Electricity won’t save us from our oil problems

Almost everyone seems to believe that our energy problems are primarily oil-related. Electricity will save us.

I recently gave a talk to a group of IEEE electricity researchers (primarily engineers) about the current energy situation and how welcoming it is for new technologies. Needless to say, this group did not come with the standard mindset. They wanted to understand what the electricity situation really is. They are very aware that intermittent renewables, including wind and solar, present many challenges. They didn’t come with the preconceived notion that oil is the problem and electricity will save us.

It wasn’t until I sat down and looked at the electricity situation that I realized how worrying it really is. Intermittent wind and solar cannot stand on their own. They also cannot scale up to the necessary level in the required time period. Instead, the way they are added to the grid artificially depresses wholesale electricity prices, driving other forms of generation out of business. While intermittent wind and solar may sound sustainable, the way that they are added to the electric grid tends to push the overall electrical system toward collapse. They act like parasites on the system.

We end up with an electricity situation parallel to the chronic low-price problem we have for oil. Prices for producers, all along the electricity supply chain, fall too low. Of course, consumers don’t complain about this problem. The electricity system also becomes more fragile, as we depend to an ever greater extent on electricity supplies that may or may not be available at a reasonable price at a given point in time. The full extent of the problem doesn’t become apparent immediately, either. We end up with both the electrical and oil systems speeding in the direction of collapse, while most observers are saying, “But prices aren’t high. How can there possibly be a problem?”

Simply removing the subsidies that come from Production Tax Credits doesn’t fix the situation either. In one sense, the problem reflects a combination of many types of direct and indirect subsidies, including state mandates and the requirement that intermittent renewables be allowed to go first. In another sense, the problem is that, in a self-organizing economy, energy prices (including electricity prices) can only rise temporarily. The increase in energy prices is made possible by a growing debt bubble. At some point, this debt bubble collapses. Raising interest rates, as the US is doing now, is a good way of collapsing the debt bubble.

Furthermore, the subsidies for intermittent wind and solar discourage other innovation because they lead to terribly low wholesale prices for innovators to compete against, particularly in areas where hour by hour competitive rating is done. The ultimate problem is that if one type of electricity production is subsidized (even if in subtle ways), all electricity producers must be subsidized. Governments cannot possibly afford such widespread subsidies.

A PDF of my presentation can be found at this link: An Electricity Perspective on the Fragile State of the Economy. In this article, I offer some comments on these slides.

Slide 2.

Slide 3.

Slide 4.

We have all heard the story on Slide 4 so many times that few people stop to question whether the story is really true. My analysis suggests that it may be mostly wrong.

Slide 5.

The big take-away from this slide is that electricity companies planning for new generation should expect much higher electricity prices in the future. I discuss some of these items separately, on Slide 6.

By way of background, the US Energy Information Administration publishes “levelized cost of electricity” estimates that companies producing electricity are expected to use for planning purposes. When new generating capacity is added, planning needs to be started several years in advance. This is why what is being published now is the EIA’s calculation of expected wholesale costs (at a 2017 price level) for 2022.

Current wholesale prices for “dispatchable” electricity (the opposite of intermittent electricity) seem to be in the 3 to 4 cents per kWh range in the continental US, so all of the amounts shown assume that electricity prices will be much higher in the future. This thinking is in parallel with the “high oil prices will save the oil industry in the future” view that is prevalent in the oil industry. This thinking has helped keep the prices of shares of energy stocks up: “Even if there are problems now,” the thinking goes, “certainly higher prices in the future will fix the situation.”

CCS = Carbon Capture and Storage. CCS techniques are designed to remove a specified percentage of the CO2 generated when coal or natural gas is burned to provide electricity. The unwanted CO2 is stored underground. If the CO2 escapes, it can suffocate the population in the surrounding area. I would not make bets on the technique’s widespread adoption.

Slide 6.

Slide 6 shows a wholesale cost comparison for some particular pieces from Slide 5. All of the costs shown are very high compared to current prices. Wholesale prices tend to be in the 3 to 4 cents per kWh range because of the low cost of fuel (2 to 3 cents per kWh) and the low cost of already built generation. With recent changes in regulations, new generation is expected to be very expensive.

