Business 360 4: Brownouts and Power Deregulation

* This is my article for Business 360, published in Kathmandu, Nepal, early this month.
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Addressing power shedding and rationing

Power outages of 12 hours a day or more  is one formula for slow economic growth if not economic contraction. Almost all aspects of modern life, industrialization and agricultural modernization require stable and affordable electricity.

When Charu Chadha informed me that Kathmandu suffers from 14 hours a day of power outages in  early January and is projected to rise to 18 hours a day in the coming weeks, I was greatly surprised.  It is simply impossible to create more jobs, to develop the economy faster, if there is no stable and affordable electricity to supply the energy needs of households and companies.

The Philippines also suffered power outages of about four hours a day on average sometime in 1991-92 and it resulted in a lot of economic and political instability. What the new administration at that time did was to get some private power companies to produce electricity at the soonest possible time at high rates with long term contract. Expensive electricity from power barges were brought in within months. Power black outs were slowly addressed but electricity rates have increased.

The public adjusted to the higher electricity bill per kWh and made some adaptations like energy conservation and using more efficient and low wattage bulbs. Shops and companies that must remain open and lighted for many hours a day have no choice but endure the higher monthly electric bill. Later  the power outages slowly disappeared. Besides, such rates are still lower compared to buying and maintaining power generator sets that are not only noisy but also very costly as they are powered by gasoline or diesel.

From an outsider looking in, here are some lessons that may be considered by the Nepal government and other sectors of society.

One,  facilitate and hasten more power imports from India especially those from coal power plants. Coal  is generally cheap and supply is stable. This will require building more transmission lines from India to Nepal.

Two, deregulate power rates. Let those who can afford to pay higher electricity rates in exchange for more stable supply do so, whether imported from India or locally produced. This will encourage faster construction of more power generation plants and transmission lines. Those who can afford higher rates from new power plants will get out, partially or fully, of the old power plants, leaving the latter some respite to serve the poorer sectors that want the old, cheaper rates.

Three, privatize some power plants that produce more losses than revenues for the government, sell to private power companies in a competitive bidding. Such privatization should be coupled with industry deregulation, at least the power generation sector, to encourage more competition among various players.

Four, reduce the requirements, bureaucracies, taxes and fees for companies putting up new power generation plants and transmission lines.  Invite more power supply companies from many countries to enter Nepal and put up more power generation and transmission infrastructures over the medium- to long-term.  Norwegian and other Scandinavian power companies are generally efficient producer of hydro power plants as they are largely dependent on hydro power from huge amount of water from melting ice after winter. Nepal can benefit from their expertise and technologies in this field.

Finally, entertain the possibility of getting nuclear power as this is a cheap, stable and generally safe power source. As of end-2011, percentage dependence on nuclear power from the total energy needs of these rich countries were: France 77.7 percent; Belgium 54 percent; Switzerland 40.8 percent; Sweden 39.6 percent; S. Korea 34.6 percent;  USA 19.2 percent; Japan 18.1 percent; UK 17.8 percent; Russia 17.6 percent. See  http://www.world-nuclear.org/info/reactors.html.

Hydro-dependent Norway buys power from Sweden during winter when rivers and lakes are mostly frozen and the hydro power plants are resting. After winter, Norway exports electricity from its many hydro power plants to Sweden and other neighboring countries in northern Europe.

People from many countries though, the Philippines and Nepal included, are still wary of nuclear power plants because of safety concerns. This is a scientific and engineering problem with scientific and engineering solutions, as reflected in high reliance in nuclear power by the above-mentioned rich countries.

Nepal has a huge potential for industrialization and can retain its high profile mountaineering tourism. These must be sustained if not boosted, by easy availability of stable and cheap energy.

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See also:
Busiiness 360 1: Nepal and the Philippines, November 26, 2012
Business 360 2: Free market means free individuals, December 28, 2012
Business 360 3: Fiscal Cliff and Government Irresponsibility, January 23, 2013

Energy rationing 4: Anti-coal, anti-nuke hysteria

In one of my discussion googlegroups today, someone posted a campaign, "Please sign: Stop sacrificing the environment and the people's welfare on the altar of profit". Portions of the campaign said,

We, environmental advocates, members of the clergy and churchworkers, citizens, and leaders representing various organizations committed to defending the Philippine environment, unite to declare publicly our growing dismay over the state of ecological destruction and human rights violations under the administration of President Benigno Aquino III....

