Water Depends on Energy, Or Is It The Other Way Around?

The United States took more than 400 billion gallons of water out of the ground, lakes, rivers, and reservoirs daily in 2005.  (more…)

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The Electricity Marketplace

Boulder Dam wires. Photo by Ansel Adams, from U.S. National Park Service.

Electricity has to be produced within moments of its use. Its markets are bound tight to the paths electricity can take – the geography of power lines – and how much towns and cities need at any moment. And yet, intentionally, the retail electricity prices that we pay are buffered from the wholesale marketplace.

Gasoline is an example of where we energy consumers can see the market forces at work. The price of gasoline sways with the crude oil market, usually somewhere between $70 and $100 per barrel. Those swings are reflected back at the pump, a place any driver is familiar with. No one is surprised by a nickel’s worth of change here or there, but when prices increase by enough, some people actually reduce their driving.

Electricity doesn’t really work that way. The prices in the electricity market can easily double or more, routinely, every single day, and consumers like you and me will never know. (See figure below). The rate that we users pay is tightly regulated by regional authorities, which themselves vary depending on where you are (and not only by state).

Furthermore, we’re insulated from the market because, from our perspective, supply is virtually bottomless. We don’t sign a contract in advance that says we’ll receive a certain amount of electricity and no more. We never hear from the utility saying, we can’t give you that power you wanted, we’re out. We go straight from experiencing bottomless supply, to blackout, and we have no control over either case. And unlike the gas pump, we can’t choose where we buy: a monopoly.

 
And yet, the power plants, the fuels markets and the power companies are a competitive, by design.

The figure, from a few days in June 2011, shows average prices. They are aggregated from the hourly prices at the various distinct places within Maine, which themselves are based on mathematical algorithms and what they predicts is the logical price. However, though these prices matter, no one really pays these average prices. Some power plants are paid by node – a theoretical geographical point  – so they get paid according to the price at that hour at their location. Some power plants get paid by zone, a larger geographical area encompassing nodes. The actual market prices and settlements happen in a market that’s administered by a company, not the government. In Maine’s case, the state participates in a larger, regional market moderated by the New England Independent System Operator, a non-profit company. However, the power lines in Maine are joined in a vast network of power lines all the way across the Eastern seaboard, in the Eastern Interconnection. Therefore, market participants in New England can buy and sell electricity outside of New England too.

Further complexity arises because utilities enter long-term contracts with power plant owners for electricity at a particular cost, years ahead of time. They also enter short-term contracts, and they can buy energy on the spot market, right before they need to deliver it.

To see average prices of electricity by state here.

 

MEETING DEMAND: BASE AND PEAK LOAD

A lot of planning goes into making sure there’s enough electricity at any particular moment, making the most of the type of power plants available: sort of like a symphony of different players at different geographic locations.

Many large power plants, nuclear and coal plants particularly, can produce huge amounts of energy. However, to turn on and ramp up these plants to full capacity takes time and costs a lot of money, even though once the plants are running, producing energy is relatively cheap. Instead, these kinds of plants are applied to the base load, or the minimum amount of energy needed. They run all the time and shut down only for special reasons like maintenance.

At the same time, other kinds of power plants are applied to the peak load, the maximum amount of energy needed. Usually powered by natural gas, they are called peaker plants, and though the electricity they produce is generally more expensive, they can be turned on and ramped up or down quickly and for far less cost than the base plants.

American electricity infrastructure developed regionally, in a slowly filling patchwork of power plants, power lines, and power authorities. Each region of the United States has its own market, with its own, vastly different rules.

One example of diversity in market rules is how to manage payments. The organizations responsible for reliability on the grid and administering the electricity market aren’t allowed to make a profit. At the same time, electricity itself can’t really be tracked, the electrons have no name tags. So even though utilities sign long-term contracts with power producers, there’s no way to guarantee if a power plant in West Texas generated the electricity that it sold to a utility in North Texas. Instead, the market’s moderated through the transmission authorities, who get the money from the utility, and pay the money out to the power plants.

