Archive for Energy

Small is Beautiful

My recent Forbes article Cheap Photovoltaics Are Eating Solar Thermal’s Lunch about how the rapidly falling price for photvoltaic (PV) modules is undermining the case for concentrated Solar Thermal Power (CSP) is just one instance in a larger trend: In the modern energy economy, modular technologies advance more rapidly than large scale technologies because it is easier to get experience with them in the field at reasonable cost.

PV started with sub-watt sized cells in solar powered calculators. Solar calculators may not seem to have much to do with today’s multiple hundreds of megawatt (MW) sized plants which can be a billion times larger than a solar calculator, but the manufacturing experience with those tiny cells allowed manufacturers to bring costs down to the point where kilowatt sized systems started to be used on off-grid homes, which in turn brought down the price enough to allow subsidies to make solar affordable for most homeowners, and 1-2 MW commercial plants, and now we’re seeing announcements of solar farms approaching a gigawatt.

CSP, on the other hand, only starts to make sense at around 100 MW, so building each new plant represents a much bigger financial commitment than even a million calculators. Looked at this way, PV’s potential eclipse of CSP perhaps should have not been all that surprising. But hindsight is 20-20.

This also has implications for the advance of other energy technologies. Look for the modular technologies to gain ground at the expense of the industrial scale technologies.

Modular technologies

  • PV
  • Wind
  • Gas Turbines
  • Land Fill Gas
  • Grid based battery storage
  • Energy Efficiency
  • Smart Grid / Demand Response
  • Fuel Cells

Industrial Scale Technologies

  • CSP
  • Coal
  • Nuclear
  • Ocean Thermal Energy Conversion (OTEC)
  • Geothermal Power (sometimes small scale, but limited places it can be built)
  • Compressed Air energy Storage
  • Pumped Hydro
  • Flow Batteries

That’s just a few energy technologies off the top of my head, and I’m not trying to say that modular technologies will always win out over industrial scale technologies. But I am saying that price per kWh is not everything… sometimes small scale leading high prices per unit of energy but low prices for individual systems can allow a rapid evolution to lower prices per kWh. We’ve certainly seen that in Solar.

What’s next? LEDs were also able to develop rapidly because they were useful in a large number of specialized niches, such as indicator lights on electronics) despite the high initial cost per lumen.

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Top Ten Lists: My Stock Picks for 2008 and Most Blogged Stories of 2007

I did two top Ten lists to bring in the New Year. First, I picked ten speculative plays in renewable energy and energy efficiency that I think will do well. This was a 3 part series:

Part I: LED Stocks and Ultracapacitor stocks
Part II: Batteries, Distributed Generation, combined Heat and Power, and Electricity Transmission
Part III: Geothermal, Wind and Wave Power stocks, and a Solar Short

My second Top 10 list is plain fun… we used an algorithm to see what stories cleantech bloggers were linking to in 2007, and I did a short summary of each. Here is my Ten Most Blogged Cleantech Stories of 2007

Enjoy!

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Five Free (or nearly free) Ways to Learn about Alternative Energy near Denver

I’m often aghast at the price conference organizers ask for people looking to
learn about alternative energy, when there are so may great inexpensive
opportunities available, sponsored by nonprofits a and other organizations
whose mission is to get the word out about our energy options.  Here are
three monthly events that Denver area residents can go to… I go to most of
these regularly.

  1. The National Renewable Energy Laboratory’s Brown Bag Analysis seminar … Free, but make sure to bring photo-ID.
  2. The Colorado Renewable Energy Society’s Monthly Meetings. ($5 or $40 annual membership – snacks usually served afterwards.)
  3. The Colorado Cleantech Initiative monthly meeting. ($10 with RSVP – you get dinner & free beer.)
  4. Smart Energy Living Workshops (Usually about $10-15, lower with membership)
  5. Clean Energy Action monthly meetings (Boulder)

Please leave comments if I forgot (or don’t know about) your regular free
or almost-free event.

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Visual Comparison of Electricity Generation Technologies

I just put together a couple graphs for a talk I’m giving on Monday to give people a visual feel of the various technologies for generating electricity.  These come with a gigantic caveat: the numbers are far from precise.

With changing technologies, it’s impossible to represent any of this with a single number anyway.  I’m trying to show how the technologies compare to each other, and I used four parameters:

  • Cost ($/MWh),
  • Availability (better the closer the profile of the technology matches a normal demand curve (wind is bad, baseload is okay, dispatchable is best, solar),
  • Emissions (and I count waste storage when it comes to nuclear),
  • Bubble sizes represent the size and durability of the resource (I’ve tried to combine in one number how much power we can get from the resource, but also how long supplies of fuel will last.) 

In both charts, the “best” technologies are in the upper left (low cost, low emissions, and available when we need them.)

I know that I’m going to upset a lot of people because I was too harsh with their favorite technology, so feel free and comment on the numbers I’m using, but also please provide references for where you get your numbers.  Most of these are off the top of my head, so their accuracy is admittedly questionable.   Here are the numbers I used to make the graphs.

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The Psychology of Energy Efficiency

Efficiency is unquestionably the largest, cheapest, and cleanest wedge among the many we need decarbonize our energy economy.  Energy efficiency tends to cost just 1 to 3 cents per kWh saved, far less than even coal-fired generation.   Every renewable technology, from wind to solar, to biomass, has trade-offs.  At the very least, we have to decide if the energy we are using for one purpose is not better used for something else.

Energy efficiency is the exception to this rule: you can not use a kilowatt-hour or a BTU over and over again.  Given these advantages over generation, it’s amazing that energy efficiency is nevertheless so extremely cheap.  Given an even moderately efficient [pun intended] market, you would expect that all the cheap energy efficiency measures would long ago have been taken until the marginal price of the next efficiency measure was above the marginal price of added electricity generation.

So why hasn’t it? 

Why is TXU trying to build a half dozen coal fired power plants in the face of broad opposition from the community when, for a fraction of the cost, they could instead pay to help people insulate their homes, change to more efficient air conditioners, and replace energy efficient lighting and save as much power as they plan to generate with the coal plants without any cost for fuel and harm to the environment from mining and emissions?

