Bet 117
Duration 2 years (02003-02005)
Predictor
Steven B. Kurtz
Challenger
Patrick C. Burns
Stakes $400
Congratulations to Steven and his preferred charity,
Planned Parenthood Int'l, which will receive the stakes!
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Kurtz is the winner: http://blog.longnow.org/2007/09/14/long-bet-the-cost-of-energy/.
Coal and natural gas are primary fuels used in electrical power generation in the US. In my view, natural gas production will not increase to meet expected demand; and coal is currently at depressed
prices. Economic recovery should increase power demand, while efficiency increases will likely lag. Infrastructure changes to augment conversion to cleaner coal or new nuclear plants will take far longer than 2 years.
Base line data and final data will be from the Energy Information Administration of the U.S. Department of Energy as at Table 8.6 at
http://www.eia.doe.gov/emeu/aer/txt/ptb0806.html
The opposition will be betting that energy prices stay the same or decline during the same period of time.
This bet is really about whether you think government data is any good and whether you think trends tend to continue in the direction they have been going.
The price of electricity, adjusted to 1992 terms, has been going down fairly consistently for more than 100 years. A residential customer in 1892 paid more than 4 dollars for each kilowatt-hour, a price that explains why electricity was viewed as a luxury item at the time. By 1907, the price had dropped by more than half, to $1.56 per kWh. As utilities pursued incremental technological advances, prices fell to 55 cents in 1927 and 19 cents in 1947. Progress continued in the post World-War II period, such that the price of electricity dropped to 13 cents per kWh in 1953 and 9 cents in 1967. Pricing continued to decline to 7.3 cents by 2001.
The Energy Information Administration of the U.S. Department of Energy notes in "Annual Energy Outlook 2003" (http://www.eia.doe.gov/oiaf/aeo/index.html#prices) that "Average electricity prices are projected to decline from 7.3 cents per kilowatthour in 2001 to a low of 6.3 cents (2001 dollars) by 2007 as a result of cost reductions in an increasingly competitive market where excess generating capacity has resulted from the recent boom in construction and the continued decline in coal prices. Electricity industry restructuring contributes to declining projected prices through reductions in operating and maintenance costs, administrative costs, and other miscellaneous costs."
Will the DoE be right? I'm betting on it. In fact, the total decline in energy costs will be marginal as there is a point where price simply cannot go any lower. We are not quite there yet, but we are close. The DoE believes energy costs will decline in the short- to mid-term (see http://www.eia.doe.gov/oiaf/aeo/aeotab_3.htm) but after 2008 will start to slowly climb.
Base line data and final data will be from the Energy Information Administration of the U.S. Department of Energy as at Table 8.6 at
http://www.eia.doe.gov/emeu/aer/txt/ptb0806.html
"The annual average cost between 2003 and Dec 31 2005 of the total retail price (commercial and residential) per Kilowatthour of electricity in the United will rise as calculated by the U.S. Departmentof Energy in chained (inflation-adjusted) U.S. dollars."
Congratulations on an admirably specific and important Prediction, which looks to be on the way to an admirably specific and important Long Bet.
While i have some faith in the EIA projections, historic electric prices are poor indication of the future. The reason is that utilities are no longer growing -- they are fully mature. Prices in the past, as in any new industry, were driven by growth needs, but now the price of electricity more strongly reflects the fuel cost. And while technology has driven down the cost of fuels, we are now realizing the need to preserve the environment even if dirty fuels are cheap. Therefore one of the predominant factors in the price of electricity in the US is the regulatory position of the federal government. If it chooses to allow polluting powerplants to continue burning inexpensive coal, the price will continue to fall on average. If, on the other hand, clean air regulations are enforced, then US electricity consumers will increasingly rely on imported natural gas and see rising electricity costs.
But there are numerous wild cards in all of this. What if local governments offer incentives for conservation? And what about the advent of renewable energy technologies? As soon as state governments streamline the net metering laws and the siting red tape, then many regions should see a flood of solar and wind power capacity building at competitive prices.
Let's see what the next administration plans to do...
It is surprising that there were no posts after the northeast US & south-central Canadian blackout. Then a short blackout occured a couple of days ago in London UK. It is obvious that the electrical power infrastructure in the US is ancient. The cost for rebuilding will be paid either directly via rate hikes, or indirectly by taxation and increased gov't debt.
Now the EPA has changed the rules to permit exemptions from clean air rules for renovation of up to 20% of a power generating companies capacity. The administration is under the gun to avoid a rate blowout to the upside, and is willing to change the EPA to the Environmental Pollution Agency. The environmental and health communities are up in arms. Next drought, they might just permit dirtier water.
I think - hope - that deregulation of the power industry has inflicted as much damage to the electrical power market as it's going to.
That being the case, we need to look at the factors driving the price of electrical power up. The increasing use of natural gas to make electricity has driven both the price of natural gas and electricity through the roof. Coal and nuclear, the two least expensive (by far) fuel stocks for electricity, are politically incorrect, thus drastically underused, compared to the practice in Europe.
I was surprised by the degree to which nuclear power in particular is cheaper than fossil fuels of any sort, even coal. In another post here, I repeated the canard about nuclear power being essentially uneconomic, but I was wrong.
