Jekyll2023-05-17T11:51:39+00:00https://www.rexoncarvalho.com/feed.xmlRexon CarvalhoProfileRexon CarvalhoWhat is the Clean Power Plan and why it might not survive?2016-11-22T00:00:00+00:002016-11-22T00:00:00+00:00https://www.rexoncarvalho.com/energy%20policy/clean-power-plan<p>On August 3, 2015, the Environmental Protection Agency (EPA) announced the Clean Power Plan (CPP). As per the CPP, the EPA sets a certain target for emissions reduction for each state and the states have a choice of which path to follow to achieve the target. Depending on current emissions and the grid mix in each state is given a different target. For example, the state of Vermont and the District of Columbia are exempted, as they do not get their electricity from affecting sources and states like Wyoming have the biggest targets (2). If accepted by all the states, the Clean Power Plan will reduce the carbon emissions by 32 percent below 2005 levels (1). It will ensure faster shift to clean electricity and, a 90 and 72 percent reduction in in sulfur dioxide and nitrogen oxides respectively (1). The CPP will have $20 billion in climate benefits and about $14 to $34 billion in health benefits. However, despite all the benefits, there are some parties which oppose the CPP.</p>
<p>In 2007, in Massachusetts vs EPA, the supreme court declared that carbon dioxide should be included in the list of pollutants, under section 108(a) of the clean air act, which EPA is supposed to regulate as carbon dioxide is supposed to endanger public health through climate change. Hence, in 2010, EPA agreed to establish New Source Performance Standards to regulate greenhouse gas emissions (GHG) from new sources. Regulating just the new sources would not do any good, hence, they came up with emission guidelines for the already existing sources (2). A revised version of these standards to regulate emissions from existing Electricity Generating Units (EGUs) later became the clean power plan. The CPP when presented to the congress, did not pass the congress because the congress voted against it in a joint resolution under the Congressional Review Act (3). President Obama then vetoed the decision of the congress and put the CPP in place on December 18, 2015. The congress was unable to override the veto because they did not have a two-thirds super majority at that time. The CPP is not only crucial to President Obama’s climate action plan but also necessary to meet the targets agreed to in the Paris Agreement (4). President Obama’s role in establishing the CPP was as the head of EPA who urged the EPA to make the CPP. The lawsuit by the Massachusetts state against EPA and President Obama’s pro climate action position was what led to the CPP which regulates carbon emissions from EGUs.</p>
<p>The section 111 of the Clean Air Act is what gives the authority to EPA to regulate emissions which affect public health from new and existing stationary sources. As ruled by the supreme court in Massachusetts state vs EPA, carbon dioxide is one of the emissions. The section 111 (d) gives authority to EPA to regulate emissions (pollutants) from existing sources which have not been regulated by any other act or EPA itself (5). The section 111 (b) of CAA gives authority to the EPA to regulate emissions (pollutants) from new and modified sources (5). Under the act, EPA must set a “standard of performance” which means highest degree of reduction achievable by applying best technology considering the cost and environmental impacts (5). EPA cannot regulate pollutants which are being regulated as criteria pollutants under National Ambient Air Quality Standard, or as hazardous air pollutants as interpreted by EPA (3). Carbon dioxide is not regulated by any of the above standards. Hence the EPA can regulate the carbon dioxide emissions via the CPP. </p>
<p>Having said that, the CPP is still not enforced because 27 states filed petitions against it in the U.S. Court of Appeals for the D.C. Circuit. The CAA Section 111 (d) which gives EPA the authority to regulate carbon dioxide from existing sources has two versions to it. One is with an amendment passed by the House and other is with an amendment passed by the senate. The house version, which is the CAA Section 111 (d)(1)(A)(i), allows EPA to regulate the pollutants which have not been includes in the list published under section 108 (a) or which come from sources which are already being regulated by the EPA for hazardous air pollutants (2). The senate version, which also is CAA Section 111 (d)(1)(A)(i), allows EPA to regulate pollutants, excluded from the list published under section 108 (a), irrespective of whether the source is already under regulation by EPA or not (2). This ambiguity in the CAA is one of the major arguments holding the CPP in court. Other argument challenging the CPP is that EPA is regulating more than what it should be, that the EPA has the authority to regulate individual sources and compel the party in charge of the source to take pollution control measures and not regulate an entire state. The states also argue that the EPA is invading their right to regulate the electricity sector by enforcing the CPP (2). The CPP has also been challenged by fossil fuel related industries and labor unions as it stands against fossil fuel (Coal) powered generation which might have to be stopped.</p>
