always get less useful energy out of a system than you put in.  As my own thermo professor put it, “the first law says you can’t win, and the second law says you can’t tie.”

But Carnot is perhaps best known for his articulation of the limits to any work cycle.  His insight was that the maximum efficiency of any thermal work cycle (more on that term of art in a moment) reduces to 1 - Tc/Th, where Tc is the coldest temperature in the cycle and Th is the hottest temperature in the cycle.  (Poetry majors: you have to convert temperatures into Kelvin or Rankine for this math to work, lest you think you can get >100% efficiency by using celsius on a cold day.)

…had nothing to say about cogeneration

So how does that square with cogeneration proponents when they claim to build power plants with 80 - 90% fuel efficiency?  And who’s right when those claims are quickly countered in the name of Carnot?   After all, if I run a thermal power plant with peak temperatures in the 2000F range on a 60F day, the highest efficiency I’m ever going to get out of that cycle is 1-519/2459 = 79%.  (Temperatures converted to Rankine.)  Factor in all the losses in gears, cooling towers, etc. and you’ll be damn lucky to break 50%.  Who are these outrageous cogenerateurs who dare to question the fallability of ze french phyciseest?

The truth is, there’s no disagreement.  Carnot didn’t say anything about heat cycles.  His math applies to work cycles.  Work - oversimplified - can be thought of as really high-value energy.  Electric power plants are work cycles.  They turn low value stuff (wood, oil, falling water) into really valuable electricity.   They are like beef slaughterhouses, turning cows into filet mignons.  Those filets taste awesome; but no matter how hard you might try, the total filet mignon you can get out of a cow is limited.  Carnot simply articulated the theoretical maximum filet/cow ratio.  But he never claimed that the rest of the cow wasn’t worth eating.

Getting back to the physics, a thermal energy plant isn’t a work cycle.  If you’ve got a good, high efficiency furnace in your basement, you might realize a fuel efficiency of 75 - 80%; for every 100 units of fuel you burn, you get some 80 units of heat for your home.  And yet - I’m taking a guess here - you are not a known violator of the laws of thermodynamics.  That’s not to suggest that heat is the same as electricity, any more than a hamburger is as good as a filet.  But make no mistake about it - your furnace is making lots of good, ground chuck, unconstrained by the filet/cow ratio.

Cogen plants thus become a neat hybrid trick.   You squeeze the filets out of the cow first, capturing the highest value commodity, but then use as much of the rest as possible to make that chuck (heat).  In some cases, where the heat is more valuable, you might even sacrifice a bit of filet to make some more chuck.  But in all cases, your only physical constraint is your ability to fetchez those vaches.

So what is the efficiency?

So Carnot was right.  So is the cogen community.  Lazy thermodynamists … not so much. But what does that mean about the economics of cogen?  Or more broadly - what does that mean about the actual fossil fuel impact of a fossil-fired cogen plant given environmental considerations? The short answer is that you can safely ignore Carnot - and if you’re lucky, can even find yourself getting around the first law of thermodynamics as well.  To see why, let’s look at an example:

Let’s assume you have a power plant that operates at 30% fuel-to-electric efficiency.  For every 100 units of fuel, 30 are recovered as electricity.  Carnot smiles upon you.  But those other 70 units of energy don’t just disappear - they get thrown out of your exhaust as heat.  As a cogenerator, you’re going to try and recover that heat.  You’re never going to get all of that heat back, but in a good system you can get as much as 80% of it back.  So let’s assume this is a good plant, and 80% x 70 = 56 units of heat are recovered as steam.  That suggests an overall cycle efficiency of (30 + 56) / 100, or 86%.  Pretty good, huh?

In fact, it’s better.

What matters to your wallet, and to the environment isn’t how much steam and electricity you made per unit of fossil fuel, but what the net change was in fossil fuel use per unit of useful output.  That’s a somewhat more subtle bit of math because the steam you recover from that cogeneration plant doesn’t displace fossil fuel on a 1:1 basis.  Recall that the best thermal only plants (e.g., the furnace in your basement) are 75 - 80% efficient.  So at the bottom end of that range, those 56 units of steam actually avoided your need to buy/burn 56 / 0.75, or 74.7 of fossil fuel.

Now let’s take a look at what that means to your operating economics, and the  environment.  Before your cogen plant was installed, you were buying 74.7 units of fossil fuel, burning them to make 56 units of steam and buying an additional 30 units of electricity.  After your cogen plant was installed, you were now buying 100 units of fossil fuel to run your cogen plant, but you no longer had to buy 74.7 units of fuel for your thermal plant.  So from a purchasing perspective, and from a global fuel combustion perspective your net increase in fuel use is only (100 - 74.7) = 25.3 units of fuel.  From which you are generating 30 units of electricity, at an apparent fuel efficiency of 30/25.3, or 119%.

