Tweening Around the Tworld!

Today’s Austin Chronicle (07/27/2006) has a good article about the current situation with Austin Energy’s ‘Value of Solar Study’. I was quoted extensively. I hope this helps us move all of the environmental balls forward. The climate crisis is real and the economically prudent thing is to start early and modify all of our investment decisions to minimize our impact on the climate.

My favorite quote is:

“The study’s number one flaw is that it doesn’t appropriately value conserving fuel like natural gas,” said Andrew Donoho, a member of the city’s Resource Management Commission, which advises the city on renewable energy issues as well as energy and water conservation. Since natural gas cost was such a major factor in the study’s calculations, critics erupted, calling the research’s figures specious when the utility refused to make its cost-projection models public. Donoho said that while solar’s long-term costs are apparent, the uncertainty of gas’ cost and largely imported supply should have added more value to solar. The study’s numbers, he said, might as well be based on “voodoo and chicken entrails.”

The future is uncertain.

Therefore, we need to adopt prudent strategies to purchase all of our energy sources. I have attached a presentation which I made at the Electric Utility Commission on July, 17th and the Resource Management Commission on July 18th.

My argument is pretty simple:

1. Because natural gas is sold on an international market, the Value of Solar Study (VoSS) is speciously certain about the future price of natural gas.
2. The VoSS appears to have chosen a pricing regime that places natural gas at the low end of its likely range. In other words, the value is highly likely to increase over time.
3. The price of solar PV panels are likely to decrease as the volume of panel production increases.
4. The City of Austin allocates funds to purchase capital goods annually.

These four items lead me to bring an idea from financial planning - dollar cost averaging. When an investor dollar cost averages, he purchases a regular dollar amount of a volatile investment. In our case, we are investing in something that has a volatile value due to gas prices and ever reducing panel costs. The regular purchasing of PV lets us average our costs while starting to immediately capture energy production and reducing our exposure to volatile fuel prices by not purchasing gas.

In detail, my proposal is pretty straightforward:

1. Let out an annual RFP for a fixed dollar amount.
2. Choose the winner based upon quantity of megawatts offered at that price and other engineering appropriate issues.
3. Achieve Austin’s 100 MW of solar power by 2020 goal in 14 annual purchases starting in 2007.

I would also add that the methods in the VoSS can be improved upon. I would like to see an annual recalculating of the value of the natural gas component of VoSS. Furthermore, I would want a comparison of the error in both the market determination of gas prices and the Austin Energy model. By empirically observing this error, policy makers can continue to make prudent purchasing decisions while encouraging Austin Energy to improve their model to better guide the policy choices.

Furthermore, the gas component of VoSS also directly applies to decisions to purchase wind energy. It should also be used in calculating the long term costs of purchasing another gas, coal or nuclear plant.