Alex Alexiev’s article, “Obama’s Green Delusions,” in today’s NRO brings some untold reality to the alternative energy discussion. Were it not for subsidies green would not be economically viable until traditional sources reached a sustainable price point that justified the green costs. Subsidies are simply taxpayer assumption of differential costs; most of those taxpayers being non-users do not otherwise benefit. The issue then becomes the role of government versus the marketplace in bridging the conversion gap, the time it takes to transition from traditional to green.

Since green technologies are known, there is no steep, long-duration learning curve in development. Thus, I would argue that the marketplace is a better, more efficient transitioning agent. Obama, Gore, the green industry and the liberals that follow them would argue otherwise and since in their minds the subsidies are free, that is come from the taxpayers now and future, they will proceed with the green agenda. So we will have an inefficient transitioning agent taking investment capital out of the marketplace. The opportunity costs lost on government inefficiencies and lost investment in other fields will be a steep price to pay.

Standing in front of an array of photovoltaic solar panels at Nellis Air Force Base last Wednesday, President Obama gave us to understand that his vision for an America powered by clean, renewable energy and awash in green jobs is becoming a reality faster than anyone could have imagined. Nellis, near Las Vegas, is the home of the largest solar-energy plant in the Western Hemisphere and, in the president’s words, a “shining example” of what renewable energy can do to put our economy on a “firmer foundation for economic growth.” It is a success story that needs to be replicated “in cities and states across America,” Obama said, and he announced a “solar energy technology program” to do just that.

The figures do indeed look impressive at first sight. The $100-million plant was built without a penny of government money, we are told, yet it provides the base with electric power costing 2.2 cents per kilowatt/hour, which is less than one-fourth of the 9 cents that Nevada Power charges its other customers. The annual savings will amount to $1 million, guaranteed for 20 years. Proof positive, it seems, that our green future is now. Or is it?

Beyond these numbers, uncritically reported by the mainstream media, is the reality of a make-believe industry touted by environmental zealots, corporate freeloaders parading as entrepreneurs, and a president capable of staggering disingenuousness. If the Nellis solar project is a “shining example,” it is a shining example of everything that’s wrong with Obama’s green delusions. The project makes no economic sense on its own merits and, like all renewable-energy projects, was made possible only by a combination of government coercion and state and federal handouts at the expense of utility customers and the American taxpayer. The coercion in this case came in the form of a state mandate that Nevada utilities must obtain 20 percent of their power from hugely expensive renewable sources by 2015; the handouts came in the form of a 30 percent federal tax credit, accelerated depreciation rates, “solar energy credits,” and similar goodies. It is such government largesse — and the promise of more to come — that convinces the renewable-energy industry’s corporate welfare queens to line up behind dubious projects like Nellis.

In his speech at Nellis, President Obama asserted that he wants “everybody to know what we’re doing here in Vegas,” and he pointed to Germany as an example to follow in the solar business. He should have followed his own advice and looked more closely at the German example. After Germany guaranteed solar producers a rate seven times as high as the market rate, the country’s electric bill jumped by 38 percent in one year.

Obama also should have mentioned what happens to investors who fall for Washington’s green hype. For the two private companies involved in the Nellis project, it has not been a success story. SunPower Corp., the builder of the solar plant, has lost 75 percent of its market value in just the past year and is facing an uncertain future (to put it mildly). MMA Renewable Ventures, a San Francisco–based firm, which financed the project, was recently sold to the Spanish company Fotowatio for the fire-sale price of $19.7 million, after losing more than half of its business between 2007 and 2008.

The Spanish purchase of the dying MMA made no business sense except in one critical area: It allowed Fotowatio to establish a beachhead in the United States, which, with $20 billion of green-energy tax incentives in 2010 alone, increasingly looks like the world’s last refuge for solar freeloaders. Most European countries have seen the damage that green energy can do to their economies and are rapidly (if quietly) scaling back their support. This is especially true in the countries that have been leaders on solar and wind power. Both Germany and Spain have dramatically slashed their subsidies for renewables, and Spain has reduced its commitment to green power from 2400 megawatts in 2008 to 500 megawatts or less in 2009.

There is yet another lesson from Spain that Obama prefers not to discuss. The $100-million Nellis project created 200 jobs at a cost of $500,000 per job. The longer Spanish experience, according to a recent study from Juan Carlos University, shows a cost of $774,000 for each government-subsidized green job created since 2000. More disturbingly, for each of these jobs, 2.2 jobs in other industries were destroyed because of higher energy prices, not counting manufacturers who vote with their feet. This is surely a success story that Americans can do without.

via Obama’s Green Delusions by Alex Alexiev on National Review Online.