Suffice to say, this is the point where bad thermodynamicists get really pissed off.  But who cares?  You’re making real dollars on those economics, making real reductions in fossil fuel emissions while they’re arguing theory.  They are no different from the economist who walks down the street and doesn’t pick up a $20 bill because he knows that the theory of free markets wouldn’t allow that $20 worth of economic inefficiency to exist.

Textbooks are nice.  Dollars are better.

Note: This first appeared on Grist.

There is a belief that with the democratic shift in Congress, we finally have the votes to get a national RPS.  I don’t buy it.  As I pointed out here, the basic electoral math of the Senate makes a “pure” wind and solar only RPS a wealth transfer from the eastern to the western US, and no political party is inclined to vote against their state’s economic interests.

Many in the environmental community still don’t get this, but in my experience, the Congress does.  Perhaps not universally, but as a collective body, it has created a situation where the headline RPS conversation is taking place in parallel with a whole host of sidebar conversations that would expand the eligibility to include other technologies with a broader electoral appeal.

Most notably, this has taken the form of the Energy Efficiency Resource Standard (EERS), led primarily (but not exclusively) by ACEEE and ASE.  At it’s simplest version, an EERS is simply an RPS with a different suite of eligible technologies, using the tool of a clean energy credit to apply not only to traditional renewables, but also to energy efficiency.

At the highest level, that’s a good thing.  A wind/solar dominated RPS won’t pass, so by adding other comparably clean things to the mix, we get a bill that works.  Politics is, after all, the art of the possible.  The trouble’s down in the weeds.  And you don’t have to stoop very far to get into them.

The Ugly Politics of RPS

The first problem that the EERS faces is that there is a strong renewable contingent that really doesn’t want to let efficiency into the tent.  The immediate problem this creates is that there is no unified clean energy coalition approaching Congress with a politically viable bill.

Structurally, this has manifested itself in a structure where the EERS is limited to 15 - 25% of the total RPS eligibility, with a different set of “tags”, such that the supply of EERS cannot in anyway affect the price for “pure” RPS credits.  The argument for this approach is that if you let energy efficiency participate in these markets, their supply and lower cost will swamp out any incentive for higher cost solar and wind. But this idea itself is goofy, since excess supply of clean energy only creates a problem to the extent that it exceeds demand.  And the demand is set by the regulation itself!  If a renewable energy standard that includes energy efficiency is too small to encourage both to participate, embiggen it.

The efficiency community isn’t blameless either.  Crafting a regulation where EE can participate necessarily requires that you define energy efficiency.  And since that definition defines the parameters of participation, it is a highly politicized conversation.  Do better lightbulbs count?  If so, what’s the definition of better?  Does combined heat and power count?  If so, at what threshold efficiency level?  In all cases, do we provide diifferential incentives to more efficient devices or simply provide full participation for everyone who passes some flat threshold?  Answering these questions in a way that sends the right policy signals is easy - but answering them in a way that keeps a political coalition in tow is hard.  Take, for example, the question of scaling.  If you sell a lightbulb that is twice as efficient as mine, should you earn more credits than I do?  At a policy level, it’s impossible to say that’s a bad idea.  But at a political level, if we make that decision then I may be less inclined to support the legislation, and the chance for passing the overall bill becomes (sadly) dependent on my political clout relative to yours.

Suffice to say that the efficiency community has been far from coherent in the way that they have framed these issues to the Congress.  This isn’t meant as a slight on those in the EE community leading this effort - indeed, there is a special place in heaven for those who volunteer to be cat-herders in the name of good energy policy.  But the result is that - as one Congressional staffer put it to me - “none of you guys are asking for the same thing.”  This is the type of process that causes Congress ultimately to pass something with a patch for a policy problem here, a patch for a political problem there and pretty soon it’s patches all the way down.  Notwithstanding the fact that this is, traditionally, how the US makes energy policy, it is sure to lead to a lousy outcome.

Five Whys

It seems to me that there is an easy solution, if we could just get organized.  Bearing in mind that good policy rewards goals, not paths, it’s worth asking the question: what is the goal of an RPS?  One of the great frustrations of RPS policies at the state and federal level is that this question is maddeningly difficult to get a consistent answer to.  Some will say it is to lower CO2.  Others that it is to acclerate the transition to a renewable future.  Others will say that it is to accelerate the commercialization of early stage technologies.  Those are all noble goals, but the fact that you cannot get a consistent answer to that question is, at core, why there is so much inconsistency between definitions of renewable technology from one jurisdiction to the next - and why the whole RPS/EERS discussion is so patch-ridden.

