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Chinese Coal Plants Face Bankruptcy – Woes of the Regulated Utility

According to a recent article by Industrial Fuels and Power, 87of China’s coal-fired power plants could face bankruptcy as a result of disagreements between state-owned utilities and government economic planners. These plants, which represent 20% of China’s coal fleet, are struggling to survive as high demand (and resulting high coal prices) collides with government mandated electricity prices aimed to keep economic development on a positive trajectory through cheap electricity.

In regulated electricity markets, the price of electricity is set by government entities instead of the utilities themselves. These prices are established by a combination of factors including predictions on fuel prices and any capital investments made for power plant infrastructure. To request an increase in the price of electricity, utilities make a rate case – an argument for charging a certain amount of money for power – that outlines their expenses (and predicted increase in costs). Governing authorities then approve a price for electricity, which the consumer pays.

This regulated structure has pros and cons. It benefits utilities by providing an effective guaranteed rate fo return on their investments while eliminating price gouging for areas with few electricity providers. But, at the same time this structure can lead to problems when government priorities – such as keeping prices low without subsidies – conflict with market realities such as fuel price spikes and necessary plant maintenance and upgrades. This is the problem facing Chinese coal plants.

The Chinese government wants to keep electricity costs low as a party of the country’s economic development strategy. Cheap energy means cheap goods – a backbone of China’s success in exporting goods through the world’s markets.

So, what can be done when the government wishes to keep electricity prices low in the face of rising costs for producing that electricity?

In the short-term – subsidies can be made, robbing Peter to pay Paul. Funds can be shifted from other sources (for examples through taxes on consumer goods) to keep power plants in the black, while maintaining low utility bills for China’s residents. But, in the long-term, this could quickly prove to be an unsustainable strategy if power plant expenses continue to rise.

For now – China’s coal fleet is curtailing electricity generation in order to reduce the amount of coal that they burn, hoping that fuel prices will drop. This stop-gap measure will (hopefully) keep the doors open and the generators running until a compromise can be struck between utilities and the government’s economic planners.

[HT to Chad Blevins for sending me the article that inspired this post]

The Fracking Debate – The “Truth” about Gasland and water contamination

May 25, 2011 1 comment

One of the major concerns with regards to hydraulic fracturing is the potential for fracking fluids – specifically, the chemicals in them – to contaminate drinking water. The YouTube video titled “My Water’s on Fire Tonight” outlined this concern:

But there’s more in the water than just H2O
Toxic chemicals help to make the fluid flow
With names like benzene and formaldehyde
You better keep ‘em far away from the water supply

The drillers say the fissures are a mile below
The groundwater pumped into American homes
But don’t tell it to the residents of Sublette Wy-O
That water’s fracked…. We’re talking Benzene…

It is believed that there have been thousands of cases of groundwater contamination in the United States due to this fracking process. But, there is some debate on the validity of these claims. On May 13, Jamie L. Vernon, PhD wrote a post about the pro- and anti-fracking debate for Discover Magazine’s blog, The Intersection where he brought to light doubts surrounding claims of groundwater contamination. In his opinion:

…this is a hilarious production designed to draw attention to the fracking debate.  To be clear, my biggest concerns are not centered on the hydraulic fracturing fluid per se.  I feel the recent PNAS paper highlighted the much more worrisome problem of methane gas leakage.  In fact, the PNAS paper stated that there was no evidence of contamination of drinking water with deep saline brine or fracking fluids.

To be clear, this PNAS paper does not say that water contamination is not a potential problem with the fracking process. Instead, it indicates that recent claims of groundwater contamination in the United States might have been overstated.

Regardless of the validity of the water contamination claims, this concerns has captured American’s attention. Some of this success could be rooted in the success of the “Gasland”  documentary by Josh Fox. This movie focuses on the use of hydraulic fracturing to unlock natural gas stored in shale (rock) underground, and the potential negative environmental impacts of using this technology. But, it’s main anti-fracking argument centers on the potential for fracking to contaminate drinking water supplies, painting a highly negative picture for viewers.