<p>The parties against the CPP also applied for a stay on the rule in the supreme court and the court called for a stay on implementation of CPP on February 9, 2016 without any explanation (2). The Circuit court ordered the briefing to be completed in April 2016 and set the oral argument to September 27, 2016. The parties dissatisfied with the Circuit Court judgement could then take the case to the supreme court (3).</p>
<p>As the CPP was not passed in the congress and passed as an executive order by President Obama, it is relatively easy for the next president to overturn it. Because, Mr. Donald J. Trump has been elected as the new president it is very likely that the CPP will be overturned and will be replaced with something fossil fuel friendly. There are several things Mr. Trump can do the overturn the CPP. One of the easiest way will be to pass an executive order to repeal CPP and replace it. Other will be to appoint a Director of EPA with an anti-climate change ideology. No matter what the fate of CPP will be, EPA must have a plan of some form to regulate carbon dioxide as it is obligated by the supreme court in to do so as per the 2007 hearing.</p>
<p>References:</p>
<ol>
<li>Fact Sheet: Overview of the Clean Power Plan, Environmental Protection Agency</li>
<li>James M., et al., EPA’s Clean Power Plan for Existing Power Plants: Frequently Asked Questions, Congressional Research Service, 2016</li>
<li>Timothy C, Obama Vetoes GOP Push to Kill Climate Rules, The Hill, 2015</li>
<li>Bobby M, Lawsuit Aims to Overturn Obama’s Clean Power Plan, Scientific American, 2016</li>
<li>Christopher E., Structuring Power Plant Emissions Standards Under Section 111(d) of the Clean Air Act—Standards for Existing Power Plants, M. J. Bradley & Associated, 2013 </li>
</ol>Rexon CarvalhoOn August 3, 2015, the Environmental Protection Agency (EPA) announced the Clean Power Plan (CPP). As per the CPP, the EPA sets a certain target for emissions reduction for each state and the states have a choice of which path to follow to achieve the target. Depending on current emissions and the grid mix in each state is given a different target. For example, the state of Vermont and the District of Columbia are exempted, as they do not get their electricity from affecting sources and states like Wyoming have the biggest targets (2). If accepted by all the states, the Clean Power Plan will reduce the carbon emissions by 32 percent below 2005 levels (1). It will ensure faster shift to clean electricity and, a 90 and 72 percent reduction in in sulfur dioxide and nitrogen oxides respectively (1). The CPP will have $20 billion in climate benefits and about $14 to $34 billion in health benefits. However, despite all the benefits, there are some parties which oppose the CPP.What really happened to Solyndra?2016-11-15T00:00:00+00:002016-11-15T00:00:00+00:00https://www.rexoncarvalho.com/renewable%20energy/solyndra<p>Solyndra was a company which made innovative solar photovoltaic systems. Instead of conventional flat cell solar panels they made cylindrical cell panels coated with copper indium gallium selenide (CIGS) (1). A cylindrical cell could capture the direct, diffused and reflected radiation from the sun 360 degrees around it. This resulted in 20% decreased cost of generating power from solar (1). Although CIGS systems were expensive, they were able to compete with conventional silicon based systems because of high silicon prices and better efficiency. The Solyndra systems where lighter, easier to install and more cost effective (at the time when silicon prices were high). As silicon (used by competing technologies) prices dropped by 89% between 2009-2011, the future of cylindrical CIGS systems did not look as promising as it did in the past (2). Soyndra, which had received $535 million in federal loan guarantees in September 2009, filed for bankruptcy on September 1, 2011. There were a number of parties involved the Solyndra controversy which include the executives at Solyndra, the loan apporoval committee and the other government officials which costed tax payer such large sum of money.</p>