For that matter, why don’t TXU’s customers (and the rest of us) take these steps ourselves, when the internal return on investment is many time what we can rationally hope to achieve in the financial markets, and in many cases is even higher than the interest borrowers with the worst credit ratings pay on their credit cards.  (Like most financial advisors, I hate debt, especially credit card debt, but even if you’re drowning in $30,000 of credit card debt at 25% APR, it still makes sense for you to buy a pack of CFL’s at $3 each on that high-interest credit card, and replace every incandescent light bulb in your house that you use more than 2 hours a day.)

Here’s a blog which does a good job outlining the usual answers: lack of financing, perverse incentives, and disinterest on the part of people for whom energy is only a tiny part of the budget (all of which are true.)  He goes on to outline perscriptions that will undoubtably help to break down the barriers to the adoption of many Energy Efficiency measures.

I see other barriers that lie behind these.  Not just a failure of normal market forces, but conceptual problems.   While energy in general is a fuzzy concept to most people, using less energy is even less tangible.  You just can’t drop energy efficiency on your foot.  You’re not even at risk of electricution from it.

The pernicious consequence of systems of measurement is always that things we can’t measure go unnoticed.  If you have a hammer, everything looks like a nail, but even more insidiously, things that will never look like nails no matter how hard you squint dissappear from your vision altogether.  It is this psychological quirk that makes energy efficiency go unnoticed.

What image comes to your mind when I say “wind power”?  If you’re anything like me, you probably had a image of a forest of giant wind turbine blades turning gracefully on the horizon like ballet dancers.  Or, you might be like my wife, who would also have an image of a wind farm, but thinks they are ugly (although not so ugly as the haze from a distant coal plant) despite recognizing their necessity.  She wishes they were painted to camouflage them into the background.   Whatever your attitude towards wind power, you probably saw an image.

 Now try “energy efficiency.”  It’s a lot trickier, isn’t it?  I think about energy efficiency all the time, the way a teenage boy thinks about sex (okay, maybe not quite that much), and even I can’t settle on an image.  My mind flashes from the act of replacing an incandescent bulb with a compact fluorescent lightbulb (CFL) to an industrial scale combined heat and power facility, to closing the blinds at night to keep the heat in.

Not only is energy efficiency hard to picture, it’s also hard to measure.  To compute the energy savings from any activity, you have to establish a baseline: how much energy would you have used if you had not changed your methods.   Even in the simplest case of replacing a CFL, we don’t really know that the bulb we replace would really have stayed in the socket until the CFL breaks: A CFL can easily last 10 years, and by that time, we may be replacing all our bulbs with LEDs.  And that does not even begin to account for the effects on our HVAC systems.

Is your mind spinning?  That’s my point.  It can be so hard to get our minds around all the impacts of energy efficiency that, for most people, the most people, it may actually be rational to waste a little energy in order to avoid the headache that trying to get their mind around efficiency may entail.

The problem is, that decades of conserving brain power has left us as a society that wastes energy egregiously.

My prescriptions, designed to make thinking about efficiency easier:

  1. Measure energy use at every opportunity.  Many Prius drivers report that the real-time MPG gauge on the dash causes them to change their driving habits to grive more efficiently.  Getting a Kill-a-Watt energy meter makes us think more about our next electronics purchase.   Getting to know your electric meter can also motivate you to track down wasted energy.  A radical idea: on new homes, the electric meter should be inside, along with the circuit breakers.  New meters can be read (and even turned on and off) remotely, so there is no reason any longer to have them on the side of the house where we never see them. 
  2. Another thing we need to measure is when we use our electricity, not just how much.  Wholesale electricity prices can vary from a few cents per kWh to 30 cents or more during peak consumption.  As we move to a grid based on renewable energy supplies, most of which are intermittent and non-dispatchable, we need to get used to paying the real-time price of the energy we’re using.  Wide-spread adoption of time of use metering will drive the invention and adoption of appliances that can adapt themselves to changing prices.  There are direct, immediate benefits to the system by shaving peak loads, but the real benefits will come when people adopt new ways of doing things and new devices that will cause our appliances to run and our devices to charge when electricity is plentiful, and runonly the most essential uses of electricity when it is scarce.   Xcel is currently doing a pilot study on Time of Use Pricing in Colorado.  The preliminary result are that the right pricing scheme encourages customers to change their energy use much more than they had anticipated… but it still would not be “economic” to change out meters for more sophitocated models capable of handling this sort of billing.  Their definition of “economic” almost certainly does not include the benefits of the creativity which realistic pricing would unleash. 
  3. Allowing utilities to profit from selling less rather than more.  This concept, known as decoupling, is covered well here.  It’s important to remove (or even reverse) the incentive of utilites to sell us more electrons when we really want them to help us use less.

Finally, I do call this blog EE/RE Investing, so here are the sectors that I see benefiting from these recommendations as they are adopted:

  1. Companies selling advanced metering devices, and control systems that adapt to changing electric rates.
  2. Companies that sell building management systems.
  3. Energy storage technologies, such as as advanced batteries, flow batteries, and compressed air energy storage.
  4. Broadband over power lines technology, to handle the increased flow of information.

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Holistic Approaches to Energy Problems

H. L. Mencken said, “For every human problem, there is a neat, simple solution; and it is always wrong.”  When it comes to solving the problems of peak oil and global warming, I also think that the loudest barking is up the wrong tree.  We look for the quick fix, trying to find a substitute energy source that allows us to change the way we do things little as possible, when the real problem is actually what we’re doing, not how we’re doing it.   We need holistic solutions, not quick fixes.

Too abstract?  Here are some concrete examples:

 Problem: Peak Oil

Quick fixes: Ethanol and slight increases in vehicle efficiency standards.

Holistic solutions: Change our driving culture and infrastructure, by changing the way car use is priced from fixed charges to a per mile basis (“Pay as you drive”).   Removing subsidies to use cars when other forms of transport are available, and redesigning our cities to make them easier to get around on foot, bike, and public transport.  Like other holistic solution, all these steps increase safety and reduce congestion, reduce obesity and associated health problems, as well as reducing the use of gasoline.

Problem: Wind and Solar are intermittent resources, but coal produces too much CO2 and natural gas prices are rising rapidly.

Quick Fixes: Nuclear power and “Clean” Coal.