Unsurprisingly, this documentary has received negative press and backlash from organizations including the organization called America’s Natural Gas Alliance (ANGA), a pro-natural gas association that promotes the use of natural gas in the United States.  In response to the Gasland documentary, ANGA supported the released of a short video – titled “The Truth About Gasland” – that puts a call out for “open, factual and fair dialogue” surrounding the development of the nation’s natural gas resources. In this video, the creators state that “the film “Gasland,” whatever the intentions of the filmmaker, has contributed to a dialogue based more on fear than facts. While it is a dramatic movie, ‘Gasland’ is a deeply flawed documentary that gets several important facts wrong. Learn more at http://ANGA.us/truthaboutgasland

Texas Smart Grid Experts Head to the White House

Texas’s smart-grid initiatives are getting some attention in Washington.

On Friday morning, a small group of Texans, including the chairman of the Public Utility Commission, Barry Smitherman, will brief White House representatives on the smart-meter rollout and related issues in the state.

“There is a lot of experimentation and research going on in Texas,” said Brewster McCracken, executive director of the Pecan Street Project, an Austin-based smart-grid project, who will attend the White House meeting. “I think it’s legitimately emerging as a hot spot for potential innovation.”

Smart meters allow some Texans to review their electricity usage in 15-minute intervals on a website. This is useful for pinpointing waste. The meters are also easy to read remotely, which is cheaper than sending someone to individual homes, although the smart meters themselves cost more than $100 apiece. Eventually smart-grid advocates hope that the technology will make it possible for appliances like refrigerators or dishwashers to coordinate their energy usage with the needs of the electrical grid.

McCracken said attendees at the Friday meeting will also include representatives from Oncor and CenterPoint Energy, two utility companies; Reliant Energy, a Houston-based electricity retailer; smart-meter makers Landis+Gyr and Itron; and Zigbee Alliance, a wireless standards company. The group is expected to meet Aneesh Chopra, the United States’ chief technology officer, and other staff from the White House’s Office of Science and Technology Policy.

Smart-grid initiatives have been a priority for President Barack Obama, who has called for a newer, smarter electric grid that will allow for the broader use of alternative energy and included smart-grid technology in federal stimulus funds (some of which went to projects in Texas). Chopra will fly to California next week to speak at a smart-grid conference there. California appears to be the only state to have installed more smart meters than Texas, although the technology there has run into significant opposition.

“Smart-grid technologies have great potential to save consumers money as well as provide a more reliable energy delivery system in this country, and we are often holding meetings with key stakeholders to try to move this important agenda forward,” said Adam Abrams, a White House spokesman.

Currently, there are nearly 3.3 million smart meters installed in “competitive,” or deregulated, areas of Texas, which includes about three-quarters of the state’s population, said Terry Hadley, a PUC spokesman. Some municipal utilities (like Austin Energy) and rural cooperatives (like Bastrop-based Bluebonnet), which do not operate under the deregulated system, have also launched smart-meter initiatives.

McCracken said that one of the key points to be covered at the meeting would be uniform standards for the emerging technology. That means making sure that when data on electricity usage is reported by a refrigerator with a chip or an electric car or anything else, it is presented in the same format nationwide, no matter what company is making the device.

“The big question that’s emerging for the smart grid is how does all this stuff interconnect with each other,” McCracken said.

An Oncor spokeswoman, Catherine Cuellar, said that the utility was “excited to share insights” from the deployment of its advanced technologies.

This article originally appeared in The Texas Tribune at http://trib.it/jkUNL0.

CNN: 70% of Americans Favor Increased Offshore Drilling

May 5, 2011 1 comment

Today, the House of Representatives voted 266-149 in favor of H.R. 1230, the Restarting American Offshore Leasing Now Act. According to the current Speaker of the House, John Boehner (R – Ohio), this bill will help to stop policies that drive up the price of gasoline while creating jobs for Americans. According to Boehner’s website, this bill acts on what Americans want – more offshore drilling in U.S. waters, presumably to increase supply. The Speaker’s comments are in direct response to poll results published by CNN, which provides some measure of quantitative support to his statement.

Specifically, in a survey conducted last month, Americans were polled to see measure their response to a single question:

“How do you feel about increased drilling for oil and natural gas offshore in U.S. waters?”

Possible answers included “strongly favor, mildly favor, mildly oppose or strongly oppose [to] increased offshore drilling.”

After surveying 824 people using a CNN-approved process, it was found that 70% of Americans favor increased offshore drilling. It is this result that Speaker Boehner and groups including the American Energy Initiative used to help move this legislation through the house.