<p>It was not just the falling silicon price that took away the tax dollars, it was also bad business practices by Solyndra officials. According to the special report by U.S. Department of energy, Solyndra lied to the government about its sales, revenues and costs to get the federal loan guarantee (3). Solyndra officials assured the government that they had four sales contracts worth 1.4 billion dollars over the next five years. However, Solyndra had offered substantial price concessions to all the four customers which they did not disclose to auditing party (3). Moreover, Solyndra did not disclose that its contract customers would not buy the full volume of solar panels agreed to in the contract. This implied that the future revenue of the company was substantially lower than what was projected. Furthermore, Solyndra indicated that it could charge higher than market price for the panels and still have a lower system cost because its panels had a lower balance of system cost as they were easier to install. But the cost savings reported by Solyndra were on average 25 to 65 percent higher than the actual savings (3). This implied that their profit was less than reported. The decreasing silicon prices, low revenues and high costs made Solyndra financially unstable.</p>
<p>Although the government and the loan approval committees were lied to, it was not the case they they were not at fault. In January 2009, the loan guarantee was turned down by the Bush administration because they were of the opinion that “there was no independent market study addressing long term prospects for the company at that time”. PricewaterhouseCoopers, an auditing firm expressed concerns about Solyndra’s future as a successful business (7). The government was warned by Steve Westly, an Obama fundraiser and investment fund manager, about solvency of the company and that the company would not survive as a business (4). In spite of being warned the administration continued supporting the company. Some White House officials dismissed the concerns about the future of the company by saying that innovative companies come with risk (6). Their reasons for dismissal could be justified if the company did not report false revenue and profits. According to an Office of Management and Budget (OMB) official, OMB was asked to rush the loan reviewing process by the White House because the Vice President wanted to announce the loan approval at a public event. As a result of a hasty reviewing process, a full review of Solyndras financial condition was not possible (4). The company was granted the loan guarantee in September 2009. Moreover, even after the company went bankrupt in 2011, it was granted additional $68 million in government loans. It was the first company which was provided a loan guarantee under the Obama administration and they did not want it to fail. The important fact is that the decision makers considered the political factors to be more important than the economic factors.</p>
<p>The Energy Policy Act of 2005, which provides funding to innovative energy technologies, is the policy under which Solyndra received funding. Solyandra is not the only company which received funding under this act and filed for bankruptcy. Abound, Beacon Power Corporation, Nevada Geothermal, Enerl, and Range Fuels are some of the companies which have received guarantees and filed for bankruptcy (7). Having said that, policies are needed to enhance the growth of new technologies and make them affordable. Without government incentives and funding, it is extremely difficult for new expensive technologies to penetrate into the market. The government must balance their funding between enhancing the supply side and increasing the demand. What the government did with Solyandra was increase the supply of solar panels by funding the company operations for which there was very little demand. Increasing the pre- existing subsides on cost of technology will increase adoption and hence, increase the demand. As the demand increases, providing more funding to the companies will make sense as those funds can be used to expand the company operations to satisfy the demand. Considering the high cost of technology and low demand, policies must consider balancing the demand and supply for an economically stable system.</p>
<p>It was a bit of everything that led to the Solyndra disaster. Bad business practices by Solyndra officials, bad politics by government officials and a weak policy. The government reports blame the company for reporting wrong data. On the other hand, numerous news agencies which have analyzed documents and emails related to the controversy, blame the government and the policy. However, no one person, institution or factor is absolutely wrong and can be blamed for this controversy. The Solyandra officials reporting false data in spite of knowing that the company was not financially stable, the government ignoring warnings about the solvency of the company, decision makers in the government putting political interests before economics and policy which was not strong enough to factor the economic aspects very well jointly caused the disaster.</p>
<p>References</p>
<ol>
<li>Melissa L., Solyndra - Illuminating Energy Funding Flaws?, Scientific American, 2011</li>
<li>Ikhlaq S., et al., Solyndra 2011 Case Study, UC Berkely, 2012</li>
<li>Special Report, The Department of Energy’s Loan Guarantee to Solyndra, Inc., U.S.
