MorganEnergy

California has come up with yet another way to reduce energy consumption, and it has solid green credentials. The idea is simple. If you grow trees on the south side of your house then they will shade it against the sun, and you’ll need less air conditioning.

Hint: please don’t plant redwoods. Beautiful as they are, you really don’t want one of those giants next to your house. Eucalypts are also not a good idea, because they are very fond of burning.

One of the most memorable parts of the panel on energy policy in New Orleans was listening to Jim Sweeney talk about where the Obama Administration needs to go with its climate change policy. It wasn’t enough, he said, for the US to catch up with the rest of the world and actually have a policy; it needs to become a leader in climate change technology, and to help and encourage other companies to reduce their carbon emissions. It is a grand scheme, but apparently the US has a lot of catching up to do.

Over at EU Energy Policy Matthieu Glachant from the School of Mines in Paris is talking about research that he and his colleagues have done into innovation in climate change technologies. It is clear from looking at the data on patents that work is proceeding rapidly in this area, and that the technology is strongly global. One area of the world, however, is lagging behind. Yes, you guessed it, the USA is behind the curve.

The full report is available here. I did a quick search for California to see if it was once again bucking the trend, but there were no matches. Patent law in the US is a federal issue, so it would have been difficult separate out the performance of individual states. Still, we can hope. Innovation is supposed to be something that California is good at.

Time to be nice to Stanford for a change. The best paper I have seen here was delivered by Anant Sudarshan, a PhD student studying under Jim Sweeney. It was about the Rosenfeld Curve. For those of you from outside California, this is all about the fact that while most of the US has high and ever-increasing electricity use per capita, the usage levels in California have been steady since the 1970s are are currently similar to those of responsible Scandinavians such as the Danes. Many people want to know why this is so. Some excuse it on the basis of California’s balmy climate, lack of heavy industry and very high prices. Others give credit to the state’s progressive demand reduction policies.

At Sweeny’s suggestion, Sudarshan set about testing various variables to see which ones had actual explanatory value. You can read the whole paper here. I haven’t had a chance to do so yet, but here are some key points I got from the presentation.

• The lack of heavy industry is not a major explanatory factor
• California’s commercial sector uses significantly less floor space per capita than the rest of the country (possibly due to high property costs)
• The average size of families in California is rising, while it is falling in the rest of the country (large families use less energy per capita due to economies of scale)
• California has a higher proportion of poor families than the rest of the country
• Around 23% of the reduced usage can be ascribed to policy effects (high prices were counted as a policy, but policy also included things such as buildings and appliance standards)

While the California Energy Commission will doubtless be disappointed not to be able to take the entire credit for the Rosenfeld effect, 23% is still a significant proportion of the savings and California’s policies might therefore be usefully adopted by other states wishing to reduce electricity demand growth.

Next week the UCEI Berkeley Center for the Study of Energy Markets will be holding a policy conference in Sacramento. The event takes place from 1:00pm to 5:30pm in the Auditorium of the CalPERS Building, 400 P Street. A full program is available here.

It is tempting, but I suspect I’ll have way too much catching up to do after 4 days in New Orleans.

Even in these environmentally-conscious times it takes a brave man to suggest that Californians should pay more for their gasoline, yet that is exactly what Severin Borenstein of UCEI Berkeley will do next week. He does, however, have a get-out clause: he wants the tax surcharge inversely indexed to the price of oil. Here’s the abstract of his paper:

California is faced with an unprecedented budget crisis. The state is also committed to significant reductions in greenhouse gases that cause climate change. Meanwhile, the price of gasoline is plunging as the world economic slowdown cuts oil demand. At the intersection of these three situations lies an opportunity. I analyze the effects of a transportation fuel surcharge that moves inversely to the price of oil. Such a surcharge could stabilize gasoline prices at levels that a few months ago would have been celebrated by consumers and still significantly reduce California’s budget deficit. It would also slow the return of gas-guzzling vehicles that will otherwise result if oil prices remain at current levels.

If you would like to see him make the point to the public, he will be at the Hyatt Regency Hotel, Regency F, 1209 L Street, Sacramento from 4:00pm to 5:30pm on Wednesday, December 3rd. Some of us, however, will be at or on our way to New Orleans.

Things have been a little quiet here of late due to pressure of work on other projects, but while I have been busy various other things have been going on:

• Governor Schwarzenegger committed California to a target of 33% renewable generation by 2020;
• Mike Giberson complained about excess wind capacity causing negative prices in Texas; and
• I received a fat document from the Cato Institute railing against the evils of renewable energy subsidies.

I’m not paying much attention to the Cato rant. As usual with such things it highlights all of the problems with the issue under attack while conveniently turning a blind eye to any problems associated with the big businesses whose entrenched interests Cato is trying to protect.

