Wednesday, April 02, 2008

My "ideological obsession with wind"

My friends tell me I should be flattered by the attention. A Mr. Michael T. Hogan has posted no fewer than 25 lengthy comments in the space of a week.
Mr. Hogan introduced himself in his first comment a week ago as "an environmentalist with an MBA from Harvard, a MS in Environmental Policy & Planning from MIT and expertise in the electricity industry." So he must be knowledgeable, which may be why Randall Speck, the D.C. lawyer Sen. McDowell hired to interrogate the chair and staff of the Public Service Commission, invited him to address one of Harris McDowell's hearings earlier this year. I do not know whether or how much Mr. Hogan was paid for his appearance.
He has taken exception with my coverage of wind power, and urged a more reasoned approach to my blogging:
Please push past your ideological obsession with wind and think about this problem rationally.
He asserts the offshore wind farm "will destroy jobs in the near term (owing to the fact that it is 2-3 times as expensive as conventional generation today with it's possible economic benefits not appearing until well into the future)…" Destroying jobs is economist speak for too expensive and economically wasteful.
Mr. Hogan seems determined to rescue wind power proponents from the error of our ways. Regrettably, his own arguments have not been free from error.
While I have no intention of reviewing all of his assertions point by point, one assertion deserves more careful, dare I say rational, scrutiny. He had me puzzled with calculations involving what he calls an all in contract price based on a 40 percent capacity factor:
Assuming a (moderately generous) 40% average capacity factor, the all-in contract price for Bluewater's power is about 14 cents/kWh in 2007 dollars. Add to that the 1.9 cents they expect to realize from the Production Tax Credit and the price to Bluewater is about 16 cents, again in 2007 dollars, rather than the 15 cents I suggested yesterday. I asked him to clarify that point: So to be clear, the energy component is about $98.50/MWh, the REC component is about $19.75/MWh, and the capacity price is about $70.65/kW-yr, which at a 40% capacity factor works out to about $20/MWh, bringing the total effective contract price (in 2007 $s) to just under $140/MWh or 14 cents/kWh.
The sheer volume of his comments have made for slow going, given my ongoing interest in my work/life balance, but I eventually caught on to one fundamental error. He refers to "the price to Bluewater" in explaining his 40 percent capacity factor. Actually, the price in the power purchase agreement (PPA) is the price to Delmarva, not Bluewater. Mr. Hogan seems to have confused inputs with outputs. The erroneous inclusion of his capacity factor results in this all in price that he states is too expensive, which it would be if it were true.
In other words, he interpreted Bluewater’s price as its cost and added a capacity factor to compensate for those times when the wind farm won’t be productive. The problem is that the price Bluewater negotiated in the PPA already takes expected productivity into account. By adding in spurious capacity factor, Mr. Hogan makes it easy to portray Bluewater’s price as extravagantly expensive.
So who is Michael T. Hogan? He gave us some background on kavips:
I am an industry veteran of 27 years; I have developed power projects around the world, about $8 billion worth, and my company developed wind farms onshore and offshore in the UK. I am currently doing research at MIT on renewable portfolio standards in the Environmental Policy & Planning Department. The counsel for the Energy Committee, Randall Sparks [sic], asked me to provide testimony regarding the project financing aspects of the Bluewater project because I’m a project financing expert.
He seems to have embarked on a personal crusade to correct the errors of those who favor the Bluewater Wind project:
After sitting through the hearings, though, I can’t say the same thing about BWW and their shareholders. I was shocked at some of the misrepresentations and inaccuracies in their testimony, and that day I promised myself I’d do what I could to make sure that the decision on the BWW contract was made on the basis of fact, not emotion and misinformation.
But as we see, Mr. Logan's arguments themselves have not been free from error. There are others, which I and some knowledgeable observers have identified, but inventing an all in contract price based on a spurious 40 percent capacity factor seems like a big enough mistake to cast some doubt on his grasp of the situation.

11 Comments:

Blogger Delaware Watch said...

"By adding in spurious capacity factor, Mr. Hogan makes it easy to portray Bluewater’s price as extravagantly expensive."

Indicating an ideologically-driven error, perhaps?

8:54 AM, April 02, 2008  
Anonymous Anonymous said...

I am wondering if Delmarva has planted this guy to spew some misinformation on this blog.