With respect to wind, there are two reasons why variable wind can be sold in Power Purchasing Agreements (PPAs) for 2 to 3 cents per kWh. The first is the substantial subsidies that have been available, making this pricing arrangement profitable to wind producers. The second is the low value that intermittent electricity provides to the grid. In fact, prices locked into these PPAs are slightly below the bottom of the range of expected future natural gas prices (Figure 1, below). This suggests that the primary value of wind generation is to replace natural gas as a future fuel.

Figure 1. Median PPA prices compared to forecast future natural gas prices. Chart by Department of Energy (Chart 54) in its 2017 Wind Technologies Market Report.

Somehow, miraculously, the EIA forecasts that the value of this intermittent wind will rise to 4.1 – 7.8 cents per kWh. In Figure 1, above, this would compare to 41 to 78 $/MWh, which is above the forecast gas price range.

Slide 7.

Notice how low and stable the green coal line is, compared to natural gas prices.

Natural gas comes from two types of producers: (1) those drilling specifically for natural gas, and (2) those drilling primarily for oil, and producing natural gas as a (mostly unwanted) low-value byproduct from drilling for oil. The second type of producer is willing to almost give away natural gas. If it becomes necessary to rely on production from companies whose primary focus is on natural gas production, prices will need to be higher.

Slide 8.

These are all very important assumptions that are not really true.

There is one reason why it might make sense to somewhat believe the first item, “Rising cost of electricity production will be no problem.” This has to do with the cost-plus type of electricity pricing (“regulated pricing”) that is used in some states of the United States. When cost-plus pricing is used, higher costs can, in theory, be passed on to consumers. The catch is that higher electricity prices tend to raise the price of finished goods and services. If wages are not rising rapidly enough, this can lead to an affordability problem. Industrial users of electricity are especially likely to cut back their electricity demand because higher prices make their products less competitive in the world economy.

After the talk, I decided to look at this situation a bit more closely. This analysis strongly suggests that since 2000, increased globalization has been playing a major role in holding down US demand for electricity. If there is an opportunity, industrial production will move to jurisdictions where the total cost of production (including wages, benefits, electricity costs, and other costs) is lower, even if there has not been a big increase in industrial electricity prices.

If we analyze US electricity consumption by type of user (Figure 2), we see that industrial electricity consumption rose rapidly until the late 1970s, plateaued between 1980 and 1999, and began falling in 2000. This pattern suggests that globalization is an issue. Early globalization sent US manufacturing to Western Europe and Japan. Later globalization sent manufacturing to lower-wage countries, predominantly coal-consuming countries of Asia.

Figure 2. US Electricity Consumption Per Capita, by Type of User, based on EIA data.

US labor force participation rates started dropping about 2000, similar to the drop in industrial demand for electricity. Thus, in recent years, globalization seems to be affecting residential consumers as well as industrial consumers. The impact on residential consumers is indirect, through job competition with global markets.

If analysts who estimate the required quantity of new generating capacity ignore the impact of globalization, their models are likely to give high estimates of the amount of new capacity to be added. If more generating capacity is added than is needed, it can be expected to push electricity prices downward, especially in competitive rating jurisdictions.

Slide 9.

As I will discuss later in this presentation, the economy operates based on the laws of physics. Because of this, it is impossible for the economy to change in ways that politicians would like.

Slide 10.

Slide 11.

Most of us have seen stories in the news about Macron and the Yellow Jackets. Can we really assume that citizens will accept higher carbon taxes, without protest?

Slide 12.

Industries get very unhappy when their electricity rates rise, making them uncompetitive with producers in other countries. The rates we are discussing are UK industrial electricity rates, so are a little higher (perhaps 1.5 times higher) than the wholesale prices discussed on Slides 5 and 6. If the price of 8.3 cents per kWh for industrial electricity is a big problem today, how can countries possibly withstand much higher rates, based on higher carbon prices or based on required technology that is much more expensive?

Slide 13.

Suppose a worker gathers reeds and uses them to make baskets. If his production per hour falls, he will have fewer baskets to sell in the marketplace. He cannot expect the price of each basket to rise to make up for his lower production.

For some reason, economists seem to have overlooked this obvious problem. There is no reason to expect that the buyer will be penalized for the higher costs of the energy industry. These higher costs look much like growing inefficiency. In the real world, the seller is generally penalized for falling efficiency. Why do we have so much confidence that the price per barrel of oil can rise, or the price per kWh of electricity can rise, if the price of baskets that a less-efficient worker makes doesn’t rise?

