“Not Cheap, Not ‘Green'” at the California Energy Commission

By Tom Tanton -- August 28, 2012

“In my period at Cato (1990–present), “Renewable Energy: Not Cheap, Not ‘Green’“, is probably our most important Policy Analysis in the energy/environment area. Bradley’s thorough review and analysis (60 pages, 325 footnotes) was a real pushback against the viability of ‘green’ energy in theory and practice.”

– Jerry Taylor, Senior Fellow and Director, Natural Resource Studies, Cato Institute.

On the fifteenth anniversary of “Renewable Energy: Not Cheap, Not ‘Green’” (yesterday), I recall, with no little pride, a lot of hard work that went into supplying the author with information about California’s wind and solar experience.

At the time I was working in the belly of the beast, the California Energy Commission (CEC) in Sacramento. The Commission was a major proponent of all things renewable, almost to the point of fanaticism. Well, actually far beyond that point (and that persists to this day), and therein lies a story about how I met a particular Texan and became the silent author of a major public policy study that still reads well today.

Three Amigos

Back in the 1980s and 1990s, I was fortunate to work alongside Richard Bilas, Vice Chair of the Commission, who was our ‘F. A. Hayek’ (think 1944 and Road to Serfdom). Dick Bilas was schooled in Austrian School and Public Choice economics and a real rarity–a free-market California energy regulator (and not wannabe energy planner).

And the third person in our group was Manual Alvarez, principal advisor to Commissioner Bilas, who actually cared about energy consumers. The three of us were rather wide-eyed at what can only be described as postmodern energy policy, a sort of ‘anything goes and is good if you really want it.’

Both Dick and Manny afforded me the freedom to actually analyze the technological pros and cons, without putting P.C. blinders on. And it was Dr. Bilas who introduced me to my future mentor, Robert L. Bradley, Jr. (Rob calls me his mentor, too, so more power to both of us!)

Testimony from Texas (Enron)

Rob, in his capacity as manager of market planning for Transwestern Pipeline (then part of Enron’s interstate natural gas pipeline network), testified before the CEC in early 1992 on the future prospects of natural gas to meet California’s energy needs. He argued against the CEC’s proposed ‘fuel diversity premium’ (think price penalty) in its fuel planning exercise to subsidize both renewables and energy efficiency.

Rob referred to Enron’s internal natural gas studies showing a robust natural gas resource base, which was opposite from the coal industry’s studies that predicted a price spike and shortages. Energy planners at the CEC were against assigning a low gas price so that they could justify ratepayer passthroughs of expensive renewables and energy efficiency.

In his testimony, Rob introduced the California energy intelligentsia to Julian Simon’s logic on why there is little evidence for assuming that gas (or any mineral) prices have to go up.  His testimony described the famous wager between Simon and Paul Ehrlich et al. that readers of MasterResource are well aware of.

Rob’s essay, “Natural Gas and a Potential Fuel Diversity Premium,” was a rare free-market moment at the CEC. Enron was not yet into wind and solar, so he could present a fossil-fuel case against politically correct renewables. [1]  And that is how I met Rob Bradley.

New Research

Natural gas pipeline issues seemed mundane, to me; I was an electricity guy. Besides, I’d just completed a groundbreaking analysis monetizing environmental externalities that showed, even with a natural-gas adder, traditional technologies still beat renewables hands down and should be preferred.

I wanted to keep going with what I believed was a devastating eco-enviro case against wind and (on-grid) solar, and that’s what Rob was interested in. He had a sense that there were extra-economic issues associated with renewables that weren’t being considered in the hell-bent push for more renewables.

So we began communicating more earnestly, via phone, fax and the occasional email (remember this was fifteen years ago).

One topic that came up was the huge amount of concrete used in wind-turbine foundations. Turns out concrete requires cement, which is very energy and CO2 intensive and which ultimately takes years to ‘pay back’ by the wind turbine offsetting some electrical generation.

Another topic, which has more recently gained international attention, is the need for back up and balancing, because the wind, you see, doesn’t cooperate in providing constant output. That requires other power plants to operate in ways that are less than optimal.

The CEC was using chronological dispatch models to simulate the grid’s operation, but I couldn’t get the model operators to run any simulations on the actual effect of wind in large amounts. The effort did lead me to conclude that wind is twice the cost and half the value, largely because it provides energy but no capacity.  That became a bottom line in the CATO report.

Avian Mortality

The Commission had some very good actuarial data on avian mortality caused by wind turbines (they kept getting run into by eagles and hawks gliding around looking for morsels on the ground). They had even gone the length of painting “warning signs” on the wind rotors (cross hatched orange and white) thinking “if the birds just SEE the blades…”) failing to note that the blade tips are moving at close to 150 miles per hour (today’s larger rotors are closer to 200 mph.)

Also, some courageous environmentalists in obscure California media outlets were screaming “foul” at windpower’s fowl carnage. I supplied that to Rob as well.

Solar, Too

Rob and I discussed similar issues regarding the various solar technologies of solar-thermal electric and photovoltaics, he giving me leads and I providing numbers and technical analysis.

Off-grid solar, which California was a pioneer with, is one thing. On-grid solar is quite another.

The Unseen

I educated Rob, and he educated me by giving me a Bastiat-like commitment to look for the unseen, or at least the unspoken. Henry Hazlitt, building upon Bastiat’s notion into the general concept of opportunity cost, should be required reading for every Californian interested in energy.

I’m honored to have played a part in “Not Cheap, Not Green,” and more importantly, for a collaboration that led to many years of mutual work and friendship. Here’s hoping that our effort leads to more policy reform in the next 15 years than in the first 15.

——-

[1] Rob would return to the CEC in April 1995, this time as president of the Institute for Energy Research (which he ran out of his house after hours from his day job at Enron), with  “Comments on the Draft Report on Energy Efficiency Policy Recommendations.” Natural gas was competing against hightly subsidized electricity conservation (conservationism), and gas deserved better.

Appendix: Rob Bradley Remembrances

Well thank you Tom fifteen years later! There would not have been much of a paper, and maybe not a paper at all, without Tom Tanton, a really nice fellow who made me feel welcome at the CEC (and my thanks to Dick Bilas and Manny Alvarez too, wherever you are).

I remember that the piece took forever to get published. Jerry Taylor at Cato was going in a lot of different directions and slow to edit the piece, which was frustrating at times. But it turned out for the best, because I used the extra dead time to do more research and writing. The piece got longer and longer and was not far from a small book by the time we finished.

I was working at Enron at the time. And between the time the paper was underway and completed, Enron bought Zond , which was renamed Enron Wind Corporation. Enron was already in solar (Solarex), but this was a big heralding as it now meant that Enron could claim to be a world leader in renewables (but really rent-seeking). Hap Boyd–Enron Wind’s hapless lobbyist who had a picture of an expensive sports care on his wall that he claimed he would be able to buy (think bonus) if the Production Tax Credit was extended one more time–called me up when he found out about my paper. He explained how wind turbines were a good thing because farmers were now getting royalties, and I argued back that wind was uneconomic and a pure government play. We were polite to each other, however.

Finally, I remember early in the process when Randall Swisher, executive director of the American Wind Energy Association in Washington, D.C. , called me late one afternoon when I was wrapping things up for the day at Enron. I had sent a draft to him for critical comments (why not?), and he was testy. “This is nothing but a hit piece,” he said in a raised voice. He added: “Enron needs to get into the wind business. You are already in solar, and wind has better economics and prospects.”

Well, Randall got his wish several months later when Enron did get into the wind business–and arguably saved the U.S. wind industry.