MorganEnergy

Today’s issue of the Wall Street Journal has a major article about cyber-attacks on the US electricity grid. Apparently spies from a number of countries, including Russia and China, have been covertly hacking into electricity systems in the US.

The espionage appeared pervasive across the U.S. and doesn’t target a particular company or region, said a former Department of Homeland Security official. “There are intrusions, and they are growing,” the former official said, referring to electrical systems. “There were a lot last year.”

Thus far no damage has been reported, and the hacking activity appears to have been more of a scouting mission than an all out attack. However, officials worry that malware may have been left behind and could be activated in the event that hostilities break out.

The other major problem is, of course, working out who is attacking you:

It is nearly impossible to know whether or not an attack is government-sponsored because of the difficulty in tracking true identities in cyberspace. U.S. officials said investigators have followed electronic trails of stolen data to China and Russia.

Russian and Chinese officials have denied any official involvement in the attacks.

Although attacks of this type have been going on for some time, it is probably no accident that the WSJ has chosen to report them now. The Smart Grid movement is finally managing to get some traction, and one of many questions being asked is whether there should be an open standard for supply of equipment, or if instead a single company should be tasked with developing a secret and supposedly hack-proof technology. The WSJ acknowledges this in a supporting article that asks whether the Smart Grid would help repel attackers, or open the door to them.

At one level this is just another one of those traditional Washington arguments where a big business tries to persuade Congress that it needs to be granted monopoly control of some aspect of the economy under some pretext or other. However, in this case the pretext could be worryingly wrong, because open standards may be the best solution.

Last week security expert Bruce Schneier worried about who should be in charge of cybersecurity in the US. He pointed out that organizations like the NSA tend towards paranoia and, if given sweeping powers, will be tempted to use those powers against imagined internal enemies rather than external ones. In addition security organizations like the NSA often have an incentive to preserve back doors in systems so that they can use them themselves, rather than plug them so that others cannot.

The main point, however, is that security systems can never be made hack-proof. As technology journalist Cory Doctorow explains, discussing a rather different area of business, the only way to be sure that a security system is actually unbreakable is to make it public and let enthusiastic hackers try to break it. Contests such as this one held last month to test the security of web browsers do far more to keep our computer systems secure than bureaucratic secrecy.

Energy Legal Blog has an interesting post up about Commissioner Jon Wellinghoff, the new acting FERC Chairman.

With a new national energy policy being formulated for the US, everyone wants to have a say in shaping it. EU Energy Policy has an extract from one such effort by Paul Joskow. If you are interested in the detail it is probably better to read the whole paper.

It seems like it is open season on emissions trading schemes at the moment. Over at the Wall Street Journal they are reporting on the hail of fire descending on the U.S. Climate Action Partnership over their blueprint for government action. Meanwhile Sandbag is having at go at the EU’s scheme in the light of the current rapid collapse of carbon prices in that market.

Much of the USCAP criticism appears to be politics as usual. Business interests will carp over anything that costs them money, consumer advocates will rail against anything that puts up prices, and environmentalists will complain that anything that doesn’t hurt businesses and consumers is an outrage. The fact that it is being shot at by all sides suggests that USCAP might actually have hit the middle ground. But that doesn’t mean that their scheme will work.

Europe’s problem is altogether different. Whatever scheme a government comes up with will be unpopular with someone. However, if a carbon trading scheme ends up with a very low price for carbon then it is very clearly not doing its job, no matter how happy some people might be about that. The objective of a carbon trading scheme is to reduce emissions by making them expensive, and if it doesn’t do that then it is pretty much just creating jobs for consultants and IT people.

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.

The lunch speaker here today was C. Stephen Allred, the Assistant Secretary of the Interior for Land and Minerals at the Department of the Interior. He gave us a fascinating insight into the mindset of the Bush Administration, and its current drive to open up as much federal land as possible to energy exploration before Mr. Obama gets into office. The Allred doctrine was basically as follows:

1. 1. There is an urgent need for the US to establish energy independence, because too much of the world’s energy supplies is controlled by Communists and Muslims (though he didn’t put it quite that bluntly);
2. 2. Renewable energy is unlikely to ever account for more than about 10% of the total energy usage in the US; and
3. 3. The federal government can make lots of money by leasing land to energy companies.