We challenge President Aquino to stop this sacrifice of the environment and the people's welfare on the altar of profit. We assert our calls for a genuinely pro-people, pro-environment and progressive policy of stewardship over our natural resources by pursuing the following specific demands:

1. Stop the liberalization of the Philippine mining industry.
2. Stop the killings and human rights violations of environmental advocates.
3. Cancel the permits and operations of big commercial logging firms in addition to the logging moratorium.
4. Impose a moratorium on the construction of new coal power plants.
5. Reject the proposal to revive the Bataan Nuclear Power Plant.
6. Scrap the Japan-Philippines Economic Partnership Agreement.

The writers and endorsers of this campaign possibly forgot that the President came from the Liberal Party, not from the Socialist Party or a Nationalist or Anti-globalization Party.

A liberal, in the classic liberal tradition or even the current European liberalism philosophy, respects the free enterprise system, not more business regulations, more prohibitions.

On their specific demands:

1. Stop the liberalization of mining industry -- and leave the industry only to local politicians and companies? Among the best practitioners of sustainable mining practices are the big multinationals which have global corporate brands and have modern mining and geological technologies to optimize mining with minimal damage to the environment. If we prohibit them from coming in, the mineral potentials of the country at the time that prices of important commodities and mineral products are very high, as well as the creation of many locals jobs, will not be optimized.

2. Stop the killing and human rights violations of environmental advocates -- I support this, we should support this. And not only environmental advocates, all political killings and human rights violations of ordinary citizens should be stopped. Especially by political warlords like the Ampatuans.

3. On commercial logging ban -- and leave the forests to carabao logging, local politicians logging? People need wood, whether we like it or not. The poor especially as they cannot afford the steel and cement housing, or aluminum/steel/glass furnitures. No commercial logging means zero supply of wood from legitimate sources, wood prices shoot up, and the bigger the temptation to do illegal logging by local politicians and carabao logging to take advance of the high prices of wood.

Commercial logging, supervised by licensed foresters and connected with long-term business contracts, practice sustainable logging. A logging concession area is divided into several blocks. For a 20-years cycle for instance, only 1/20th of the entire logging area is cut and cleared for a year, the remaining 19/20th of the area has thick forest, forever. It is to their business interests that there are trees to cut every year, so they keep planting every year.

4. Moratorium on the construction of new coal power plants, reject nuke power plants -- and what else to prohibit, natural gas plants, petrol oil plants? And what will the new houses, new factories, new schools, new offices, new shops and malls use, candles and firewood?

Many environmentalists advocate the renewables like wind, solar, biomass, etc. That's why we have the RE law, and the business cronyism associated with it as it gives lots of incentives and guaranteed profit for the wind farms, solar farms. Our already expensive power prices will soon become even more expensive due to mechanisms like feed-in-tariffs (FIT) and renewable portfolio standards (RPS).

I discussed the cronyism of the RE law here, Energy rationing 2: The Renewable Energy (RE) law. Dr. Willie Soon and Barun Mitra also produced a paper questioning the global energy rationing polices that restrict access of the poor to cheaper energy sources here.

5. Scrapping of Japan-Philippines EPA -- and go back to the old trade protectionism? That EPA is not exactly a free trade agreement (FTA) but it is better than going back to high protectionism.

The petition also mentioned the "Earth Hour". As I posted in Earth Hour lunacy, part 2, I wrote to the top 2 honchos of WWF-EH, Atty. Ibay and Mr. Yan where I sent them my article why the EH is a lunatic idea, they have one standard reply: silence of the lamb. Then I wrote a comment at the EH website comment section, they censored it. I consider the WWF as a bunch of noisy but coward environmental activists.

If the WWF officials and other environmentalist groups will protest my assessment of them, then I am open to any public debate with them on climate science and policy, anytime, anywhere. Leave a note of challenge at the comment section here.

Meanwhile, here is the latest data on global air temperature, composite for northern hemisphere (NH), tropics and southern hemisphere (SH). The lower troposphere temperature anomaly for March 2011 was -0.10 C. That is, the temperature in March 2011 was -0.1 C colder than the average temperature for all March from 1979 to 2010. Zero global warming, only global cooling trend now.

Here are the values, satellite data:

GLOBAL / NH / SH / TROPICS

2010
January 0.542 / 0.675 / 0.410 / 0.635
February 0.510 / 0.553 / 0.466 / 0.759
March 0.554 / 0.665 / 0.443 / 0.721
....
November 0.273 / 0.372 / 0.173 / -0.117
December 0.181 / 0.217 / 0.145 / -0.222

2011
January -0.010 / -0.055 / 0.036 / -0.372
February -0.020 / -0.042 / 0.002 / -0.348
March -0.099 / -0.073 / -0.126 / -0.345

Data and graph source is Dr. Roy Spencer of the Univ. of Alabama in Huntsville (UAH).