Energy from hot air

[ By Craig Morris ]

What country installed the most wind-power generating capacity last year? The United States of America. And where was the world’s first emissions-trading exchange opened? In Chicago in 2003.

Granted, the Chicago Climate Exchange is still voluntary. Today, the EU Emissions Trading Scheme has a volume 200 times greater. But a group of states in New England are talking with California about making emissions trading mandatory, which would soon force the Federal Government to act, too. In addition, some 20 US states are promoting the use of renewable energy sources. And below the state level, there are places as small Sebastopol, California (population: 8,000), where local authorities are promoting renewable energy – in this case, the installation of one megawatt of solar electric panels on city buildings.

The US is also a world leader in a less known aspect of energy supply: demand management. Historically, electricity supply has been tailored to demand, so the capacity of power plants had to exceed the expected peak demand. But blackouts in California in 2000 exposed the limits of this approach, and so did the major blackout of August 2003 in the northeast. Since then, utilities have been trying to curb demand in order to accommodate for supply bottlenecks.

For example, the city of Austin, Texas waives the monthly connection fee for households willing to allow its municipal utility to cut off their air-conditioners for a few minutes during peak demand. Consumers thus save a few bucks, the utility does not have to build another power plant, and power outages are avoided.

In the long run, demand-management technologies will facilitate the integration of intermittent renewables in the power grid. The wind does not blow all day, nor does the sun shine all the time. We will have to start tailoring power consumption to this fluctuating supply. Thanks to initiatives at state and municipal levels, the US will be a leader in this field.
Amory Lovins of the Rocky Mountain Institute has been propagating such innovative thinking for over two decades. He favours “least-cost planning” (LCP). Is it cheaper to build a new power plant, or to provide consumers with the equipment (such as compact fluorescent light bulbs) needed to “shave peaks” in power demand? While many multinational companies from Dupont to IKEA have long been using LCP to save money, it took the recent blackouts to really get the ball rolling at the level of utilities.

Progressive rhetoric, slow change

Ask US environmentalists, and they will tell you that a number of other events over the past few years have changed American attitudes. A short while ago, no one would have expected a slide show presented by a politician who had all but faded from public view to make any difference at all. And yet, Al Gore’s movie about climate change became a box-office hit. His eponymous book is also a bestseller.

In 2005, Katrina and Rita hit the Gulf Coast. That year’s unprecedented hurricane season apparently confirmed the worst warnings of climatologists. On top of that, the storms revealed one of the nation’s less known vulnerabilities: its dependence on domestic oil production in the Gulf of Mexico, which was severely interrupted.

Moreover, the ongoing quagmire in Iraq has given a wider audience to those who argue that one main goal was control of oil resources. At the same time, it has shown how dangerous it is in geostrategic terms to depend on such supplies.

These events may have helped to sway public opinion, but in tangible terms, they have not changed much. As with LCP, most of the country’s best energy policies predate Gore’s movie and the Iraq war. Take the success of the wind industry. It is the result of the Production Tax Credit (PTC), which allows operators of wind turbines to write off 1.9 cents per kilowatt-hour of wind power generated. The PTC was created in 1992. Since then, the only important change has been its extension. Only in the past few years has industry been able to rely on the tax credit not expiring.

If we look at the big picture, things have not really changed much since 2005. President George Bush sold his Energy Act of 2005 partly as an attempt to make the country less dependent on energy imports. However, the law facilitates the construction of new docking stations for imports of liquefied natural gas, not to mention domestic refineries for more crude oil imports.

Granted, domestic oil production is also to be ramped up, and the development of cleaner coal plants promoted, both of which would counteract imports. Nonetheless, there was no substantial initiative to curb consumption or to switch to truly clean domestic energy. While $ 1.9 billion in tax credits was set aside over ten years for all renewables, $ 1.7 billion was granted to hydrogen research alone for just five years. One would probably be misled to expect President Bush’s more recent green rhetoric to be followed up with more substantial policy-making.

So let’s take a look at the state level. California’s Governor Arnold Schwarzenegger is famously in favour of acting on global warming. Mark Hertsgaard, an environmental expert, said after the November elections: “One of the few bright spots for the Republicans was Schwarzenegger. He took the biggest state in a landslide victory basically by going Green.”
True, his environmental policies look good. Last year, California adopted a Global Warming Solutions Act (AB32) to cut greenhouse gas emissions to 25 percent below the level of 1990 by 2020. The California Solar Initiative (CSI) also took effect on January 1, 2007. Its target: 1 million solar roofs by 2017.

A closer look, however, reveals that much of this is really only hot air. Anyone can set a target, but what are the mechanisms to reach them? And what about penalties for not reaching them? In the case of AB32, the mechanisms have not been defined. California has until January 1, 2009 to decide how it wants to meet the target, so don’t expect too much action in the next two years.

Nor should you expect too much from the CSI. In the Clinton era, the US Department of Energy launched its own Million Solar Roofs programme in 1997 with a target in 2010; it was discontinued far short of its target. In 2003, a journalist pointed out that that the statistics were so bad that the programme’s website had been left blank; in 2006, it was taken offline completely.

Toothless policies

Depressingly, the State of California has also missed energy targets before. In 1990, it told automakers that it wanted 10 percent of future cars sold in the state to be emissions-free. As a result, General Motors and Ford ignored hybrid cars, which do have emissions because they rely on batteries as well as petrol. Today, Toyota’s hybrid cars are all the rage, whereas Detroit-based car manufacturers are in a deep crisis and have been scrambling to come up with their own hybrids.
The particular irony of this story is that Japanese automakers in general had switched from exporting small, relatively fuel-efficient cars to the USA to selling luxurious sedans instead, in spite of a federal mechanism for fuel economy standards in cars (CAFE). The penalties were too low, and for two decades CAFE failed to improve gas mileage in the US. Indeed, the standards are too lax to begin with: Ford’s Model A from the late 1920s would comply with today’s CAFE standards.