Back in the 90s, when Total Quality Management was all the rage, business schools spent a lot of time digging up the work of Deming and Taguchi back in the post WWII era that led to the quality programs at Toyota and other Japanese companies.  One of the principles that emerged from this work was the idea of “Five Whys”.  The concept is pretty simple: if you ask why five times, you’ll probably get to the root cause of the problem - but that if you stop too soon, you’re simply solving proximate problems without ever getting down to the root cause.

Since our energy legislation is so rife with patches, it behooves us to ask five whys more often.  Specific to the RPS, I’d posit that whatever you think is the motivation for renewable energy incentives, asking five whys ultimately gets down to a single, pure motivation: reduce fossil energy use.

This suggests that we would be vastly better off throwing out our RPS, throwing out our EERS, throwing out any definitions of eligible technologies and simply providing a clear incentive paid to anyone who is taking demonstrable activities to lower the fossil intensivity of the US power grid, paid pro rata with the fossil energy they reduce.

More on how to do that in my next post.

Note: This first appeared on Grist.

• Creates a new grant program that provides “refundability” for the investment tax credit for combined heat and power (CHP) projects.
• Enables recycled energy developers to obtain direct loans through the Federal Financing Bank.
• Offers bonus depreciation for CHP, allowing 50% of the deprecation value to be taken in the first year.
• Allows businesses to use the CHP investment tax credit even if projects are financed with local development bonds or other subsidized energy financing.
• Allows biomass CHP developers to obtain a 30% investment tax credit instead of existing production tax credits.

Read a more detailed review of these provisions.

Joe Romm has done a pretty thorough trashing of Matt Wald’s recent New York Times piece. Herein, I pile on. This is a shoddy enough piece of journalism to deserve it. Like Joe, I’ve talked to Matt Wald before, and generally I find him to be a good writer on energy. He’s capable of much better reporting than this.

That said, my larger beef is not with Wald nor the NYT per se, but rather with the analytical errors that are innate to his analysis, which are far too common in most journalism of this “what is the cost of competing power technology” type of piece.

The cost of electricity from any power generation technology is ultimately a function of five variables, some of which are innate to technologies and some of which are innate to specific uses of those technologies:

1. Installed capital costs
2. Cost of capital
3. Capacity factor
4. Non-fuel operating costs
5. Fuel costs (the fuel price, divided by fuel efficiency)

Virtually everyone who compares power generation costs screws up one or more item on this list. Wald may well have screwed up all five.

Most of the mistakes that arise from these analyses comes from a near universal failure: no one other than engineers gives a damn about the cost of power generation at the plant gate. It has nothing to do with the price of tea in China, and only a little bit more to do with the full societal cost of delivered energy. But it’s ubiquitous in these analyses.

Roughly half of the capital cost of our electricity infrastructure comes from the transmission and distribution required to connect that power up to the load. It’s also the source of about 10 percent of the total energy losses in our electric grid, and nearly 100 percent of all our blackouts. It is also the most consistently subsidized part of the electric system, which has played a key role in the construction of remote, inefficient power plants that explain why the power industry today is only half as fuel efficient as it was in 1910. And of course, all those other societal externalities — from acid rain to global warming — associated with certain power technologies are necessarily ignored from any analysis that presumes regulatory stasis.

Installed capital costs

I have no idea what Wald assumed, but his prices are laughable. If it’s possible to build a modern coal plant with 7.8 cents/kWh costs as he suggests, I’d love to know where it’s being done. As I and others have noted, this is more like 12-13 cents/kWh by any reasonable analysis, and it keeps increasing.

A part of the reason for the high cost of coal is the cost of delivery since coal plants — for fairly obvious reasons — tend not to be built anywhere near where the people are. Transmission and distribution to connect that power to the load costs $1,300/kW, on average in the U.S., tacking 3-4 cents/kWh onto the cost of any remotely-sited power plant. Since the fuel costs alone for a coal plant are in the 2-3 cent/kWh range, I’m fairly certain Wald’s numbers simply ignored the T&D costs (and associated losses). They probably also ignored the fact that central power stations require a higher degree of redundancy than local ones, for the simple reason that more (small) generators make for a more reliable system than fewer (large) ones.

But hell, let’s give the NYT the benefit of the doubt. And let’s be conservative. Recent price increases notwithstanding, let’s assume that a coal plant that is only compliant with current environmental rules (e.g., pre-CO2) can be built for $2,500/kW, and that the 7.8 cents includes 2 cents for T&D and 2 cents for fuel. Throw in another penny for non-fuel operating costs and that leaves us with 2.8 cents/kWh for capital recovery. I will again be really generous and assume that this plant operates 24/7/365, without a single outage for maintenance or unplanned outages, so that 2.8 cents/kWh will pay off $0.028 x 8,760 = $245/kW per year. That’s a 10.2 year simple payback on the $2,500/kW investment, or a 7.5 percent annual rate of return (over 20 years of outage-free operation). Are you freakin’ kidding me? No one is building a power plant for those kind of economics. And that’s with hugely optimistic performance assumptions! Which brings us to the second assumption:

Cost of capital

Most power generation analyses look at the cost of capital (that is, how much do your investors and lenders expect you to pay back for every dollar they give you) based on current experience. People are building modern coal plants with an 11 percent cost of capital, so let’s use that. People are building wind turbines with a 15 percent cost of capital, so let’s use that.

