Leave a Light On

 I got my monthly gas and electric bill a few days ago and was wondering why my electric use was up 64.6%.  Eventually I thought to check my basement.  It wasn't obvious from the top of the stairs (although it was night) but as I started down it became apparent that there was a light on.  Which I eventually located in a far corner.  I don't go down in my basement much so it could have been burning for months.  This was a little annoying as I have done this before.  I believe I actually checked a few times but only from the top of the stairs.

Assuming a 100 watt bulb this is 2.4 KwH a day.  Which amounts to about $.50 a day which isn't a huge amount amount but does add up.  This by itself doesn't explain the full increase in my bill.  Another factor is the billing period was 33 days this year as opposed to 29 days last year which the utility didn't adjust for.  This still doesn't account for the entire increase so possibly there was some other factor.      

 Anyway if you have an attic or basement or closet that you don't use much and that has lights in it it seems to be a good idea to check every so often that you haven't left a light on. 

Realizing Losses

Some people claim that if you own a stock whose market price falls below your purchase price you haven't actually lost money unless you sell the stock.  This is nonsense of course but what is true is that you can't write the loss off on your taxes unless you sell the stock.  So from a tax point of view it makes sense to periodically eliminate losing positions even if this requires you to acknowledge error. 

In this light last Friday I sold out my position in Ensco (ESV) a company which owns and leases out offshore oil drilling rigs.  I had bought this stock in March 2014 (at a price of about $48 per share).  In hindsight I was unduly influenced by the 6% yield (at the time) which should have been a warning sign.  I also was operating on the assumption that oil prices should be expected to rise over time and underestimated the risk of a price drop.  When the oil price did drop so did Ensco's dividend (cut by 80%) and stock price. 

I received about $24 per share when I sold.  So I lost about $24 per share or 50% of my original investment.  But by selling I will be able to write the loss off on my taxes (perhaps over several years).  I estimate this will result in a tax saving (federal and state together) of about 25% of the loss or $6 per share.  Which is better than nothing.

I have some more underwater (i.e. currently losing) stock positions but I let them be.  They weren't down as much and I have more faith in their future prospects.  The problem I see with Ensco is that new US shale oil may now (in large part) be cheaper to produce than new offshore oil.  In which case the demand for offshore drilling rigs will remain severely depressed indefinitely.  With predictably bad consequences for Ensco's profits and stock price.

Two Dollar Gas

On April 24, 2004 (when I was living in Ossining, New York) I bought gas and paid $1.939 per gallon.  A couple of weeks later I bought gas again and the price had risen to $2.039 per gallon.  This appears to have been the first time I had ever paid over $2 per gallon and I vaguely recall noting that at the time and wondering if I would ever pay less than $2 again.  For a while this seemed doubtful as the price bounced around but stayed above $2 and trended higher.  On July 26, 2008 I paid $4.499 per gallon.  But then the financial crisis hit and demand plummeted driving the price ever lower.  Five months later on December 26, 2008 I paid $1.979 per gallon.  This was more or less the low and the price had moved back above $2 at my next fill up (although I did pay less the $2 per gallon a couple of times in April 2009 in New Jersey where the gas tax is about $.35 less per gallon than in New York).  On July 2, 2014 (having moved to New Jersey) I paid $3.399 per gallon.  But then with growing over supply of crude oil prices began to drop, slowly at first and then more rapidly.  When I bought gas on Friday (January 9, 2015) I once again paid less than $2 ($1.959 per gallon to be exact).  It remains to be seen how low the price will go and how long it will remain below $2.

The lower price is nice in isolation but probably isn't really in my overall best interest at this point.  I purchased about 425 gallons of gas in 2014 paying an average price of about $3.20 per gallon.  So if I buy the same amount in 2015 and pay an average price of $2 per gallon I will save about $510 or just less than $10 per week.  This isn't too impressive and is much less than what I am likely to lose on my oil price sensitive investments if crude oil prices remain depressed.

