Some Chicago Boyz know each other from student days at the University of Chicago. Others are Chicago boys in spirit. The blog name is also intended as a good-humored gesture of admiration for distinguished Chicago School economists and fellow travelers.
With Earth Day as a backdrop to the concern about use of fossil fuels, Sen. Dianne Feinstein (D. Calif.), said that “until we build the replacements for gasoline…there ought to be a prohibition on market speculation.”
(Source: “US Senators Grow Louder In Call For Oil-Market Probe”, Dow Jones Newswires, 4/23/2008)
UPDATE: Fixed the link. Note that the subtly different WSJ title for this article is, “Democrats Demand Probe Of Oil-Market Speculation”.
UNRELIABLE SERVICE
Today’s Chicago Tribune carried an article reflecting a reality that will become more and more common as time goes by. The article is titled “Deerfield files suit against ComEd” in their Friday, April 18 edition. Deerfield is a suburb of Chicago and ComEd is the local electrical distribution company that provides power, a wholly owned subsidiary of Exelon. ComEd’s “solution” is to raise rates to fix the problem, while Exelon’s stock is at an all-time high due to the money that they make selling power that costs them very little to generate (our broken regulatory system in Illinois at work).
The city of Deerfield claims that their electrical supply is unreliable. They state that they have had 1,377 outages between 2000 and 2007 and only 13% of these outages were weather related. These outages typically caused flooding due to shut off sump pumps, food to become spoiled, and are a general nuisance.
This type of activity will grow more common in the future, since lack of continuity in generation causes a lot of the outages (poorly run and maintained distribution and transmission systems also contribute significantly to these outages). I wouldn’t be surprised if in the future homes had built-in back up generating capacity, especially high end homes, to insulate them from at least short term fluctuations in the grid.
NEW JERSEY NUCLEAR PLANT
New Jersey is also considering building another nuclear plant, their first plant since 1973, according to this article. While I applaud Corzine (their governor, the guy who got into a car accident without a seat belt & almost died) for trying to do this, the odds of this plant ever seeing the light of day are near zero. The NIMBY’s are already going nuts – from the article:
“Environmental groups were sharply critical of Mr. Corzine’s 15-year energy plan. Jeff Tittel, director of the New Jersey chapter of the Sierra Club, said the governor “needs to step up and lead New Jersey to a cleaner, greener future with more wind, solar and better energy efficiency goals.”
The US is known as “The Saudi Arabia of Coal”. We have massive amounts of coal deposits within our borders.
If you look at photos of Dubai with all the skyscrapers and massive construction or read about Russia, likely the most expensive place to live today in the entire world, you see countries whose economies and wealth are being buoyed by commodity wealth. While there are also downsides to riding on commodities, there are positive instances of well run countries (i.e. the UK with North Sea gas and oil) benefiting from their commodity wealth.
The US has basically stopped building coal plants due to environmental concerns. Sure, there are a few coal plants being built here and there (I profile an Illinois coal plant under construction at this post) but the energy is basically dead in its tracks. According to this excellent analysis (which I highly recommend reading in full) from the National Energy Technology Laboratory, here is a summary:
“Actual plant capacity, commissioned since 2000, has been far less than new capacity announced; the year 2002 report of announcements reflected a schedule of over 36,000 MW to be installed by 2007, whereas ≈ 4,500 MW (12%) were achieved. The trend over several years has reflected the bulk of power plant developments shifting out in time due to project delays Delays and cancellations have been attributed to regulatory uncertainty (regarding climate change) or strained project economics due to escalating costs in the industry.”
Beyond typical NIMBY activities and our broken deregulation system, a key factor stopping construction of new plants are the emissions and ties to warming by environmental groups.
However, this recent article by the BBC (a fairly reliable source, historically) says that China is now the world’s top carbon polluter, and probably passed the USA back in 2006-7. China, of course, has no problem whatsoever in putting up coal plants and sensibly (from an economic perspective) utilizes coal heavily since they have their own deposits and don’t have to import fuel, while coal is also a proven technology for power generation. There are various accounts of their coal construction but I continuously see the reference to “a plant a week” but I would have to do more research to verify those claims; in any case many sources point to a massive construction boom of coal plants in China.
There is a looming electricity crisis that is about to overtake the United States. While our demand for electricity continues to increase due to construction, computers (data centers take up a significant portion of electricity demand), and potentially even electric cars, essentially no new “base load” supply of electrical generation is being added to the market. We do get the occasional wind farm or solar or geothermal source of energy, and a bit of conservation is on the rise, but these tiny dents in supply and demand, respectively, don’t even begin to cover growth much less the fact that many electricity plants are aging and will face retirement in the future. Due to the long lead times involved with getting a new plant on line (at LEAST 5-10 years in the case of large base load coal or nuclear plants, best case), our problem is that we aren’t doing anything NOW to head off the crisis LATER, when we won’t have any options at all. If you are interested in any background or more detailed analysis of the energy situation and in particular our Illinois issues go here to see the posts I have written on this topic.
Recently I was in London and I noted a similar situation was emerging in that country. Unlike the US, where conservation measures are still haphazard and sporadic, London seemed to have “smart” meters installed in many hotels (like I noted in Italy) and the entire culture embraces the “concept” at least of saving energy.
As in the US, however, the situation in Britain is going to be desperate soon. This graph from the April 5, 2008 issue of the Economist shows in a great, simple diagram how the declining use of coal and nuclear power is going to cause an energy crisis in Britain. Britain, like the US, has an ample supply of coal and can import much more from reliable allies like Australia, and has been a pioneer of nuclear power technology and is quite capable of building and operating these plants. While Britain does have North Sea natural gas available, the supply is declining and has other uses (industrial, heating) beyond power generation.
If the marketing class will come to order, we have an interesting case study today. We’re going to focus on a product, the market penetration of which is being limited by an attribute that–on first glance–would seem to be a good thing.