Sadly, many American policies to promote renewables remain toothless. As mentioned above, a score of states have some form of them. Texas plans to install 5,880 megawatts of generating capacity by 2015, roughly five percent of demand in that state. Other states have set a percentage goal. In the case of California that ratio is 20 % by 2017. Maine has an even more ambitious target of 30 %. However, it turned out that Maine had already met this target when the law was passed. In 2001, Maine already got 17 percent of its electricity from hydropower and 25 percent from biomass, you see. To make the farce even more incredible, Maine has not amended its redundant law since it was passed in 1999.

Other states, such as Minnesota, have voluntary targets with no penalties at all. These goals are based on “good faith”. In other states, penalties are so low it might be cheaper to pay them than to invest in renewables. To top it off, some states actually have an unrealistically harsh penalty: revocation of a utility’s operating license. Now, imagine a utility shutting down its plants and telling its suffering customers listening on battery-powered radios that the government forced it to do so because some windmills were not installed. Politicians will not let that happen, so the penalty is an empty threat.

For good reason, California’s Solar Initiative is not based on penalties. It relies partly on “expected performance-based incentives”. Residential and commercial systems will get an investment subsidy of $ 2.50 per watt of expected peak output. The incentive for municipal and non-profit organisations with capacities of up to 100 kilowatts is $ 3.50. In other words, systems below 100 kilowatts (the average home would accommodate 3-4 kW) are partly funded up front.

This approach resembles Germany’s promotional policy for the “100,000 Solar Roofs” programme in the 1990s. As the Germans discovered, the approach has a major drawback. The subsidy is the same whether panels are installed under the shade of a pine tree or in full sunlight. Therefore, those in charge in California promise to make spot checks on small systems to ensure proper installation. California’s compensation scheme for solar power is only based on the power actually produced if the system has a capacity above 100 kilowatts.

In large parts of the US, another programme for solar power is in force. It is called “net-metering” and is based on production rather than an up-front grant; power from solar panels offsets the power purchased from the grid. Accordingly, compensation for solar power depends directly on the retail rate: from five cents per kilowatt-hour in Kentucky to 20 cents in Hawaii.

However, the retail rate has nothing to do with what solar power actually costs, nor what its true value on the grid is. Since solar power is mostly produced in the early afternoon, when many Americans use their air-conditioners, it is really peak-time electricity, the value of which often exceeds the retail rate several-fold. Net-metering has failed to jump-start the solar industry by woefully underpaying for it.

It would seem, then, that politicians in the US set up energy targets that look good in the media. These reports run on page one, while missed targets are quietly taken offline. And anyway, the targets are so far in the future that someone else will be in office when they are missed.

The problem is not that the US does not have good targets; the problem is that it misses them for a lack of good mechanisms. As a native Austrian, Schwarzenegger should be the first to look abroad for best practices. He would find many countries doing things the US could copy.

Better approaches

The EU alone offers a plethora of energy policies. The kind of cap-and-trade policies the UK and Italy long implemented closely resemble US approaches – and these two countries are going nowhere with renewables. Italy has less than 10 % of Germany’s installed capacity. The UK, with the best wind conditions in the EU, has even less installed than Italy. Germany, Denmark and Spain succeeded because of a different system of guaranteed minimum prices called “feed-in rates”. All three countries are world leaders in wind power, while Germany is also the world leader in photovoltaics thanks to similar price guarantees. Indeed, Italy seems to have learned its lesson, for it switched to the minimum-price system at the end of 2005.

If Americans looked, they would find that the minimum-price policy is market-based without relying on penalties. Feed-in rates are based on what each type of power actually costs. The rate differs for solar, biomass and wind – and each has nothing to do with the retail rate. Governments need not monitor feed-in rates; they set the price signal and let markets handle the rest. Indeed, Germany managed to do without a regulator for the first five and a half years of the liberalisation of natural-gas and electricity markets; the EU will have completed liberalisation this July. Compare that to the blackouts during deregulation in the US. Furthermore, the EU has used price signals to lower gasoline consumption; prices are roughly twice as high as in the US, but consumption is half. Higher petrol prices, of course, are an incentive to use efficient cars – or public transport and bicycles.

Finally, feed-in rates are pay-as-you-go systems like social security, except that here rate-payers are charged through their utility bills. No budget item is set aside for renewables here, leaving nothing for new governments to cut when they take office and want to reduce spending.
For the time being, it seems that it will take more than Al Gore, hurricanes and Schwarzenegger to get Americans to reduce their consumption or switch to renewables to any considerable extent. Indeed, one of the greatest mysteries about the current administration is how much it knows about energy and how little it does with this knowledge.

Former President Jimmy Carter is revered among environmentalists for putting a solar water heater on the White House, which Ronald Reagan promptly dismantled. But who put the first solar electric system on the White House? George W. Bush, in 2002. He also has a geothermal cooling system on his ranch in Crawford, Texas. And as governor of Texas in the 1990s, he launched the state’s current wind power boom; Texas is currently the top state in wind power in the US.

Bush understands the benefits of some of the most advanced energy technologies. Next year, he will leave office. Why he did not turn his knowledge of geothermal, wind and solar power into sound national policy will then be a question for historians to ponder.