See here for a graph of national gas average prices over the last 11 years.  When I was living in Ossining I seem to have been paying about $.40 per gallon more than the national average whereas now in New Jersey I am paying about $.10 per gallon less.

Crude Oil Prices

Six months ago the Brent crude oil price was about $110/barrel and the WTI (West Texas Intermediate) price was about $100/barrel.  The current prices are about $60 and $55 respectively.  So the price has fallen dramatically and unexpectedly.  As I have mentioned before I believe oil prices are likely to generally rise over time as the earth's supply is exhausted (peak oil).  The recent price action doesn't totally contradict this as there was no reason to believe the rise would be smooth and monotonic.  Because both oil supply and demand react slowly to price changes small mismatches between production and consumption can cause wild price swings.  Still the recent price action is at least a reminder that in investing being right in the long run doesn't mean you can't lose a lot in the short run.  

Given that one still expects rising crude oil prices in the long run what is an appropriate investment strategy at this point?  It is tempting to look for bargains among the oil stocks which have fallen the most.  But this is in effect a bet that crude oil prices will recover before the highly leveraged companies in question go bankrupt (as a stock which is going to zero is never cheap along the way). So this is not an appropriate way of investing based on a long run view.  It is better to look at those companies that are most likely to be around for the long run.  However such companies are currently only cheap relative to the market as a whole.  I bought some ExxonMobil (XOM)  and some ConocoPhillips (COP) a couple of years ago and while their stock prices have fallen substantially in recent months they are still above my basis (while the market as a whole is up about 50%).  So I don't see a compelling reason to add to my positions.  Perhaps this will change over time if the crude oil price remains depressed.

Oddball

Yesterday (Tuesday) the market was down as were all of my stocks except for one.  Today the market was up as were all of my stocks except for one.  In both cases the oddball was Ensco (ESV) which seems a little strange.

Ensco owns and leases out offshore drilling rigs.  I bought some earlier this year because the stock (with a 6% yield and low PE) seemed cheap.  This isn't looking like a great pick as the stock has recently gotten quite a bit cheaper.  In hindsight I overlooked a couple of things.  First while a company like ExxonMobil may not suffer too badly post peak oil production as you would expect decreased volume to be offset by increasing prices it is hard to see a company like Ensco prospering post peak drilling as you would expect fewer leases and lower lease rates (as the surplus of rigs pushes prices  down).  Second a low PE doesn't mean much if it is based on inflated earnings.  The earnings a company like Ensco reports are highly dependent on how fast it is depreciating the expensive drilling rigs it is leasing out.  Ensco recently wrote down the value of some of its rigs which means it hadn't been depreciating them fast enough and therefore that its reported earnings have been too high (and hence its real PE was not actually as low as reported). 

Climate Change Evidence & Causes

I recently read "Climate Change Evidence & Causes", a short (32 page) pamphlet produced by the National Academy of Sciences (US) and the Royal Society (UK) which I was sent with a suggestion that I review it. I couldn't find a copyright statement or date but it appears to be recent. As might be expected it is a summary of mainstream scientific thinking regarding anthropogenic CO2 (and other greenhouse gas) emissions into the atmosphere and their predicted effects on the earth's climate. I am familiar with the subject and didn't find anything particularly original or compelling about this write up although it comes of course with the imprint of whatever authority you are prepared to grant to the National Academy and the Royal Society.
 
The report is rather narrowly focused on climate science. The question of what if anything to do about the predicted warming involves many other issues which the report does not address. For example the most alarming projections are based on an emissions scenario called RCP8.5 in which CO2 levels peak at around 2000 ppmv.  This scenario (which isn't original to this report) is generally labeled "business-as-usual" however it has been criticized as being alarmist and essentially impossible as it assumes burning fossil fuel resources (especially coal) which are not currently (and may never be) economically feasible to extract.  See here and here.  I am not sure who is right but the dispute is important and it isn't addressed at all in this summary.  Another important issue is to what extent active mitigation measures are feasible which the report just mentions in passing " ... or they can seek as yet unproven 'geoengineering' solutions ...".  And of course any attempt to seriously limit emissions will involve a host of complicated political and economic questions.