Slide 14. Chart by EIA. More detail on Renewable Energy available on Slide 18.

Slide 14 (made by the EIA) disturbs me. Coal production is dropping off rapidly, but the replacements we have are far from ideal.

Slide 15.

Coal (and nuclear) are the products that have historically kept US electricity prices low. Replacing coal with fuels that are much higher in cost and more variable in availability seems likely to be problematic. Industrial users are likely to be especially distressed.

Slide 16.

The United States has been fortunate enough to have very low natural gas prices recently. A major problem is that these prices are not really high enough for companies extracting natural gas as their primary business. If we really need to depend on natural gas, we will likely need much higher prices. In particular, natural gas prices will need to be high enough for natural gas companies to have bond ratings that are above junk ratings.

The question comes back to, “Can electricity prices really rise very much, without causing major problems?”

Slide 17.

Nuclear power represents a surprisingly large share of electricity generation. Slide 14 shows that in the US, its generation is higher than the sum of all types of renewables combined and almost as high as that produced by natural gas.

Yet nuclear has a lot of problems. It is perceived as dangerous (probably correctly so). Trying to correct the problems with being dangerous leads to a huge increase in the cost of new generation. Businesses in this field, such as Westinghouse, have gone bankrupt. The question of how to dispose of all the spent fuel is still a problem. Also, the many aging reactors will be difficult to replace.

There is also a problem with wholesale rates being too low for nuclear, when electricity rates are competitively set. To work around this problem, some areas use capacity auctions, which are intended to offset the inadequate funding for electricity providers providing backup electricity capacity. One catch is that a capacity auction is, in some sense, needed for every member of the supply chain. Just asking electricity generating companies to bid on providing capacity doesn’t guarantee that the full supply chain will be available.

For example, for natural gas, the capacity auction bid would typically reflect the cost of adding new units for creating electricity from natural gas; such capacity is inexpensive. A more expensive part of the supply chain would be the cost of adding extra natural gas pipeline capacity that is used only a few days a year, when it is very cold or hot. Furthermore, natural gas providers need to be profitable enough to continue to obtain loans at reasonable interest rates. So, even if capacity auctions are provided, they aren’t designed to fix the problems of the whole supply chain.

Furthermore, there has been a recent court ruling that these capacity payments are illegal. I mention in Slide 17 that the UK is affected. In fact, it is the entire European Union that is affected by this ruling. So, even with the best of intentions, member countries of the European Union cannot collect capacity charges to try to offset the underfunding problems caused by giving intermittent renewables grid priority and other subsidies.

Slide 18.

Slide 18 shows that in the US, the only types of renewable generation growing to any significant extent are intermittent wind and solar. Very high subsidies have helped push these types of generation along.

Parts of these subsidies are being phased out, but other, less visible subsidies remain. The fact that intermittent wind and solar are given priority on the grid, when they happen to be available, is a huge subsidy. Also, renewable mandates mean that generation is being added that is not really needed, lowering prices that the self-organizing competitive pricing system creates for backup electricity providers. This is part of the reason for the unprofitability of many natural gas, coal, and nuclear companies.

Slide 19.

In order for intermittent wind and solar to truly be dispatchable, the way other electricity providers are, there needs to be long-term storage for intermittent providers. A big part of the problem is seasonal matching of generation. For example, in a northern area, the main need may be for heat in winter, while intermittent generation may occur primarily in summer. Somehow, the variable wind/solar will need to be stored from summer to winter.

A post by Roger Andrews gives an idea of what the cost of the battery backup needed to solve this seasonal matching problem would be. His calculations indicate that adding sufficient batteries for seasonal matching can be expected to raise generation costs by more than an order of magnitude.

Slide 20.

Slide 21.

Most of the things we associate with rising energy consumption per capita are things we associate with a growing economy. Most people want these things.

Slide 22.

Slide 22 shows amounts I calculated from information from various published sources. These include energy consumption estimates by Vaclav Smil in Energy Transitions: History, Requirements and Prospects for older years and BP Statistical Review of World Energy amounts for more recent years. Population estimates are by Angus Maddison.