Nuclear fuel costs fifty cents US for a million BTUs of energy, as opposed to eighty-five cents for coal, and a whopping US$4.90 for natural gas.
Of course, it doesn't have to be this way. Even within the frame of the bet, if natural gas production was allowed in Colorado, Wyoming, New Mexico and other places where it's now forbidden, enough gas could be brought to market to depress the price of natural gas, and thus of electricity below its present levels.
Over the long term (and beyond the time frame of the bet) we have to reconsider the decisions we've made on how best to generate electricity. More use of nuclear power in particular would bring electricity prices down dramatically.
We also need to decide whether we're going to continue to import fossil fuels from areas that we'll need to defend militarily, or to look within our borders to meet our energy needs.
I was surprised by the degree to which nuclear power in particular is cheaper than fossil fuels of any sort, even coal. In another post here, I repeated the canard about nuclear power being essentially uneconomic, but I was wrong.
Nuclear fuel costs fifty cents US for a million BTUs of energy, as opposed to eighty-five cents for coal, and a whopping US$4.90 for natural gas.
Makes me wonder why BNFL is losing money hand over fist then. Natural talent? Or do they just have to share a higher part of the burden of the safe disposal of nuclear waste, old plants and such. (Although it appears that the UK government is hiving off liabilities http://eeru.open.ac.uk/natta/renewonline/rol37/10.html )
Paul Blay said:
"Makes me wonder why BNFL is losing money hand over fist then. Natural talent? Or do they just have to share a higher part of the burden of the safe disposal of nuclear waste, old plants and such. (Although it appears that the UK government is hiving off liabilities http://eeru.open.ac.uk/natta/renewonline/rol37/10.html ) "
BNFL is a special case, Paul - they have to absorb losses generated by the Magnox debacle, AND I think you're right about BNFL having to sort out older plants and their high level radwaste, maybe even some of the production reactors of MoD's nuclear weapons program, too.
Here, civilian nuclear reactor fuel is a private concern - even the reprocessing of such fuel is often done in private facilities, and (scarily enough) the New York Atomic and Space Development Agency has a large portion of the nation's "civilian" plutonium in a facility located out in the boonies.
So there is no direct equivalent to BNFL in the US; you'd have to combine the operations of the civilian nuclear fuel industry with the US Department of Energy's weapons program to come close - and yes, THAT enterprise would be a net money loser, too. The big plutonium reclamation and processing plant at Rocky Flats, CO, just northwest of where I live, has just officially been divested of all its weapons-grade plutonium, and after the rest of the fissiles have been cleaned up, the place is going to be a nature preserve. It's a strange world....
Back in the days when public utilities had some clout, the electric generation and distribution infrastructure was mandated to have an operating margin to deal with low frequency of occurence but extreme events (akin to a 100 year flood), such as a long heat wave after 5 years of drought, etc. But once private companies took over, they said, hey, why have all this excess capacity that we have to maintain? It just ain't profitable. So they let the grid stagnate and demand growth catch up to capacity. Now when we have even a little "hitch" blackouts threaten.
There's huge debate about the lifetime energy profitability of nuclear. How much energy is needed to transport, safeguard and store, for 100,000s of years, the waste? The disposal issues never go into initial calculations (as typically cited by proponents), but over time the energy profit declines. I doubt future generations will think nuclear was worth it. They'll be stuck with a dangerous mess and have no benefit from it at all.
Well, as phrased, this bet seems easily predictable, perhaps. What has been experienced in my locale recently is that due to regulatory changes, the line item for kWh has gone down, while the ancillary charges have gone way up, to keep the bill the same or higher. In a bid to forestall competition, the power companies have simply moved their billing from actual electricity to charges for other things, basically amounting to a minimum charge for being hooked up at all. This I find out from my employees, thankfully our computer consulting business runs completely from solar power. So -- it depends on how the cost of your kilowatt hours is computed by the agency in question. When you go off on vacation and turn off the master switch, you use zero power, but you still get a bill, eh? That's infinite cost per kWh by my calculations.
German Econ Institute Sees Rising Pwr, Gas Prices This Year
11:07 EST Monday, February 21, 2005
BERLIN -(Dow Jones)- Prices for gas and electricity will rise in Germany within the next six months, a survey conducted by German economics research institute Zentrum fuer Europaeische Wirtschaftsforschung showed.
Of industry sources and experts surveyed by ZEW, 55% expect power prices to climb in the coming six months and 44% see stable prices.
On the gas market, 69% of respondents expect to see higher prices over the period and 27% predict stagnating prices. In the longer term market participants see prices continuing to rise because of the automatic link to oil prices and the need for gas as a fuel for power plants.
Oil and coal prices are expected to remain stable for the months to come but in a rising price trend over the longer term, the study also showed.
-By Mathilde Richter, Dow Jones Newswires; +49 30 288 8410; mathilde.richter@ dowjones.com
Dow Jones Newswires
02-21-05 1107ET
So what happened to this bet? Has either party paid the other? It's been a year since the end of the term!
I believe Steven Kurtz has won.
link:
http://www.eia.doe.gov/cneaf/electricity/epa/epat7p4.html
I didn't find inflation adjusted data, but inflation wasn't so high.
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