So I am not sure what this report really contributes to the political debates about climate change.  Most people are aware of the conventional wisdom but don't perceive any imminent threat to themselves personally and so aren't willing  to make any great sacrifices to avert climate change.  So little is likely to get done.

So in summary I doubt this report will have much impact and I don't see any reason to make a special effort to read it.

The Frackers

I recently read "The Frackers" a 2013 book by Gregory Zuckerman which is mostly about men who backed the development of hydraulic fracturing (aka fracking), a technology which has produced large unexpected increases in domestic (US) oil and natural gas production.  I found the book somewhat disappointing.  It basically is a collection of stories about some of the colorful figures involved.  It jumps from person to person and back and forth in time in a way that I found a bit confusing.  And it seems very weak on the big picture, in the mass of detail it is hard to tell which events were significant and which turned out to be unimportant.

One point I found of interest is that many of the investors in the technology appeared to be driven more by blind faith than any rational calculation of the odds.  And in some cases they were curiously blind to the fact that if the technology was as successful as they hoped the resulting increases in production would drive down prices particularly for natural gas (whose market is more local to the United States).  As a result a couple of them got badly overextended and didn't do as well from the success of the technology as one might have expected.

Overall however while this is an important story I don't think this book does a very good job of telling it.  Too much human interest detail and not enough big picture analysis. 

Utility Rates

When I moved from Ossining NY to Princeton NJ I didn't notice much change in my utility (gas and electric) bill.  This was a bit of a pleasant surprise as my new townhouse is considerably bigger and is also an end unit with much more exterior wall exposure (compared to the middle unit I had in Ossining).  I had some vague thoughts that perhaps my new unit was better insulated or had more efficient heating and cooling systems but upon investigation it appears the main reason is that utility rates are much lower in Princeton than in Ossining.

In 2012 I paid PSEG (my Princeton gas and electric utility) $998 for 890 Ccf of natural gas while in 2011 I paid ConEd (my Ossining utility)  $1090 for 562 Ccf.  So my average rate dropped from $1.94 per Ccf to $1.12 per Ccf.  Similarly my PSEG electric bill in 2012 was $947 for 5193 kWh while in 2011 ConEd charged me $890 for 3451 kWh.  So my average rate dropped from $.258 per kWh to $.182 per kWh. 

I was aware that New York utility rates are high compared to the national average but the difference with New Jersey is more than I expected.  For context the national average natural gas rate seems to be about $1.10 per Ccf  and the national average electric rate is about $.12 per kWh (in both cases for residential users). 

Convenient falsehoods

I have been reading Obama's other book "The Audacity of Hope". It is pretty heavy going and I haven't finished yet. However I have completed chapter 5 "Opportunity" which contains some policy discussion. I disagree with much of it which doesn't mean too much as Obama and I have different priorities. What is more disturbing is that Obama seems to have difficulty critically evaluating proposals which appeal to liberal prejudices but won't actually work.

Obama uncritically supports ethanol on pages 169-170. Corn based ethanol is a good example of something which is superficially appealing but doesn't actually advance environmental priorities.

On page 161 Obama claims "... Recent studies show that the single most important factor in determining a student's achievement isn't the color of his skin or where he comes from, but who the child's teacher is. ...". Obama doesn't cite these studies so I can't specifically address them but this statement is contrary to numerous other studies that show the most important factor achievement in student achievement is the characteristics of the student and the next most important is the characteristics of his classmates. The quality of his teacher (within the range commonly found in American schools) hardly matters.

