Fractals of Change

Happy Fourth of July

This presidential campaign and the strengths of the candidates are a sign of America's strength; a great reason to have hope for many Independence Days to come.

In much of the world power change still comes at the point of a gun; in the world's most powerful country (still), power passes peacefully. Although the financing of campaigns is a concern, the cost of them should not be. It costs less in direct campaign expenditures to elect a president of the United States than to launch a major consumer brand.

The Internet has forced transparency and given those who care access to far more than sound bites. Candidates can no longer safely tailor their message to the geography and demography of a single audience. The herd instinct of the press pack has been diluted by bloggers who have not traded forbearance for a seat on the campaign plane.

To its credit CNN runs longs shows with full speeches as well as the usual clips. Of course the speeches can get repetitive and boring; the analysis stultifying; the interviews with spinning proxies tedious; but this is all a peaceful sound, part of the progression of a civil democracy.

Obama has brought in new voters; McCain has beaten back the evangelical right of the Republican party. This election, like most, will move to the center now that the primaries are over. But there are real issue differences between the candidates as well: differences on Iraq, on dealing with state sponsors of terrorism, on foreign trade, in health care, on taxes, on ethanol credits. These are the issues we need to hear debated; these are the issues that affect our lives and those of our children.

This Fourth of July is not an easy one for our country; even the fireworks seem somewhat muted. We've been humbled some; bombast doesn't seem appropriate this year. My hope and my belief is this year's malaise is the wellspring of new American strengths to come in a world where billions are newly escaping poverty and some, too few, are escaping tyranny. Campaign 2008 is a good start.

Happy Independence Day.

 

Time for a Surge in Afghanistan

The worst way to fight a war is on the cheap. Overwhelming force – if you've got it – is not only more effective than minimal commitment, it's also more humane. Overwhelming force ends wars; minimal force prolongs them.

We saw the failure of a measured response in Korea, in Viet Nam, in Iraqi pacification (we had enough force for the initial attack and it almost went too well). We can see the success of even a modest surge in Iraq. Last night the BBC ran a story on Iraqi children in playgrounds for the first time since who knows when; the BBC is no fan of George Bush and his policies.

Minimal force allows the enemy to build resistance; it's like not taking all the penicillin in the bottle when you have an infection. Resistance means longer wars and a loss of public support; a loss of public support leads to calls for withdrawal; domestic calls for withdrawal give the foreign enemy hope. It's a bad cycle we've been in time and time again.

The war in Afghanistan has gone on longer than the war in Iraq. It's much more popular both in the US and in the rest of the world than the war in Iraq but casualties in Afghanistan are beginning to get attention, especially as casualties in Iraq decline. The Taliban is at least locally resurgent. Political conditions in Pakistan have given them a respite and more shelter there.

So it's time to start to end the war in Afghanistan. A surge from all willing allied countries is the way to do that. The politics are tough because some NATO countries are not doing their share and insist on keeping their troops out of harm's way; the burden'll be born disproportionately by the willing. But the willing are also taking the casualties of a war that's been too prolonged.

The apparent success of the Iraq surge is both a good example and helps makes troops available for the same strategy in the country on the other side of Iran.

 

The Internet’s Next Killer App

Fred Wilson, blogging about the economic disruption caused by high oil prices, says: "And the web clearly has a role to play in all of this too. More on that later."

I look forward, as always, to seeing what Fred has to say but a smart reader Rajesh Raut jumped the gun in a comment on my post Passing the BTU:

"Why do we need smart meters to use off peak electricity?

"Take a space heater, connect the on/off switch to a small computer with Wi/Fi access. Have the computer read a web page once an hour and if the price of electricity on the page is above a certain value (settable by the user) turn the heater off. With a little more work you can have it read the outside temperature and ignore the price of electricity if the temperature is too low.

"Why wait for the electric company to grow a brain? It could be a long wait."

As Rajesh points out, the Internet (and the web as part of it) have a huge role to play in both immediate coping with the current emergency and a long term response to a world with more affluent people and a basically fixed supply of fossil fuel (oil production WILL grow in response to higher prices but, absent a catastrophe, demand for energy will grow even faster). Communication and computing are the key both to using existing energy sources more effectively and the very necessary switchover from oil to electricity first for home heating and manufacturing and , only slightly later, for transportation.

Electricity, of course, is not an energy source; it's a mechanism for energy delivery. The real substitution is whatever fuel is being use to generate the electricity for oil. Many of these fuels – coal, nuclear from existing plants, hydro from existing dams, solar and wind in the right configuration – are already cheaper than oil even given energy losses in generation and transmission. However, peak electricity is generated from natural gas, propane or oil so is less efficient in most cases than just burning the fossil fuel at the end point where you need heat or motive power.

So the trick is to use off-peak electricity better at the same time as we develop more baseline capacity. Because different parts of the world are suitable for different types of generation, a very smart grid – with the parallel Internet carrying the data required to be smart – is necessary both so that local price signals will be correct and actionable and so that electricity can be wheeled from areas of surplus to areas of deficit and routed around inevitable outages.

Consistent with Rajesh's vision, much of the price signaling will be between the grid and its endpoints in businesses and residences with no human intervention required. Energy use will be the first massive D2D (Device to device) application on the Internet. Energy is the next "killer app". It will be energy use that will force 100% broadband connectivity and even pay for getting to the hardest to reach places – all we're talking about is reaching all the places the electrical grid already goes.

