Saturday, August 6, 2011

Grand Challenges of the 21st Century in the Field of Electricity Generation, Transmission & Use

Here's what I see are some of the grand challenges for the 21st century, as related to the field of electricity generation, transmission & use. After I list the challenges, I'll list possible ways of meeting these challenges:

1) Returning the USA, Canada, Europe & Japan to a positive rate of return of investment, i.e. growth in real GDP.

2) Including environmental externalities into the price of electricity and transmission in all countries. This includes deforestation, greenhouse gas emissions, acid gas emissions, ozone forming emissions, particulates, etc...

3) Accomplishing electricity deregulation in such a way that the average price of electricity decreases with time while encouraging efficient investment in electricity generation, transmission and distribution.

4) Implementing demand-response into the electricity market, i.e. allowing residential electricity customers to lower their electricity bills by giving them or their appliances information on the minute-to-minute price of electricity. This requires knowledge of the price of electricity and the ability to raise the temperature of one's house in the summer when the price of electricity is high. (This will lower the price of electricity you pay and help prevent a black out.)

5) Implementing a currency that maintains a zero percent inflation on the average price of mechanical and electrical work. I like to call this an electricity-backed currency. It provides feedback as to which parts of the economy need to grow and which parts need to shrink. Your dollar would have constant purchasing power over time. The government wouldn't be able to take away your purchasing power by inflating its currency.

Now that I've discussed the grand challenges. Here are some of the ways that we can tackle them.

1) Return to Growth
It is my belief that the main way to tackle the problem of a lack of growth in the US, Canada, Europe and Japan (as measured in real GDP or in total mechanical and electrical work generated per year) is to convince people to change their philosophy of life. Changing people's philosophy of life requires one main thing: the existence of a better philosophy of life than what's out there. The only viable philosophy of life that I see is compatible with our modern world is the following:  the goal of life is to expand, and this means expanding life to other planets as well.
I see problems with each of the major world philosophies, such as:  1) the goal of life is to ensure your place in the afterlife, 2) the goal of life is to maintain the Earth as it was before humans evolved, 3) there is no goal of life, 4) the goal of life is to pursue whatever makes you happy, 5) the goal of life is to reach a state of nirvana, and 6) the goal of life is to discover the laws of the universe for their own sake. (A discussion of the problems I see with these philosophies can be found here.)

I do not think that we can return the US, Canada, Europe and Japan to real growth until we change the philosophy of the majority of the people who live in these countries. That's why I call this a grand challenge. People do not easily change their minds. But it can happen. I personally have had at least 3 major changes in what I see the goal of life to be, and at times all six of the problematic philosophies listed above have competed for my top spot. People can change their minds, and the best way get people to change their minds is through education.

2) Tax Pollution
We need to figure out what is the full environmental and economic damage of the pollution from power plants, and this includes nailing down what is the environmental and economic damage of emitting greenhouse gases. This means calculating both the positive and negative effects of greenhouse gases. Then, we need to convert this into units of $/ton of CO2 equivalent. And finally we need to actually include this externality into the price of electricity and transportation fuels. This means that we need more research groups estimating the environmental and economic damage of emitting greenhouse gases (or other forms of pollution.) Hopefully, once enough research groups publish this information, we can start to see what is the mean estimate of the economic/environmental damage. Then, at that point in time, we can figure out the best way include the environmental cost into the price of electricity and transportation fuels. Since the greenhouse gas problem is a global one, all countries need to agree on a plan of action here. I hope that more government agencies start calculating the estimated environmental/economic damage of greenhouse gases. For example, the US Department of Energy has not published any information related to the expected damage per ton of CO2. As an independent and non-regulatory agency, the US DOE really should be trying to calculate the estimated economic impact of rising global CO2 emissions.

Also, we need to figure out how to get China to include the environmental and economic damage from particulates, smog, acid gases, and greenhouse gases into the price of their electricity and transportation fuels (since the Asian Brown Cloud is having global consequences.)

Finally, I think that we should be taxing the land-filling of municipal solid waste (MSW.) Instead, we are building homes, roads and shopping centers over old landfills (this has happened all over the US and is still happening in my home city.) I think that taxing pollution is a better idea than taxing income and productivity. One of the goals in my life is to figure out ways to recycle as much MSW as economically possible, and then to generate electricity from those parts of municipal solid waste that can't be economically recycled. The difficult part is cost effectively generating electricity from waste in such as way that we don't generate more pollution than if the waste were landfilled.
Taxing pollution is a win-win for governments and their citizens: a way to bring in revenues while lowering taxes on income.

3) Increasing Competition into the Electricity Generation Market
Regardless of whether you call this deregulation or better regulation, we need to increase the amount of competition in the wholesale electricity market. We now have plenty of success stories as far as electricity deregulation (PJM, England, Chile), and plenty of lessons learned from half-assed attempts to introduce competition (California). [I'm not going to call California's case 'deregulation' because the law makers were coming up with some crazy regulations during that time period which disincentived building new power plants. That's a recipe for black-outs.]
Here are some of the problems with our currency system. 1) We have a completely disorganized system of regulators, public utilities, private utilities, ISO's, politicians, customers, retailers, and even government owned utilities. 2) We have three completely separate electricity grids (all at different AC phases so that they can't communicate.) 3) We have virtually no demand response from customers (only 20 million homes in the entire US have any demand response, and this has been an entirely recent development.) 4) We have utility companies that still have to go to regulators to get the okay to build new power plants, even in locations in which the utility is selling electricity into open whole sale markets.

