Memo 8: The Rules are the Rules Part III – Energy
Too much change is not a good thing, just ask the climate - Michael Scott
Two weeks ago, we set forth the premise that high inflation is not the problem but rather a symptom of the problem: too much money chasing too few goods. As we all think about this honestly, it should start to become obvious that “too few goods” is a much more serious problem than “too much money.” Yes, we printed too much money and handed out too much stimulus, but as prices rise, markets pummel lower, and the Fed tightens we’re watching the excess money in our economy start to disappear. If it was just a matter of too much money, a Keynesian model tells us that excess demand can autocorrect: If prices get too high, consumers can cut back spending, cooling down the economy and prices should fall in response.
I think this works for the excesses: the 2023 F/W Balenciaga collection, but I struggle to see how this story holds for the bare necessities, especially ones facing steep shortages. We can downgrade our housing, food, and even medical care, but I think it’s fair to say that we all must participate in these markets at some level. At that point, with or without inflation, these necessities in shortage will naturally grow to be an increasing percentage of a consumer’s budget. And we’ve seen this over the past decade: housing, healthcare, and education costs that have wildly outgrown larger economic growth and income growth.
These are secular trends that predate recent stimulus and inflation, and supply chain issues, of course now these pain points burn even more. Food and energy, however, feel like new developments. New, in relative terms… Of course, energy was at the epicenter of inflation during The 70s.
So what’s going on with our energy situation? To put it bluntly, we’re fucking up the clean energy transition. Or more metaphorically: We broke up with fossil fuels before realizing that we’re not ready to commit to a serious relationship with renewables
From Surplus to Shortage:
From California to Texas to Indiana, electric-grid operators are warning that power-generating capacity is struggling to keep up with demand, a gap that could lead to rolling blackouts during heat waves or other peak periods as soon as this year…
The risk of electricity shortages is rising throughout the U.S. as traditional power plants are being retired more quickly than they can be replaced by renewable energy and battery storage.
Ok so we got over our skis and a) began phasing out fossil fuels too quickly and b) are behind the curve on scaling up renewable alternatives. I actually don’t know what the right rate for fossil fuel reduction is, but this feels like somewhat of an oversight. In the meanwhile, let’s explore our quest for renewal adoption.
Below is a modest collection of short stories, well each one is really 5-25 years long, but I’ve quoted and summarized each of them in no more than a few hundred words
Powerful Barriers:
Why haven’t we been able to build renewable energy infrastructure? The same reason that we can’t build roads, bridges, let alone homes: our modern state’s regulatory framework affords a remarkable right to everyone and their mother to block Billion-dollar opportunities:
The Sturgeon Saga: NY’s largest renewable project in 50+ years is 17 years delayed and still not in the clear: “We didn’t think it would take a decade.”
Environmental consultants spent the summer of 2010 watching patches of blue lupine for endangered Karner blue butterflies and frosted elfins, a threatened species. They spotted two Karners and wrote a plan for avoiding damage to the wildflowers upon which the butterflies rely. Arrangements were also made to protect bald eagle nests that might be present during construction and identify shagbark hickories big enough for the endangered Indiana bat to roost.
But…
When it became clear developers wouldn’t get state approval to dig beneath Haverstraw Bay, where endangered Atlantic sturgeon live, they redrew the route again (after a 118-mile detour around Schenectady).
You read this correctly: a $4.5bn renewable project is being held up over two Karner blue butterflies and Atlantic sturgeon. But surely we can make this right:
The developers agreed to fund an environmental trust with $117 million. The trust would help pull invasive plants from Lake Champlain, restore oyster reefs around New York City and pay for implanting acoustic transmitters in adult sturgeon so scientists could study the fish.
Sounds nice, but that’s $117mm that could have gone toward the next renewable project and instead is going toward studying Atlantic sturgeon, and moreover, a major deterrent to anyone else who would dare to make another investment into a future transformative renewables project. The full article is amazing, Read It!
