Energy & Power Generation

301 Years of Steam Power

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In 1712, Thomas Newcomen erected a steam engine of his own design near Dudley, in the West Midlands of England, thereby kicking off the age of steam. (Yes, this would have made a better post last year, to mark a round 300-year anniversary, but better late than never..)

We were told in the 5th grade that the steam engine had been invented by James Watt after noticing the way that the steam pressure in a teapot could cause the lid to lift a little. A nice story, but (a) James Watt did not invent the steam engine, and (b) early steam engines did not work the way that the teapot story would suggest.

In ancient Greece there were some experiments with the use of steam power to create mechanical motion; thereafter nothing significant happened in this field until the late 1600s, when Thomas Savery invented a device for raising water by steam: it was intended to address the growing problem of removing water from mines. Savery’s invention was conceptually elegant, with no moving parts other than the valves: unfortunately, it could not handle a water lift of more than about 30 feet, which was far insufficient for the very deep mines which were then becoming increasingly common.

Newcomen’s engine filled a cylinder with low-pressure steam, which was then abruptly cooled by the injection of a water jet. This created a partial vacuum, which pulled the piston down with great force–these were called “atmospheric” engines, because the direct motive force came from air pressure, with the role of the steam being simply to create the vacuum when condensed. After the piston reached the bottom of the cylinder, it would be pulled upwards by a counterweight, and the cycle would repeat. (See animation here.)  Conceptually simple, but modern reconstructors have found it quite difficult to get all the details right and build an engine that will actually work.

These engines were extremely inefficient, real coal hogs, requiring about 25 pounds of coal per horsepower per hour. They were employed primarily for water removal at coal mines, where coal was by definition readily available and was relatively cheap. But as the cotton milling industry grew, and good water-power sites to power the machinery became increasingly scarce, Newcomen engines were also employed for that service. For example, in 1783 a cotton mill–complete with a 30-foot waterwheel–was constructed at Shudhill, near Manchester..which seemed odd given that there was no large stream or river there to drive it. The mill entrepreneurs built two storage ponds at different levels, with the waterwheel in between them, and installed a Newcomen engine to recycle the water continuously. The engine was very large–with a cylinder 64 inches in diameter and a stroke of more than 7 feet–and consumed five tons of coal per day.

Despite their tremendous coal consumption and their high first cost, a considerable number of these engines were installed, enough that someone in 1789 referred to the Newcomen and Savery engines in the Manchester area as common old smoaking engines. The alternative to the Newcomen engine described above would have been the use of actual horses–probably at least 100 of them, if my guesstimate of 40 horsepower for this engine is correct. These early engines resembled the mainframe computers of the early 1950s, in that they were bulky, expensive, resource-intensive, and limited in their fields of practical applicability…but, within those fields, absolutely invaluable.

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Pretty Gutsy

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A new coal-fired power plant  is planned for Georgia.

To be built near Sandersville, GA. 850 megawatts, supercritical boiler, extensive equipment for  reduction of SO2 , NOx, particulates. mercury and sulfuric emissions.

It takes a certain amount of courage to embark a project such as this one, given that we have a president who has declared war on coal:

“If somebody wants to build a coal-powered plant, they can, it’s just that it will bankrupt them.”

–Barack Obama, January 2008

Kids These Days

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At the age of 21, Danielle Fong cofounded LightSail Energy, a venture focused on energy storage via compressed air, with heat generated by the compression recovered for later use. Investors include Peter Thiel, Khosla Ventures, and Bill Gates. (GE and RWE of Germany are also developing a compressed-air-based energy storage technology that they call  ADELE…it will be interesting to see how these two alternative approaches play out.)

A New York University student has developed a new substance for wound closure, which may be able to replace bandages in many cases. Any comments, Michael K?

 

Utility Rate of Return

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The utility industry in the United States has made a giant return to traditional rate-making in many parts of the country. For someone who is unfamiliar with the concept, here is a brief summary:

1. Utilities receive a “monopoly” on services in a particular region (a city or county) which means that they are the only company allowed to provide service (thus you don’t have 2 sets of power lines going to your house)
2. The utility submits their expenses and capital requirements to a state regulator, who approves the spending plan
3. For the portion of the utility funding that is provided by equity (shareholders), the company is allowed to earn a “rate of return” that gets included on rate-payers bills

When I was fully engaged in the industry in the 1990’s, there was massive talk of “de-regulation” and traditional “cost of service” regulation as described above was seen as an archaic relic to be disposed of as quickly as possible with newer, more innovative models. If you would have told someone in the mid 1990’s that here, 20 years later, utilities would be HAPPY to still be part of a guaranteed return on their regulated investments, you’d have been greeted with a blank look of incredulousness.

The most famous critique of this model was a CEO who was said to have stated that “this is the only industry where I can make more money by remodeling my office” which of course was technically a true concept. This sort of talk was endemic in the 1990’s.

To be fair, the entire energy business used to be run this way (except for the municipal entities which were completely owned by some part of the government), and now much of the generation and parts of customer services are run using other methods involving some sort of at least partial competition. The generation of power, for the most part, has been financed using alternate methods (auctions, price caps, etc…), but it is notable that the only utilities going forward with nuclear plants are those with the old-school rate of return regulation (Southern Company in Georgia and SCANA in South Carolina).