Department of Energy, 2015</li>
<li>Bonnie B., et al., Greenlighting Solyndra, The Washington Post, 2011</li>
<li>Joe S., Lawmakers seek White House documents on Solyndra loan guarantee, The
Washington Post, 2011</li>
<li>Alana B., Barack Obama Solyndra Scandal: 8 Facts About Green Energy Company
Controversy, Newsmax, 2015</li>
<li>Diana F., Solyndra and The Perils of Green Industrial Policy, Manhattan Institute for
Policy Research, 2012</li>
</ol>Rexon CarvalhoSolyndra was a company which made innovative solar photovoltaic systems. Instead of conventional flat cell solar panels they made cylindrical cell panels coated with copper indium gallium selenide (CIGS) (1). A cylindrical cell could capture the direct, diffused and reflected radiation from the sun 360 degrees around it. This resulted in 20% decreased cost of generating power from solar (1). Although CIGS systems were expensive, they were able to compete with conventional silicon based systems because of high silicon prices and better efficiency. The Solyndra systems where lighter, easier to install and more cost effective (at the time when silicon prices were high). As silicon (used by competing technologies) prices dropped by 89% between 2009-2011, the future of cylindrical CIGS systems did not look as promising as it did in the past (2). Soyndra, which had received $535 million in federal loan guarantees in September 2009, filed for bankruptcy on September 1, 2011. There were a number of parties involved the Solyndra controversy which include the executives at Solyndra, the loan apporoval committee and the other government officials which costed tax payer such large sum of money.Was restructuring the US Power Markets necessary?2016-10-20T00:00:00+00:002016-10-20T00:00:00+00:00https://www.rexoncarvalho.com/electricity%20markets/deregulation-necessary<p>The electricity industry spawned in 1882 in the financial district of New York City when Thomas Edison’s utility business first provided electricity to neighboring customers. The customers had to be located within a mile of the power plant because, as the transmission was in DC, the resistance in the wires made electricity unusable beyond a mile. At that time, the idea was that electric utility business would be distributed into small areas as it was difficult to transmit power. It was difficult to imagine that electric utility business would be anything like it is in the present day. However, the development of AC transmission lines in 1880s changed the face of the electric utility business. Electric utilities could now provide electricity to a large area as high voltage AC power could be transmitted up to twenty miles. Combination of AC transmission and more power dense steam turbine generators lead to rapid growth of electric utilities. As the utilities grew and the increasing demand for electricity could be met due to technological innovations, the utilities became richer. They began consolidating with other companies to keep growing without the risk of competition like the Standard Oil Trust in the oil industry. One such example in the electricity utility business was Chicago Edison Company later called Commonwealth Edison. Electric utility business was just like the railways or oil industry where few companies controlled the entire business.</p>
<p>One of the mechanisms to fight these monopolies and bring back free market for electric services was the franchise approach. In the franchise approach, government would provide franchise to a number of firms thinking that competition would force the utilities to provide better services at lower prices. However, the already rich utilities bribed the government officials and got majority of the franchises. The franchise approach did not work because of corruption. Other model to control the utilities was municipalization. The government agencies bought the utility companies and operated them so that they could provide electricity at a reasonable price. In 1907 city owned utilities provided thirty percent of electricity. But, critics said that corrupt government officials would be a threat to public wellbeing in case of municipalization just like they were in franchise approach and that city owned utilities would maintain low prices by following poor business practices and cutting investment in equipment. There were other ideas floating around about electric utilities. One of them was them was that companies which provide essential services to masses must be regulated to avoid exploitation of masses and, other was that these companies must be natural monopolies as it was more efficient for one company to provide these services. This gave rise to the mechanism called regulated monopolies for the electric utility sector. According to this mechanism, utilities are given monopolistic franchise to generate, transmit and distribute power in designated areas with an obligation to serve all the consumers, whoever sought power, at a reasonable rate. In return, the regulators regulate the activities of the utilities and electricity rates.</p>
<p>The regulated monopoly structure or the vertically integrated utility structure worked well during the early days and lasted for more than five decades. All the parties involved in the electricity sector, the customers and the utilities, benefited from this mechanism. All the customers got electricity at a reasonable rate which made the customers happy. The utilities were provided a non-competitive market which eliminates the risk of competition. Moreover, utilities also benefited from the rate of return regulation which assured them a certain rate for return on the capital investment. The bankers provided easy finance to the utilities as they were guaranteed a rate of return and hence, there was less risk associated with them. Easy finance made it possible for the utilities to expand their operations and serve all the customers who sought power. The regulators had legislative, judiciary, and executive qualities and powers to regulate the utilities.</p>
