The Madness of Bureaucrats

I've been on a bit of an anti-government rant lately, and I feel I am just getting warmed up, so will continue with the theme, and throw in a bit of big business bashing for good measure - which is always worth the effort.

Electricity prices are very high Down Under. My previous home town was Nelson, BC. Nelson lies in the heart of the interior rain forest, with plenty of hydroelectric power generation nearby; electricity rates were raised in 2014 to $0.09/kWh. In contrast, I've spent the last 5 months near Hobart, Tasmania. Tassie also has lots of mountainous temperate rainforest and hydro power - in excess of state demand in good years. That's where the similarity with BC ends however: Tassie skiing sucks, and peak electricity rates are $0.26/kWh.Yes, really, three times as much as in BC. I don't know what the Aussies have done, but they've sure made a real cock up of it.

Oz, however is blessed with remarkable renewable energy resources. When considering full-cycle project costs, wind power generation has been cheaper than fossil fuels for some time, and now photovoltaic (PV) solar is too (2, 3). Recently, the investment bank Deutsche Bank predicted that solar systems will be at grid parity in up to 80 per cent of the global market within 2 years, and is already there in Australia (4).

Wind generation capacity has been increasing 25% per year for the past decade, and now generates 2.5 GW, enough to power a million homes. Currently planned projects will increase this by 500% (1).
Australia was a bit slow to get going with the PV solar thing, but lately have been making up for lost time. Installed PV solar has increased by a factor of 20x in the past 5 years, with 4.1 GW of capacity having been installed on over one million household rooftops by the end of 2014, making the per capita rate of solar installations in Australia one of the highest in the world (5).

Australia is on the cusp of a major shakeup in energy generation and production. Wind power is big, and despite Tony Dinosaur Abbott's preference for clean coal over wind turbines, will only get bigger. But from an electrical distribution perspective, I think the big disrupter will be household solar. Today, in most places in Australia, it is cheaper to put some solar panels on your roof and some big batteries in your garage, than it is to buy your electricory off the grid (amortize over 10 years, say). Amazing. I, for one, am not interested in investments in Australian electrical utilities. I think we're going to see a classic case of "disruptive innovation" play out in a very public way in this land down under. It is no coincidence that one of Tesla's first moves outside of the US for its Powerwall home battery system is to Oz, with availability later this year (6).

This is all good, and progressive government regulation has supported the uptake of alternate energy in recent years. But it is high time to get back to my promised froth.

Now that the electrical utility companies are about to take a serious shot between the eyes with a ball peen hammer, they are starting to wake up to the risks. And the natural reaction of any large organization, when faced with economic challenges, is to lobby the government for some protective legislation. And for the Queensland electrical utilities, the Queensland Competition Authority has been very obliging. In recent years Queensland has had a program offering generous feed-in tariffs for households feeding solar energy into the grid, and this gave the PV movement in Queensland a big boost. However, the Queensland Government, no doubt encouraged by the utility companies, has decided this program was maybe working a bit too well. In their finite wisdom, they have decided to phase out the incentive program (7), and have strategically adjusted the regulated electrical rates: the fixed cost is up 100% in 2 years while the usage tariff has actually dropped (8, 9). The "fixed cost" is a unfamiliar concept to a Canadian: a charge you pay every day your home is connected to the grid, whether you use any power or not. Both actions - increasing the fixed cost, and decreasing the rate tariff - are designed to make coal-generated electricity more competitive.

So now that they have encouraged many state residents to install PV solar on their roofs, they've decided they had better protect the utilities. Not only are they moving the goalposts on all the folks who invested in PV panels their roofs, but they are doing the exactly wrong thing if they want people to use energy efficiently. You might think that would be a consideration seeing how climate change is on the agenda. But you would be wrong.

And who said dinosaurs went extinct?