As with the stock market, electricity markets have different products and ways of investing, but every region has different rules about which ones are allowed and how they should be bought and sold.

To really complicate things, market rules don’t even apply to whole states! Take a large state like California. It has its own stringent environmental laws, it has a public utilities commission and an energy commission, and it has its own electricity market and administrator, the California Independent System Operator. However, some parts of Northern California participate in the Northwest power market instead. And there are six small regions in the state of California that are their own balancing authorities, including Los Angeles Department of Water and Power and the Sacramento Municipal Utility District.

 

For descriptions of U.S. markets see here, as expressed by the Federal Energy Regulatory Commission.

For a map of which states have restructured (deregulated) their energy markets to allow for retail choice, see here.

 

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Petroleum, Natural Gas, and Coal

The world depends on fossil fuels for its energy, and the United States is no exception. The vast majority of U.S. energy — more than 80 percent in 2009 — comes from burning fossil fuels. (more…)

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Historical Events in Nuclear Fission

As is the case with so many scientific fields, the history of nuclear physics and energy development has always been wrapped up with the history of modern warfare.

An unprecedented level of research went into the American bomb program, applying a rapidly evolving understanding of nuclear physics immediately to building a weapon. That investment spurred the rest of the world to pursue nuclear fission, often using the energy as an excuse for the weapons development. Rather than isolate nuclear energy from its less peaceable counterpart, the timeline incorporates all types of nuclear history.

Recent nuclear media coverage:

Germany begins shutting down old reactors and considers swearing off nuclear power entirely. Germany Dims Nuclear Plants, but Hopes to Keep Lights On.

New evidence that Japan’s troubled reactors were destined to malfunction, tsunami or not, in The Explosive Truth Behind Fukushima’s Meltdown.

Add more here. TK

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“Cap-and-Trade” and Carbon Tax Proposals

CAP AND TRADE

Phosphorus factory smokestack in Muscle Shoals, Alabama.Source: U.S. Library of Congress.

The idea of “cap-and-trade” first emerged in the United States in the 1960s as a device to get the free economy to control pollution, folding in the cost of pollution instead of telling industry how to stop polluting. Often called emission trading, in a working cap-and-trade system, industries that release undesirable compounds into the air, water, or soil have limits of how much they can emit based upon pollution permits. Depending on the system, polluters either are given or have to buy their permits. The government establishes how much total pollution that the permits will grant, an umbrella cap on the economy. If an industry participant wants to release more than the permit allows, they buy the right from another industry player, if available, or perhaps face penalties, depending on the details.

Cap-and-trade can be used to regulate any pollutant, not only carbon dioxide or other greenhouse gases. The U.S. Environmental Protection Agency has three cap-and-trade programs, none of which apply to greenhouse gases. They aim to combat acid rain by reducing sulfur dioxide and nitrous oxide compounds, mostly an issue with coal power.

There is no U.S. cap-and-trade for carbon dioxide, though proposals have been raised regularly, and the U.S. House of Representatives passed an emissions trading program  in an energy bill in 2009, but the bill hasn’t been approved by the U.S. Senate, as of June 2011.

Australia has been considering a cap-and-trade program for carbon dioxide, but that too hasn’t been implemented as of June 2011. The European Union has had a carbon emissions trading program since 2005.

For more about greenhouse gases, climate change, and their relationship to energy go here.

 

CAP-AND-TRADE IN THE UNITED STATES

In the United States, the Acid Rain Program‘s cap-and-trade system has successfully reduced pollution and cost industry far less than expected, at $3 billion per year instead of the feared $25 billion per year, according to a study [that I haven’t found yet] in the Journal of Environmental Management. Savings from cleaner air and water and avoided death and illness are estimated in the range of $100 billion per year, according to the EPA.