Deserting our Values: We’re watching so-called environmentalists block our Nation’s most strategic renewable projects:
In Nevada’s Black Rock Desert, local environmentalists and devotees of the Burning Man festival are using the National Environmental Policy Act (NEPA) to oppose a geothermal energy plant. Further south, the Sierra Club has joined with all-terrain vehicle enthusiasts to stop development of what would be the nation’s largest solar farm, which it says threatens endangered tortoises. In California, environmentalists have used a state law designed to protect fish eggs as a pretext to close the Diablo Canyon Nuclear Power Plant, the state’s largest source of clean energy.
And now California has no AC this summer – you make your bed, you sweat in it.
Washed Up Projects: This one will be filed under Hypocrisy in the First Degree:
A group of Nantucket residents filed a federal lawsuit Wednesday to block the construction of dozens of wind turbines off the coast of Massachusetts. Nantucket Residents Against Turbines — or ACK RAT — says Vineyard Wind’s proposed project 14 miles (22 kilometers) south of the island poses a risk to the endangered North Atlantic right whale.
In case anyone doubted the Hamptons’ capacity to one-up Nantucket:
A dozen giant wind turbines are on track to start spinning roughly 50 miles offshore from some of the country’s ritziest beach towns. That is unless last-ditch efforts by local residents can stop one of the country’s first offshore wind projects. South Fork Wind will power 70,000 homes around East Hampton, N.Y., when it starts generating electricity next year. Construction began recently after a six-year approval process from federal, state and local governments.
The opposition to the Hamptons project is centered on Beach Lane in Wainscott, a hamlet of about 650 people where the average home sells for more than $3 million. Beach Lane turns into sand when it hits Wainscott Beach, which stretches for miles along the Atlantic Ocean in either direction.
The windmills won’t be visible from there, nor will the cable carrying the electricity they generate. The power line will make landfall on Wainscott Beach and run underneath Beach Lane. Construction is planned primarily for cooler months, when many houses are unoccupied, and the cable will be undetectable from above ground, the project’s owners say. Opponents say they support the project and clean power but feel the cable’s installation will disrupt residential life. Other routes would be less intrusive, they argue.
Forget about the tsunamis and hurricanes for one second, it’s the electrical cables that are going to disrupt residential life. Or maybe the ulterior motive is to make the Hamptons a year-round destination by 2040, assuming 2 degrees of warming per year.
Today we have 0.9 gigawatts of offshore wind capacity, and our target is 8 gigawatts by 2025 and 21 gigawatts by 2028. In the meanwhile, more than 200 other wind and solar projects face local opposition. We need to redefine what local opposition means and declaw the NIMBYs. Otherwise, best of luck.
A Fusion of Problems: I’ve saved nuclear for last because there’s not much to talk about - that’s the problem. Here’s a quick brief:
In Washington, D.C., meanwhile, the Nuclear Regulatory Commission peremptorily rejected last month the application of the first advanced nuclear reactor developer to seek a license before the commission, to cheers from leading environmental groups.
You might be intrigued to hear that…
Since its founding in 1975, the Nuclear Regulatory Commission has never licensed a new commercial nuclear reactor design that was subsequently built.
Our regulatory framework is holding back our goals to adapt. The largest solar project in the country for the Tortoises, NY’s largest renewable project in 50 years for the sturgeons, and wind farms for the whales. Where does it end, and how can we call this a crisis, when we throw our hands up at the first sight of a butterfly?
The point of this memo is not to sound the alarm on the climate crisis, there are plenty of people who do that already, but rather to comment on the difficulty of producing energy in our economy. In fact, I’ve deliberately neglected fossil fuels from the discussion, as these are persona non-grata, with plants fighting to stay open, never mind build anew. In fact, what I really want to highlight as we think about our ability to sustain our energy needs is that there is no Calvary coming - we boycotted and divested from coal & oil and now we’re overregulating renewables. We have nothing close to resembling a plan to match supply to demand. Well, maybe we do… but as Mike Tyson would say, everyone has a plan, until they see a Karner butterfly.