Finally on page 177 in discussing health insurance Obama claims "... The bigger the pool of insured, the more the risk is spread, the more coverage provided, and the lower the cost. ...". This misunderstands how insurance works. Pooling costs spreads them more equally but it doesn't reduce them. Pooling a bunch of high risks doesn't make them low risk or low cost.

This inability to recognize well intentioned nonsense won't matter too much if Obama appoints good advisers to handle the details. And Obama would hardly be the first President to be a big picture guy. Still Obama is the President we have at the moment and I would prefer a President with a better BS detector.

Photovoltaic cell color

A silly controversy has arisen concerning the color of photovoltaic solar panels. Apparently a new book "SuperFreakonomics" contains the following (quoted here):

As an example he points to solar power. “The problem with solar cells is that they’re black, because they are designed to absorb light from the sun. But only about 12 percent gets turned into electricity, and the rest is reradiated as heat — which contributes to global warming.

Yglesias (among others) jumps on this statement (here and here) posting a photo of solar panels that appear to be dark blue and claiming:

... Still, it is worth dwelling a moment on the fact that their critique of photovoltaic literally rests on the idea that PV cells are black whereas in reality they’re usually blue:

First their critique depends on solar cells being dark (low albedo) not black. Perhaps they should have said "dark" instead of "black" but this is not a serious error. Especially since, Yglesias to the contrary, many cells are black. It is hard to judge color from photos because the cells are often reflecting the blue sky. See for instance this photo where the cells appear to be blue except at the upper right where they appear to be brown because they are reflecting brown branches instead of blue sky.

Anyway the critique is because solar cells are dark they may absorb more sunlight than whatever background they are replacing thus heating the earth. This can occur whether the cells are black or dark blue in appearance. However this effect is not important. Coal power plants also generate considerable waste heat as their thermal efficiency is only about 33%. It is doubtful that solar cells produce more excess heating per unit of electricity generated than the waste heat from coal power plants. And in any case the global warming concern with coal power plants is not their waste heat (which is not significant globally compared to solar heating) but the much greater long term heating effect from the CO2 emitted when coal is burned.

Does this mean photovoltaic solar cells make sense? Not really, they are inferior to wind turbines which also don't emit CO2 and are much cheaper .

Solar vrs Wind

My last tirade about rooftop photovoltaic installations prompted a request for alternative suggestions.

The problem with rooftop solar photovoltaic electricity generation is that it costs too much. According to this a 4 KW rooftop photovoltaic installation costs $32000 or $8000 per KW. By comparison a 1.5 MW GE wind turbine like those in the Walnut Wind Farm appears to cost about $3000000 or $2000 per KW. So the wind turbine is 1/4 the cost per KW. It can be expected to have a better capacity factor as well. Note rooftop solar in particular will often have a lower capacity factor because of unfavorable location or orientation. So wind is much cheaper.

The above figures are rough estimates. For a sanity check see this account of a HSBC investment report which says in part:

What’s really interesting about HSBC’s new report is how solar power stacks up today against other ways of generating electricity—it doesn’t. That is, all the other power-generation technologies are in roughly the same neighborhood, even wind power—but not solar.

For instance, HSBC estimates costs per megawatt for different options: Combined-cycle gas, 43 euros; regular coal, 62 euros; onshore wind, 58 euros; nuclear power, 48 euros; geothermal, 43 euros. Photovoltaic solar power costs 290 euros per megawatt; concentrated solar power 181 euros.

Again wind power is much cheaper than photovoltaic solar power. In fact if we ignore the fact that wind is intermittent it is competitive with fossil fuels.

So wind is real, rooftop photovoltaic is just symbolic.

Solar madness

I have complained before about the foolishness of encouraging residential photovoltaic installations. Recent posts by Yglesias and Drum about feed-in tariffs which obligate utilities to buy (at exorbitant rates) power produced by small scale photovoltaic generation have provoked me into revisiting the subject. According to Drum:

... And yes, it's a very good idea that makes small-scale solar installations economically worthwhile.

