Bishop: The Neo-Santelli Question - Do You Want to Pay for Your Neighbor’s Solar Cells?
Friday, May 25, 2018
Rick Santelli famously catalyzed the self-assembly of the tea party with his impromptu exhortation on the floor of the Chicago Mercantile Exchange: “This is America. How many of you people want to pay for your neighbor's mortgagee that has an extra bathroom and can’t pay their bills”. Few disagree that this was the beginning of a populist economic pushback that arguably saw its logical conclusion in the election of Donald Trump.
It isn’t as ironic as it seems that this populist groundswell was raised against fellow citizens gaming the system rather than big banks. While Santelli was equally hostile to bank bailouts, folks could relate to his infamous Feb. 2019 rant at a personal level. They may not have a fully informed opinion whether the bailout for systemic stability was more important than the reality of moral hazard that came with the creation of ‘too big to fail’ status. But when it came to people like themselves, who took out big adjustable rate mortgages to buy more than they could have otherwise afforded, this resonated with people who had been similarly tempted but didn’t go into the deep water. And if some folks don’t have to pay their mortgage, why would anybody pay their mortgage? And wasn’t that systemic risk by definition?
The energy sector has simply not woken up to the same simple formulation that Santelli would deliver to New Englander’s whose legislators are as busy as ever pushing the rope of alternative energy to the acclaim of a noisy minority, and the gross detriment of their constituents: “Do you want to pay for your neighbor’s solar cells who feel like cutting their electric bill while increasing yours?”
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTAlternative energy Ponzi schemes
This is the same pyramid scheme of moral hazard to which Santelli objected in the realm of holding mortgagees harmless for welching on their obligations. Rolling Stone said the same with regard to the bank bailouts. Well of course it isn’t just a couple opportunistic homeowners looking to save a few bucks who play the alternative energy shell game. There are some corporate bad guys in the sector making theirs along the way here. Elon Musk comes to mind with the solar cell game, and Deepwater Wind has their hands so deep in RI’s pockets they ought to be forced to buy everyone new trousers – except they would just get the legislature to approve them charging that expense to ratepayers. And National Grid is hardly blameless as they grab percents of all of this while its flying by, let their customers be damned (which we are).
That is not to say that there are no traditional energy bogeymen who deserve some criticism but its not necessarily who you think. Invenergy has been a convenient villain of late for having the temerity to want to build a billion dollar plant and pay state and local taxes in RI. How criminal is this undertaking given the recent ISO New England Report suggesting the possibility of impending winter blackouts? (ISO is the Independent Systems Operator, the agency charged with regional grid operation as opposed to local electric distributors like National Grid.
Blackout Scare little different than Climate Scare
You might be surprised to find out that I agree with Jerry Elmer of the Conservation Law Foundation (CLF) on several points he has made about how irresponsible those headlines themselves are. Jerry points out an irrefutable issue with models: the assumptions you make dictate the result you get. Geez, ya think? After 25 years following climate policy and saying the selfsame thing, I’m now joined by environmentalists who are finally woke. Oh, well of course, no scientist would ever contribute to a desired outcome climate model. That’s different somehow. And no scientist would every subconsciously accomplish the same thing through the accident of confirmation bias, where they believe humans are making a catastrophic mark on the climate and thus fill open parameters to skew the model to establish what the scientist already believes.
In the case of the ISO report, you have stodgy conservative grid operator types whose job it is to keep the lights on and the environmentalists think they are too married to traditional smokestack approach. These electrical engineers are the heirs of their peers who tried to figure out what happened when the lights went out in the 1965 blackout of virtually the entire northeast US and most of Ontario. So its unsurprising that they used fairly conservative assumptions in their model that predicted 14 hours of rolling winter blackouts within the next 6 years due to retirement of electric plants and failure to replace them, or more importantly the equivalent of their stored fuel.
Fuel Storage vs. Alternatives
Coal was easy to store and you kept a big pile around. Uranium had its complications but you didn’t need to store much to have a lot of reserve energy. As we replace these sources (partly because their aging infrastructure and fuel and labor related operational efficiencies make them uncompetitive, but also partly because the industry has simply laid down for squeaky wheel activists who say we can’t use coal or nuclear anymore) with nondispatchable, read unpredictable, renewables, the main back up for this shaky grid will be gas fired generation. Environmentalists insist that various stochastic and dispersed effects mean that more renewables will eventually yield more reliability. That doesn’t seem to follow from experiences of Europe and South Australia.
But the real issue isn’t 14 hours of blackouts. We had 14 days of blackout at our house this winter, what the heck is 14 hours spread out over the winter? The real problem with both ISO and CLF approaches are they follow the mantra of proto environmentalist Warren Beatty who intoned in his role as Joe Pendleton in Heaven Can Wait: “We don’t care what it costs, we care what it makes”. Who wouldn’t say such a thing for Julie Christie. But the only person who loses in this deal is the consumer. Because they are called to pay whatever ransom is being demanded.
So there isn’t so much worry these terrorists are going to cause blackouts as that they are going to empty our wallets; they are going to destroy our economy while they argue over whose reliability model runs are right. This blackout thing is just scare tactics to get more money from us. If you take the ISO version you will pay for more pipelines. If you take the greens version you’ll pay more of the Deepwater tax. How about, for once, we take the course that costs less. Our rates are already absurdly high thanks to our legislators pretending they can make alternative energy competitive by subsidizing it. Instead they have simply created a subsidy dependent industry.
Market could solve this, but is this Cost before Climate?