My only quarrel with Rajesh's comment is that it is naïve. Some people may be willing to regulate their own energy use for the common good, but significant self-regulation of demand won't happen without prices which reward those who use energy when it is in surplus and penalize those who use it in when it is scarce. We need the smart meters both so that everyone doesn't have to hack together his or her own solution and to charge appropriately for usage.

Related posts:

 Heads in the Sand

 Passing the BTU

 Electric Heat Savings Estimator

 Energy Saving Devices

 Fuel Selector Helper

 Energy Tipping Point – Part 1

 Should You Be Heating with Electricity?

• Geothermal Heat Pumps and Saving the World
• The Answer is Plug-In Electric Hybrid Vehicles
• Modest Proposal

Heads in the Sand

"Please, don't buy my product" is how fellow Vermonter Art Woolf, in a post on the Vermont Tiger site,  characterized yesterday's statement by all 21 of the state's electric utilities. The utilities were warning consumers NOT to substitute electricity for fossil fuel as a heat source this winter even though we may be billed less for the electricity than we would have to pay for gasoline, propane, or kerosene. The coverage of that strange statement including a lead story on WCAX probably did more for space heater sales than a paid advertising campaign would have.

As I've been posting (probably ad nauseum), electricity at $.15/kWh is a cheaper way to heat house than oil at $5.00/gallon. Since an electric space heater costs $20 (according to the WCAX story), this is a switch that many people will make at current prices and will make en masse if the price of oil continues to climb AND ELECTRIC RATES REMAIN UNCHANGED. (NOTE: check your local tariff, some towns including Stowe, VT have penalty rates which could kick in and more than negate savings). Jawboning against the switch will only encourage more people to do it – they have to look out for their families this winter.

The utilities DO have two legitimate problems:

1. Current rates encourage us to use electricity for heating onpeak as well as off. The cost to the utilities will skyrocket if they have to add massive amounts offpeak purchased power to their supply. Since onpeak power is produced by burning fossil fuels (NOT including much coal here in the Northeast), it's expensive. Current electric rates make onpeak residential use a loss leader: the more of it the utilities sell, the more they'll lose. Even worse, prices in the spot market for wholesale electricity literally change every minute. A growth in demand without a growth in supply will drive the unit cost up – perhaps drastically.  The utilities response will predictably and necessarily be to ask for rate increases.
2. There is not enough electrical transmission everywhere in Vermont to deliver a significant increase in peak load.

Fortunately there is an option besides jawboning but it's hard and has to be planned quickly. We need to go to time-of-day pricing for residential electricity everywhere in Vermont. It must be mandatory – at least for those who use more than a certain amount of electricity per month. There must be a provision to change which times of day are peak and offpeak with fairly short notice as demand fluctuates. Towns with a totally inadequate supply will have to protect themselves with very high peak rates.

The huge job includes installing time-of-day meters which may not be very smart meters meaning they themselves will be replaced and scrapped in not too many years. There are regulatory changes required – not something that usually happens fast. the whole effort MAY be premature if the price of oil comes back down (which it may).

Fortunately electric heat is not all or nothing if you already own a furnace. Even if rates only encourage electric heat at night, you still save money on fuel. Moreover, time-of-day rates give you the option of saving on other discretionary electric use during the day and saving money by doing so.

Time-of-day rates align the interest of the power producers and power consumers; that's a good thing. Utilities can be more profitable (or charge less) if peaks are smoothed out. New facilities are more quickly paid for if they serve more than peak needs.

Burying our heads in the sand and hoping that people will voluntarily buy more expensive oil to prevent FUTURE electric rate increases is not a good thing. It won't work; the utilities are perfectly right to predict problems this winter WITH THE CURRENT rate structure. The rate structure needs to be changed.

New Car

Wanted to buy an American-made plugin hybrid electric vehicle (PHEV). But there are no PHEVs available commercially, American-made or not, and the seven year old SUV was due for replacement even if it weren't guzzling premium at an alarming rate. Gas economy counts and, here in Nerdville, technology is important too. So what about an American-built hybrid? Got to have high road clearance and four wheel drive or can't reliably get up the last gravel hill on the way home in the winter.

My first pick was the Ford Escape Hybrid; the four wheel drive model is supposed to get 29mpg city and 27 on the highway (the front wheel drive is even better). Was getting ready to go for a test drive and feeling good about buying a domestic car when a friend suggested we look at the safety ratings. Unfortunately, those made the car a no-go for us. It's only got a 3 star rating for rollover in government tests and is not in the top rank for crashworthiness in Insurance Institute tests.

Ended up with a Toyota Highlander Hybrid which is really a bigger car than we need and doesn't get as good mileage (27/25)  and isn't American-made but comes out better on the safety tests. It's full of cool technology and displays of what is being charged by what which Mary says are unsafe when a nerd is driving. Fortunately you can also check out your gas performance retrospectively when you stop. You also can't enter an address in the GPS while you're moving (but maybe I'll figure out how).

I have a little – but not much – sympathy for Ford's problem. There is an arms race: the smaller and lighter the car, the less well it fares in a collision with a bigger car. If everyone had a smaller car and there were no trucks, the problem wouldn't exist. So, although a bigger car pays a fuel penalty, it gets a safety bonus – perhaps at the expense of someone else. But that's the way the world is.

This OUGHT to be a great time to be in the car business. Almost everyone who can afford to wants to trade up (down?) to a car that gets better mileage. You go on a waitlist and no bargaining if you want a Toyota Prius; I only got to bargain a little for the Highlander Hybrid and had to buy the one car on the lot if I wanted any assurance on when we'd get delivery. Toyota had the foresight to build hybrids early – but even they apparently didn't anticipate the demand.

