Michael Giberson

News headline reflects the stark difference in pricing strategy between competing businesses and regulated monopolies: “Xcel: Slack demand signals need for rate hike.”

The sub-headline reads, “The utility, which posted a profit increase, will ask Minnesota for approval to raise rates.” Profits are up? Must need to raise prices. Reading the article heightens the feeling that regulated monopolies just think differently.

• “Xcel Energy Inc. reported a 17 percent jump in earnings per share for the third quarter but warned that electricity sales remain slack and that it will seek a Minnesota rate increase.”
• “Cost-cutting efforts launched earlier in the year and rate hikes in four states boosted the company’s bottom line in the latest quarter, executives said. Yet the demand for power across the company’s eight-state service area remained slack for a utility long accustomed to growth.” — so the problem is that they’re “accustomed to growth” but don’t see it coming?
• “Xcel intends to file a request next week with the Minnesota Public Utilities Commission for a 2013 electric rate hike, with an interim increase to be sought on Jan. 1. Madden offered few details, but said higher rates are needed to pay for investments in Xcel’s two nuclear power plants in Minnesota and to cover other cost increases.” — So they want to cover new, higher costs, which is normal…
• “He said Xcel also will file requests this year for … electric rate hikes in Texas, New Mexico and North Dakota. … Xcel also said it won’t need to invest as much in pollution control equipment at its Texas coal-burning power plants. [Xcel] can now defer $470 million in Texas emission-control upgrades for at least five years.” — And they need a rate hike to cover new, lower costs, too.

Michael Giberson

From The Hill’s Energy & Environment Blog:

A group of military veterans pressed congressional Republicans on Thursday to renew a tax credit for the wind industry that their party’s standard-bearer, Mitt Romney, has vowed to end.

The veterans, who are all employed by the wind industry, secured meetings with staff for House Majority Leader Eric Cantor (R-Va.), House Ways and Means Committee Chairman…

The two elements of half-hearted policy substance mentioned in the article are both suspect: “jobs for veterans,” and “reduces dependence on foreign energy.”

Over the last decade the domestic oil and gas production industry added twice as many jobs as the 37,000 jobs the wind industry claims expiration of the PTC will threaten. The only “foreign energy” we import in any quantity is petroleum, excepting some power and natural gas from Canada, and the wind power subsidy has approximately nothing to do with how much petroleum we import.

On the other hand, increasing domestic oil and gas production actually is reducing “dependence on foreign energy,” including imports from OPEC members and other sources, and even including power and natural gas from Canada.

Using military vets to lobby for wind power tax breaks? I guess some K Street lobbying genius imagined using vets would help the industry get a bit of face time with Republican lawmakers who would otherwise rather meet with representatives of some other special interest group. Don’t our military veterans deserve better than to be made into poorly-informed lobbyists for wind energy?

What’s next, retired firefighters, grizzled ex-cops, harried emergency room nurses?

Why not just round up some starving orphans and have them come plead Congress, “Please, sirs, may I have some more … subsidies for wind power?”

Lynne Kiesling

A forthcoming article in the Journal of Industrial Ecology reports on a lifecycle analysis comparing electric vehicles with internal combustion vehicles (at the moment the full article is available for our edification!). This thorough analysis looks at the resource use and environmental impact of the production, use, and disposal of the vehicle. From the abstract:

We develop and provide a transparent life cycle inventory of conventional and electric vehicles and apply our inventory to assess conventional and EVs over a range of impact categories. We find that EVs powered by the present European electricity mix offer a 10% to 24% decrease in global warming potential (GWP) relative to conventional diesel or gasoline vehicles assuming lifetimes of 150,000 km. However, EVs exhibit the potential for significant increases in human toxicity, freshwater eco-toxicity, freshwater eutrophication, and metal depletion impacts, largely emanating from the vehicle supply chain. Results are sensitive to assumptions regarding electricity source, use phase energy consumption, vehicle lifetime, and battery replacement schedules. Because production impacts are more significant for EVs than conventional vehicles, assuming a vehicle lifetime of 200,000 km exaggerates the GWP benefits of EVs to 27% to 29% relative to gasoline vehicles or 17% to 20% relative to diesel. An assumption of 100,000 km decreases the benefit of EVs to 9% to 14% with respect to gasoline vehicles and results in impacts indistinguishable from those of a diesel vehicle.

The actual effects of switching to EVs rely predominantly on three variables: the fuel used to generate the electricity that powers the production and charging of the EV, the energy intensity of the production process, and the actual vehicle miles traveled. On the first, the researchers found that

For all scenarios analyzed, the use phase is responsible for the majority of the GWP impact, either directly through fuel combustion or indirectly during electricity production. When powered by average European electricity, EVs are found to reduce GWP by 20% to 24% compared to gasoline ICEVs and by 10% to 14% relative to diesel ICEVs under the base case assumption of a 150,000 km vehicle lifetime. When powered by electricity from natural gas, we estimate LiNCM EVs offer a reduction in GHG emissions of 12% compared to gasoline ICEVs, and break even with diesel ICEVs. EVs powered by coal electricity are expected to cause an increase in GWP of 17% to 27% compared with diesel and gasoline ICEVs.