Actually it's a very bad idea as the highly subsidized small scale photovoltaic installations are only economically worthwhile for the owners. They are economically wasteful for society as a whole because they are highly uncompetitive in cost with other means of generating electricity.

It is ironic that Yglesias and Drum who once claimed to be members of the reality based community (in contrast to the delusional Bush administration) now give uncritical backing to liberal programs that are equally detached from reality. It appears Republicans and Democrats just live in different fantasy worlds.

Cash for Clunkers

A few days ago Kevin Drum linked to this defense of the cash for clunkers program.

I have a copy of comments. First this:

I don't think the CEA factored in the economic benefit of lowering people's gasoline bill, which puts more money in their pocket to save or spend in their community.

makes no sense. Suppose you drive 12000 miles a year and turn in a clunker getting 15 mpg for a new car getting 25 mpg. This will reduce your yearly gasoline consumption from 800 gallons to 480 gallons. So you are saving 320 gallons a year. At 3$/gallon this is $960 per year. But you have had to pay for the new car. Even after a $5000 rebate this is probably $15000+ out of your pocket. So you will not have more money in your pocket anytime soon.

Second the goal of reducing oil consumption and CO2 emissions and the goal of stimulating the economy are fundamentally in conflict. To the extent this program revives economic activity it will increase oil consumption and CO2 emissions. This is not acknowledged.

Rooftop windmills

What is it with environmentalists and rooftops? Not content with promoting silly rooftop solar projects I see they are now pushing rooftop windmills which have many of the same drawbacks. The linked article actually points out a lot of the problems with this idea but fails to draw the obvious conclusion.

It appears to me that rooftop windmills are effectively ornamental, like spoilers on ordinary cars. In which case you might as well save money by not actually including any power generation equipment.

Iowa wind power

I recently drove on I80 through Iowa on my way to Denver and back. West of Des Moines the highway passes through a couple of wind farms with numerous wind turbines visible on both sides of the highway. They were a bit startling to encounter as they had not been there when I drove the same highway in 2007. I also encountered big trucks on the highway carrying wind turbine blades which are very long. Apparently wind power in Iowa is growing rapidly and Iowa has passed California and is now second to Texas in domestic wind power.

The photo was taken in late June and shows wind turbines in the Walnut Wind Farm near Walnut Iowa. The highway is I80.

Running on empty

On Saturday driving my 2004 Toyota Solara back from Denver I drove all day on one tank of gas. I covered 520.4 miles. I thought at the time that this was a personal record for distance driven on one tank but was surprised to find upon checking that in the first couple of years after buying my previous car (a 1986 Toyota Celica) in 1994 I had exceeded 500 miles on a tank on several occasions and in August 1995 had gone 523.4 miles.

The Celica got better mileage but had a smaller gas tank than the Solara so its range was similar. The Solara has an average mpg calculator which I reset each time I buy gas. It generally overestimates mpg by .5 or so (compared to dividing mileage by amount of gas required at the next fill up) but on Saturday was dead on estimating 34.0 mpg (as compared to 34.01 computed from the 15.300 gallons to fill up). The Celica required 13.472 gallons to fill (after the 523.4 mile run) for an estimated mpg of 38.86. Both cars have a reserve (if the specs in the owners manual for fuel tank capacity are to be believed) past the point where the gauge reads empty so the true maximum range is a bit higher.

Of course to be really precise you need to account for the fact that the Celica's odometer read about 2.4% high while the Solara's reads about 2.4% low which would mean the Solara holds the true miles record.

One problem for electric cars is that there is no prospect of their achieving a range of anywhere close to 500 miles anytime soon. And they take hours to recharge as opposed to a few minutes to refill a gas tank.

