MolloMarketReport

How to Evaluate an Energy Plan

            These days it seems that everyone has an energy plan.  Obama and McCain obviously each have one due to the Presidential election and theirs have gotten a lot of ink.  Energy hedge fund maestro T. Boone Pickens has also been pushing a plan based on wind power and natural gas.  Even Paris Hilton has an energy plan.  Energy plans are definitely topic number one these days.  Even though there has been a mass of solutions proffered, there is little analysis of what makes one solution better or worse than another.  In fact, if there is any analysis at all it is what somebody’s plan does to their poll numbers.  So what I would like to do is throw out some ideas of what I think should be considered when suggesting an energy solution.  If readers have other ideas for criteria, then I would like to hear them

First of all, I would like to point out an often used criterion, but is not really of much help.  That would be that the plan merely increases energy supply or decreases demand.  All of the plans do that (or should).  If we had hamster powered turbines that would increase supply, but it doesn’t mean it is a good idea.  What I am interested in is why drilling for oil is (or isn’t) a better method of supplying energy than solar panels.  We know that we have a limited amount of money (I’m talking to you Congress), so where should we invest and why?

I think the two main factors fall under the broad categories of time and cost.  I’ll tackle time first.  A method that could provide vast amounts of energy today would be much better than one that took ten years.  This time element has two elements.  First, is it existing technology or does it still has to be developed.  If it needs to be developed, how far away (in time) is it assumed that it will take to create this technology?  The second element is that once the technology is created or if it exists, how long until more of it will produce more energy.  For instance, pumping more oil from an exiting oil derrick would be preferable to finding a new oil field, building the derrick and then putting it into production.  This is an often overlooked element in nuclear power as the plants can have incredibly long build times.

The second factor in evaluating an energy plan is cost, which has many parts to it.  First of there is the actual monetary cost both to set up the source of power, and then to maintain source of power.  This would also include costs to both the government and the consumer.  All of the costs need to be standardized to a definite amount energy; preferably one that everyone can understand.  I have no idea what a megawatt is, but I can understand “enough to power all the houses in California.”  There are also external costs such as harm to the environment.  These are hard to quantify, but they are something that needs to be taken into account.  It also has to include the occasional human screw up.  I have heard that the oil industry has made their offshore pumps leak a lot less even during hurricanes and other heavy storms.  Whether this is true or not, the oil industry still has not managed to find tanker pilots that don’t occasionally crash into stationary objects.  The externalities also need to be considered all the way up and down the supply chain.  “Clean coal” does produce less pollution at the coal plant, but both clean and dirty coal are mined in the same manner which is often not-so clean.

Those are my thoughts on how to evaluate an energy plan, and I’d love to hear yours.  In a future post I’d like to take my criteria and yours to evaluate some of the more popular energy plans and solutions we are hearing about.

David Mollo

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