But here’s the problem with that analysis: lenders don’t loan money based on fuel type. They loan it based on credit risk. And a regulated utility presents a massively lower credit risk than a small renewable developer. It is perhaps the most distortive subsidy in our electricity system, because it makes money flow to the most expensive, most inefficient power-generation technologies.

To be sure, just because this is “unfair” doesn’t make it unreal. Small, financially unsophisticated guys don’t have the kind of credibility with lenders that big utilities have, no matter how much we might want it to be otherwise. But when we are asking ourselves what the societal costs of various options are for the purposes of policy-making, Hippy Joe the Renewable Guy’s credit rating isn’t relevant — what matters is a comparison across levelized capital structures. I would be very surprised if the EPRI analysis Wald cites makes such an equivalent comparison.

Capacity factor

Capacity factor is a measure of how many kWh a given kW of generation can produce in a year. It is a critical weakness of solar and wind, for all the usual reasons. (Rage, rage against the stillness of the night!)

It’s usually got a healthy dose of BS in it for traditional technologies as well. The whole U.S. coal fleet today runs at something like a 75 percent annual capacity factor, generating 6,750 kWh/kW-year, rather than the 8,760 in my way-too-generous assumption above. This isn’t because coal plants are particularly prone to outages. Rather, it’s because for much of the country, there are substantial pieces of the year when the nuke + hydro + coal fleet is capable of generating more power than the system needs during substantial fractions of the year. As the highest marginal-cost generation of those three, the coal “dials back” accordingly, running at less than full load for much of the year.

This matters because — as many a renewable developer knows — a plant that isn’t running is a plant that isn’t making money. This is a problem that no storage technology in the world will solve, but is often ignored in analyses that assume that coal and nuke plants will run at 90+ percent capacity factors even while others run much less. EPRI and Black & Veatch may assure you otherwise — but you can be quite certain that the equity investors who conspicuously chose not to invest in coal plants during the last two decades knew better.

Non-fuel operating costs

This is perhaps the least interesting of the numbers, for the simple reason that the data on O&M is pretty robust, and outside of equipment manufacturers, rarely overstated. It’s the cost of humdrum items like labor, water chemicals, insurance, etc. Costs that all have to be paid, to be sure, but they don’t swing wildly from one technology to the next. At the very low-end, you might see as little as 0.5 cents/kWh for natural gas-fired turbines or up to 2-3 cents/kWh for small-scale solid fuel plants (biomass, some coal). But it is worth noting that the cost of pollution clean up — from sulfur to CO2 — are borne predominantly by coal plants, and any sane investor is going to put a healthy cushion in their analysis to factor in coming CO2 regulation, either by demanding much higher returns or by assuming much larger non-fuel operating costs. Again, there’s no possible way this was included in Wald’s analysis.

This raises a final issue that all economic analyses struggle with: volatility.

Fuel costs

The story of the last 15 years — from an energy, credit, or commodity perspective — is not a story of rising costs per se, but rather one of massive volatility. From 1995 to today, crude oil has gone from $20/bbl to $9 to $140 and back to $40. Natural gas has ranged from $2/MMBtu to $15. Coal hasn’t swung quite as strongly, but it’s been far from consistent.

How do you factor this volatility into your analysis? That turns out to be a really hard question. In theory, volatility = risk, and so you capture it all in the cost of capital. That’s what modern options-pricing is based on, and was used heavily by the folks at Long Term Capital Management to figure out how to make money in commodity markets. Say what you want about those guys, they were freakin’ smart. And pricing volatility is really freakin’ hard.

Moreover, the universal feature of all “alternative” energy sources, from solar to efficiency is that they reduce one’s exposure to fuel volatility. That clearly has value — and it clearly isn’t captured in any model that sets a fuel price, assumes a conversion efficiency, and extends that number ad infinitum to the future with nothing more than a known inflation factor.

Taking that all into account, one can maybe give Wald a bit of the benefit of the doubt, if only because he is repeating mistakes made by so many others, so consistently. But the Times gets cited a lot more often than Black & Veatch reports, and it ought to be held to a higher standard. Wald’s article simply isn’t varsity material.

Note: This first appeared on Grist.