Why isn't the president of Ford or GM or Chrysler meeting with their union leaders and their engineers and their bankers and coming up with a plan to radically retool over the next six months and retake not just the American car market but a chunk of the world as well? It took less than a year for a much less automated American manufacturing sector to go from refrigerators and cars to guns, tanks, and planes after Pearl Harbor: that retooling was a big part of what won that war. We could do that again. Will we? Only if we want to continue to be one of the leaders of the world economy.

I'm not suggesting a government program other than a commitment to buy hybrids and plugin hybrids for its own fleet and provide recharge points at its own facilities. I'm suggesting that we act hungry and change fast, that huge companies act like small companies have to (that may be unrealistic). There is a huge market for fuel efficient cars – we don't need hype to create that. We do need product to meet the demand. If the product isn't made here, that'll be a shame but we're better off buying cars from Japan, India, and China than oil from Saudi Arabia.

So I'm hoping that when our other car is old enough to trade – about two years – I really can buy an American-built plugin hybrid electric vehicle with a good safety rating.

Opportunity Not Lost is about turning high gas prices to opportunity.

The Answer is Plug-in Hybrid Electric Vehicles is about the car I hope to buy next.

Passing the BTU

Without a lot of fast planning or a drop in oil prices before winter many parts of America may face an electricity crisis when the heating season begins. At the worst, there could be serious repeated failures of transmission facilities. At best, there is likely to be pressure for steeply higher electric rates. There isn't much planning time left let alone time for action; nevertheless there's lots of action that should be taken. This is a good time for incumbent politicians including the two incumbent US senators running for President to go beyond rhetoric and actually take action.

The problem (or maybe opportunity) is that it costs Americans less to heat with electricity at $.15/kWh than with oil at $5.00/gallon. In most parts of the country using electric radiant heat from either baseboard heaters or space heaters used to cost much more than oil heat. But now the price of oil has gone up much faster than the price of electricity. Moreover, partially substituting electricity for oil, propane, or natural gas can be done by simply buying some electric space heaters and turning the furnace down – no construction required. It's reasonable to assume that people will do what they can to reduce this winter's heating cost. IT's much easier to switch the fuel we use in our homes than the fuel we use in our cars.

But, if there is a substantial cutover to electric heat during peak periods, the extra electricity required will either be very expensive OR perhaps not even available if there isn't sufficient transmission capacity. Moreover, we could easily end up burning more fossil fuel rather than less with the "wrong kind" of cutover to electricity

Baseload electricity – the electricity used in non-peak times – comes largely from coal, nuclear, and hydro facilities in most of the country. Here in Vermont our baseload energy comes from Vermont Yankee (nuclear) and Hydro Quebec. During peak times, the extra energy required is often produced by burning natural gas. Natural gas plants have proliferated both because they can be spooled up and down quickly depending on how much power is required and because they are relatively clean and don't generate as much neighborhood opposition as other types of power plants. So, if more electricity is required during peak periods, we burn more natural gas to get that electricity.

If you burn natural gas in your house to get heat, you extract about 78% of the energy available in the gas as useful heat. If a utility burns natural gas to make electricity, at best about 38% of the energy in the gas will become electrical energy at the generating plant. Even ignoring the fact that some electricity is lost in transmission (surprisingly little), it takes more than twice as much fossil fuel burned in a power plant to heat your house through radiant heating as it would take if you simply burned the fossil fuel in your furnace. So, if we all suddenly switch to heating our houses with electricity and the result is a lot more natural gas burned in power plants, electric utilities – with justification – will scream for economic relief and electricity for all purposes will become much more expensive – assuming the facilities are even available to generate and transmit it. Whoops.

So should we ignore electricity as an alternative? Should we just put up with the high price of oil for heating? No!

There is a way we can have our electricity and use it too – that's where the planning comes in.

During some hours of the day – currently the middle of the night – most parts of the country use LESS power than baseload capacity can deliver. Extra use of baseload power during these periods is actually an economic advantage to the power companies because it lowers the average price of power they purchase or generate. Moreover, transmission facilities have extra capacity during offpeak periods so electricity can be moved (wheeled) from where it is cheaply available to where it is needed. Everyone except fuel importers wins if we can substitute OFFPEAK electricity for oil.

Fortunately, the technology to use electric heat selectively is cheap given the cost of modern electronic components. Unfortunately, most houses are not equipped with smart meters which allow information from the grid to directly control use in the home. That's why we need to cobble together some solutions with timers and off-grid information dissemination (web sites, for example) so that we can use electricity this winter at times when it is effective to do so. We also will need to cobble together time-of-day electric rates and ways to do time-of-day measurement quickly (that'll be hard but is not impossible if done first in the places where it'll have the most impact).

Here's an outline of a quick action plan at the state level:

1. Quickly inventory from the utilities and regulatory records where there is the most offpeak capacity available.
2. Map where the existing transmission facilities can deliver that electricity to.
3. Enact enabling regulation for on and offpeak pricing of electricity where capacity IS available offpeak.
4. Plan the winter's fuel assistance program to aid and encourage the use of electric heat where it is the best alternative to fossil fuel (In some place in Vermont, wood pellets, for example may be a much better alternative).
5. Convert recipients of fuel aid to time-of-day metering as a priority.
6. Target time-of-day meter conversions for this winter to the places where the most offpeak electricity is available.
7. Try to assure that those who are going to switch to electric heat on their own can get time-of-day rates and have an incentive to do so (the trickiest part but crucial to the health of the grid).
8. Switch government buildings to electric heat during non-peak periods.
9. Help municipalities do the same.