Giberson is much more even handed, but I find myself wondering whether asking for perfection in government action is wise. Of course other forms of generation get subsidies too – sometimes very well hidden, but they are there. If you try to take those subsidies away the companies that enjoy them will complain about being victimized. And of course we really ought to focus on the problem in hand, but if that means taxing something then the voters will get mad. Government interference is, I suspect, inherently inefficient, but if we want something to be done about climate change then governments need to prod markets into action.

Still, there are always things that can be done, and here is a paper on how real time pricing might reduce the problems that wind generation causes.

There is another new paper out from the Center for the Study of Energy Markets at UC Berkeley. This one, titled “Equity Effects of Increasing-Block Electricity Pricing”, is by Severin Borenstein, and it looks at how successful the California government has been in designing a tariff system that will help the poor. Here’s the abstract:

Utility regulators frequently attempt to use tariff structures to pursue both distributional and efficiency goals. Efficiency necessitates setting prices as close to marginal costs as possible while still allowing the firm to cover its costs. The common distributional goal is to protect low-income customers from high prices. Perhaps nowhere is the conflict between these goals greater than in the use of increasing-block residential utility pricing, in which the marginal price to the customer increases as the customer’s usage rises. Since the 2000-01 California electricity crisis, the state has adopted some of the most steeply increasing-block tariffs in electric utility history, but the distributional and efficiency effects have not been analyzed in detail. Using a novel approach for matching customer bill data with census data on area income distributions, I derive estimates of the income redistribution effected by the increasing-block tariffs used by California regulated electric utilities. I find that the rate structure does redistribute income to lower-income groups, but that the effect is fairly modest, particularly compared to a means-tested program also in use. While the distributional impact of these tariffs do not seem to be large, the efficiency costs may not be great either. Examining the distribution of customer demand quantities, I find preliminary evidence that customers do not respond to the increasing marginal prices they face.

You can read the full paper here, but if academic rigor is a bit much for you CSEM also publishes their Research Review magazine that explains recent papers in plain language. The latest issue has just been published. In addition to the Borenstein paper, it also has articles on:

• Time to Push Energy Conservation AND Energy Efficiency; and
• Permits to Pollute: Insights on How to Design a Pollution Market

The magazine is available as a free download here.

Californians are a lot more cautious about energy measures these days. While they are still very much pro-environment (an animal welfare measure and various rail funding proposals passed), they will no longer pass an energy measure just because it says that it is green. Two propositions on yesterday’s ballot, numbered 7 and 10, were both defeated by sizable margins.

The two propositions managed to showcase some of the worst aspects of energy planning. Proposition 7 was a classic example of California’s passion for trying to micro-manage the state through ballot box legislation. The measure was so complicated, and poorly written, that it managed to draw opposition from a coalition comprising the Republicans, the Democrats, all of the major utility companies, the Public Utilities Commission, the Environmental Defense Fund, the Sierra Club, the Union of Concerned Scientists and, well, just about everyone except those voters taken in by the “it is green so it must be good” ads of the measure’s backers.

Proposition 10 was part of T. Boone Pickens‘ campaign to boost renewables. The voters saw it as simply an excuse to give millions of dollars in subsidies to Pickens’ company, Clean Energy Fuels, which provided most of the campaign finance for the measure. San Francisco city also rejected a renewable energy-related measure.

The California PUC has issued a ruling by Administrative Law Judge Anne Simon on the subject of setting up a market in Renewable Energy Credits. There is an overview of the decision on Platts, and the full ruling can be found here.

That has to be the question that everyone is asking right now. OK, so the banking sector is in meltdown, but what about me? Or, in our case, what about energy?

Despite the regular panics about price spikes, market failure, environmental regulations and so on, it appears that the energy industry is weathering the storm. Last week Platts reported that the US energy sector was still seen as a good investment. Of course that was last week, but it does help to be producing a product that just about everyone needs. The demand for energy may tighten, but it will never go away.

On the other hand, the nature of investment in energy may change. Today the California PUC has warned that lack of investment capital may put the brakes on the state’s green agenda. Platt’s reports that Commission member John Bohn has been voicing concern about the ability to finance development projects. Even major utilities are likely to be hit, but smaller companies will feel the pain much more deeply.

That, I suspect, will be a major problem for the burgeoning renewables industry. Right when it was about to take off in a big way, investment is going to come to a grinding halt. Instead new investment will have to come from other sources, and there will probably be government involvement in many cases. We can’t afford to let the lights go out, so government will feel the need to Do Something. And, as is the way of government, they will eschew multiple small and innovative projects, and go instead for something big and flashy that will appear to solve all of their problems in one go. Building nuclear power stations may prove to be a lucrative career over the next few years.