miércoles, octubre 08, 2008

U.S. Presidential Elections and the Need for a Global Energy Deal

The new president of the United States needs an Energy Secretary of high caliber that knows what he is talking about.

U.S. Presidential Elections and the Need for a Global Energy Deal

By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity

First posted in the GMH Blog, on October 8th, 2008.

Copyright © 2008 José Antonio Vanderhorst-Silverio. All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from José Antonio Vanderhorst-Silverio. This article is an unedited, an uncorrected, draft material of The EWPC Textbook. Please write to javs@ieee.org to contact the author for any kind of engagement.

There is no ill wind that blows nobody any good

This article is a sequel to the EWPC article The Next Energy Secretary, that claims to give “the insights to enable the next energy secretary succeed are laid in black and white.” To be a statesment, one of the essential requirement of the new President of the United States is to pick a high caliber Energy Secretary, that really knows what he is talking about on how to turn around the global power industry.

Under the Energy Pulse article Another Inconvenient Truth: The Need for Coal, Don Hirschberg wrote “… I believe: There are no combinations of solutions given or proposed, recognizing the present and growing world population that can cope with the energy dilemma.” I reinterpret his comment as saying the world is in a process of collapse under the present system. Add to it the reality of the financial crisis next.

In the post Expect the utility industry to ‘hunker down’; everyone else had better, too, Ken Silverstein and Warren Causey joined their minds to conclude that if “Utilities can’t afford it, nor can the rest of us who ultimately pay utility bills, taxes and everything else.” In fact, by revealing a whole lot of ill winds, they are telling everyone to reduce costs if they want to keep the lights on. I disagree! The system is in need of a serious overhaul. There is no ill wind that blows nobody any good.

As it happens, a vicious circle is already set that is pushing the electric service of the U.S. regulated utilities towards a third world electric service. The financial systemic crisis has turn on its collapsing power into the unsustainable process of the US regulated utilities. Because Silverstein and Causey believe they are not cash cows, financial capital is running away from the industry, now that production capital is unavailable.

The collapse is due to a system oriented to a fossil fuel economy, which used to be based on cheap fuels and a world thought to handle infinite environmental impacts. That system was also based on the assumption that end-customers could be classified in a few neat classes that had very similar power requirement, while information (transactions) costs were prohibitive, requiring the need of price controls regulations.

In reality all of these assumptions are great illusions that no longer hold. The pervasiveness of the fossil fueled based system can be found in almost all human activities, making the electric power demand stock largely excessive. Such a system was fueling a consumption society that every one knows is unsustainable. That is the vicious system’s establishment that John Rowe, Don Giegler, (maybe) Bob Amorosi, Ken Silverstein, Warren Causey and many others want to keep extending its useful life.

To avoid the collapse of our civilization, we need world leaders to make the commitment to develop a new system based on a paradigm shift mix of regulation and markets, under the realistic assumptions of expensive fuels, finite world limits on environmental impacts, and cheap transaction costs for end-customers that have varying energy needs. Such a paradigm is the Electricity Without Price Controls (EWPC) market architecture and design that is set to attract production capital to the power industry.

The attraction is the result of a virtuous circle of reliable service and innovative markets under stable and simple rules, adding value with the development of the resources of the demand side. Power and energy demand reductions through efficient pricing and energy efficiency may cut energy growth while increasing customer satisfaction to a new plateau that will result in attractive returns on investment.

The need is essentially global and rests on expert advice. In the EWPC article Is the Anti-Coal Drumbeat Worthy? I quoted BP's chief scientist, Steven Koonin, who said that "We really need major changes in the ways we produce and use energy if we're going to prevent concentrations from rising. I don't think people understand that." I believe important and intelligent people don't understand it because it is a non-trivial matter, which means that they do not have the interactional expertise Koonin has to be able to walk the talk, as should also the Energy Secretary.

This leads me to the U.S. presidential election. Voters are at a crossroad with Barack Obama and John McCain to elect a statesman, like Franklin Delano Roosevelt, to come up and lead the world nations with a Global Deal. The deal is for a system oriented to the digital economy, to initiate the transition from dirty fossil fuels to clean energy, even with scarce expensive energy, and cheap transaction costs to satisfy customers with widely varying requirements. The key is to open the power industry to innovations by eliminating the obsolete price controls.

To enable such innovations, the regulated utility as we know it shifts to a transportation only smart grid utility that produces a reference spot price in time and space for highly reliable electricity. To expand the smart transportation grid at least costs, customers’ investments and operating costs will be considered in addition to generation and transportation costs. Such integration of demand to power system planning, operation and control will result in large coordination savings. Such savings will be the result of Second Generation Retailers business model innovations under competition.