What the utilities and the regulators should be doing, instead of rushing to build a doomed levee just as the tsunami arrives, is using their very expensive distribution network, combined with centralized storage, to optimize the state's household solar resources that have been installed over the past 5 years. But no, stupid is as stupid does, so they can only think about the old ways and protecting their turf. They'll put up a fight, and will try all manner of anti-competitive, counter-productive, harebrained schemes to attempt to save their bacon. But it won't work. And the unintended consequence will be millions of small lithium ion battery installations hung on garage walls. While that is a fair sight better than power from coal, it doesn't seem optimal to me.

Last post I was afroth about allowing free markets to run amok to the very serious detriment of our environment. This time around it is stupid regulators that has me all spun up.
The tragedy of the commons, or the tragedy of the government - they're both hell on my hypertension.

1	http://www.cleanenergycouncil.org.au/dam/cec/technologies/wind/fact-sheets/Wind-Energy-Fact-Sheet-Theres-Power-in-Wind-National-Snapshot.pdf
2	http://bze.org.au/media/newswire/australia-wind-power-already-cheaper-fossil-fuels-and-solar-right-behind-130211
3	https://en.m.wikipedia.org/wiki/Growth_of_photovoltaics
4	https://www.db.com/cr/en/concrete-deutsche-bank-report-solar-grid-parity-in-a-low-oil-price-era.htm
5	https://en.m.wikipedia.org/wiki/Growth_of_photovoltaics#All_time_PV_installations_by_country
6	http://www.teslamotors.com/en_AU/powerwall
7	https://www.energex.com.au/residential-and-business/solar-for-customers/queensland-government-solar-bonus-scheme
8	http://www.qca.org.au/Electricity/Electricity-Prices-2014-15/Electricity-prices-2014-15/Electricity-Prices-Residential-Tariff
9	http://www.qca.org.au/getattachment/b02c2245-e6e7-43fe-ae96-4d59e7f1ef10/Residential-regulated-electricity-prices-from-1-Ju.aspx

The Insanity of the Free Market

I am a card-carrying capitalist, and have been for as long as I can remember. In an interconnected world, if it isn't a market-based system, it must be centrally planned, and there, clearly, madness lies. And the prospect of anything but a meritocracy chills my soul.

Frothing, smarmy lobbyists notwithstanding, surely a species capable of decoding the genome and disassembling the atom can see that a unconstrained free market is a path to ruin. The free market must be regulated.

I just listened to an NPR Planet Money podcast on the drought in California. Sheer madness. In prime agriculture areas, that don't receive adequate rain for crops other than peyote or gravel, they have been drawing down the groundwater aquifers at a shocking rate. And now wells are running dry.

photo credit

Funny thing is, this isn't bad news for everyone. While some poor saps no longer have running water at their homes, the scarcity of water reduces supply of water-hunger crops (like almonds and pistachios) which drives up the market price and makes those crops very valuable - a field of pistachios will fetch 10x the price of a drought tolerant crop like flax. Which is an opportunity for those with means.

Via what an economist would call "price discovery", the free market is generating an insane result. Since water hungry crops become more valuable in a drought, and farmers don't pay for the water they take out of the common aquifer, the market rewards those who grow almonds and pistachios, not flax and grapes. Hedge funds come in, buy prime farm land, pump millions into new, deep wells, and plant acres and acres of new nut trees. Market forces are causing a scarce common resource to be used up with no consideration for conservation. A classic case of the tragedy of the commons.

The hedgies will make out like bandits for a while until they completely deplete the aquifer, and then take their massive winnings back home to Wall Street, leaving devastated communities and ruined agriculture land in their wake.

The aquifer is a non-renewable resource within the context of a human lifespan, and in the pursuit of profits, some far-away speculators will squander a precious resource that should belong to everyone. The free market is delivering the worst possible outcome to society.

So the poor go without drinking water, and the rich plant water-hungry crops, get even richer, and expedite the exhaustion of the region's only water source.

Yet again, it is demonstrated that high intelligence is no protection against acting foolishly.