Self Fulfilling Prophecies

 I fully admit to being an energy wonk and this week I have been engaged in an intensely wonkish activity, reading government energy reports from the Energy Information Administration, which is about as wonky a bureaucracy as you could ever hope to find.  The EIA is the division of the federal Department of Energy that is responsible for tracking, reporting and forecasting energy use within the U.S.  I have been perusing the latest EIA forecasts for energy through the year 2040, in other words a 27 year forecast.  The experience has actually gotten me a bit riled up, which is probably surpising, given how truly dull the data is.

What's bothering me is that the EIA forecasts appear so completely out of touch with what is going on in the energy world today, especially renewable energy.  The EIA Annual Energy Outlook for 2013 forecasts a world in which they basic energy mix of the United States remains relatively unchanged for nearly 30 years, a rather depressing future that only oil companies could love!

 

For example, according to the EIA forecast by the year 2040 the United States will be using less coal to generate electricity than it does today(42%) which is a good thing.  However, it projects that way out in 2040 we will still be getting 35% of  our electricity from burning coal.  My initial reaction to this was, "What, you think we are all suicidal?"  I mean think about it, 27 more years of spewing coal into the atmosphere! 27 more years of poisoning the land with strip mining and coal ash.  By that point global warming would be so bad we could go sunbathing in the arctic!  Seriously, how could the EIA presume that in 27 years, with renewables getting cheaper every year, that we would continue to use coal to generate the bulk of our electricity? I wonder what the EPA thinks of this type of forecast!  The EPA has recently cracked down on the types of emissions new coal plants can produce and appears ready to put out equally strict emissions standards for existing coal plants.  Wouldn't it be far more logical to presume that these EPA regulations will significantly reduce the use of coal for generating electricity?

The problem with this recent IEA forecast is not only that it flies in the face of environmental reality, it flies in the face of economic reality.  The cost of using coal to generate electricity is already more than using either natural gas or renewable energy, even more so if you count the cost of the damage that coal does to our environment and health.  Moreover, all the data suggests that coal reserves are progressively getting more expensive to mine, not less. The EPA emissions regulations will probably also drive up costs for those plants that might try to reduce their emissions, rather than shutting down.  Given these increased costs why would we presume that the U.S. will continue to use a more expensive energy source for the next 27!

A Poor Track Record

The EIA doesn't have a particularly good track record when it comes to forecasting.  It completely missed the change in oil demand brought on by the growth of countries like India and China.  It also missed just how expensive oil would become given increasing global demand.  So in that sense I shouldn't be surprised that they seem to be missing the forecasts once again.  What bothers me the most about these reports is the ways in which they seem to dismiss renewable energy without any real justification.

For example, the report uses as a premise that federal tax credits for renewables will expire in 2016 and will never be renewed.  Huh?  On what basis does the EIA make this assumption?  Support for energy tax credits has been growing and attempts to kill them, such as when some members of Congress recently tried to make Wind tax credits part of the sequester, got completely rejected because the Republican congressmen from the plains states know just how fantastic renewables have been for their economy.  Why therefore should we presume that tax credits will expire and never be seen for the next 25 years?

Similarly, the report seems to totally discount the effect that state level Renewable Portfolio Standards (RPS) could have on renewable energy expansion.  The report says "...they have been relatively quiet in terms of state program expansions."  Again, I gotta say "Huh?"   State level RPS programs have been going gangbusters for the last decade and several states such as California and Colorado have even increased their renewable energy targets given how successful they have proven to be so far. And people are starting to notice that the states with RPS programs are having the greatest overall economic success.  Therefore why would we make energy forecasts assuming that all of the states will suddenly abandon their RPS programs?

Self Fulfilling Prophecies

OK, I realize many of you are probably thinking, so what if EIA got the forecasts wrong.  Prognosticators always get things wrong.  True!  However, it is also true that forecasts and predictions can quickly become self-fulfilling prophecies.  That is true not only in the negative sense but in the positive sense as well.  Predict good things will happen and more often than not they do.  Heck, this is part of the reason why Renewable Portfolio Standards work so well.  We presume a specific target for reducing our fossil fuel dependence, and sure enough the regulations and other efforts needed to make it happen, do happen. 

This is why we need to keep on the EIA about getting these forecasts right.  If they are going to project a dim, never ending fossil-fuel future they should be pushed to justify it, less we all become caught up in a future that we don't want to live in!



 

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California Renewable Energy Targets are Working

California has one of the most aggressive renewable energy targets of any state in the U.S. The type of standard California uses is called a Renewable Portfolio Standard (RPS). What this means is that all investor owned utility companies, such as PG&E or SMUD, must get a certain percentage of their electricity from a renewable energy provider. That source could be a privately held 3rd party energy company such as a hydro-electric plant, solar farm or wind farm operator. It could also come from solar or wind farms that are owned directly by the utility.

In 2011 California passed Senate Bill 2 (SB-2) which raised the portfolio standard from 20% renewables to 33% by 2020. This move was seen as exceedingly ambitious by many renewable energy critics and was quickly discounted as just a political ploy. However, what these critics failed to grasp is that RPS standards actually work! This week PG&E, California's biggest investor-owned utility announced that it is making significant progress towards meeting this demanding target. PG&E stated that for 2011 it had generated more than 19.4% of its energy from completely renewable energy sources including wind, solar, geothermal, biomass and small hydro-electric sources. Furthermore, PG&E says that it is completely on track to hit the 33% RPS target by 2020.

Since 2002 PG&E has signed more than 110 contract for energy from renewable energy contractors. That's about 10,000 Megawatts of energy! Moreover, PG&E has been able to do this without having to increase the price it pays for energy. Many citizens do not realize that in 2012 modern renewable energy power plants such as wind farms and solar farms are completely cost competitive with polluting fossil-fuel sources such as coal and natural gas when a long-term contract is used. That's because the cost of renewable energy sources are already low and going down, and fossil-fuel and nuclear sources are steadily going up in cost. PG&E has done the math and has seen how much solar and wind sources have come down in cost. For them renewable energy is a win-win. They get the positive public image of supporting non-polluting renewable energy and they completely avoid the risk of price spikes because they have locked in the price with a long-term RE contract. Most fossil-fuel providers won't sign long-term contracts because they know fossil-fuel prices will inevitably increase in the future as supplies begin to dwindle or as speculation drives up the cost (as we are seeing right now with Iran).

The progress California is making towards its RPS goals is incredibly good news. Think about it! The country's largest, most energy hungry state will be getting one third or more of its energy from renewable energy in less than 8 years. This would be an enormous step forward for California and would clearly give it a huge economic advantage over competing states. In terms of GDP California is the fifth largest economy in the world. If California can do this, nearly any other country in the world could do this to. And that, my friend, is the whole point! Renewable energy is real, its big, and its working now, not just in some distant future.

The great success states like California and Colorado have had in using aggressive RPS standards leads to the obvious question of why not have a national RPS, not just a state-by-state standard. National level RPS standards have worked wonderfully for countries in Europe so why not in the United States. This week Senator Jeff Bingaman, a Democrat from New Mexico introduced the Clean Energy Standard Act of 2012, a bill that would try to set nationwide standards for large retail utilities. Unfortunately, the bill does not limit sources to truly renewable energy sources, but includes coal with carbon capture and nuclear power.

We think the idea of having a national RPS is a good one but it needs to be limited to truly renewable sources, not just less polluting sources. Nonetheless, it is a start and it will be interesting to see how it fares in Congress. At least it will get the discussion started and hopefully in a few years our entire country can begin chasing and achieving a national RPS target. Let's go for it!!