Holistic Solutions: Shift our demand for electricity to times when it is available, by using time of use pricing, energy storage and demand alignment, and distributed energy storage such as plug in hybrid vehicles.

Investing opportunities:On thing that’s striking about these examples is it’s much easier to find investment opportunities in the quick fixes than in the holitistic solutions.  To invest in ethanol, you can just buy ADM or one of the multitude of ethanol stocks that have been going public recently, but I have yet to come up with a satisfactory way to invest in better urban planning (except buy a house in a walkable community, which is something I’m planning on doing this summer.   Stapleton is the community.  I currently live there, but I’ve been renting and waiting for the end of the housing bubble.  I actually don’t think that housing is going to go up again any time soon, but I’m tired of waiting.) 

The investment landscape is a little better when it comes to energy management.  Itron and Siemens both have divisions that help utilities manage their grids better, and there are many battery and other energy storage companies to choose from.  Still, it’s a lot harder to pick through battery companies than to just buy a nuclear powered utility or uranium miner.

Holistic solutions, by their nature, have weak boundaries… the benefits tend to be diffuse, and spread over society as a whole, so it is difficult to charge fairly for them.  This, I think, is why there are so few companies pursuing them when they can pursue a quick fix that they can charge for up front.  

Companies have an obligation to their shareholders to make money.  It’s our job, as human beings, to work towards regulations that make it easier for companies to make money with holistic solutions that actually solve the problem than it is to make money with quick fixes that just cover the problem up.

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Energy’s Place in Economic Theory

I recently started studying for the second (in a series of three) CFA® examinations (I passed the first one last June.)  The CFA charter is a credential often used by stock analysts and money managers.  In addition to an industry work requirement, there are 3 tests, which are administered once a year, covering a curriculum including Statistics, Economics, Financial Theory, Ethical standards, markets and the like.    

I expect to study about 200 hours for the exam, which is in June. By the way, if there is anyone reading this in Denver who also is studying for the Level II exam, I’d be interested in getting together to work through some of the problems and share study materials.

I just finished a reading on theories of economic growth, a chapter from Economics by Michael Parkin, which is probably one of the best basic Economics text books out there.  It’s been a long time since I took an Economics course, and so I had forgotten how economic growth theory is taught.   

I was disappointed. 

Why?  Because the role of energy use in labor productivity is almost completely ignored. (Labor productivity is simply the sum of all economic activity divided by the number of hours worked.  Since the number of hours worked is relatively easy to measure, growth in labor productivity is the key factor which needs to be understood in order to understand economic growth.)  All three theories covered attempt to explain labor productivity through the interaction of two factors: the ratio of capital to labor employed, and technological change.  As a short aside, the role of energy use is given a slight nod, because the drop in productivity growth in the United States in the 1970s is attributed to the Energy Price Shocks of ’73-4 and ’79-80, in addition to a diversion of effort for coping with environmental problems.  To me, that sounds eerily familiar.  Those are precisely the same problems I expect the world will be trying to cope with for the next decade and beyond.   It’s not that economists as a whole fail to recognize the role of energy use in keeping our economy going.  For example, the effects of the recent rise in energy prices have been widely discussed, and many pessimists (myself among them) have been surprised at how little effect rising energy prices have had on the economy.   The explanation for the lesser effect on economic growth is that our economy has become (partly as the result of the ‘70s price shocks) much more efficient, requiring less energy per unit of GDP. What bothers me is that energy is dealt with as an aside, not as one of the major factors in determining economic growth.  For most of the 20th century, we were blessed with energy supplies which we could increase at will to meet increasing demand, so supply constraints were seldom a factor in determining the growth rate.  In a sense, economist theory is like military strategy: there is too much emphasis on figuring out how to win yesterday’s battles, not tomorrow’s.  Tomorrow’s economic battles, as I see them, will be learning to cope with diminishing supplies of fossil fuels.  Economists, who are the ones who will be helping society plan those battles, should be taught the role of energy in economic growth as part of their framework of understanding, not as an aside or afterthought.  This brings to mind the other aside in the chapter: The other cause given for the slowing of productivity growth in the 1970s was due to the expansion of laws and resources devoted to protecting the environment.  This is perhaps a graver weakness of economic dogma than the minor role for energy.  Because we measure only economic growth, and do not count natural resources like clean air and water among our assets, destruction of those assets is much more likely to be overlooked or minimized by policy makers than it would be otherwise.   This concept is known as Green GDP, and is still very much a fringe theory in economics, in large part because it is fiendishly tricky to measure accurately.  Unfortunately, what isn’t measured is usually ignored, and, like the unmeasured risk of terrorists flying airplanes in to skyscrapers, is likely to come back to haunt us in time.

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Vision of a sustainable energy future

I’ve been meaning to write an article outlining a vision of a sustainable energy future, where biomass is converted into fuel and electricity through pyrolysis and the waste product, carbon is used as a fertilizer a-la terra preta to produce more biomass.  The good news is I don’t have to.  The Engineer Poet did, and it’s just part of a much broader vision you’ll find here.   He also goes into a great discussion of transportation technologies and efficiency which would never have made it into the article I’d write.  I like it when other people crunch numbers, so I don’t have to.

Give yourself a half hour to read the whole article.  It’s worth it.

( Terra Preta: I got a comment from Erich J Knight on terra preta here that went into a lot of depth, but I deleted it by mistake.  Forturnately, he says pretty much the same thing in his blog.  I first heard about terra preta from Ron Larson, chair of the American Solar Energy Society, who is very active in the local (Denver) renewable energy scene.  If you haven’t heard about terra preta, and are concerned about globabl warming or soil fertility without fertilizers from fossil fuels, it’s worth looking into.)

Read the rest of this entry »

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Hedging Your Peak Oil Risk

In today’s issue of Peak Oil Review, I wrote a commentary on how to use the financial markets to hedge your peak oil risks.  These risks include not only the cost of energy, but possible job or income losses due to a slowing economy.  I  include some discussion of securities which pay dividends based on income from renewable energy, or may do so in the future.

Peak oil is key to my belief that investing in renewable energy and energy efficiency companies is not only the right thing for the planet, but also the right thing for your pocketbook.  Peak Oil Review is an excellent source for staying up with events and commentary related to peak oil.  It’s on my weekly reading list.