There is way too much disorder in the electricity market today, and it's likely to get worse if each state starts implementing mandates for renewable energy or feed-in-tariffs for renewable sources of electricity. What we need to do is to introduce more competition into the electricity grid so that we decrease the price of electricity. Mandates and feed-in-tariffs are the opposite of introducing competition. If you want to address climate change, then tax pollution, but don't mess with the electricity grid by mandating intermittent sources of electricity like wind or solar. Tax the emission of pollution, and then let the wholesale market decide which technologies will survive. This is essentially what we do with the emission of acid gases today, and it's a good model for us to follow in the future with greenhouse gases.

4) Customer response to High Electricity Prices
When the price of gasoline increases, what happens? People purchase less gasoline (as what happened in 2007 & 2008). This is called demand-response. It's a good thing. We buy more when it's cheap, and we buy less when it's expensive.
The problem is that US consumers of electricity have no clue what is the price of electricity on the whole-sale market (except in about 20 million homes here in the US where there are smart meters. For comparison, in Italy, ~27 million homes have smart meters.)
What we need are Really Smart Meters. We need to program really smart devices that control the amount of electricity used for air conditioning (and heating in some homes) based off of the price of electricity.
For example, sometimes the price of electricity peaks above $200 / MWh. Sometimes at night, the price of electricity drops to below $20 / MWh. But in most homes, the home owner doesn't respond to the changing wholsesale prices because they have no clue about the price of electricity on the open market. That's because there is layer upon layer of bureaucracy between the customer and the generator. The electricity retailer (i.e. the company to which you pay your electricity bills) has no clue when you, the customer, used the electricity. It has no clue whether you were using it during the day when prices were high, or if you were using it at night when prices your low. This means that there's no incentive to stop using electricity when prices are high.
This is a major problem. There's no source of feedback! And this is part of the reason why black-outs occur. There's no feedback in the system from the demand side. Instead, the high-prices get spread around to everybody, even to those people who weren't using electricity when the price was high. Everybody ends up paying higher prices because the electricity retail company has no clue who was using it when the prices were high, so all the company can do is to punish everybody with higher monthly prices.

When gasoline prices go up, there's demand-response to tell us to be less wasteful. But as far as electricity goes, there's no price mechanism to tell us to be less wasteful (except in a few homes.) This is one of the grand challenges that faces us this century: figuring out to implement demand-response so that overall electricity prices decrease.

5) Implementing an Electricity-backed Currency 
This is the grand challenge of this century: realizing that money is the capability to do electrical or mechanical work. The wealth of a nation is its ability to generate useful electrical or mechanical work in such a way that it can generate even more work in the future.
A work-backed currency maintains the average price of work in the US at a constant value. [When I mean work, I mean electrical work (i.e. electricity) and mechanical work (i.e. piston motion, such as what moves out cars.] Implementing a work-backed currency is the only way of maintaining constant purchasing power for your dollar. Image a world without inflation. No need to constantly change prices just because the Federal Reserve decides to print money when gasoline prices are already increasing. No need to adjust $ values for inflation. Statements like "Was that value you quoted me in 2005 or 2009 $'s ?" will be a thing of the past. An electricity-backed currency has a built in feedback system to let us know how the economy is doing. Instead, a fiat money supply allows governments to tax you without your elected representatives having to vote on it, like when the Federal Reserve was printing money while commodity prices were growing like crazy. This only adds to inflation. Printing money when prices are increasing lets politicians think that they can continue spending and racking up debt. An electricity-backed currency would force us to realize that we need to fix the real problem (high prices), and not the symptom (unemployment). The only cure for high prices is to cut back on waste and focus on investments with high rates of return on investment!
If you focus on unemployment instead of the high prices by supporting government projects with no return on investment (like cash-for-clunkers), then you will get higher unemployment and high prices (i.e. what's been happening over the last few years.) It's a lose-lose situation. If gasoline prices and electricity prices are increasing (as they were in 2004-2008 and as they were in 2010 and early 2011), then the only solution to the problem is to figure out how to cut back on waste or to sell government assets. (Examples of waste are: 1) corn ethanol mandates and subsidies, 2) mandates and government-backed loans for intermittent wind power sources, 3) paying farmers while there are record food prices, 4) government ownership of Amtrak and the Postal Service, 5) foreign aid to certain governments, and 6) the shear bureaucracy of the government and how it purchases large items (especially large items in the military.) Instead of actually shrinking the size of government as gasoline and electricity prices were increasing (2004-2008 and 2010 to 2011), the government has actually become larger. This is the definition of absurd and the definition of unsustainable.
A currency that maintains a zero percent inflation in the price of electrical and mechanical work has a built-in mechanism that provides feedback on which parts of the economy should grow and which parts should shrink. This is the definition of an effective monetary policy.

So, these are what I see as the 5 biggest problems in the field of electricity generation, transmission & use. In this post, I've also laid out a plan for growing the global human economy without destroying the global economy of all life forms on Earth. The summary, the five goals are:
1)   Adapting a pro-growth philosophy of life.   The expansion of life is good, and this requires chosing projects with high rates of return on investment:
2)  ...Provided that the calculation of the rate of return on investment includes possible damages to the environment and to the economy: such as acid gases, waste generation, greenhouse gases, particulates, deforestation, etc...
3)  Increasing the amount of competition into the wholesale electricity market
4)  Increasing the amount of customer (i.e. demand) response when wholesale electricity prices are high
5)  Implementing a monetary policy that maintains a zero percent inflation in the price of electrical and mechanical work

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