ISO should be looking at making our electric markets work this out creatively and efficiently. Massachusetts courts have frustrated at least one reliability effort for electric rate payers to fund commitments for more gas pipeline capacity. But this shouldn’t be a court case, it should be accounting. Will it cost more to build more Deepwaters or to build more pipelines. You can argue at the margins but that is a knowable equation.
But would we be sacrificing the climate in the process? Well, speaking of scare tactics, I’ll give you one that makes an honest if pessimistic estimate of possible winter blackouts look downright gospel truth. Only a year ago various petty state officials were waving a NOAA studyin our face suggesting that we prepare for 9 feet of sea level rise this century while urging even more energy poverty on us and trying to scare us into loving our high electric bills.
Forgetting that NOAA does not have particularly clean hands when it comes to putting its thumb on the scale of various climate indicia, just taking the report at face value, it says absolutely nothing like that. But when folks are waving it in your face they don’t really expect you to read it. On page 13 the report actually places the 90% confidence upper limits of sea level rise at manageable benchmarks between 2.5 to 4.2 feet depending on emissions levels. Forgetting whether I agree with that assessment, where would they get a headline of 9 feet? Well, if you read on, the report concludes on page 14 that in a highly unlikely worst case scenario we could experience 8.2 feet of rise and suggests planners bear this in mind when siting long term critical infrastructure such as, ironically enough, power plants. 8.2 round to 8 right? 9 though is close enough for government work.
Ironically enough, to the extent that you perceive CO2 as any kind of threat, and are unconvinced that the case for ending its emission is a giant fraud, gas burning has reduced our output far more than employing renewables. So if you care about CO2 there isn’t even much evidence that renewables would be preferable.
A strong economy is better for the environment in the long run
Yet we live in a bureaucratic nightmare where these beliefs are trashing our economy and, for the most part, even traditional generators have played along. Fine, you don’t want coal plants or nukes, we’ll shut ‘em down. Now you don’t want gas plants or pipelines. OK we’ll build windmills and the lights might flicker, whatever.
But if traditional plants are no longer secure sources of power, because of regulatory and economic limits on their oil storage and burning during winter cold spells when natural gas is in short supply, then why are they receiving generous capacity payments? Equally troubling is that nondispatchable resources like wind and solar receive capacity payments. It may simply be time to pitch in the capacity market altogether. Texas runs a quality competitive electric market and grid without a capacity market.
Gas plants are already retiring because of fuel shortages
Even as we debate the ISO and CLF scenarios a late development is the unexpected retirement of the 2000 MW Mystic gas plant, larger even than the idled coal plant at Brayton Point. Capacity was recently added at Mystic, proximate to the Everett LNG terminal so that it could provide yearround basedload power without deep winter constraints. But the much higher costs of relying on LNG are not reflected in market pricing for the power or capacity according to owner Exelon. Reportedly ISO is considering some reliability program or market changes that would pay for Mystic to remain open. This should not be accomplished by placing additional unwarranted costs on consumers, but recovering sums that ISO has effectively suggested might be undeservedly flowing to various other generators, traditional and renewable.
Why you say, if Mystic wants to retire plants should we have an Invenergy plant. Because the market, at this point, dictates investment in more plants with oil back vs. LNG reliant plants. It is easier to transport and store oil than LNG. In the old vertically integrated utilities, they would never have closed Mystic. They would run it and simply charge customers whatever it cost. There were purported safeguards for ratepayers, but there is no safeguard like survival of the fittest.
Expensive energy cripples Rhode Island’s economy
Enough of these scare tactics from both sides, its time to put the consumer first - and that includes our suffering business sector. The entertaining gubernatorial candidate Giovanni Feroce who proposes making the state into a haven for distributed ledger companies in the Bitcoin mode thinks we can do this without any of the actual work happening in the state. He knows the high cost of electricity would never facilitate this server dependent business. We’ll see, but what happens when Tennessee or North Carolina put together an all of the above scenario with attractive utility rates and low regulatory and tax regimes? Our uncompetitive electricity hurt us with how little flows into our wallets in this state as well as how much flows out to utilities.
Where indeed are all the jobs that were going to come from this glutenous subsidy of Deepwater that was supposed to make us the center for manufacturing and construction of the offshore wind universe? Meanwhile, Toray, that itself pays $2 million a year extra in electricity costs for this folly remains one of the states largest manufacturers but expands elsewhere. It is not only in our interest but in the environment’s interest that we choose the most competitive energy and see the surplus benefits to our economy as the source of wealth for improving our quality of life including the environment. If we want to catalyze investment in renewables and the ephemeral notion of ‘free’ energy, put up X prizes for solving the choke points that prevent renewable energy from being competitive. Don’t subsidize massive adoption of expensive inefficient renewables and create an institutional lobby for those subsidies to continue indefinitely.
As with Santelli’s very down to earth expression, most people can understand, they shouldn’t be paying for their neighbor’s solar panels. It’s more complicated but equally so that it is an embarrassment that our legislators subjected us to the costs of the Deepwater Wind Project. Its kind of like Wickford Junction in the middle of the ocean – an enormous waste of money that we are stuck with. Although we’re not really stuck with it. Despite the façade that Deepwater has a contract , what they really have is a legislated fiat and: he that giveth can taketh away. If you got a subsidy from one legislature, the next one can end it. We can’t necessarily claw back what’s been paid but this gravy train should be derailed, whether its headed for your neighbor’s roof or a connected company’s bank account.
Brian Bishop is on the board of OSTPA and has spent 20 years of activism protecting property rights, over-regulation and perverse incentives in tax policy.
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