<p>However, during the later years utilities gained control through advertising and political influence. They carried out campaigns to portray utilities as public servants. The utilities hired professors, journalists and consultants to carry out their propaganda. The Fair-Trade Commission uncovered corruption and financial abuses in the utility industry. Few numbers of people controlled huge sums of profits via holding companies. Moreover, during these years the quality of regulation faded. The regulators were less concerned about the public good. The quality of people regulating the industry deteriorated. The regulators thought that the utilities must be given a stronger position so that they could perform their tasks better. All of the above reasons made utilities more powerful than the regulators. The regulators favored the utilities and fulfilled their demands without any opposition. The utilities followed the Grow and Build strategy. They started building power plants which were more efficient, provide power to customers who would increase the load factor of a plant and provide power to customers in the rural areas. This allowed the utilities to provide more power at a cheaper cost. They continued to build more plants and the prices of electricity kept falling.</p>
<p>The vertically integrated structure did work well in its early days when the regulation was stricter and utilities followed it. It provided low cost electricity to a large number of customers. But, in the later days when utilities gained power and the regulators became liberal, it all started to fall apart. As electricity had becoming a basic necessity, keeping the utility system simple with no private investors and stakeholders would make it better for the consumer. City owned utilities being one of the simplest mechanisms, would have worked just fine if they followed good business practices and invested in new technology, which is very unlikely. Having said that, the vertically integrated utility structure was both good, as it provided cheap electricity and bad, because the it became corrupt and capitalistic. It would have been better if the regulation was stronger and the regulators were well equipped.</p>
<p>Reference:
Power Loss, Richard Hirsh, The MIT press, 1999</p>Rexon CarvalhoThe electricity industry spawned in 1882 in the financial district of New York City when Thomas Edison’s utility business first provided electricity to neighboring customers. The customers had to be located within a mile of the power plant because, as the transmission was in DC, the resistance in the wires made electricity unusable beyond a mile. At that time, the idea was that electric utility business would be distributed into small areas as it was difficult to transmit power. It was difficult to imagine that electric utility business would be anything like it is in the present day. However, the development of AC transmission lines in 1880s changed the face of the electric utility business. Electric utilities could now provide electricity to a large area as high voltage AC power could be transmitted up to twenty miles. Combination of AC transmission and more power dense steam turbine generators lead to rapid growth of electric utilities. As the utilities grew and the increasing demand for electricity could be met due to technological innovations, the utilities became richer. They began consolidating with other companies to keep growing without the risk of competition like the Standard Oil Trust in the oil industry. One such example in the electricity utility business was Chicago Edison Company later called Commonwealth Edison. Electric utility business was just like the railways or oil industry where few companies controlled the entire business.Balancing deployment and innovation of low-carbon technologies2016-02-24T00:00:00+00:002016-02-24T00:00:00+00:00https://www.rexoncarvalho.com/energy%20policy/balancing-inovation-deployment<p>Low carbon technologies are expensive and without subsidies from the government, most of these technologies are not economically feasible. As these technologies are expensive, they do not have a very high demand for them at that high price. Because there is not much demand, it is difficult to deploy these technologies at a large scale and gain the advantage of economies of scale which further decrease the cost of production. Hence both making the technologies better and increasing the demand must be focused on, for these technologies to have a substantial impact. However, because financial resources are limited, the question is, how should they be allocated?</p>