Tom Motherway, tom@renohayek.com

John Dunn presented an intriguing proposal for Yucca Mountain at the Hayek Dinner May 19^th, a refreshing new way to think about our nuclear waste storage.  The background presentation included a review of the legislation, studies and administrative actions. The Nuclear Waste Policy Act of 1982 set up the process for siting, construction and operation of one or more national repositories of our spent nuclear fuel and high-level radioactive waste.  In 1987 after a DOE study of nine sites the act was amended to limit further study to Yucca Mountain, which was selected by Congress in 2002 and included a 70,000 MTHM storage limit. In June 2008, the DOE applied to the Nuclear Regulatory Commission for a license to build the Yucca Mountain repository. In December of 2008 the DOE report to Congress and the President that the Yucca Mountain storage limit could be expanded to at least 210,000 MTHM obviating the need to seek additional storage sites. Currently approximately 60,000 MTHM of spent fuel is stored throughout the country at 121 nuclear facilities in 39 states.

Funding for the project has been generated by a federal tax on the consumers of nuclear generated electricity of one mil per KWH. The tax revenue goes into the Nuclear Waste Fund which at December 31, 2008 had a balance of $29.6 B. The DOE receives money for the fund through Congressional appropriations. Large taxpaying states included IL, PA, SC and CA. $9B has already been spent on Yucca Mountain.

The Obama administration has cut the Yucca Mountain budget by $100M to an all time low of $197M.  There is no current alternative to Yucca, which is by law the national repository. Obama did appoint a former Reid aide as chairman of the NRC; while working for Reid Gregory Jaczko worked to kill Yucca.

So we have now spent  $9B of taxpayer money and statutorily designated Yucca as the national repository. Yet we have environmentally motivated scare tactics to convince Nevadans that Yucca should be killed, this despite the money and jobs that would be brought to the state. John suggests that if the people of Nevada benefited directly and economically they would applaud the decision to commission Yucca. Since Yucca was first designated as the repository Nevada politicians have refused to have meaningful discussions with the federal agencies, thus removing any viable opportunity to explore and then publish a truly unbiased look at the tremendous economic opportunity for Nevadans.

So John proposes an annual rebate to NV ratepayers. First, the citizens would be informed of the status of all the engineering studies and conclusions concerning the safety of the Yucca site. Next, the public will be honestly informed of the economic benefits, research and industry coming to the state because of the Yucca location. Finally, since Nevada will be entitled to negotiate access fees from the federal government through its nuclear tax and its Nuclear Waste Fund, the bulk of those fees will go to Nevada ratepayers in the form of annual payments. There is ample precedent for this with the Alaska drilling and pipeline. John proposes 80% of the payments to ratepayers and 20% to the state coffers. There would be specific rules to preserve the economic effect of these annual payments to the ratepayers intact and to avoid adverse effects of inflation. With good voter information on safety and economic incentive to ratepayers Yucca Mountain would be the nation’s nuclear repository and the federal money heretofore spent would not go to waste.

In summary, John Dunn gave an excellent presentation of a new way to look at and gain from the Yucca Mountain political football. It was widely endorsed by those in attendance with an agreed follow up discussions with state politicians and opinion makers.

Another left-coast leftist apostle of Al Gore is having his day of fame. Henry Waxman and ilk will command physics and economics to accomplish impossible goals. Americans will pay the price while China et al laugh all the way to the bank.

Cap-and-trade theologians love to invoke markets: Merely put a price on carbon, they say, and the invisible hand will shoo us toward an eco-friendly future. Of course Congress has its own ideas.

Take the climate bill just offered by House powers Henry Waxman of California and Ed Markey of Massachusetts. The 648-page “discussion draft” ducks the most important policy questions about what Democrat Ben Cardin calls “the most significant revenue-generating proposal of our time” — namely, how the tax will be levied and the proceeds spent. But it does find space to impose thousands of new environmental regulations on the entire economy, all separate from cap and trade.

Right off, the bill mandates that 25% of U.S. electricity come from wind, solar, geothermal or biomass by 2025. Sorry, nuclear doesn’t count. This kind of renewable portfolio standard directly contradicts the putative flexibility of cap and trade, which is supposed to allow businesses to reduce CO2 how and where it is least expensive. But Democrats aren’t about to let the details of their own policies stand in the way of magical thinking.