Note that these are all short-term actions. Longer term electric geothermal heat is an effective use of electrical energy even if some of that comes from fossil fuels. Electric storage heat IS efficient and makes more effective use of available generating capacity for daylong space heating. We obviously need a greater baseload supply of electricity that isn't generated from imported (and/or carbon producing) fuels. And we need really smart metering everywhere.

But the surge in oil prices as compared to electricity means we need to plan for this winter now and concentrate on what is feasible in the shortterm.

Electric Heat Savings Estimator is a calculator to determine what you might save by switching to electric heat.

Time of Day Pricing for Electricity is about exactly that.

A Modest Proposal is about really smart metering and appliances.

If I Can’t Have a Magic Bullet, I Won’t Shoot

"Windmills can't provide enough power to give us energy independence (or save the environment), so let's not build any."

"Solar won't save the environment (or give us energy independence), so let's not pursue it."

"Conservation won't make us energy independent (or save the environment), so let's not conserve."

"We can't build enough nuclear plants to replace all the coal we use, so let's not build any."

"There isn't enough oil off our coast to meet our energy needs, so let's not drill for it."

There is no single magic bullet either for energy independence or significant reduction in CO2 emissions. But there is a magic bandolier: if we fire many energy bullets on both the demand and supply side, we CAN become energy independent AND we can significantly reduce CO2. We'll never get to either goal if we insist on waiting for a single solution we can all agree on. There is no single magic bullet! We need to do all of the above (and more).

There are "only" 16 billion recoverable barrels of oil offshore in the areas which would be opened up by ending the drilling moratorium begun by the first President Bush. Put aside the imponderable of what effect the release of that oil'll have on retail gasoline prices; at $140/barrel (which assumes prices don't rise further – or fall – in the eight years it'll take to get that oil flowing) that's $2.24 TRILLION that ends up in the US economy instead of going to fund terrorism abroad. Hmm. That's jobs in America. That's a lot of oil, too.

In 2007, we imported 4.4 billion barrels of oil (DOWN from 4.6 billion barrels in 2005) including imports of refined petroleum products according to the Energy Agency. We used 7.6 billion barrels altogether. Critics of offshore drilling say that we will only displace four years worth of imports – why bother? Well, forget the small matter of the $2.24 trillion dollars, suppose that in eight years time we have reduced our total oil use by 10% (it's falling fast) and that other domestic production, spurred by high prices, has remained constant (that may be optimistic). It's reasonable to assume that the entire reduction would come from imports so now we import only 3.6 billion barrels and those 16 billion barrels stretch a little further towards independence. Suppose we cut oil consumption by 20% (by using much more electricity); then we have enough recoverable oil offshore to totally replace imports for five and a half years. But during those five and a half years we continue to reduce our use of oil. If we don't watch out, we could end up energy independent this way. Point is that we need to work both the demand and the supply side.

So why don't we want to drill for oil offshore?

There could be oil spills. That's a fact; there probably will be some. Recent experience with hurricanes and offshore drilling seems to show that the technology now works to make the likely impact very, very small. There are a lot of oil rigs in harm's way in the Gulf of Mexico. Moreover, very high prices make it economically feasible to impose very high environmental requirements on leases.

Coastal states will bear a disproportionate impact. Forget that people in the middle of the country may not have much sympathy for us coasties; plans currently proposed give states both a veto and a share of the loot. If Florida and California don't think it's worth the risk to have drilling off their coasts, they can forgo the revenue and stop the drilling. Frankly, I'm not sure the states should get a choice; but what opponents are actually saying is that they're afraid the states will choose drilling. Presenting a choice doesn't erode states' rights.

It'll be eight years before the oil starts to flow. Prices at the pump won't immediately come down. I hope politicians aren't right that we're so short-sighted that we only care about this year or can't imagine even worse prices. It's probably unfair hindsight to point out that coastal oil would be flowing now if leasing had started in the Clinton-Gore administration.

President Bush (the current one) is in favor of it. So, when he was opposed to offshore drilling, which he was until yesterday, was it a good idea?

The oil companies have leases they aren't yet drilling. I suspect that some of this territory doesn't have recoverable quantities of oil (at yesterday's prices) since they lease before they drill. No reason why new leases shouldn't have strict use it or lose it provisions, though.

The oil companies are making lots of money. These leases obviously should reflect market rates with an escalator. WE'LL make plenty of money through lease revenue.

John McCain flip-flopped on this issue. Do we want another president who can't recognize changing circumstances and change policy accordingly?

 

 

Electric Heat Savings Estimator

As promised, there is now a tool on this blog for estimating how much you'll save or lose annually in heating fuel costs if you switch completely from oil, propane, or natural gas to either electric radiant heat or electric geothermal heat. In order to use the estimator, you'll need to know what you expect to pay for electricity next winter, make a guess of how much whichever fossil fuel you now use will cost, and look up or guess how much of that fossil fuel you used last winter.

$5.00/gallon oil, for example, costs roughly the same to use for heating as $.15/kwh electricity when the electricity is used to produce radiant heat. Geothermal electric heat is, however, much more efficient but also has a higher capital cost. The estimator does NOT take capital expense into account but is useful in seeing how much savings you'll have to amortize any capital expense you may be considering.

The model also does not take into account the fact that using electric heat may throw you into a penalty electric rate in some places (Stowe, VT, for example).