<p>Low carbon technologies, being relatively new, have a huge potential for improvement. Improving these technologies requires funding into the research and development sector. As per Robert M., et al., innovation is proportional to the funding for research and development. From the data collected, they concluded that between 1976 and 1996, as the R&D funding increased from $100 to $200 billion the number of patents increased from 70,000 to 110,000 (1). Funding research and development enables firms to hire people to research a technology, develop it and launch it into the market. Without research and development, it is next to impossible to scale up a technology from laboratory scale to a larger scale. Research and development had a significant role in decreased the cost of solar from $8/W in 2007 to $4/W in 2013 (2). If it was not for federal funding in form of loan guarantees, companies like Tesla and First solar would not be able to deploy their technology at such a large scale. Without research and development, a technology will not be deployable. Moreover, subsidizing technologies which are expensive compared to conventional counter parts will make the economic system unsustainable in the long run (7). Hence research and development are important for technology development.</p>
<p>Having said that, innovation can bring down the cost of a technology only to some extent. Demand for the new technology and its adoption further bring down the cost as the technology starts benefiting from economies of scale. The Feed-In-Tariff (FIT) policy in Germany, which payed customers more than the retail electricity rates for excess electricity from solar, made the economics of solar look appealing. With FIT, Solar PV in Germany is profitable to the customer over its lifetime. In Hawaii, the high electricity prices, and 35% state tax credit on solar combined with a 30% federal tax credit brings down the payback period to about four to five years (3). With such strong economics, the demand for renewable technologies increases and the cost of producing them decreases as the scale of production becomes economical. Without funding on deployment, which reduces the cost and increases the economic value, there will be very little demand. Other reason why deployment helps, is that it addresses the urgency to fight climate change. Deployment of green energy technologies is very crucial to meet the ambitious emission reduction targets. Moreover, as per reports, “for every $1 of investment avoided before 2020 an additional $4.30 would be needed to spend after 2020 to compensate for increased emissions” (4). Funding for deployment then, is necessary for clean technologies to make economic sense and fight climate change.</p>
<p>However, doing either one of the two will certainly not aid us in achieving the goal of clean energy. Funding only innovation would imply that the technology is getting better, but it is taking for ever to be implemented on a scale which would have a significant impact on emissions. On the other hand, funding deployment would imply that the technology deployed is not as technically advance as it could have been, and it does not give much value to the investment in it. This situation is like asking for either eggs or chicken and getting one without the other is not possible. For example, Tesla Motors did not wait until they had a perfect electric car to sell it. They launched the Roadster and kept improving the technology. As people started buying more Tesla vehicles and the company’s revenue increased. After selling 125,000 cars since its inception, Tesla now has the technology and the economies to sell the Model 3 for almost a third of the price of the Roadster (5). On the contrary, although technologies like solar are being deployed on a large scale, they are still not able to compete against conventional technologies without subsidies. U.S. Secretary of Energy Ernest Moniz quotes, “Innovation brings continued cost reduction” (8). While funding innovation will help overcome the technological barriers like efficiency, implementation and cost, investing in deployment will help overcome the market barriers which hinder the development of clean energy economy (6). Deployment and innovation go hand in hand. To build low cost clean energy infrastructure in a relatively short period which is economically sustainable in long term, both innovation and deployment must be balanced.</p>
<p>References</p>
<ol>
<li>Robert M., et al., Evidence of Under-investment in Energy R&D in the United States and the Impact of Federal Policy, Energy Policy, 1999</li>
<li>David F., et al., “Photovoltaic System Pricing Trends”, US Department of Energy, Historical, Recent and Near Term Projections, 2014</li>
<li>Makena C., et al., A Policy Analysis of Hawaii’s Solar Tax Credit Incentive, University of Hawaii, 2013</li>
<li>The Logic of Deployment, Deployment, Deployment, R&D, Deployment, Deployment, Deployment, Clean Technica, 2011</li>
<li>Angelo Y., Tesla Motors (TSLA) 1Q 2016 Sales: 14,820 Model S, Model X Cars Were Delivered in First Three Months; Model S Sales Jumped 45%, International Business Times, 2016</li>
<li>Bryan W., Energy: Research Vs Deployment, Time, 2010</li>
<li>Megan N, et al., Challenging the Clean Energy Deployment Consensus, The Information Technology and Innovation Foundation, 2013</li>
<li>David B., Accelerated Innovation Is the Ultimate Solution to Climate Change, Scientific American, 2015</li>
</ol>Rexon CarvalhoLow carbon technologies are expensive and without subsidies from the government, most of these technologies are not economically feasible. As these technologies are expensive, they do not have a very high demand for them at that high price. Because there is not much demand, it is difficult to deploy these technologies at a large scale and gain the advantage of economies of scale which further decrease the cost of production. Hence both making the technologies better and increasing the demand must be focused on, for these technologies to have a substantial impact. However, because financial resources are limited, the question is, how should they be allocated?