Tuesday, May 20, 2008

Ahead of the Curve or Behind It?

I will be leading a couple of workshops this morning as part of "EarthQuaker Day" at Wilmington Friends School. I will be talking about wind power of course, but I'm thinking about a larger theme of coping with the economic and technological changes being forced upon us by relentlessly rising energy costs.
Imagine a graph with two curves: one showing the rising cost of fossil fuels, the other showing the cost of alternative energy solutions. The two curves are going to cross, and sooner rather than later. The question is, are we going to be ahead of the curve, or behind it.
Business Week describes how GM fell behind the curve in a strategy session three years ago:
That's when Vice-Chairman Robert A. Lutz spoke up. Lutz, whose gravelly pronouncements routinely enliven auto shows and generate headlines, has a certain genius for challenging conventional wisdom. Maybe, he told GM's brain trust, it was time to build another electric car—one that would use a giant version of the lithium ion batteries that power cell phones and laptops.
It was a provocative suggestion—and Lutz knew it. Two years earlier, General Motors had killed its experimental EV1 electric car and set off a public relations furor. The environmental lobby was deaf to GM's assertions that the EV1, leased to a limited number of people but not sold, would never have earned its maker any money. And the greens accused GM of pulling the plug to show policymakers that such techno wonders were bad business.
By the time Lutz revisited the issue in 2005, Toyota Motor's (TM) quirky Prius hybrid had turned the Japanese automaker into a poster boy for the environmental movement and cast a greenish halo over the entire company. By contrast, GM, at least in the popular imagination, had tunnel vision; it was still making gasoline hogs like the Hummer and fighting congressional efforts to boost fuel economy. GM executives were furious Toyota was winning green cred despite making its own fuel suckers. But no one at the meeting wanted to hear about electric cars. "We lost $1 billion on the last one. Do you want to lose $1 billion on the next one?'" Lutz recalls one executive saying. "It died right there."
The problem for GM's managers is that the world changed more rapidly than they were able to imagine. Oil crossed the the $100 a barrel mark at the beginning of the year. Now it's trading at $127. Change in the energy markets doesn't come in smooth increments, but in discontinuous jolts. Decision makers can't predict just when those discontinuous shifts will come. Some still doubt they will ever come. Those who sit back and wait for the world to change will find themselves behind the curve. It takes years to develop and market alternative power systems for cars, which means GM will be playing catch up to Toyota for the foreseeable future.
Some time in the next few years, the cost of electricity from burning fossil fuels will climb higher than the cost of Bluewater Wind's offshore wind power project, which will take about four years to build. If we wait until electricity from fossil fuels becomes more expensive, we will find ourselves in the very painful position of importing expensive power from out of state while rushing to get wind power up and running here in Delaware.

4 Comments:

Anonymous Mark said...

What I find amazing is that, other than some of the hybrids, there still isn't any cars like the Chevrolet Sprint (3 cyl engine) and the early Hondamatic car that got better than 50 mpg. Although Honda has gotten some interesting stuff (the way some engines shut off a couple of cylinders when at cruising speed), other than hybrids, I don't see a lot of innovation from any of the car companies with this

3:18 PM, May 20, 2008  
Anonymous Kilroy said...

Tommy,

I’ve been sitting on the fence about the wind power debate. One of my concerns is this talk of guaranteeing rate for 25 years. Look what happen when the last regulation on energy expired, we got $$$$ slammed!

However, I must say 25 years down the road the cost of equipping homes with solar technology will be better then half of the cost today.

Delmarva needs to invest in the alternative solutions and capitalize.


Re: auto fuel efficiency:

Though the Ford Pinto was unsafe it did provide fuel efficiency. Same goes for the Chevy Vega, one of the best cars I ever own. Also, in the early 80’s I had a Mercury Lynx and I do believe this car got 43 mpg highway, 4 Cylinders 1.4.. Safety was a big concern as the big SUV’s came on the scene. So with safety concerns, My wife and I went to Jeep Cherokees. Now full circle with concerns of gasoline prices we traded one Cherokee in for a new for Ford Fusion though not spectacular mpg however, going from 15 mph to about 28 average is major step. Would have loved to do better but the cost factor with kid in college was part of the purchase factor. My other Jeep Cherokee 1984, I use for work commute which is 6 miles round trip a day! Comes in handy for the Home Depot run.

10:10 AM, May 21, 2008  
Anonymous Anonymous said...

Kilroy,
Read the proposed contract (Delmarva Power/Bluewater Wind PPA) on the PSC website. It locks in the rate, the inflation factor, and other factors for 25 years. Bluewater takes the risk on construction costs. Delaware only pays for the electricity that runs, when it runs. The reason BWW can do this, and coal plants can't, is the raw material, wind, is free. Unlike conventional fossil fuel plants, wind farms cost less as time goes by. Certainly that is true for this project, where BWW cannot come back to ratepayers if their maintenance or other costs escalate over 25 years, beyond what has been already calculated in the rate shown in the contract. That's why we need to get this deal now. It's a no-brainer.

7:02 PM, May 21, 2008  
Anonymous kavips said...

Kilroy...

Why didn't you tell us you were skeptical about the twenty five year deal...?

Here is how I explain it:

When you were young, you used to rent.

But then you bought a house, right?

Why?

I'm curious, because I know I couldn't....

Could you still support a kid in college, and have two cars if you were still renting and paying the costs at where they are charging today?

Your (and each reader's) personal answer to that question should be enough to determine whether or not, a similar guarantee on the cost of energy as each of you now have on the cost of your house, is...or is not a good thing for you.....

How would you like to be paying the same for gas today as you did when you were driving the Vega?

At least with a twenty five year wind deal you will be paying in 2034 an electric bill similar to the one you are paying now.....

Some of us see that as a good thing.

12:05 AM, May 23, 2008  

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