You can read my entire commentary  here (pages 4-5.)

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Five minutes with Xcel’s Dick Kelley

Richard C. Kelly

Dick Kelley, the President, CEO, and Chairman of the Board of Xcel Energy spoke to the board and invited guests of Western Resource Advocates last Friday.  I was invited as a supporter of WRA.

 

His speech was widely reported in the press because he called for national regulation of greenhouse gas emissions.  The AP story emphasized Kelly’s shift from being an environmental skeptic to calling for national Carbon emissions regulation.  This is a big shift, and a giant step for a utility, but Kelly is not so much of an environmental advocate as he might sound.

 

I had a short conversation with him before dinner.  After we introduced ourselves, I told him I’d been making his life harder recently at the Colorado PUC.  Like anyone who’s been successful in business, he didn’t miss a beat, and told me that it was great, and the more people’s input we had, the better.

 

He said that Xcel had been opposed to Amendment 37 because of the cost of the solar set-aside, a position I’m actually sympathetic with.   After all, is it better to have 1 MW of solar photovoltaics on people’s roofs, or 20 MW of Wind?  When you look at the subsidies needed to get people to install PV (which is an Amendment 37 requirement), we could probably get 20x as much wind energy onto the grid for the same cost.   It’s not that wind cost 1/20 as much as solar, but since the price of electricity from wind is comparable to the price of coal, it does not take much to get a lot of wind, while solar needs to be heavily subsidized.

 

What I really would have liked in A37 was an allocation for Demand Side Management (DSM) and energy efficiency.  If the same incentives could have gotten us 20 MW of wind or 1 MW of solar, it could also have gotten us 40 MW of DSM and energy efficiency.  (none of these numbers are precise… it’s hard to tell what an incentive will accomplish until it is implemented, but we do know that DSM is cheaper than wind is cheaper than solar.)  But energy efficiency was not on the table when A37 was being written… polling data said that adding “energy efficiency” to the bill dropped popular support by so much that we couldn’t have gotten it passed.

 

Dick Kelley also told me that Comanche 3 (a new 750 MW coal plant) would be the last conventional coal plant that Xcel would build.  I told him Comanche 3 would be fine with me, if they’d just shut down Comanche 1 and 2 (a couple old, less efficient plants at the same site.)  That was an option that’s clearly off the table, but he did say Xcel needed to find a way to clean up the emissions of those plants.  I suggested wood chips, like Aquila is doing at their  Clark Generating Station in Canon City.  By co-firing wood and pine needles from necessary forest thinning, Aquila is able to reduce net CO2 emissions, as wel as NOx, SOx, and Mercury.

I mentioned the option of hybridizing concentrating solar thermal power (CSP) with existing coal plants.  He didn’t really understand the concept, and thought I was talking about photovoltaics.  I’m not sure I was able to explain myself well.  Put simply, when heat is available from the sun, it can be used to displace heat from coal (or natural gas) in an existing generator.

Kelly also said he’d like to raise wind to 20-25% of generation, but after that they’d have to see what the effect on reliability of the grid would be.  I brought up the idea of Pumped hydro or CAES.  He didn’t seem familiar with the fact that Colorado’s Big Thompson Project could be adapted for pumped hydro fairly easily.  As he said, new big hydro is not going to happen.  Which is all the more reason for adapting out existing reservoirs for energy storage with pumped hydro.

I was encouraged that he has recognized that Carbon Emissions are a massive problem, and that the utilites, who are the biggest emitters of carbon, are going to have a big part in the solution, but discouraged that he knew so little about several pieces of the solution that have great potential to be quickly viable.

Xcel likes wind, but is not looking at new ways to increase how much they can put on their system… they’ll just go to 20-25% and see what happens.  They’re pursuing IGCC (Internal Gasification Combined Cycle a.ka. “Clean Coal”) with carbon sequestration in a pilot plant, which many environmentalists feel is just a distraction from renewable energy, pointing out that no one has ever done any sort of sequestration on a large scale.  To me, that is an argument for IGCC with Carbon Sequestration, on a small scale: let’s give it a try and see if we can make it work or not.

IGCC is a lot better than one of the other ideas that Kelly brought up in his speech: he thinks that part of the solution will be nuclear power.  Nuclear power is indeed carbon neutral, but it requires diminishing uranium supplies, or the use of breeder reactors which make plutonium, an element which is not only extrememly toxic, but also an excellent material for making nuclear bombs.  We still haven’t figured out what we’re going to do with the waste from our existing reactors… until we do that, I think it’s crazy to look into building more.  And considering the real threat of terrorism, a nuclear reactor or wastepile makes a much better target than a solar array or wind farm.

When it comes to Kelly’s call for national regulation of carbon emissions, it’s a great step in the right direction, but it was a far cry from calling for a carbon tax (which economists think would be the most effective method of carbon regulation.)  Kelly knows global warming is real, and he knows that our politicians are going to do something about it.  By calling for national mandatory regualtion (but not a tax) he’s trying to shape the debate to come out in a way that Xcel will find easier to deal with. 

With a little more education about alternatives such as CSP, and ways to make the grid able to accept more intermentent resources (Time of use pricing, DSM, and energy storage), he may come to realize that Xcel has lots of ways to live in a carbon taxed or carbon limited world.  And he seems willing to listen; so if you get his ear for five minutes, try to make the most of it.

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Net Zero Electricity for less than $700

A few months ago, I wrote a blog comparing the number of negawatts you could produce by giving away Compact fluorescent Light bulbs (CFLs) to the amount of electricity you can produce with a rooftop photovoltaic system.  The CFLs had photovoltaics beat six ways from Sunday, and I concluded that you could do better by putting the money you were considering investing in a PV system in a Bank CD, and using the interest to give away CFLs.  Since I actually believe my own calculations, I set out to do just that.

 

I offered a $2 a bulb rebate (up to $5) for anyone who bought CFLs and sent me a receipt.  Apparently, $5 is not enough money to get most people off the couch, and I did not get a single receipt sent to me (the offer is still on, by the way.)  However, I also give away CFLs (usually something interesting like an outdoor spot or a candelabra bulb… most of my prospects have already replaced everything they can with the twisty type) to potential clients who come by my office, and the blog started making the rounds of the internet, eventually making it to Marc Dreyfors, who is on the board of the Environmental Educators of North Carolina (EENC).  EENC was planning their annual conference, and they usually offset the carbon from their conference by giving away CFLs, and Marc had the bright idea of asking me to fund it.

