TAPAN MUNROE: GLOBAL VILLAGE

source: CCTimes http://www.contracostatimes.com/news/columnists/stories_biz/o26munroe_20010826.htm

WHAT HAPPENED to the California electricity crisis? Between January and early May of 2001 there were six rotating blackouts, 38 stage 3 alerts (electricity reserves less than 1.5 percent), 61 stage 2 alerts (reserves less than 5 percent). Amazingly enough, since May 8 there has not been a single blackout. According to the state Independent Systems Operator, we were supposed to have been sweating it out in the dark through June, July and August with 260 hours of blackouts.

The situation has changed dramatically. NBC-Wall Street Journal national polls taken in April 2001 and in June 2001 concluded that the number of people considering the energy situation to be a crisis declined from 35 percent to 25 percent. However, 60 percent agree that the situation is problematic.

Several factors have intervened in transforming what was a serious "crisis" only a few months ago into just a "problem." First, Mother Nature has helped by bestowing on us a cool summer (so far). Second, voluntary conservation efforts in the state have helped significantly. Third, several power plants have come on line in the past several months. Fourth, with the global economy in a slumber, natural gas (the fuel of choice for electricity generation) prices have come down by more than 50 percent in the last few months. Fifth, a slowdown in the California economy has resulted in subdued electricity demand.

Even though wholesale electricity prices have come down to levels unthinkable only a few months ago and we have had no rolling blackouts this summer, there is no guarantee that the situation would not become a crisis again down the road. A crisis could be triggered via high temperatures later this summer or reversal of the current conservation trend or another international oil and gas crisis. How can we trust the current dysfunctional system to power the world's fifth-largest high-technology economy that is completely dependent on a reliable grid with sufficient electricity supply in the future?

I do not want to suggest that it is all gloom and doom. There is good news on the electricity supply front. The crisis has resulted in the approval of 15 power plants with 11,000 megawatts of new power, with nine of the plants currently under construction. Additionally, 12 power plant applications are under review.

If all the approved power plants materialize in the next year or so it is quite likely that by 2002 the state's electricity squeeze may be over. However, relying solely on conventional natural gas-burning power plants to solve our electricity problem is a "quick fix" solution and ignores other viable options that encourage a sustainable energy future for the state. These include building in greater conservation via new technology, real-time pricing and new efficiency standards to develop renewable sources of electricity.

For quite some time renewable energy sources, because of cost considerations and infrastructure issues, have occupied only a small niche in our electricity generation options based upon their attractive environmental attributes. Things have changed enormously in the past several years in favor of sources such as solar, small-scale hydroelectricity, fuel cells, wind and biomass, in terms of cost as well as value.

To illustrate the promise of renewables, consider the case of wind power. Today's newly designed variable speed wind turbines can deliver electricity at a highly competitive 3 to 5 cents a kilowatt hour. The average turbine rating is approaching 1,000 kilowatts -- at least 10 times that of the turbines operating two decades ago. Powered by the movement of air, wind turbines do not emit any pollutants, including greenhouse gases.

Other advantages include:

Modularity wind projects can be designed to meet varying demand as new turbines can be added as demand increases.

Wind farms and clusters can be located strategically in areas with favorable wind conditions (coastal mountain ranges and the Great Plains in the United States) and supply the electricity grid with hundreds of megawatts of power via a dedicated substation. An additional advantage is that they can share the land with farming as well as livestock. Distributed wind generation is gaining considerably more attention in Europe than in the United States.

Wind turbines in the 10- to 150-kilowatt range can be used for off-grid applications for small village applications very effectively when they are combined with energy storage appliances such as a battery.

Wind turbine owners can sell their surplus electricity back to their utilities. This can be an attractive option for rural households or businesses in wind-rich regions.

Wind power can allow a region to be independent of imports from other states or regions, thereby reducing "supply or price shock" risks.

Despite its self-inflicted wound via a botched up deregulation plan, California still has the opportunity to shape a new energy future in which conservation and renewables play a key role in addition to fossil fuel-based electricity generation. Historically the state has an enviable record in conservation -- Californians use less than half the electricity per dollar of our gross state product than most of the western states, and it is in the top four of all states in terms of energy efficiency. The state has saved billions of dollars by investing in energy efficiency. We should build our energy future on this legacy and not get trapped in "quick fixes."

My concern is that with the disappearance of the crisis psychology we will go back to a business-as-usual mode of behavior and forget the long term. This has happened before as memory of each crisis has faded from public attention.

Tapan Munroe is chief economist and senior vice president of Applied Development Economics in Berkeley. His column runs every other Sunday in the Times. His e-mail is tapan@tapanmunroe.com.