The estimator is here.

All calculations are based on the data in this spreadsheet from the US Energy Agency.

A primer on geothermal heat is here.

A post about a cheap and partial conversion to electric radiant heat is here.

You are welcome to put the code on any site you want but please don't change it in any way. The code is here.

Energy Saving Devices

Two solar devices on the back of my boat.

The solar mat trickle charges the batteries when the boat's at anchor. I rarely use the engine for anything but getting on or off the mooring or dock (unless the crew is impatient and the wind recalcitrant). If you use the battery to start the engine and then turn it off five minutes later, you haven't replaced the electricity used to start. Moreover, I use electricity while sailing to power the instruments. And, somewhere there's a small leak letting in either lake or rain water so the automatic bilge pump runs from time to time. All of those factors led to a dead starter battery a couple of times last year and forced me to run the engine an extra ten or fifteen minutes after mooring or on a long sail just to charge the battery. Now the batteries stay topped off with sunlight. Since I only used five gallons of diesel last year, I don't expect great savings, however.

There's a solar light with its own collector in the flagpole holder when I'm on my mooring. A real anchor light would be on the top of the mast and, technically, I don't need a light on my mooring; but the boat is moored close to the path boats take back from some popular bars on the New York side of the Lake so seemed prudent to make it more noticeable at night.

Bruiser, sitting on top of Mt. Mansfield, is wearing my Father's Day present from Mary: a pack so he can carry his own water and supplies. At 100 lbs, he can carry some of his own load.

 

Fuel Selector Helper

The price of home heating oil is so high that even electric radiant heat has become a lower cost alternative across much of the country. The prices of propane and natural gas have also risen. You may have a decision to make: do you replace some or all of the fossil fuel you're burning for heat with electricity (even just by topping off with inexpensive electric space heaters). Obviously the answer depends on both what rate you expect to pay for fossil fuel this winter and what you expect your electric rates will be.

The charts below are meant to tell you whether it's worth thinking about making a change. If the answer is "yes", then you need to ask how much your saving are likely to be to determine how much capital you're willing to spend to go electric; a spreadsheet for that'll be in an upcoming post an estimator for annual savings in now available here. These charts already take into account the different energy values of different fuels and the average efficiency of each fuel. It is assumed that you burn oil, natural gas or propane in a furnace and pipe the heat around your house. The first three charts assume you use electricity either as baseboard heat or in a space heater. The next three charts assume that the electricity powers a geothermal heat pump – an alternative mainly available to us rural folk. Since geothermal electric heat is much more efficient than radiant electric heat, it breaks even with oil at much lower oil prices or higher electric rates but, of course, has a higher capital cost to get into than radiant heat.

Here's how to use the charts:

1. Guess what rate you're going to pay for oil, natural gas or propane this winter. For the sake of example, let's choose $5/gallon for oil and use the chart immediately below.
2. Trace over to the right from that fuel cost until you hit the blue diagonal line.
3. Look at the electricity cost straight below where you hit the diagonal line. In our example, that would be a little past $.15/kWh.
4. If you pay less than this for electricity, you ought to consider switching. If you pay more, then it's not worth switching unless and until oil gets even more expensive.

   

   

All calculations are based on this US Energy Agency spreadsheet.

Energy Tipping Point – Part 1

Here in Vermont we're at a tipping point: conventional electric heat now costs about the same to use as oil heat at current rates (details here). Although oil prices may recede from the current bubble and electricity rates are likely to rise (speculation here), price drives behavior. Partial conversion to electric heat through judicious use of space heaters is cheap so it's reasonable to assume that electricity usage for heat is about to go up and oil usage go down, probably starting this fall.

The change may be quite rapid as we go through the tipping point. It's a safe prediction that a rapid change will have unforeseen circumstances. There's no excuse, however, for not preparing for the foreseeable. Below are some of my predictions and some suggested actions; please add your own in comments.

Distribution

Although most of us are on the electric grid, the grid does not have adequate capacity everywhere and anytime to deliver all the kilowatts we'll consume if we switch massively to electric heat from oil. The distribution problem starts at home. We have rooms in our house we can't use a space heater in without tripping circuit breakers. The solution is NOT bigger circuit breakers; it's bigger wire and then bigger circuit breakers. More use of electric heat is going to mean more electrical fires (but less carbon monoxide problems).

The lines that come from the grid into our towns won't always have enough peak capacity for very cold days. Many of those lines will have to be upgraded. As always happens, neighbors of the lines will object. Old fears about diseases caused by high voltage lines will be resurrected. Although obviously construction projects need to be responsible and environmental impact needs to be considered, we cannot afford to wait years to get through all of the objections to each proposed project. Financing shouldn't be a major problem given the increased usage which is easy to anticipate – UNLESS each project risks lengthy delays in the regulatory process and the courts. We need to make some basic tradeoffs now. Whether it's the fate of those who can't afford oil for heat, the sources of oil, energy independence, or reduction of carbon footprint which is important to you, substituting electricity (most of which doesn't come from fossil fuel here in Vermont) for oil is worth a loss in each citizen's ability to block each project indefinitely.

BTW, we need to upgrade the national grid as much as the local grid. We get better diversity of supply by being able to move electricity freely between regions. We need less power plants overall if we can share better across the whole grid. We can better match sunny days in Virginia to cold days in Vermont and windy days in Nebraska to baking heat in California if we upgrade the national grid. We've got to do that. Not sure how much role government needs to have in that other than all-important permitting and perhaps use of eminent domain for land acquisition.