Based on this slide, most of the growth in world energy consumption ends up being reflected as population growth. It is only when energy consumption growth is very high that the living standards portion (in other words, the energy consumption per capita portion) grows very much.

Slide 23.

The big economic growth bulges that the world economy has experienced are easy to see on Slide 23. One of these is centered around 1910; another is centered around 1970. A third, smaller bulge is centered around 2010; it already seems to be disappearing. This growth bulge was made possible by China and other Asian countries as they ramped up coal production. Now this growth in Asian coal supplies is fading.

Slide 24.

The troughs, where the growth in per capita energy consumption falls to zero or slightly below, represent major problem times for the world economy.

Slide 25.

When a person looks back, the times when oil prices were high (1974-1980, 2008 and 2011) were near energy consumption per capita growth peaks. They were in times of high energy supply, not low. Many favorable outcomes occurred at peak times, including increased cooperation and higher returns on investments.

Slide 26.

Collapses of all kinds occur near troughs in energy prices. Often, these collapses are followed by wars that might be interpreted as resource wars.

Slide 27.

Many of these signs are ones we have been seeing lately. There were calls for tariffs before the US Civil War. Tariffs were increased in the 1920s, to try to reduce competition from abroad. Limits were also placed on immigration during the 1920s.

Slide 28.

When I talk about a vector, I am talking about a combination (really, a weighted average) of many different kinds of somewhat similar inputs. Thus, the energy vector reflects the combination of energy of many types, including human labor sold as labor, in a particular economy. The complexity vector represents the many types of specialization and growing complexity that allows resources (including energy resources) to be used by the economy. The debt vector indirectly represents promises of future goods and services made with energy products. Much of the debt vector needs to be repaid with interest. If the economy is growing rapidly, this is not difficult. If the economy is stagnant, this becomes a problem.

Many people think that oil or crude oil has particular significance. I see the economy operating as an overall whole. Each machine needs to have the particular fuel it uses. Companies decide to build factories in a particular part of the world based on an area’s overall cost level and the stability of its supplies, not based on the price of a single fuel.

Slide 29.

Slide 29 shows my view of how the economy works. As long as the debt level is growing rapidly enough, commodity price levels can be bid up to a high level, allowing increasingly complex goods and services to be produced, using an increasingly complex delivery system. At some point, the increasingly complex system for producing goods and services produces an excessive amount of wage disparity. About the same time, the cost of production tends to rise, as diminishing returns becomes an increasing problem.

The combination of rising production costs and an increasing share of the population with low wages soon creates a variety of problems. The economy tends to grow too slowly, so that debt cannot be repaid with interest. At the same time, the increasingly impoverished non-elite workers cut back on the goods and services they purchase. This might happen if young people find that they need to live with their parents longer, for example.

If interest rates are raised, this speeds up the failure of the system. Eventually, the economy, or a major portion of the economy, tends to collapse.

The big issue that tends to bring an end to economies is the increasing wage and wealth disparity that comes with growing complexity. As long as everyone is fairly equal, no one is squeezed out of buying goods such as homes, vehicles, and other expensive purchases. As businesses and governments get larger and more hierarchical, an increasing share of workers find themselves with low wages. These low wages adversely affect the economy in many ways:

  • It becomes difficult for governments to collect enough taxes.
  • Demand for commodities (such as those used to make homes and vehicles) tends to fall too low, leading to low prices for commodities.
  • Overthrown governments become more common.
  • Low-wage individuals become susceptible to epidemics because they do not eat well.

Slide 31.

The orange Energy Services line in the chart at the right shows the UK’s trend in the price of energy services since 1700, on an inflation-adjusted, efficiency-adjusted basis. The trend in these prices has been almost continuously downward. As long as the cost of energy services is downward, it is possible to add increasing amounts of these energy services, because they become ever more affordable. These energy services allow more goods and services to be produced. This seems to be a major factor underlying economic growth.

Diminishing returns, with a resulting increase in the cost of energy services, tends to be the “spoiler” in this system. In theory, rising complexity can be used to work around these higher costs. In fact, increasing complexity is helpful for a time. Eventually, however, the growing wage and wealth disparity that comes with increasing complexity tends to bring the system down. With the growing complexity, the system no longer has enough high-wage workers who can afford the finished products that the system creates. The many low-wage workers cannot make up for this lack of affordability. The number of new homes and new vehicles sold begins to fall, as a result.