10:50 AM, April 02, 2008  
Anonymous Anonymous said...

You're hopeless. I too have a work/life balance, which I've endangered with my attempts to beat back the voluminous amount of misinformation encountered on these blogs, another prime example of which is this post from Mr. Noyes. You picked up a typo, not a fundamental error. Of course the capacity charge is a cost to Delmarva (though it presumably reflects what BWW feels they must charge based on their own costs, but there's no need to dig into that for the purposes of this discussion). The calculation of the charge expressed in cents/kWh for the energy that will be produced requires an assumed capacity factor - indeed, there's no other way to do it. And 40% is not a "spurious" capacity factor - it's pretty representative of what offshore wind is producing in Denmark. So my calculation stands - the delivered price of BWW's energy in 2007 $s is just under 14 cents. The fact that people continue to fabricate conspiracy theories about my affiliations or intentions is not only insulting, it's exhibit A in the case for how completely unhinged from reality many of the supporters of this suicide mission really are. There are certainly knowledgeable arguments that could be made in support of this project (I don't find them convincing, nor do most of the electricity industry experts I speak with, including dedicated wind project developers), but at least they're based on a knowledge of how the electricity industry really works. Most of what I've found here, by contrast, is just fantasy. I'm reminded of the old Monty Python skit with the medieval inquisitor and the mob coming up with increasingly desperate and hilarious reasons to execute a guy they're absolutely convinced is a witch (he isn't, of course). But hey, if you don't want a voice of reason and experience intruding on your stampede over the cliff, I'll go back to my very busy life and leave you alone. God bless all of you...you'll need all the help you can get.

Michael T. Hogan

11:24 AM, April 02, 2008  
Anonymous Anonymous said...

Just a few closing observations,which cover 90% of the 25 postings noted by Mr. Noyes:

1) you really should read the contract - there's little point in speculating about the price, much less in using a demonstrably false number, when it can readily be calculated from the formula in Article 4.2 on pages 54 and 55.
2) BWW's local impact, on both reliability and air quality, will be indistinguishable from the impact from a comparable amount of wind energy produced elsewhere in PJM's Eastern zone - and the impact from wind produced anywhere in PJM, even in the Western zone, is nearly as indistinguishable. This isn't a matter of opinion - it's a factual conclusion that can be and has been arrived at by PJM. There's really no point in debating it - it's a scientifically deterministic result.
3) Onshore wind really is considerably less expensive than offshore wind - offshore wind in Europe has come in at least 50% higher than onshore installations. Again, this is not a matter of opinion - it's a widely documented fact.
4) There are almost certainly many good onshore resources that would be available to DPL to satisfy the first few tiers of supply requirements under the RPS, and most if not all of them would be perfectly happy to enter into long-term contracts if that's what the PSC directs DPL to do. That may be a matter of opinion, but since it is consistent with the way the wind industry has developed in every other region, it's about as close to fact as you're going to get.

You can work yourselves up into high dudgeon trying to deny these things if you wish, and you can disparage them as coming from a witness paid for by the Delaware State Senate's Energy Committee (I don't know too many experts who would have offered their expertise for free, but there's no reasoning with conspiracy theorists when they really get going). But they are true, and you'll have to deal with the consequences sooner or later.

12:08 PM, April 02, 2008  
Anonymous Anonymous said...

What exactly are these "consequences" you refer to, Mr. Hogan? Do you think Delawareans are going to be full of remorse when their new wind farm raises their electric bill by a couple dollars per month? How about in 2020 when natural gas prices double or triple again... will they have remorse that that their wind farm still costs just as much in inflation-adjusted dollars? How about when carbon is taxed and the prices of coal and NG jump up? Will they have remorse for their wind farm decision then? How much remorse do you think they'll have, knowing that they're not harming the environment by flipping on their lights or cooling their homes from the electricity from their new wind farm?
Look, I'm all for any kind of renewable energy, but all one has to do is look at a wind map for the East Coast, and it's abundantly clear where the best resources are - offshore. Mr. Hogan, what do you think the capacity factor would be for a wind farm, say in the Alleghany Mountains of PA - probably the closest reasonable onshore site? I can tell you, sir, it's less than 0.4. How much energy will you gnerate with the same turbines onshore? Probably 40% less. Even if the offshore turbines cost more, they make up for it in capacity factor and raw generating capacity. So sure, onshore turbines are better than coal or NG by far, but please stop with this misinformation garbage. We're smarter than that.
And to suggest that you might be planted seems reasonable, given your affiliation with the few people trying to derail this deal. It's well know that this is a common idustry maneuver to try to infuse doubt in the public sphere about change they oppose. (see American for balanced Energy Choices...i.e. America's Coal Lobby as an "astroturf" movement.)