Generation

If we're going to use more electricity, we're going to have to produce more of it. The harder it is to get additional supply, the more the price of electricity will rise – perhaps keeping pace with oil. At peak time the electricity needed in New England is usually generated from fossil fuels (but not usually oil or coal). In other parts of the country coal is the major source of electricity.

Here in Vermont we face the issue of relicensing our nuclear plant – Vermont Yankee. There is significant opposition. In my opinion we'll be shooting ourselves in both our environmental left feet and our financial right feet if we don't keep Yankee open. But that issue would be much more clear cut if there were someplace to store nuclear waste other than a pool next to the plant. On a national level, we need to go ahead and get Yucca Mountain Repository operating regardless of Nevada's electoral votes.

In the meantime, it might be good policy to give those states which host nuclear plants preferred access to their output. Perhaps that would help break the log jam on both relicensing and construction of new plants.

Nuclear isn't the whole answer to electrical supply, particularly as we increase the use of electricity for transportation and manufacturing as well as for heating. Both large scale and small scale wind and solar projects can and should provide much of our supply. Again expedited permitting is important. An improved grid and diversity of supply mean that local and regional mismatches between supply and demand when the wind doesn't blow or the sun doesn't shine will not be nearly as important as they are today.

We are currently shipping coal overseas because it's politically difficult to build new coal-fired electrical plants here. Needless to say, coal has an even larger carbon footprint when it's shipped a long distance than when it's used close to the mine; we just don't watch it being burned. We can't keep dithering over cap-and-trade or carbon tax or wait for CO2 sequestration (which we DO need to work on). We have to find ways to burn our own coal. This subject is worth a post of its own which I'll provide later.

Also upcoming in this series: demand-side smarts, more on hyper-local supply, the problems of the last oil users, rates.

 

Oil Bubble?

Yes… but.

It's an important question since the answer affects a huge swath of business, personal, and government decisions – not to mention political campaigns. Is the historically high price of oil in dollars a temporary aberration, the creation of evil market manipulators, a frothy bubble that'll look absurd after it collapses? Or are we at the very beginning of a repricing of energy and other commodities caused by developing nations developing ("developing" used to be just a euphemism like "needs improving" on a report card) and the formerly destitute becoming consumers faster than resources can be found for them to consume?

Yes.

Let's start with recent history and remember that supply and demand are never in a static balance. They affect each other and are both affected by myriad other factors. There is always change. Sometimes muted, sometime violent. This change is fractal. It is non-linear; in the short-term it may appear to follow the smooth charts of economists or other forecasters. In the long run both the direction and rate of change are unknowable and unpredictable like any other fractal phenomenon.

OK. We had a period of relative stability in energy prices. Think of the prices as a pendulum swinging back and forth: movement in one direction was about equal to movement in the other; the average was reasonably constant.

Now somebody tilts the structure which contains the pendulum – the tilting force in this case was new demand coming online faster than new supply but it didn't have to be something so significant or straightforward. The "average" has now shifted; the pendulum swings through a wider arc. Will it stop when it gets to the new "equilibrium" point? Of course not, it'll overshoot; then it'll overshoot in the other direction. Volatility is a symptom of rapid change.

The wildly swinging pendulum, however, moves the structure from which the weight hangs. It too careens in one direction and then the other. The movements of the structure, in turn, affect the pendulum. Now add in a bunch of people who are trying to stabilize (or upset) either the structure or the pendulum itself. In physics this is called the n-body problem. To quote from wikipedia:

"For n ≥ 3 very little is known about the n-body problem…

"The three-body problem is much more complicated; its solution can be chaotic. A major study of the Earth-Moon-Sun system was undertaken by Charles-Eugène Delaunay, who published two volumes on the topic, each of 900 pages in length, in 1860 and 1867. Among many other accomplishments, the work already hints at chaos, and clearly demonstrates the problem of so-called "small denominators" in perturbation theory."

Net: You can't believe anyone who says he or she knows where energy prices are going to be tomorrow let alone next week or next year. They could even crash below historic lows in the case of a worldwide recession, an epidemic, or certain wars – or technical breakthroughs. They could move much higher than they are now.

I'm sure people are making money in oil speculation. I'm just as sure some speculators are losing their shirts – just as I'm sure there are winners and losers in Las Vegas. I'm sure the chaos creates cover for illegal and immoral acts. My guess is that the speculation sometimes dampens the price swings and sometimes exacerbates them and can lead to bubbles – certainly – but can't create long term trends.

I'm also reasonably sure – barring a number of both foreseeable and unforeseeable catastrophes (black swans) – that demand for energy is currently growing faster than supply if price were a constant (which, of course, it isn't). I'm not at all sure that high-priced oil won't lead to a breakthrough in either supply or demand technology – or both – that'll lead to a decline in the price of energy if not oil itself. Through human history, energy costs have gone down and not up.

Is all this unknowability a cause for inaction? Of course not. Times of rapid change are times of great opportunity and great danger. We have to guess at short term trends; we have to duck when the pendulum swings towards us. We are sentient bodies in this n-body problem. The future is being built on the rubble of the past but the past is not necessarily prologue to the future.

The only certainty is change and change is a fractal.

 

Should You Be Heating with Electricity?

For many people in the US, the answer is now "yes" even if the only electric alternative available to them is electric baseboard heat. If you expect to pay $5.00/gallon for heating oil this winter, then you are better off heating with electricity if your local utility is going to charge you $.1575 per kilowatt-hour or less so long as the utility doesn't have peak usage penalties. All my data comes from a useful Energy Department spreadsheet available at http://www.eia.doe.gov/neic/experts/heatcalc.xls.