 

They calculated (with the help of Clean Air Community Trust) of
Asheville, that they needed to replace 51 60-watt incandescents with CFLs to offset the 16.7 tons of Carbon their conference was expected to produce.  My thought was: “we need to think bigger than that!” because I wanted to offset some of my own carbon as well.  They were fine with that, they just didn’t want to be greedy.

 

In the end, I funded the replacement of 320 60-watt bulbs (with 11w CFLs) and 80 100-watt bulbs (with 25w CFLs).  After the tax deduction, that cost me about $600, and EENC was able to use my grant to persuade Progress Energy (their local utility) to stump up a $500 donation to expand the program further.

 

I arbitrarily decided that EENC would get half the carbon offsets from my donation for their work, and I’d get the other half for coming up with the cash.  Assuming the bulbs we gave away are used just 1 hour a day, that means that all my CFL giveaways are saving someone over 12 kWh of electricity each and every day, which is more than my wife and I use.   With the help of a programmer-friend, I’m tracking the progress on my website. (on the right hand side.)  Note that the offsets cost only about half a cent per kWh over the lifetime of the bulbs, about a third of the cost of buying green tags from someone like Sterling Planet.   If I tried to produce 12kWh a day with a PV system here in Colorado, it would cost about $12,000 after all the rebates, and I’d save about $170 a year on my electricity bill.

Now I just have to do the calculations to figure out how many bulbs I need to give away to offset my use of natural gas, gasoline for my wife’s Prius, and biodiesel for my Jeep. 

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Down at the Public Utilities Commission

I just testified on Friday in the Colorado Public Utilities Commission rate case for Xcel Energy.  The case has been going on since April, and is in its last stages.  I only recently got involved (Who pays attention to rate case hearings, anyway?)
To be clear, a rate case is not a Least Cost Planning (LCP) process, which is when the regulators decide if the utilities plans to meet future needs of consumers are prudent.  That is, when they decide what sort of generation they need.  This is somewhat relevant because much of the opposition to this rate case is really opposition to the new coal plant being built by Xcel in
Pueblo, Comanche 3.  

Given the reality of global warming (which many people are just now starting to realize is a real and immanent threat), the fact that coal is our most carbon-intensive fossil fuel (not to mention all the other emissions associated with coal), and the fact that the planned life of a coal plant is 50 years, the opposition is understandable.  Unfortunately, this rate case is not the proper forum to oppose construction of new generation.

A rate case, is about how Xcel is allowed to charge for their electricity, and how much they are allowed to charge.  When it comes to how much they are allowed to charge, this is determined by setting an allowable Return on Equity (ROE) for shareholders, as well as a Debt/Equity mix.  Because debt is cheaper for a company to raise, a higher ratio of debt to equity will be cheaper for ratepayers, but the more debt to equity there is, the less stable a company will be, and the higher return both debt holders and equity holders will demand in order to take the risk of owning the debt or stock.

I made three basic arguments. 

  1. In order to avoid perverse incentives, it is best that in any situation, the parties should share risk in proportion to their ability to take action to reduce that risk. 
  2. The return on equity allowed under the settlement agreement was higher than is necessary to induce shareholders to own the stock under current market conditions,
  3. The rate mechanism, as envisioned in the settlement, contained several perverse incentives which would lead to behavior by Xcel that will likely place costs on ratepayers which would likely be prudently avoided if Xcel has an incentive to do so.

The first point about perverse incentives is important mainly for future planning.  If Xcel bears the risk that costs will exceed their projections, they will be much more conservative about their cost projections.  In this case, that means that cost projections will be higher, and take more of the unpredictability of fuel costs into account.  In addition, holding Xcel accountable for unexpected environmental costs will lead them to be much more conservative about their assessments of future environmental costs. This better information both of these effects will lead renewables to be seen in future least cost planning cases much more favorably, because many have zero fuel cost (and hence zero fuel cost risk), while their lower environmental impacts will lead to lower future environmental costs.

Energy efficiency measures, demand side management, time of use pricing, and investments in large scale energy storage, all of which lower fuel costs by reducing or shifting fuel use will also be more likely to be pursued by a company that bears modeling risks, because these measures all reduce risk by reducing fuel use or shifting it to lower cost times.

Widespread adoption of demand side management, time of use pricing, and energy storage also all favor intermittent renewables such as wind and solar by shifting usage to times when these resources are available.

Basically, energy efficiency and renewables are excellent way of addressing both the price and environmental risks that are currently borne by ratepayers for utilities.  Shifting some of these risks to the utility will lead the utility to take more proactive action to address these risks, both through renewables and through other mechanisms we may not yet have thought of.  That is the beauty of incentives rather than mandates: they inspire creative thinking, and usually come up with cheaper and more effective solutions to the same problem.

I’d like to be clear here that I don’t think that Xcel is the problem; I see Xcel as the solution.  What I hope to accomplish is to provide carrots and sticks will induce Xcel to be much more responsive to environmental and energy cost concerns.  With those properly designed incentives, I expect that Xcel will be able to accomplish more than many environmentalists could ever hope to win in mandates.  And Xcel shareholders should be well compensated for the risks of these investments; I want them to be able to do well by doing good. My second point, that the return on equity (ROE) allowed under the settlement agreement hinges on weaknesses on the various methods of calculating appropriate ROE.  ROE is the compensation that shareholders demand and are entitled to for taking on the risks involved in operating a public utility.  These calculations are inherently tricky: the formulae are fairly simple, but actually getting good numbers to put into the calculations can be very tricky.  The essence of the problem is that financial markets, and the formulas are all forward looking.  To really know what ROE is appropriate, we would have to know about future growth and risks of the company.  This information is unknowable, and in practice, the calculations are based on past information, and stock prices.