Despite political favoritism and billions in subsidies, wind still only accounts for about 1% of U.S. net electric generation, and solar all of one-hundredth of 1%. So now the liberal solution is simply to force people to buy them, a la the ethanol mandate. Yet it will be difficult for renewables to ever reach 25%, given their inherent limitations (intermittency) and, ironically, green opposition (no new power lines). That won’t stop Congress from punishing utilities that fail to meet an impossible goal.

via Henry Waxman’s Climate Bill Imposes Environmental Regulations on the Entire Economy – WSJ.com.

Our upcoming discussions of the science of alternative energy will necessarily encompass economics.

Tom Motherway, tom@renohayek.com

What a broad topic we have on the table for the upcoming discussion. As with all of our topics, our discussions will be updated and ongoing from dinner to dinner. Below I offer a few links for reference:

A very comprehensive site is available from the Energy Information Administration which publishes the official energy statistics from the US government. 2006 is the last published edition. Charts galore, here!

The ubiquitous Wikipedia serves up a good page which as with some of their topics is a work in progress. Here you get excellent graphics which are worth a thousand words. Check it out.

Back to the government for the third reference, at National Atlas. This is a fairly good descriptive article on US renewable energy sources.

The issues are economic, environmental, political, international in nature and all with national security aspects.

Don Parsons sends us a “deep dive” study into peak oil by Jim Quinn of The Burning Platform.com. This is very detailed treatment of the problem, well documented with excellent charts. Don would only add that more space should have been devoted to depletion which is the heart of the current problem. Needless to say the Obama administration is blind to the problem.

Don Parsons gave excellent summation and lead our discussion of worldwide oil geology, formation, and production.

Oil is our transportation fuel accounting for over 90% of transportation’s source of energy; it is transportable, safe, storable and has a high BTU content. But we are consuming more than we are producing and we are not discovering enough to replace what we use. The largest fields, the most productive, are on steep decline curves. Small discoveries will not replace large declining fields. Governmental oil companies are poorly run and used for political ends. Expensive exploration and recovery, mainly offshore, is not supported by current crude prices.

In short we are running out of oil at an accelerating rate. Can we replace it or find a safe, economically stable alternative in the reasonable future? Are government policies and proposed policies positive or negative?

Discussion of safe alternatives yielded little hope. CNG, LNG, Hydrogen, Solar, etc. are not practical replacements on a worldwide scale. Policy thoughts, like a fluctuating tax going to producers to support a floor price and thus encourage new exploration, production technology, and alternatives, has not effectively been raised by our political leaders. The CO2 religious panic and cap and trade solutions do no more than to distract serious thought on the subject.

The effect of low prices has been to decrease exploration. Refining margins have also been cut to the point of discussions of alternative uses of refineries such as storage. Practically companies can’t shut down a refinery because of the exorbitant remediation costs. Ironically, they will not be able to build them domestically because of the environmental study costs and the NIMBY local attitudes.

Yes, the Bakken Formation was discussed and it is included in the peak oil known reserves. So this provides little solace, save the fact that it is in the continental US.

A U.S. Geological Survey assessment, released April 10, shows a 25-fold increase in the amount of oil that can be recovered compared to the agency’s 1995 estimate of 151 million barrels of oil………

The Bakken Formation estimate is larger than all other current USGS oil assessments of the lower 48 states and is the largest “continuous” oil accumulation ever assessed by the USGS. A “continuous” oil accumulation means that the oil resource is dispersed throughout a geologic formation rather than existing as discrete, localized occurrences. The next largest “continuous” oil accumulation in the U.S. is in the Austin Chalk of Texas and Louisiana, with an undiscovered estimate of 1.0 billions of barrels of technically recoverable oil.

via USGS Release: 3 to 4.3 Billion Barrels of Technically Recoverable Oil Assessed in North Dakota and Montana’s Bakken Formation—25 Times More Than 1995 Estimate— (4/10/2008 2:25:36 PM).

What is the legitimate cost of energy independence? Who will pay it? Is it efficient? What are its unintended consequences? All are questions that aren’t being asked or considered. 

Seldon Graham’s March 13th article in American Thinker give us a good start on the search for correct answers

President Obama’s biofuel and oil policy is on a collision course to a national catastrophe.  Yet, the alarms are not sounding and the red lights are not flashing.

