Are We Getting the Energy Future Wrong?

Once upon a time in a land not far away from our memory, we experienced an extended period of economic growth.  We actually manufactured things here in the US instead of importing them from China. We built homes by the subdivision instead of tucked them into some odd-ball sized inner city space.  We needed mobility so we built the interstate highway system.  We sent men to the moon and imagined entirely new ways to communicate with each other.  I’m describing, of course, the post WWII America that gave rise to the baby boomers and the technology revolution they created.

We needed energy to run that America and we built power plants that were fueled with coal because we had plenty of it and it was cheap.  Yes it polluted the air and over time we got progressively more serious about cleaning it up with new rules and better technology.

And then the world turned upside down with oil embargos, energy crisis after crisis, the Fuel Use act which prevented using natural gas and then the Natural Gas Policy act which encouraged it, the Energy Policy act which allowed wholesale power competition and then the emergence of renewable energy from wind and solar since Three Mile island scared us off from building more nuclear plants and inflation and regulatory delays made them prohibitively expensive.

We went from being optimistic and growth focused to pessimistic and constraints focused.

Fast forward a decade and we’ve reached a middle ground where we’d like to manufacture things in America AGAIN to create jobs, but we’re worried about global warming (or climate change or climate disruption depending upon how Al Gore explains the latest meltdown of his Inconvenient Truth) so today we focus on optimization and venture capital is being thrown at smart grid and its assorted technology disciples to conquer this middle kingdom.

Coal has not gone away but we don’t build as much of it anymore.  Nuclear power has not gone away and we plan to build one new nuke in the South if the Japanese will build the containment vessel, the Chinese will let us into their AE queue, and the NRC will stick with the plan approved instead of changing it constantly whenever some group gets nervous.

Living in a scenario driven by optimization around green goals is a wonderful place to be if you can get there.  But the costs are high because the technologies are new. Wind and solar are plentiful but intermittent and need back-up and besides the wind blows in places far removed from the markets we need to serve and the transmission lines are not always adequate to the task.  And then there is still the Chinese quest for market share buying every commodity they can for domestic use, building export capacity to drive down prices just enough to discourage US manufacturing competitiveness in wind turbines, solar panels and many other products which as an intended consequence reduces industrial demand enough to discourage building the kind of baseload power plants with cheap domestic coal we used to build.

The question is are we getting the energy future wrong?

  • Lower Average Energy Costs with Baseload. If we want to manufacture more things here at home and create jobs we will need steady or lower energy costs.  The kind of energy costs we got from building baseload generation in a market environment where the incremental costs of new capacity brought down the average costs for all.
  • Improve Efficiency through Competitive Market Forces. We’ve learned that wholesale competition for power generation is great at driving out the excess costs and driving up the capacity factors and efficiency of the plants.  In a study we did of divested old power plants in the last decade we found that the improvements in the way the divested coal plants were operated produced enough efficiency gains to power 25 million typical American homes for a year.  Similar improvements were found in the divested nuclear plants.
  • Create Competitive Market Conditions for Manufacturing and Job Growth. There is much the US can do to restore its competitive market position and create jobs—driving up taxes and the costs of doing business are not among them.  When we get serious about growth again we can get our groove back.  The recession has officially ended but the pain continues, but America seems ready for changes in tax laws, investment policy and a focus on growth and job creation to create those competitive conditions.

So what?

There is nothing wrong with adding renewable energy, smart grid, efficiency and other technologies and strategies to our energy mix.  But they are not sufficient to get the job done without tax and investment policies and certainty in our regulatory conditions to attract investment, restore economic growth and create jobs.

Our policy should focus on bringing down the average cost of doing business and that includes lower average energy costs.  The only way to achieve that is through economic growth to increase energy demand with the baseload energy and competitive market policies (not un-sustainable dependence upon subsidies) to achieve it.

The place to start is creating a ferociously attractive market in off-peak energy use to jump start manufacturing and production again and then sustain that with the baseload resource to live into our long term economic growth strategy of getting our groove back.