There were three calculation methods used, two of which depend on estimating the risk premium (Risk premium and Capital Asset Pricing model or CAPM) that shareholders demand in order to hold the stock, and the other (Discounted Cash Flow model, or DCF) of which depends on analyst predictions of future growth rates.  The Risk premium and CAPM use historical market data to derive those risk premiums, and the results of those calculations from those methods led to almost uniformly higher estimates of ROE than the DCF method.  I believe this is because the markets are currently demanding much lower risk premiums than they have in recent years.  These lower risk premiums are partly a function of the market run-up since 2002, and partly a function of the run-up of the late 1990s, which, in my opinion and in the opinion of many other market analysts whom I respect.  I bring up Alan Greenspan, the former fed chairman in my testimony, but I also include Richard Russell, Nouriel Roubini, Pimco’s Bill Gross, and Yale’s Robert J. Shiller in that.  I chose Alan Greenspan because he has the most kudos and is most likely a recognizable name.  I note that when Xcel’s witnesses were trying to trash my testimony, they convieniently chose not to mention Greenspan.

 However, if I’d been able to travel a week into the future, I would have probably tried to include Bill Gross’ November Investment Outlook  column in my testimony as an exhibit.  As allways, Bill leaves me in awe with his depth of research and clear reasoning. 

The DCF method is also flawed in its reliance on analyst estimates, since analysts can easily be caught up in the market mood as well, but they are often a much more sober lot, and so based my recommended ROE on the low range of the DCF calculations of other analysts.  If you look at the confidence index graphs at the International Centerfor finance at Yale, you will note that institutional and individual confidence tend to follow the same long term ternds.           

Finally, in reference to the perverse incentives in the Electric Commodity Adjustment (ECA) primarily concern two parts of the ECA: the Baseload Energy Benefit (BLEB) and time of use (TOU) pricing.           

With regard to the BLEB, this is an incentive for Xcel to keep their coal plants running as much as possible, under the assumption that coal is the cheapest form of electricity generation that is dispatchable (i.e. that they can turn on and off at will.)  I have serious problems with a lot of the assumptions that go into the BLEB.  I had problems with the form of the equation they used, given that it was based on annual average prices for natural gas, as opposed to real time prices, but that was a minor point compared to the things which the BLEB left out. Carbon Intensity of various fossil fuels, lb Carbon/MBtu.

Source: Treepower.org           

The BLEB left out of the costs of coal all the environmental costs of its use, thereby giving coal a great incentive than it deserves.  Also, only natural gas an coal were had reference at al.  Xcel’s explanation of this is that only gas and coal are dipatchable, yet part of what they say the BLEB is designed to encourage is improved maintenance of their coal plants to ensure that they are always available.  All forms of generation can benefit from improved maintenance.  Using their logic that the form or generation with the cheapest fuel cost should be incentified, there should clearly be strong incentives for improved maintenance of renewable resources such as wind and solar.            Finally, while wind and solar power are not now dispatchable, with the addition of energy storage such as pumped hydro or CAES, they can be made dispachable.  Incentives for coal will only delay investments which improved the dispatchability of other forms of generation. 

Here are links to my testimony, as well as all the testimony in the case, and the settlement agreement. 

Xcel did me the honor of spending several hours of the hearing trying, with various degrees of success, to tear apart my arguments.  I almost didn’t get any chance at all, but Ratepayers United Colorado’s attorney Gina Hardin managed to get me about 5 minutes to respond to multiple comments from several other witnesses.  Thank you, Gina!

             Here is my take on what they had to say (from my notes.) Frederic Stoffel – Testifying in his former capacity as VP Energy Policy development for Xcel. Stoffel totally misinterpreted my testimony, by saying that he felt that I wanted Xcel to take on all environmental risks, and the price risk of any deviation from projections.  Note that while this blog makes it clear, I’m not sure if he didn’t get it because I was unclear, or because he simply chose to misinterpret what I was saying to make it easier to defend against.  I feel I managed to counter this argument effectively in my five minutes on the stand the next day. 

I did not fare so well at the hands of George Tyson, Xcel VP and Treasurer.  In my analysis of appropriate ROE, I glossed over a major salient point, saying Public Service of Colorado had a “high” bond rating from S&P.  I had gotten this impression reading other testimony in the case, but in fact, PSCo’s senior unsecured debt rating is BBB-, one tiny notch over junk status.  Oops!   This makes a lot of my arguments about risk premiums irrelevant, because a debt downgrade (which might indeed follow if the commission were to assign my recommended ROE of 8.9%) would seriously impinge on PSCo’s ability to operatate, even if shareholders at the moment are not worried about such an event.  (In fact, shareholders shouldn’t be worried about this case, because the realistic chances of this settlement being thrown out are nil.  The main reason we were doing what we were doing is to demonstrate that there is real ratepayer unhappiness, so, when we have a more sympathetic PUC with one or two new appointments from Bill Ritter, who we hope and expect to win the election Tuesday – If you have not voted yet, do it! – then we can go back and appeal this.)   

But Xcel did feel that they needed to counter what I had to say, since for both Tyson and Robert B. Hervert spent much more time attacking my testimony against the settlement than they did on any aspect of the settlement itself.  Considering how little they said about the settlement agreement, I get the feeling that they probably would not have even taken the stand under other circumstances. Hervert is a CFA charterholder, and economic and financial consultant for Xcel.  He took me to task for my conclusions about risk premiums.  His points were basically that he sees no indication that investors are currently asking lower risk premiums, and that analysts are not being swept along with that sort of mood, either.  I really can’t argue with that: it’s impossible to judge if valuations are currently high now because the current outlook really is good, or because people are too exuberant.  All I can say is, “Time will tell.” 

He also took more to task for saying that the VIX is at historically low levels.  If you will note from the graph, it has currently only been this low once before (the index did not exist prior to 1990,) and, he noted that it is currently within “one standard deviation” of its mean.  This is bad analysis, which I would not expect from a Charterholder, and it really gets me steamed because I wasn’t able to dissect his mistake fast enough to pass a good question to Gina Hardin to allow her to challenge it by crossing him. 

(Skip this paragraph if math makes your eyes glaze.)  Hervert’s mathematical sin is that the VIX does not conform even roughly to a normal (or even symmetrical) distribution, and so talking about “standard deviation” in reference to a lopsided distribution such as the VIX really is not relevant.   

Anyway, I wish I’d had time to bring that point up in the few minutes I actually got on the stand.  Not that anyone would have understood it, which is why I stuck to my main points about incentives and Stoffel’s misinterpretation of my testimony. 