Last winter we paid $.15157 in my hometown of Stowe, Vermont so we're right on the cusp. That rate'll go up but probably not as fast as the cost of oil. We do have peak usage penalties in Stowe which would currently make heating with electricity here prohibitive, however.

The magic number is 31.75! If oil costs more than 31.75 times as much per gallon as electricity does per kwh, then even electric baseboard heat is cheaper than heating oil. UPDATE: a tool for estimating how much you might save annually by switching to electric heat is here.

Interestingly, we have the option of easing into this alternative. Electric space heaters also beat out oil at this ratio of prices. You can buy a couple and use them to top off the heat in the rooms you are actually in while keeping the furnace at a lower setting for the whole house. There is usually an additional saving here because most of us who heat with oil can't control temperature on a room-by-room while this is easy to do with electric space heat.

If you are building a new house or considering replacing your heating system altogether, then you want to look at an electric heat pump. People with wells (a lot of us in rural areas, few in urban areas), should consider a geothermal heat pump: it breaks even with $5.00/gallon oil at $.52/kwh – way above the rates most of us pay for electricity (more on geothermal here). The efficiency of an air-source heat pump for heating depends on the average outdoor temperature. In Vermont, an air-source heat pump breaks even with $5.00 oil at about $.225/kwh. In balmy New York City, the air-source heat pump breaks even at $.30/kwh.

In many parts of the country building codes were written or electric rates set to discourage the use of electric heat. Times were different then. Even if we disregard the possibility of anthropogenic global warming, electric heat makes sense for more and more of us. Those building codes need to be changed; those electric rates need to reflect the new reality.

But there's a hitch: we don't have enough electric capacity everywhere to support a massive switch to electric heat from oil. In Stowe, we're running out of electrical capacity; it's taken years to clear all the obstacles to bringing increased power into our area. The project still hasn't been built. Building power lines is going to be an important part of energy independence. Environmentalists like me are going to have to support these projects rather than look for reasons to oppose them. NIMBY cannot lock us into dependence on expensive imported fossil fuels.

Podcast on Kindle, White Spaces and More

Had fun doing a podcast with old friend Carl Ford last week. We talked about lots of stuff -  mainly Kindle, the future of white spaces, and future GPS capabilities, all of which - believe it or not - are somewhat related. Podcast here.

Sitemaps and How the Rich Get Richer

Sitemap files are a competitive advantage for Google – an example of how the rich get richer and why power curves exist. This is true even though Sitemap files are a public standard open to every website and endorsed by Yahoo and Microsoft as well as Google. This is not a complaint about Google; in this case they've done everything right. It's just an example of why dominance is self-reinforcing – for a while.

Sitemap files (see previous post) are a way for webmasters to help web crawlers look at their websites more constructively so that search engines will be able to search the websites better. Sitemaps are essential for the many websites which have some kinds of dynamic rather than static content since the crawlers would never find and index the dynamic content with the sitemaps.

Webmasters can and do put their sitemaps in discoverable places on their sites. However, there also procedures for notifying search engines when your sitemap file changes so that your site will be reindexed and new content made findable through search as soon as possible. You can "submit" a sitemap file to a search engine or just tell the search engine that a previously registered sitemap has changed. Which search engine would you notify first when your sitemap changes? Google, of course. Yahoo, probably next. Microsoft if you get around to it. What about some new search engine somebody just invented? Of course not, you never heard of it. So Google ends up more current than Yahoo, indexes stuff that Microsoft may or may not see and that a startup search engine will have to discover  on its own.

The leaders get a longer lead over the challengers. But, in this case, there's more.

Sometimes sitemps are submitted to some search engines without being made public. Social media sites like Facebook and Twitter want to be found by search engines. The advantage to them is that you get led to a page which encourages singing up if you're not already a member when you search for the name of a member of the social media site (Facebook allows you to opt out of being found in such searches). If you're a member of a social media site, try googling your name and the name of the site as in "Tom Evslin Facebook"; then click through the resulting link. But how did Google know where to find all these dynamic pages on Facebook members which don't appear in any sitemap file I can find? Yahoo knows where to find them, too; Microsoft Live Search knows about them but doesn't handle them well.

A developer of a new application searched in vain through Facebook's developer documentation for information on how to find and index these pages and finally wrote to developer support. It took a long time to get a reply. When it came, the essence were these sentences: "Unfortunately you will need to make a specific arrangement with Facebook in order to achieve this functionality. You may submit your proposal to partners@facebook.com for review. Please let us know if you have any further questions." Facebook probably has a legitimate concern about how this information might be misused; but that didn't stop them from making the information available to the major search engines. Maybe they'll make it available to little guys, maybe not. Advantage incumbents.

Google gets a third advantage (totally legitimate) by innovating in the sitemap space. Incidentally, only a leader really can innovate in this space because you need all the SEO consultants to tell all the webmasters that it's important to implement the new stuff.

The standard for sitemaps assumes that, when a crawler reaches a page, it will be able to read the text on that page for indexing purposes. But what if the page is a video? What if it's a map? Does standard crawling work for code that someone wants to sell, share, or promote?

Not to worry, Google has announced five extensions to the Sitemap format :

• Video Sitemaps
• Mobile Sitemaps
• News Sitemaps
• Code Search Sitemaps
• Geo Sitemaps

These are useful just for submitting to Google as far as I know so , for now, leader Google can do a better job of searching for video, mobile content, news, code and geographic stuff than the followers.