After today’s vote, H.R. 1230 moves on the senate where it will wait to find its fate in front of a Democrat majority. If it passes on and receives the President’s signature of approval, it will specifically direct the Secretary of the Interior to conduct offshore lease sales in the Gulf of Mexico and the Outer Continental Shelf offshore of Virginia. It also streamlines the environmental impact statement process required under the National Environmental Protection Act (NEPA) for these leases.

For more information on H.R. 1230, you can visit the following websites:

1. H.R. 1230 Congressional Research Service (CRS) bill summary

2. U.S. House of Representatives Committee on Natural Resources

Democrats Pounce on Subsidies After Boehner’s Comments

April 26, 2011 1 comment

Yesterday, Speaker of the House John Boehner (Republican – Ohio) said that “we oughta be looking at” ending some federal oil and gas subsidies, stating that oil and gas companies should “pay their fair share in taxes.” The Republican leader’s seemingly casual commentary has caused waves in Washington and online, with former Speaker of the House, Nancy Pelosi (Democrat – California) tweeting that is was “nice to see @SpeakerBoehner open to ending billions in taxpayer subsidies for Big Oil.”

Today, in response to Speaker Boehner’s comments, President Obama released a letter calling for immediate action to repeal tax breaks and incentives for big oil and gas. Is this letter, the President urged current House and Senate leadership to:

…take immediate action to eliminate unwarranted tax breaks for the oil and gas industry, and to use those dollars to invest in clean energy to reduce our dependence on foreign oil.”

The President went on to discuss the burden of rising gas prices on Americans, and his support of Representative Boehner’s comments in support of evaluating the advisability of existing tax breaks. Citing his Blueprint for a Secure Energy Future (Released March 30, 2011), President Obama reiterated his belief that the United States must work toward cleaner, domestic sources of energy.

Speaker Boehner has already begun his quick retreat from yesterday’s statements – but, it appears to be too late to call a retreat as Democrats and the administration have already pounced on the controversial issue.

Now is the moment – to move away from foreign oil?

April 25, 2011 4 comments

Yale environment 360

According to the last 8 Presidents of the United States, our nation’s dependence on foreign oil is concerning (at best) and threatens our long-term success (at worst?). Each of these Presidents has supported the reduction or elimination of our dependence on foreign oil sources, but none have succeeded. Today, in an article in Yale Environment 360, Professor Michael Graetz discusses the challenges in breaking a 40-year energy policy losing streak. Before the 1970s, the United States met its oil demand with domestic sources – think Texas Tea and Henry Hub oil spot prices – but, as demand has increased, domestic oil production rates have not been able to keep up. Today, we import approximately 3.5 billion barrels of oil each year. And, while the majority comes from Canada and Mexico, we still import 5 million barrels of oil from OPEC countries EVERY DAY. In the face of these staggering numbers, our current President has declared that we must reduce the amount of fuel that we import. On March 30, I wrote a piece about his 4 part plan to reduce US demand of foreign oil.

  1. Increase domestic oil production
  2. Implement new natural gas industry incentives
  3. Develop biofuel resources
  4. Reduce energy consumption with efficiency
But, according to Professor Graetz, this plan could be doomed for failure in the face of 40+ years of energy policy failures. In his opinion, the key to success does not lie in incentives or encouraging domestic production. Instead, it is found in our ability to establish an energy price that reflects the “true cost” of using these energy resources.
In the thousands of pages of energy legislation and regulations enacted since energy policy came to the fore in the 1970s, Congress has never demanded that Americans pay a price that reflects the true price of the energy they consume. For nearly a decade following the oil embargo of 1973, Congress refused even to allow the price of gas at the pump to reflect the worldwide market price of oil. No one now contemplates requiring gasoline prices to include, for example, the costs of keeping oil moving safely from the Persian Gulf into our gas tanks, or insisting that our electricity prices reflect the costs of coal pollution or of nuclear power safety.

Texas Lawmakers Consider State Energy Council

April 17, 2011 Leave a comment

Senator Troy Fraser photoTexas State Senator Troy Fraser, a Republican from Horseshoe Bay, has proposed that the state create a new energy council under Senate Bill 15. According to a recent article by the Texas Tribune’s Kate Galbraithe, Senator Fraser’s proposal would create a Texas Energy Planning Council tasked with planning the state’s energy  policy. In a hearing last week in the Texas Senate Natural Resource Committee, key language was removed that would have required the new council to identify the electricity fleets highest polluting power plants. This information would enable state planners to modify long-term strategic plans to decrease the environmental impact of the state’s power generation fleet.