I really don’t care that much what ROE Xcel is authorized.  I’m much more concerned about the incentives that they are given. With the right incentives, Xcel would stop trying to build coal plants and instead invest heavily in energy efficiency, demand side management, time of use pricing, energy storage, transmission, and renewable energy generation, and make a lot of money doing it.  That’s what I would hope to come out of a rate case.  Maybe under our next governor, we’ll get something like that.

So go vote Tuesday (even if you don’t live in Colorado.)   It really does matter who wins even the small races.  If you had the time to read through this multipage diatribe, surely you have enough time to make it to the polls.

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25x’25

I spent much of the last week at the 25x’25 “Twenty-Five by Twenty-Five” second implementation planning meeting.  25x’25 is a coalition advocating the vision that “By 2025,
America’s farms, forests and ranches will provide 25 percent of the total energy consumed in the
United States, while continuing to produce safe, abundant, and affordable food, feed and fiber.”   That’s at least 25% of our energy from renewable sources.

            25x’25 is an open alliance; the participants are the organizations who have endorsedthe 25x’25 vision outlined above.  These include 18
US Senators, 91 Congressmen, 18 state governors, 4 state Legislatures (including
Colorado).  I attended the conference as the representative of the
Colorado Renewable Energy Society. 

            I highly encourage my readers to endorse 25x’25 (you can endorse as an individual, or as an organization, or both.)  Your endorsement helps them demonstrate that a broad swath of Americans support the 25x’25 vision, and will help convince the US House and Senate to pass the concurrent resolutions for 25% of the nation’s energy supply to come from renewable sources.

We are currently in the process of coming up with our vision of how
America can achieve 25x’25.  Any endorsing individual or organization can participate.  The goal is agree on a series of recommendations (the Implementation Plan) as to how we can achieve the 25x’25 vision.  When the Implementation Plan is complete, which we plan to achieve by January, in time for the next congressional session, all partners will have a chance to endorse the plan.

Since the whole process is by consensus, and the 25x’25 goal is an ambitious one, it would be easy to believe that the Implementation Plan will turn out to either be watered down to the point where it does not say anything, or end up endorsing so many points of view that it would be ludicrous to call it a plan at all.

Having now participated in two conference calls and two days of face-to-face meetings, I’m happy (and somewhat surprised) to report that we’re actually managing to form a consensus among a large group of people and organizations you would not expect to get along under ordinary circumstances.  For this, I can only shake my head in wonder at the diplomacy and perseverance of the Steering Committee.  They managed, though two days of what could have turned into a verbal free-for-all, to keep us all focused on the need to work together to reach the very ambitious goal we’ve all agreed upon.  (In that same spirit, and understanding that many of the participants have been willing to voice their true opinions and step away from the party line, I will not name any names here.  This also has the advantage of covering for my lousy memory for names.)

How do they do it?  By keeping us focused on the fact that we all agree on the goal: 25% of our nation’s energy from renewable sources by 2025, and reminding us that we’re never going to get there by half measures.   The second thing they did was keeping the discussion focused on “Yes, if…”: continually reminding people to stay in the mode of working together, and instead of thinking about all the reasons that something was impossible to accept, to instead say “I could accept that if it were this were also to happen.”

So my kudos to the people I met on the steering committee.  I was impressed.

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That “Free” set-top box isn’t free

Here’s an article from Reuters about the hidden costs of set top boxes… up to $76 a year in electricity bills for a cable set-top box.

This is one of those opportunities for energy conservation that I really like to push: you not only can save energy, but money as well, and it does not require sacrificing quality of life.  CFLs and Passive Solar architecture also come to mind… there are so many energy saving opportunities that pay for themselves, it breaks my heart.

Most consumers don’t see the money or electricity they’re wasting here, and so they don’t know that they need to be more discriminating.  These hidden cost provide a great opportunity for useful government regulation.  Requiring that A/V equipment have a sleep mode that uses 1 watt instead of 30 watts would only add marginally to the cost of most equipment (See this great Economist in-depth article on the subject from this spring)  Oops- it’s only available to subscribers.   Some highlights:

 STRANGE though it seems, a typical microwave oven consumes more electricity powering its digital clock than it does heating food. For while heatictq237.gifng food requires more than 100 times as much power as running the clock, most microwave ovens stand idle—in “standby” mode—more than 99% of the time. And they are not alone: many other devices, such as televisions, DVD players, stereos and computers also spend much of their lives in standby mode, collectively consuming a huge amount of energy. Moves are being made around the world to reduce this unnecessary power consumption, called “standby power”.

In 1998 … standby power accounted for approximately 5% of total residential electricity consumption in America, “adding up to more than $3 billion in annual energy costs”…. results, published in 2000, revealed that standby power accounted for as much as 10% of household power-consumption in some cases.

…In 1999 the International Energy Agency, based in Paris, adopted Dr Meier’s proposed “one-watt” standard as a target for standby consumption. In 2000 Australia became the only country to adopt this standard nationally, in the form of a voluntary scheme that began in 2002. The aim is for most new products to meet the one-watt standard by 2012.

In addition to these various voluntary schemes, there have been some mandatory measures. Perhaps surprisingly, one of them was introduced by President George Bush, as a result of the California energy crisis of 2001. That year, Mr Bush issued Executive Order 13221, which states that every government agency, “when it purchases commercially available, off-the-shelf products that use external standby power devices, or that contain an internal standby power function, shall purchase products that use no more than one watt in their standby power consuming mode.” Given that Mr Bush is not renowned for his environmental credentials, this came as quite a surprise to those in the industry.

That law does not apply to consumers, and there are a ton of energy hog products out there.

What can you do?  Buy Energy Star  rated products.   I also have a tester called a Kill-a-Watt from P3, to see which of the gadgets I already have are energy hogs.  Some nonprofits have these available for loan, and if you live in Denver, I’ll loan you mine.  The Center for Resource Conservation in Boulder has a nice little calculator you can use with it, too.

If you find you already have products that use a lot of power on standby (and you probably will,) consider plugging them into a power strip, and turning them off that way.  That’s not always an option, though.  I found that my VCR/DVD combo uses 30 watts all the time, and it would lose it’s programming if I turned it off with a power strip.   I’m thinking about replacement.