Sitemaps and the Dynamic Web

Google championed something called Sitemap files to help webmasters help Google do a better job of searching their websites. Sitemaps are essential for dynamic websites which generate their pages on the fly and which want to be found through search engines. Although basic Sitemap files are now standardized and there's even a sitemaps.org website, Google has also managed to make Sitemaps into a competitive advantage.

Here's the description of Sitemaps from sitemaps.org:

"Sitemaps are an easy way for webmasters to inform search engines about pages on their sites that are available for crawling. In its simplest form, a Sitemap is an XML file that lists URLs for a site along with additional metadata about each URL (when it was last updated, how often it usually changes, and how important it is, relative to other URLs in the site) so that search engines can more intelligently crawl the site.

"Web crawlers usually discover pages from links within the site and from other sites. Sitemaps supplement this data to allow crawlers that support Sitemaps to pick up all URLs in the Sitemap and learn about those URLs using the associated metadata. Using the Sitemap protocol does not guarantee that web pages are included in search engines, but provides hints for web crawlers to do a better job of crawling your site."

In the early days of the web, most pages were static sitting out on a server somewhere waiting to be retrieved. Web crawlers – which were NOT invented by Google – followed the links from page to page until they had found a vast percentage of the pages on the web which they then indexed. The crawler part of Google's search engine works that way as well. In those old days you presumably had some way for users to navigate from page to page of your website so, if Google found one page through an external link, it could follow the links between pages to find the rest. As an example, suppose the crawler followed a link from an external site to a  page on your HR policy: that page probably has a link to your home page; your home page probably links to various sections; within the sections there's linkage; and so all your pages get crawled.

That was back in the days of the static web.

Now many of your pages may be created on the fly in response to specific requests from people browsing your site. Perhaps the page for a specific product doesn't exist until someone types in a part number or part name. At that point your server fetches the product from the database, constructs a webpage on the fly, and feeds it back to your customer's browser.  Since there was no link to that specific product page from anywhere else, it isn't going to be discovered by web crawlers and – most important to you Ms. Merchant -  your site isn't going to show up when someone Googles that product. Bad!

The solution is that you create a Sitemap file that essentially tells the web crawler how to get that dynamic page to be created. If you have a website named www.mildredsstuffforsale.com and it has a search box in which customers enter product names or product numbers and someone types in "white widgets" or XY768-0 chances are that the request is sent to your server as http://www.mildredsstuffforsale.com?q=white+widgets or http://www.mildredsstuffforsale.com?q=XY768-0. You put those one of these URLs in your Sitemap file as an instruction to web crawlers to make those requests. When they do, your server serves up the page all about this fine product, it gets indexed, and, if you're lucky (have good Google juice), it will come back as a search result for people looking to buy white widgets. You can buy a program to create these instructions for every product in your catalog and create a Sitemap file.

You can then follow the standard and put the Sitemap file in a place on your website where web crawlers will find it. You probably want to do that. But that's not all you want to do; you also want to "submit" it to Google and other search engines. Why? Stay tuned; the answer is in the next post about how Google has – quite properly – made Sitemap files into a competitive advantage and why the rich get richer.

 

 

The Pigs Ate the Sausage

That's what happened to Bear Stearns according to Andy Kessler speaking at Telecosm. Andy's a former hedge fund manager so he knows this kind of stuff and a writer so he says what he knows in an entertaining way. Bear Stearns died because the pigs ate the sausage.

His talk was titled "Who killed Bear Stearns?" Andy went back to the founding of the NYSE under the famous buttonwood tree in lower Manhattan. For most of the time since then its members have enjoyed a lucrative monopoly in trading US stocks. A license to trade there and even on other exchanges like the NASDAQ was a license to make money.

At first and for most of Exchange history, commissions were set by cartel. Plenty of profit there. Whoops – competition came to rates. That hurt but there was still plenty of margin left between the bid and ask price to make an indecent living. Whoops – people who used to have to rely on the newspaper for a daily look at prices could now see prices online in real time; spreads shrank.

Then we went from trading in fractions to trading in pennies; the spread was gone. But it was still an exclusive club with plenty of ways to make money.

Whoops – the rise of almost direct trading by day traders. How's a guy or gal to make a living?

Well, there was handling IPOs. Commissions on those somehow managed to be uncompetitive all the way through the Internet bubble. Pop – no more bubble.

Technology and transparency and competition killed the trading spread. The ingenious solution was to invent something too complex to be transparent – collateralized mortgage obligations and derivatives based on tranches of pools of mortgages were exactly that. Who knew what the damned things were worth; at the moment they were worth whatever the market would pay. So the investment banks – all of them – made a lot of money selling this stuff to the customers.

At this point Andy showed a slide of sausage being made – something, as you know, that you don't want to see. The sausage is all the mortgage-backed securities.

Everything might have been fine for the investment banks if some of them hadn't started believing their own marketing pitch that this sausage was good for you. Why should we just serve this fine sausage to our customers? they asked and began to gorge themselves on it.

Chief among the gorgers was Bear Stearns. Along came the day when the stuff that couldn't be valued began to get a little rancid and had to be marked to market and couldn't be disgorged. Bear Stearns got a fatal tummy ache. Other banks would have also succumbed to mortgage poisoning had the Fed not stepped in. JP Morgan had not been nearly as tempted to eat the sausage – they sold plenty of it, though – so they were in shape to mop up Bear Stearns.

Now, thanks to Andy Kessler, you know what happened to Bear Stearns.