Nick

1:07 PM, April 02, 2008  
Blogger Delaware Watch said...

"I don't find them convincing, nor do most of the electricity industry experts I speak with, including dedicated wind project developers"

And these persons are?

2:40 PM, April 02, 2008  
Blogger Delaware Watch said...

"Do you think Delawareans are going to be full of remorse when their new wind farm raises their electric bill by a couple dollars per month? How about in 2020 when natural gas prices double or triple again... will they have remorse that that their wind farm still costs just as much in inflation-adjusted dollars? How about when carbon is taxed and the prices of coal and NG jump up? Will they have remorse for their wind farm decision then? How much remorse do you think they'll have, knowing that they're not harming the environment by flipping on their lights or cooling their homes from the electricity from their new wind farm?"

Bingo

2:44 PM, April 02, 2008  
Anonymous WillettKempton said...

Mr. Hogan,

I will defend one of your numbers, 40% is a reasonable capacity factor (actually, it's 39% at the proposed site). The problem you were being criticized for was applying capacity factor to capacity charge. This huge error is conceptual not typographical and shows a lack of familiarity both with PJM rules and with this contract. Sorry, Mr. Hogan, the cost is $98.93/MWh for energy plus $6.67/MWh for capacity, a total of $105.60/MWh. That's 10.6 cents/kWh, not 14 c/kWh. Do you know that the all-in charge (including load following, so not directly comparable to the PPA) for electricity that Delmarva is now paying is $110/MWh? I bet you didn't know that or you wouldn't be so awfully concerned that we might some day pay too much for electricity.

It would be ok for you to come into the debate new and make a lot of calculation errors and not know the regional markets and rules. A lot of citizen-commentators have done that, and they have worked hard to improve their knowledge. But all your errors are leaning the the same way (overpricing this offshore wind project), you repeat the same incorrect arguments of some of the interested principles in the case (the repetition suggesting copying or collaboration rather than independent analysis), and you rely on industry rules-of-thumb without understanding the specifics of this project. (Example: you can't compare onshore wind and offshore wind in this region on a $/MWh basis without considering the very different time of day of generation--your comparison implicitly claims that a MWh at 3am is worth the same amount as a MWh at 3pm.) And then to top it off you are insulting of everyone else in the process. Many of those involved in the analysis of this project (most of whom won't post on blogs) have a lot more experience with the industry than you do, sonny boy.

So when you get the facts wrong, appear to have an agenda (whether ideological or pecuniary) without revealing it, and are arrogant as well, don't be surprised if the replies are a bit testy.

Willett Kempton

7:33 PM, April 02, 2008  
Anonymous Anonymous said...

Mr. Hogan, don't leave yet! We were just getting to know you. We're just dying to know how much you are being paid to promote the agenda of the big utility companies, competing wind developers or the EE crowd, all of which you have ties to. Whose paying you, Mike? Let's see how honest you really are. You must not have much to do at MIT to be so concerned with ussuns here in little ignorant, uneducated Delaware.

8:19 PM, April 02, 2008  
Anonymous Anonymous said...

You've worn me down. You're all right, and the Danes, the Brits and the Germans are all wrong. It really DOES make sense to go offshore before you've exploited all of the onshore wind. How could I have been so benighted? Oh yeah, that's right...I'm on DPL's payroll. If only you knew how wrong you are. So long, morons. You've just confirmed my prior impressions of the blogosphere, which I had assiduously avoided prior to this and will do so again in the future...a collection of blithering idiots who wouldn't get a hearing in any respectable forum. I'd love to stick around and find out who Mr. Kempton has in mind with more experience in this industry than I have, but I have more important things to do, sonny boy. See you in the funny papers.

11:13 PM, April 02, 2008  
Blogger Delaware Watch said...

His backside blistered, Mr. Hogan leaves the room.

LOL.

12:00 AM, April 03, 2008  

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