I also think this is a great argument for laptops over desktop computers… laptops are designed to conserve power, because they have to make the battery last… most desktops are not.  If you want a big screen and a keyboard, you can always use a docking station. 

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Distributed Water

Ever since the green revolution of the middle of the last century, food, at least in the developed world, has not been a scarce commodity.  By the introduction of more productive varieties of cereals, mechanization, as well as the (often unsustainable) application of chemical fertilizer and
irrigation, yields increased dramatically, leading to food becoming a smaller and smaller portion of the budget of the first-world 
 consumer.

 

That green revolution has gone about as far as it can go.  A combination of more erratic and warmer weather due to global warming, and the over-exploitation of aquifers are making water for farming a much scarcer resource.  Meanwhile, rising fossil fuel prices due to increasing demand, combined with flat or diminishing supplies are making chemical fertilizer a much greater cost to the farmer, as well as making it much more costly to run farm equipment.

 

On top of this, biofuels are a new and growing source of demand for agricultural products. 

I see a new pattern emerging.  Water, food, and energy are each becoming scarcer, and as it becomes easier to convert one into another of the triad, their prices are becoming increasingly coupled, as they rise in unison.

 

I’ve written elsewhere how conventional electricity generation technologies require vast amounts of water.   Biofuels allow us to use food as energy.  As cities turn increasingly to desalinization, energy can be converted to potable water.

 

Rising energy prices are generally a good thing (so long as they don’t rise too quickly), in my mind, because they increase the incentives to switch to new, less polluting forms of energy.  Rising food prices will be a force for rural revitalization in the rich world, and may make third world farming more economic… so long as they have reliable access to water, which makes wise investment in water infrastructure all the more important.

 

A study from the Consultative Group on International Agricultural Research finds that large scale water projects are much less cost effective than small scale efforts.  I can’t find a link to the study, but here are some excerpts from the Economist article where I read about it.

 

A recent study of vegetable farmers in
Ghana, for example, found that those irrigating their fields with wastewater carried by buckets earned a 230% return on their investment, versus 30% for big state-sponsored schemes.

 

The assessment argues that modest outlays on rain-fed agriculture, in particular, could drastically improve the productivity of farming in poor countries and so help both to raise farmers’ incomes and also to cut the need for an expansion of agriculture elsewhere. More than half of the world’s food comes from rain-fed farms, as opposed to irrigated ones. If the rains fail, so do the crops. Channels to harvest and direct rainfall and small, sealed reservoirs or tanks to store it, would not only see farmers through dry spells, but also allow them to entice bigger or more valuable harvests out of the same fields. More reliable income, in turn, allows farmers to invest more in seeds, fertilizer and machinery.

 

Like our energy infrastructure, our water infrastructure needs to become more diverse and distributed.  “Think globally, act locally,” as they say.  I like to add, “Unless you can act globally,” which is what the financial markets allow us to do… but this is one problem that the financial markets are not suited for.  Just because I have a hammer, does not mean every problem is a nail, and wishing it were so will not change that.

 

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Water and energy

Last month, several nuclear power stations in Europe had to shut down during a heat wave (and consequent period of extreme electricity demand) to avoid releasing overheated water back into the environment.  As many other astute observers have pointed out, this pokes another big hole in the arguments that nuclear is our best choice of carbon-neutral generating technology.  A power plant that goes down precisely when you need the most power is almost useless for the current grid.

It also brings up the broader point of the role of water in electricity generation.  Nuclear is not the only technology that uses water for cooling.  Coal plants, including “next generation” IGCC plants mostly use water for cooling (air cooling can be used, but it makes them less efficient, and hence more expensive to run, and is seldom used in practice.)

This is a problem because water, in most countries is under-priced.  Resources that are under-priced tend to be overused, since the user does not have to bear the full cost of supply.  This is the cause of a large number of ills, such as the drying up of the Aral sea due to irrigation for cotton farming.  It is not only poor countries who don’t have enough water.  In the US, mispricing means that almost every aquifer is being pumped at much faster than sustainable levels.  In this context, it seems certain that power plants are also paying too little for the water they use for cooling.

 With a looming need to increase farming to supply biofuels, it is more important than ever that water be priced appropriately, especially in planning scenarios for power plants.  When water is under-priced, generation technologies which use more water are likely to be inappropriately favored in comparison to technologies which use little or no water for generation.

 Like nuclear, thermal electric systems are usually water cooled.  Fossil-fueled power plants account for approximately 39 percent of the water used in the United States, second only to agriculture. For coal plants, this typically amounts to 3 gallons of water (Texas study) or 0.5 gallons (NREL study) for every kWh produced (25 gallons are used for cooling, but only 3 evaporate in the process).  Nuclear, Biomass, and Oil fired plants also require large amounts of water lost as steam in the cooling process.   Some Solar thermal technologies also require significant water for cooling.

Water use by large hydropower projects is more complex, since water in reservoirs is more useful for some purposes (recreation) but often less useful for wildlife.  However, there is no question that reservoirs increase evaporative losses.  An NREL study quantifies these losses in the US.  Overall, in the US evaporative losses average over 18.2 gallons per kWh of hydroelectric power generated.  These numbers vary widely depending on the reservoir, from 2-3 gallons per kWh in cool northern states, up to over 100 gallons per kWh in KY, OK, SD, and WY.  Keep in mind that a lot of these reservoirs have other uses besides power generation, such as storing water for dry seasons, but the numbers can be mind-boggling.

Technologies which use little water include gas turbines (both natural gas and gas from renewable sources such as landfill gas), and geothermal (the water is typically re-injected into the ground).

Wind, photovoltaic, and wave power require no water to generate electricity. 

Energy efficiency, by its nature, uses no water.  Readers will recognize that as an ongoing theme: Given the choice, it is better to avoid using a kWh than it is to generate a kWh (regardless of source… even renewables have environmental impact.)

Renewable energy advocates should also be advocating for more rational water pricing, especially in planning scenarios.  Water use in generation will eventually come to be recognized as a significant cost (and source of uncertainty, as France found out last month).  The sooner this happens, the better for everyone.  Pricing water properly will not only save water, it will help move us to renewable energy technologies.

Investors may do well by concentrating their investments on low water use technologies, especially in parts of the world where water is (or will soon be) scarce.

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