However, acid rain chemicals are easier to tame than carbon dioxide. The goal for the subjects of U.S. regulations today – nitrous oxide and sulfur dioxide – is as little as possible. Everyone agrees that these pollutants are bad for the environment and people, and there was a commercially-available solution for nitrous oxides and sulfur dioxide emissions when the cap-and-trade system began in 1990: scrubbers on the smokestacks. Even though the U.S. Congress could have ordered industry to buy the scrubbers, it was easier to pass cap-and-trade politically, and only a certain sector of energy production emits a significant volume of these chemicals. Today, there isn’t consensus about the effects of carbon dioxide gas, which isn’t toxic to humans. There isn’t consensus about how much carbon emissions is acceptable, and there is no viable carbon capture technology. And more than 80 percent (by volume) of energy production methods still produce carbon dioxide, whether that’s from biofuels or coal.

A dynamic map of U.S. carbon dioxide emissions.

 

CAP-AND-TRADE IN EUROPE

In 2005, the European Union passed its own cap-and-trade program to limit carbon dioxide emissions, applied to more than 12,000 factories and power plants in 29 countries. The program includes some limits to nitrous oxide, and airlines will be obliged to participate by 2012. The carbon “cap” on total emissions decreases 1.74% per year.

Some regulators have already claimed success, as the carbon dioxide emissions were reduced in 2009; they increased again a little in 2010. However, the EU admits it gave out too many permits and that future permits will need to be tighter. Furthermore, the recession has acted as a major factor in lowered emissions, and European industries haven’t needed to make any technological changes because of lower demand.

“Power companies were given free carbon permits, but they raised electricity fees anyway — as if they had paid the market price for their permits — and pocketed the markup. Many companies were allocated too many allowances, often the result of powerful industries lobbying the governments that give the permits,”  Arthur Max of The Associated Press wrote from Belgium in a 2011 story about the Europeans’ progress.

If the EU’s carbon dioxide emissions will be reduced in coming years has yet to be determined since the real effects of the cap haven’t truly set in.

For more information about the EU’s program see the EU FAQ here.

 

CAP-AND-TRADE IN INDIVIDUAL STATES

Ten states in the Northeast have applied a cap-and-trade system to carbon dioxide as of 2008, in the Regional Greenhouse Gas Initiative, with the goal of reducing greenhouse gas 10 percent by 2018.

California is planning its own cap-and-trade program, slated to begin December 2011. Ten Canadian provinces and Western U.S. states and have joined California in the Western Climate Initiative, with the hope that there will be a regional cap-and-trade program too.

 

CARBON TAX

Carbon taxes are another way to integrate emissions reductions into the economy. The taxes makes a beeline for fossil fuels, which are far and away the main source of carbon dioxide emissions, whether they’re burned in vehicles or for electricity. A carbon tax on fuels raises the overall price, in theory reducing our ability to buy too much.  That means that industries or individuals can still produce as much carbon dioxide as they please, but they’ll have to pay for it.

Some economists prefer carbon taxes, as they are simpler to enforce, particularly internationally, and there’s likely to be less dramatic shifts in pricing. Others prefer cap-and-trade because there’s a finite ceiling to emissions. Many other arguments support either measure.

From a carbon tax perspective, diesel fuel and natural gas have an advantage over gasoline and coal, respectively, since they produce less carbon dioxide for the energy they generate. Of course, solar and wind produce none, but biofuels are more complex. Many carbon taxes in effect exclude biofuels like wood waste, even though they produce carbon dioxide.

Several European countries and individual U.S. states have various carbon taxes, applied from anywhere in the range of cents to close to $100 per ton, about as much carbon dioxide as would be emitted from using roughly 103 gallons of gasoline. These taxes are still low enough that they aren’t halting emissions. (For more details about calculating carbon emissions, see The Intergovernmental Panel on Climate Change.)

In the United States, carbon taxes in individual states are currently insignificant compared to other market pressures on the price of fuels, particularly in the case of petroleum.

 

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