Secretary of Energy Steven Chu is not warning Obama that his oil policy will increase our dependence on foreign oil.  Lisa Jackson, Administrator of the Environmental Protection Administration, is not alerting the President that his oil policy will increase carbon dioxide emissions.  National Security Advisor James L. Jones is not cautioning the President that his biofuel and oil policy increases the US vulnerability to a Second Arab Oil Embargo. Christina Roner of the Council of Economic Advisors is not counseling Obama that his biofuel policy continues a 30-year-old blunder wasting taxpayers multiple billions of dollars annually.  Secretary of Agriculture Tom Vilsack is not warning the President that his biofuel policy is doomed to failure because of the impossibility of providing sufficient bio products.  Secretary of the Interior Ken Salazar is not advising Obama that his tax on oil will destroy proven US oil reserves.

Why aren’t the alarms sounding and the red lights flashing?  It is probably because of the lack of knowledge and experience on these specific subjects by the new appointees.   All must be given benefit of any doubt that their duty and loyalty lies with the United States of America instead of their political party or its head.

President Obama’s energy policy is to eliminate our dependence on foreign oil imports by eliminating oil and replacing oil with alternative renewable “clean” biofuel.  That sounds good in speeches.  It is quite impressive to all those who know little about oil or biofuels, which includes the majority of the public.  The devil, of course, is in the details which no one seems to have investigated. 

via American Thinker: Obama’s energy policy will increase dependence on foreign oil.

As BHO killed Yucca, environmentalist cheered and Greenpeace called for an end to nuclear plant commissioning. More rational types wondered where our base load energy would come from as BHO taxes hydrocarbons out of use. Tucker’s op-ed in the Friday WSJ gives the latter folks some hope.

The repository at Yucca Mountain was only made necessary by our failure to understand a fundamental fact about nuclear power: There is no such thing as nuclear waste.

A nuclear fuel rod is made up of two types of uranium: U-235, the fissionable isotope whose breakdown provides the energy; and U-238, which does not fission and serves basically as packing material. Uranium-235 makes up only 0.7% of the natural ore. In order to reach “reactor grade,” it must be “enriched” up to 3% — an extremely difficult industrial process. (To become bomb material, it must be enriched to 90%, another ballgame altogether.)

After being loaded in a nuclear reactor, the fuel rods sit for five years before being removed. At this point, about 12 ounces of U-235 will have been completely transformed into energy. But that’s enough to power San Francisco for five years. There are no chemical transformations in the process and no carbon-dioxide emissions.

When they emerge, the fuel rods are intensely radioactive — about twice the exposure you would get standing at ground zero at Hiroshima after the bomb went off. But because the amount of material is so small — it would fit comfortably in a tractor-trailer — it can be handled remotely through well established industrial processes. The spent rods are first submerged in storage pools, where a few yards of water block the radioactivity. After a few years, they can be moved to lead-lined casks about the size of a gazebo, where they can sit for the better part of a century until the next step is decided.

So is this material “waste”? Absolutely not. Ninety-five percent of a spent fuel rod is plain old U-238, the nonfissionable variety that exists in granite tabletops, stone buildings and the coal burned in coal plants to generate electricity. Uranium-238 is 1% of the earth’s crust. It could be put right back in the ground where it came from.

Of the remaining 5% of a rod, one-fifth is fissionable U-235 — which can be recycled as fuel. Another one-fifth is plutonium, also recyclable as fuel. Much of the remaining three-fifths has important uses as medical and industrial isotopes. Forty percent of all medical procedures in this country now involve some form of radioactive isotope, and nuclear medicine is a $4 billion business. Unfortunately, we must import all our tracer material from Canada, because all of our isotopes have been headed for Yucca Mountain.

What remains after all this material has been extracted from spent fuel rods are some isotopes for which no important uses have yet been found, but which can be stored for future retrieval. France, which completely reprocesses its recyclable material, stores all the unused remains — from 30 years of generating 75% of its electricity from nuclear energy — beneath the floor of a single room at La Hague.

via There Is No Such Thing as Nuclear Waste – WSJ.com.

To throw some cold water on that scintilla of hope, just remember the Environmental Impact Report hoops that will need to be jumped through, and what the courts can do with those. Unfortunately the Yucca Mountain NIMBYs will pale in significance to the NIMBYs to come.

A small consolation for Nevadans though is that the state coffers will no longer be wasted on the anti-Yucca efforts. We can think of many more things on which those coffers can be wasted!

Tom Motherway

At the March dinner Don and Gene will begin a discussion of energy sources and efficiencies: hydrocarbons, alternatives, governmental policy plans, cap and trade, etc. The topic will carry over to April. 

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