In other words, if the EV manufacturer and owner use coal-generated electricity, the switch to EVs increases greenhouse gas production, because of the increased electricity use. Note also that the production process for an EV is extremely energy intensive, largely because of the energy intensity of producing the battery (and, as noted in the abstract, the battery involves using and disposing of toxic trace metals). Finally, what if the EV has a shorter useful life than the equivalent ICEV? That would mean having to weight any beneficial effects to reflect that shorter life and the need to replace the EV more quickly than the equivalent ICEV.

So the electric vehicle is not a slam-dunk, silver bullet, mix your favorite metaphors way to innovate around the environmental effects of fossil fuel use. See also this Guardian blog post on the study, including some back-and-forth in the comments and from Twitter with one of the study’s authors — a very illuminating exchange.

I mention this study not to argue that we should avoid EVs, nor to argue that we should/should not pay attention to greenhouse gas emissions, but rather to point out that good, detailed, careful analyses of actual effects of likely actual changes are important data for us to have as we evaluate policy alternatives in a complex system like our environment + economy. Among other things, this study highlights the marginal greenhouse gas impact of electricity generation relative to other greenhouse gas sources. This is not new, but in this context where the researchers can show how big the share of the impact is coming from electricity generation, that’s an important data point. It also highlights the overall impact of battery production, use, and disposal, which suggests the importance (and not just for greenhouse effects, but for other environmental effects too) of research on alternative battery and energy storage technologies, and the durability of the battery, which currently limits vehicle life.

Lynne Kiesling

You may have seen the article in Sunday’s New York Times on how “wasteful” data centers are — they use large amounts of electricity to enable the level of redundancy required to achieve the degree of reliability and uptime that consumers expect from their Internet activities. I put the word “waste” in quotes because I think Don Boudreaux has a point, in his letter to the editor in response to the article: where’s the line between “waste” and “use”? The NYT article presents data center power use as wasteful, implying that the author thinks that they should either figure out ways to deliver the same reliability with less electricity, or that we consumers should change our preferences so we don’t place as much value on reliability. I’ll argue later that data center operators have high-powered incentives to do the former, and as for the latter, I invite the NYT author to imagine how he thinks NYT readers would respond to a slowdown or lack of server availability that made it hard for them to access NYT articles.

Of course the undercurrent here is the argument that the price of our Internet activity does not include the environmental cost associated with power use, and consequently we should use public policy to impose a price on data centers, or on Internet use, to reflect that cost. The article isn’t explicit about carbon policy, but that’s the implication.

My initial reaction to the article was that it was biased and somewhat inaccurate, and that it overlooked a wide array of innovations that chip manufacturers, data center operators, and architects have created over the past few years to reduce power use per calculation as well as overall power use. Fortunately, Katie Fehrenbacher (who is more knowledgeable than I in these matters) had a similar reaction, and wrote up her assessment:

As my headline suggests they sound like the author, who spent over a year reporting out the series, jumped into a time machine and did his reporting a couple years ago. One of the reasons is that both articles so far start with anecdotes from 2006 about Microsoft and Facebook. The data centers that Facebook recently built in Forest City, North Carolina and Prineville, Oregon, are industry pioneers in terms of energy efficiency and openness. Microsoft, too, has more recently pledged to get rid of its diesel generators for its facilities, and has been using less air conditioning in its new data centers.

The data center operators at the largest Internet companies like Google, Facebook, Apple, Microsoft, Yahoo and eBay are so focused on energy efficiency of their newest data centers that new designs are starting to be widely adopted with technologies like open air cooling (getting rid of the huge air conditioning units in these things). New types of low power chips and servers are being developed by startups like SeaMicro, which was recently bought by AMD. The articles so far don’t mention these innovations.

She does, though, think that there’s value in the NYT series because it will shine some light on data center operators who aren’t thinking about energy efficiency and power use. She wrote a 4-part series on data center power use, which I recommend and to which she links in her article.

From a policy perspective, is there an “externality” here to be addressed? Data centers are expensive and take up a lot of space, and if you are incurring the cost of a data center, electricity is your top expense item. Thus firms have strong incentives to minimize those costs while still delivering the services and degree of reliability that they have promised to their customers. That’s a high-powered incentive to pursue energy efficiency innovations with a policy intervention, and that incentive has been inducing those innovations over the past 5 years, as Fehrenbacher notes in her article and her data center series. Companies like Google, Amazon, Apple, Microsoft, and Facebook have been driving those innovations, are in aggregate the largest data center operators, and thus are driving the majority of data center server traffic in a more energy-efficient direction. As is typical with innovation and new technology adoption, others will follow as the innovations are refined and made easier to implement.

Another important innovation that has implications for energy efficiency, but has the Bastiat-esque problem of being unseen, is the dramatic move toward server virtualization in data centers. With server virtualization, data center operators can essentially run several virtual servers off of one physical server. Obviously this increases the computing and storage capacity of the data center without increasing the physical assets, and on balance this means an increase in computing and storage capacity without an appreciable change in power use — more computing per watt of power consumed. In the absence of virtualization, to achieve that same capacity would have required a dramatic increase in physical server capacity, and in electricity use to power those servers. Neither the NYT article nor Fehrenbacher’s series address the role that virtualization has played in enabling capacity optimization and high reliability at lower power use levels. Here’s a concise Green Grid white paper on the subject.

Yes, there is some energy wasted in data center operations, just as there is in every single way that we use energy — we won’t be repealing the laws of thermodynamics any time soon. But data center operators have economic incentives to pursue energy efficiency, and a wide array of inventors, architects, and other entrepreneurs see opportunities in those incentives. We are seeing this process play out before our eyes.