Allred did have a very good point in that even renewable energy development has a substantial effect on the environment. For example, solar farms cover a vast acreage of desert (and the DoI currently has planning applications for around twice the amount of land that it has available to lease). Also if you site wind and solar farms out in the desert then you still need to build transmission lines to bring the power to population centers.

On the other hand, some of what he said was a little suspicious. Allred made a big point of wanting consistency between federal policies on land use and the policies in place on neighboring private lands. I believe that is code for, “if private land owners allow their land to be exploited than the government should be allowed to do so too.”

There are also questions to be asked about the potential effects of some of this hydrocarbon search. One of the biggest potential sources of energy is the collection of oil shale fields in Wyoming, Utah and Colorado. However, if Canadian experience is anything to go by, exploiting them could cause an environmental disaster.

Being a polite lot, none of us was willing to challenge Mr. Allred on what he said, though a gentleman from Platts did ask Allred if he thought he would still be employed under the Obama Administration. Mr. Allred said he was looking forward to retirement.

On the other hand, the final plenary session of the day was about energy policy, and being something of a troublemaker I asked the panel to comment on Allred’s speech. John W. Jimison, who is a Counsel for the Committee on Energy and Commerce at the House of Representatives gave a very succinct answer: the Obama Administration, he said, is all about change.

More generally the panel agreed with Allred’s point 3 (which is fairly obvious) and with point 2, though they did note that the low proportion of renewable use did not preclude reductions in carbon emissions due to efficiency programs and so on. However, unlike Mr. Allred, the panel was firmly in favor of international trade in energy, and of developing carbon emission abatement systems that could usefully be exported to the rest of the world. Obviously none of them speak for the Obama Administration, but the panelists were chosen because of their insights on policy issues.

(The other panelists were Shirley Neff, President & CEO of the Association of Oil Pipelines, and Jim Sweeney, a Stanford professor and policy adviser to Governor Schwarzenegger.)

Here’s another new paper from the UCEI Berkeley Center for the Study of Energy Markets. This one is by Meredith Fowlie, Christopher R. Knittel and Catherine Wolfram and compares differences in pollution abatement policies between industry (e.g. generation) and individuals (e.g. cars). Here’s the abstract:

Sacred Cars? Optimal Regulation of Stationary and Non-stationary Pollution Sources

For political and practical reasons, environmental regulations sometimes treat point source polluters, such as power plants, differently from mobile source polluters, such as vehicles. This paper measures the extent of this regulatory asymmetry in the case of nitrogen oxides (NOx), the criteria air pollutant that has proven to be the most recalcitrant in the United States. We find significant differences in marginal abatement costs across source types with the marginal cost of reducing NOx from cars less than half of the marginal cost of reducing NOx from power plants. Our findings have important implications for the efficiency of NOx emissions reductions and, more broadly, the benefits from increasing the sectoral scope of environmental regulation. We estimate that the costs of achieving the desired emissions reductions could have been reduced by nearly $2 billion, or 9 percent of program costs, had marginal abatement costs been equated across source types.

The full paper is available here.

Knowledge Problem has an update on the negative prices in Texas issue.

Mike Giberson also muses on this very interesting article from the WSJ. If electricity demand growth in the US really has stopped that is a very big story.

And finally the nodal market in Ercot, due to go live next month, has been pushed back all the way to December 2010.

October has been a busy month for FERC, with a lot of major rulings on electricity market operation being issued. Part of the activity has been regarding the role of the demand side, and Michael Giberson at Knowledge Problem has a long post addressing the various issues. Other rules, summarized by Tracy Davis at Energy Legal Blog, touch more directly on market power issues.

Something that is likely to result in a good deal of head scratching around California is that FERC now believes that long term contracts are a good thing. If only someone had been able to explain that to California legislators before things got ugly.

FERC has also insisted that market monitoring departments be responsible directly to RTO/ISO boards, not to management. Hopefully that will put an end to any silliness about market monitors being muzzled because their findings reflect badly on the market they are monitoring. FERC has even given market monitors the power to report directly to them if they believe that an RTO or ISO is guilty of misconduct.

Most governments are now coming around to the idea that new nuclear generation is inevitable, but what will their electorates (if they have them) say? In the USA at least it appears that nukes may be welcomed with open arms. Dr. Fereidoon Sioshansi has an article at EU Energy Policy that suggests support for new nuclear build in the USA could be as high as 74%.