Gas pains

Gas prices have risen in recent weeks. They are now near $3/gallon around here a big rise from the $2/gallon low of last winter. This isn't really a big surprise to me. I suspect we are near (if not actually at) peak oil . Which means that, while there will continue to be fluctuations in the price of gas, the long term trend will be strongly upward. This of course will be bad for the economy, one of the reasons I am nervous about the economic future even after we are past the present crisis.

On the plus side, this would be good news on the climate change front. Some of the more pessimistic scenarios may be impossible because there just aren't enough fossil fuels readily available. See this via Stoat . Of course there are reasons to be cautious about basing reserve estimates on current technology.

Livermore windmills

Although I was born in Boston I think of Livermore California as my home town as my parents moved there when I was 3 and I lived there until I left for college.

One of the things Livermore is known for is the Altamont Pass Wind Farm which is in the hills just to the east. The windmills are quite visible from I580 as it traverses Altamont pass. They were constructed around 1980 which is after I had left but I would see them when returning home to visit.

This windfarm was a pioneer and encountered a number of problems. The tax credits that subsidized construction were based on capacity rather than actual power generated. Perhaps as a result many of the early wind turbines soon broke down and were not repaired. The resulting derelict windmills were quite noticeable and did not help wind power's image. It was also found that the windfarm was responsible for a large number of bird kills. In part this was because of the location but also because of the older turbine designs with small fast blades passing near the ground. It is believed more recent designs featuring larger slower blades higher off the ground are less dangerous to birds. The newer designs are also more efficient and are gradually replacing the original turbines. Wind power in general has been growing rapidly in recent years.

The picture was taken in July 2002 looking northeast from Patterson pass (which is on a back road a bit south of I580).

Climate change and fossil fuels

In the 90s I got interested in climate change induced by burning fossil fuels and participated in sci.environment discussions about it. Here is my layman's take.

Simple models predict that increasing the concentration of CO2 in the atmosphere will cause the average temperature at the surface to increase. Burning fossil fuels adds CO2 to the atmosphere and measurements show that in the short term about half of it remains there increasing the concentration of CO2 in the atmosphere. Observations also show that the earth's surface has been warming. The amount of the warming is roughly consistent with the amount predicted by simple models. So it is plausible that burning fossil fuels has warmed the earth and will continue to do so.

There is some room for doubt as the simple models leave out a lot of things and more complicated models are difficult to validate. So detailed predictions are quite untrustworthy. Still there are real reasons for concern even if it is not absolutely certain that major problems will result.

So what can be done? It appears that in the long run the impact will mostly depend on how much of the world's supply of fossil fuels gets burned. Within limits the rate of burning doesn't matter too much. So conservation doesn't help much if it just delays the time it takes to exhaust the earth's supply of fossil fuel. Some fossil fuel has to be left in the ground.

The three main fossil fuels are oil, natural gas and coal. The oil will run out first, followed by the natural gas and finally the coal. I see little chance that all the oil and natural gas won't get burned. There is some chance that we won't burn all the coal. Currently coal is mainly burned to generate electricity and there are alternative ways such as nuclear power to generate electricity. They are more expensive but not impossibly so if limiting climate change becomes imperative.

A key turning point will occur when the oil runs out. It is technically feasible to make oil from coal. Currently oil from coal is not cost competitive but this will change as the oil runs out. If this leads to large scale conversion of coal to oil it seems inevitable that all the coal will be eventually burned. In which case we best hope the climate effects are not too costly or that some sort of active mitigation is feasible.

Feed-in tariffs

Bradford Plumer has a post discussing rooftop solar. It mentions Gainseville Florida which has adopted a feed-in tariff which obligates the local utility to buy solar electricity from anyone who produces it. This has produced a flurry of solar power installations which is described as "stunning". However it is considerably less stunning when one learns the tariff has been set (for 20 years for installations through 2010) at the exorbitant rate of .32$/KWh. This means the program is symbolic as it will only be affordable as long as the amount of solar power generated is a small fraction of the power the utility sells.

As I posted earlier I think rooftop solar makes no sense.