For those entities that are still primarily regulated (non-competitive) or whom have substantial portions of their business subject to this regulation, one item coming under fire is the “rate of return” that they receive on their equity capital. When I was in the industry this number was in the 12% – 14% range; per this WSJ article “Utilities’ Rates of Return Draw Flak”:

In 92 major rate decisions last year, regulators… granted gas and electric utilities returns of 10%, compared with 10.21% the prior year and 11% a decade ago.

These rates of returns, however, conflict with the type of risk profile and links to debt interest rates that traditionally anchor utility rates of return. Today interest rates are famously low, so why is it reasonable that utilities should earn 10% or more on returns when that sort of return is far out of reach in a 401(k) for investors, for example?

Further pressure on this model seems inevitable, although rate of return is rarely so simple because if a utility spends more than they plan, in most cases this essentially comes out of the return bucket, although their are exceptions like “pass through” increases for fuel which can be made depending on the jurisdiction. This sort of item should be watched by those who have utility investments, since a serious re-appraisal of this rate would likely push it down further.

As a long-time watcher of the industry, however, the continuing existence of this sort of rate of return regulation is astonishing, given how much it was ridiculed for so many years. It is sad that we haven’t come up with anything better in the interim. The issue with monopolies is not so much the rise in costs, but the lack of innovation, I once heard. This is the case with the rate of return model that continues to exist, today.

Cross posted at LITGM

The Many States of America

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Recently I was reading how a professor at the University of Illinois at Chicago was arrested for bringing an unloaded handgun to work, and that it made the news media. I reflected briefly on the fact that you can bring a loaded, concealed gun with you in most places in many states in the US and it wouldn’t be news, it would in fact be normal activity, for instance in the adjacent state of Indiana.

Meanwhile, in California, it is common for people to smoke marijuana openly as is discussed here. Needless to say, this behavior would get you immediately arrested in many states particularly in the south and midwest.

Taxation is also highly variable on a state and city basis. New York and California have some of the highest taxes, particularly on income beyond a particular level (progressive taxes). On the other hand, states like Florida and Texas have a much lower level of taxation and a much freer business climate in terms of regulation.

Without getting into the hottest of hot-button issues, clearly there are differences in the types of marriages and reproduction rights / right to life on a state by state basis. These differences are narrowing in some areas and getting wider in others.

Some states have “right to work” laws which massively limit union power, and have flourishing and expanding manufacturing economies as a result. Visit Alabama, South Carolina, and Texas to see where all the former manufacturing might in the midwest and Northeast and West Coast migrated to (if it didn’t go to China or overseas). The enacting of “right to work” laws obviously sends an important signal to business leaders whether or not a state is a friendly place to do business for incremental investment (along with taxation).

The “fracking” revolution has unleashed vast wealth in some states, and in other states it has been banned or severely curtailed. Meanwhile, California is going in on its own with carbon regulations and highly aggressive “green” energy targets, while other states are heavily reliant on traditional (and cost effective) technologies.

The differences on a state-by-state level on these different dimensions seem large and growing. They are much more subtle (though often correlated) with the Red / Blue analysis. An attempt to classify these vectors could be done as follows:
Energy Freedom – the ability to extract and use cost effective technologies (like natural gas, fracking, and coal) and a state’s willingness to invest more for reliability or the requirement to use expensive (green) technologies and curtail energy use even at the expense of industry competitiveness and reliability. California is likely on one end and Texas is on the other side, although many others have large freedom including Pennsylvania.
Safety Freedom – the right to defend yourself at home, in transit, at work and during study or whether that is assumed by the state. Sadly the most restrictive is Illinois and there are many candidates on the other side throughout the south and midwest (Indiana).
Personal Substance Freedom – the right to smoke, the right to drink, and the right to use various drugs or stimulants. Some odd states (like Colorado) are leading the way on this, it isn’t always the traditional Red / Blue divide.
Freedom to Work & Hire – the right to work and not be forced to join a union, and this is also tied with local laws and practices that limit the ability to hire and fire and direct hiring or limit firing in various dimensions.
Freedom to Build / Live / Rent – Houston is famous for having very limited zoning while other states and municipalities have highly restricted zoning practices. The New York co-op concept also severely limits new entrants along with rent control. These laws can also include whether you can work or have a business in your home. While subtle, these practices can have a large impact on prices and how the region functions.
Freedom From Excessive Taxation – Some level of taxation is necessary for government to function but high tax levels have severe intended and unintended consequences of under investment and evasion. Taxation includes state, local, city, sales, estate, property, and “sin” taxes. These vary significantly by area but are highest in California and the East Coast and likely the lowest in the South.
Freedom of Marriage Choice – A larger portion of states are recognizing marriages beyond the traditional marriage, and this varies by state
Freedom of Reproductive Rights – There are a wide variety of approaches and trends on a state level and then there are practical impacts, as well. This is highly variable by state in practice
Freedom on Medical Rights – an emerging model will be how each state approaches new medical practices and funding methodologies, along with the practical availability of doctors that subscribe to the state’s controls and funding methods. This area will grow exponentially in the near future

I believe that these sorts of analyses on a state by state level are much more useful than the traditional Red / Blue view (although they are often correlated) and when you start to dig in to the differences on a state and municipal level they are staggering, particularly when you view the extremes.

It would be interesting and useful to begin to put together the various data sets to analyze states and municipalities along these continuums, and others that I’ve likely missed.

Cross posted at LITGM