China’s Opportunity

This week’s Bloomberg Businessweek had an article titled On China’s Electricity Grid, East Needs West, that explained the mega cities of China’s east coast are consuming resources from the coal rich areas in the country’s far western provinces resulting in lengthy transmission lines and growing instability among the minority ethnic groups there.

coal chinaOne of the biggest problems with having cities so far removed from the natural resources that power those cities is transmission.  In China, freight railroads and river barges are already overloaded and overcrowded.  This led party leaders to push for development of interior regions of the country and build high voltage transmission networks called the West-East Electricity Transfer Project.  By 2020 the total capacity of this project is projected to equal 60 Hoover Dams.

china water scarcityThe second problem with this large-scale coal driven buildup is the lack of water resources available to produce steam in these plants.  Many of these planned coal plants are located in water scarce regions including Xinjiang and Inner Mongolia and has led to tensions with ethic Mongolians and Uighurs who depend on farming and herding for their livelihood.  By tapping already stressed aquifers and wetlands, there could be a larger problem looming.

Coal currently generates 80% of China’s electricity and the country is responsible for half of the annual consumption of coal worldwide.  Following the traditional model of building coal plants located far away from the end users is simply not the answer.  While high-voltage transmission lines are more efficient that shipping coal by rail or barge, much of the electricity produced is still lost in transmission.

solar chinaA better idea would be harness China’s production capacity of solar PV cells and adopt a domestic policy of distributed generation.  DG is sited near the end user of the electricity and therefore less vulnerable to losses during transmission.  PV cells can be placed vertically up the sides of the country’s many skyscrapers eliminating the need to clear land for ground-based systems.  Smart building design is another idea that could drastically reduce demand for electricity and save the country from building expensive, inefficient, centralized power plants.

Distributed generationChina’s massive infrastructure build out has been nothing short of extraordinary.  Now it has the opportunity to leap ahead of other developing nations by committing resources towards building the next generation cities.  Distributed generation, microgrids, and smart integrative building design can all help to make this idea a reality.

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Subsidies to the Energy Industry

“I am a big fan of clean energy, but I am bigger fan of a robust economy.”

-Mr. Greenbacks, 2012

Subsidies to the energy industry are nothing new, they have been around for decades.  Generally speaking, subsidies fall into three main categories: Direct Spending, Tax Expenditures, and Loan Guarantees.   For most of the 20th century, fossil fuels have enjoyed a long run of subsidies such as tax breaks, tax credits, tax exemptions, and deferred depreciation, just to name a few.  This extended period government support firmly entrenched fossil fuels as the sole providers of energy by making renewable energy prohibitively expensive by comparison.  The roles reversed in 2009 with the passage of the American Recovery and Reinvestment Act that eliminated some subsidies for fossil fuels and expanded subsidies for renewables.  However, as you can see below, the level of support to fossil fuels is still 6x greater than renewables.

  • The IEA estimates that in 2010 worldwide fossil fuel subsidies totaled $409 billion.  That number is expected to rise to over $650 billion by 2020 unless changes are made.
  • By comparison, only $66 billion was spent to subsidize renewable energy.

Misguided Policy?
So what is the role of subsidies?  Subsidies should be used to level the financial barriers for new and emerging technologies in order to compete in the marketplace.  Once these technologies are mature enough to stand alone, the subsidy should be removed in order to let the market forces take over and determine a true price for the product.  The support should then go on to fund another technology that could possibly compete with the first one in order to advance a competitive marketplace.   By keeping the subsidy in place for too long, one can create artificial demand that encourages waste and can quickly drain government coffers.  This could apply to any industry, but right now we are focused on the energy industry.

So should we remove all subsidies to the energy industry?  No!  The renewable energy industry has seen more ups and downs than the Cyclone on Coney Island.  Most of these Boom and Bust cycles have been created through a rush of investment in good times (subsidy ON!) followed by a lack of capital (subsidy OFF!) when the music stops.  A clear and definite subsidy policy should be implemented in order to remove the uncertainty faced by investors of clean energy projects.

Subsidies to Renewable Energy
I am a big fan of clean energy, but I am bigger fan of a robust economy.  In today’s economic climate, governments must be extremely careful how they spend their resources.  The current policies offering subsidies to the renewable energy industry have done a wonderful job of creating widespread deployment of clean energy projects.  However, many of these projects are only profitable because of the subsidy.  Current policies should be revamped in order to drive innovation and cost reductions so that renewables such as wind and solar can compete with cheap natural gas WITHOUT the subsidy.

In order to maximize the value of taxpayer dollars the following objectives should be implemented:

  1. Remove subsidies to the fossil fuel industry in order to establish a true market value that takes into account the negative externalities of these resources.  A small fee can be added to fossil fuel transactions to help fund clean energy research.
  2. New subsidies should promote efficiency gains and cost reductions through the use of steadily improving, performance-based standards.
  3. These subsidies should target advanced technologies, decrease as the cost declines, and be temporary in order to deter ongoing support.
  4. The US must increase its investment in R&D as well as leverage talent from universities and the private sector in order to establish public-private partnerships and regional clusters of advanced research and manufacturing.
  5. Utilize the strength and size of the DOD to drive commercialization of technological advances made through ARPA-E.

Implementing these policies will go a long way toward maximizing public dollars, creating a competitive clean tech industry, and ending the addiction to fossil fuels.

US Energy by Source

I just found a cool graph on the EIA’s website that lays out the sources of the USA’s electricity generation.  The one downfall is that it does not take into account the 2 billion kilowatt hours of small-scale solar like residential rooftops.  Quite honestly, it wouldn’t alter the chart all that much considering the whole green section of this chart represents roughly 200 billion kWh.  Let me know what you think – are you surprised? do you want to learn more?  Hit me back.

Innovation

Inn-o-vate good times! Come on! Yes, it’s a terrible play on Kool & The Gang but it has an underlying theme – adapt to new conditions or miss the party. Just as Kool’s 70’s funk beats stayed the same, our music tastes changed and The Gang was left behind. The same can be said of companies. As many business know by now, if you can not adapt, you fail. Plain and simple. Look no further than GM or Chrysler – they failed to take notice of the changing tates of Americans as well as the threat from overseas competition and bam!, bankruptcy. Business is a simple game of evolution – use your skills to adapt to the ever changing environment, or die. Every animal and species out there today is a result of several others who didn’t have the necessary skills to stay competitive and were thus gobbled up by something smarter, faster, or more innovative. Why should our companies be any different? Now is adaptation time for energy companies, utilities, manufacturers and America alike. This message goes out to the utilities – America wants clean power. We love our televisions, the ability to read at night, power tools in the garage and streetlights on our block. But we like breathing without an inhaler better. We are just plain “sick” of breathing contaminated air. We depend on you to keep our houses lit, so tell us how can we solve this problem together? We want you to be part of the solution, because we like you. You were there when Lucy met Desi, when Neil walked on the moon, when the Berlin wall came down. You lit our front steps when dad came home from work, when mom put herself through night school and would do homework on the kitchen table, and our living room every Thanksgiving when generations of family would gather for a meal. So, lets figure this problem out together – we need power, you need innovation. What is going to power our nation for the next 100 years and beyond? I only ask because fossil fuels are literally killing us. Instead of spending ridiculous amounts of money fighting regulation upon regulation, how about you invest a little scratch into clean energy R&D? A simple innovation in clean power could pay off exponentially for you with the predicted increase in demand. Or partner with the Department of Education and work with them on how future students can be better prepared to tackle the problems of the 21st century. If you dont, someone else will . . . and they are going to send you the way of the Dodo bird.