Slide 32.

Interest rates, as well as the debt that is available because of low interest rates, play a surprisingly large role in commodity prices. The issue seems to be that debt is used to finance most large purchases, such as factories, schools, homes, and vehicles. If interest rates are low, it is possible for consumers to afford many more of these large purchases than they could otherwise. Once interest rates rise, the entire economy tends to shrink back. Debt bubbles tend to collapse.

Slide 33.

Slide 34.

Research into complex systems that seem to grow without outside help is a fairly new field. Clearly the economy is such a system. New businesses are added, as individuals see the need for a new product and a way of producing that product in a way that consumers can afford it. New consumers are added over time, as young people grow older and set up their own homes. Governments gradually add laws to regulate the system. Taxes are an important part of the system as well, and tax laws also change over time.

The thing that people don’t stop to think about is the fact that the system cannot really go backward. If a product is no longer needed (buggy whips, for example, for horse drawn carriages), it will no longer be produced. So, the situation is a little like removing the lower rungs of a ladder, as a person climbs up the ladder. This inability to go backward makes it difficult to adapt to falling supplies of any kind of commodity, including energy commodities.

Slide 35.

The vast majority of researchers do not understand the important role that energy plays in operating the economy and making it grow. These self-organizing systems (dissipative structures) absolutely depend on energy consumption. In fact, economies seem to depend upon increasing energy consumption per capita.

At some point, all dissipative structures (including hurricanes, plants and animals, economies and many others) come to an end. This is the way that a finite world can keep adapting and changing. New dissipative structures form and indirectly take the place of the previous dissipative structures. These new structures vary in structure from the previous dissipative structures. If the new structures are not well adapted, they quickly collapse, allowing room for yet other dissipative structures to form. The replacement of economies in this manner acts as a form of evolution, just as plants and animals evolve.

Slide 36.

Researchers tend to create models that fit their own preconceived notions of how the economy should work. This approach, plus the peer review process, tends to produce a lot of papers with the same (often wrong) assumptions.

Slide 37.

These should be fairly self-explanatory.

Slide 38.

This is probably the most important reason that economies tend to collapse. Most people miss the affordability connection because they interpret “Demand” to be something that anyone can do, without thinking about the affordability aspect. Without sufficient income, a person cannot demand a new home or new car, or gasoline from a fuel station.

Slide 39.

There have been many articles written in recent years about growing wage and wealth disparity. In fact, in the US, wage disparity seems to be back at the level it was before the Great Depression of the 1930s.

Slide 40.

Slide 40 tries to explain a paradox. Energy prices don’t really rise, as production falls too low. Instead, the complex system behaves in a strange way, causing commodity prices to fall because of growing wage disparity and debt bubble collapses.

One way of understanding the situation is by understanding that energy consumption is required for jobs that pay well. If insufficient energy supplies are available at a low price, the vast majority of jobs available will be low-paid service jobs. There will, of course, be a few managers and business owners. But these few managers and owners cannot, by themselves, generate enough Demand for goods and services made with energy products to keep commodity prices up. This is why the system tends to fail.

Slide 41.

I have been following oil since 2005, so I have had a chance to hear the discussion evolve. Oil prices were clearly too high for some consumers back in July 2008, when the sub-prime housing debt bubble popped in the United States. By early 2014, I started hearing that oil companies were very unhappy about the low price level available in 2013. In fact, some companies were sufficiently unhappy that they began cutting back on investment in new fields. It was not much later that oil prices dropped further, making the low-price problem even worse for producers.

Slide 42.

It is surprising how large and long-lasting an impact the collapse of the central government of the Soviet Union in 1991 had on its long term energy consumption. The collapse wiped out a large share of the industry of the Soviet Union and its close affiliates. The Soviet Union was an oil exporter, so the low oil prices of the 1980s were one reason for its collapse. Prices were not high enough for adequate reinvestment in new fields.

Slide 43.

One common inaccurate assumption is that oil prices rise primarily in response to the rising cost of oil production. If a person looks at the data, it becomes clear that interest rates have a huge impact on prices. This seems to happen because the purchase of high-value goods with debt (such as factories, homes, cars, and buildings of all kinds) seems to have a very significant impact on total Demand. Lower interest rates make these high-value goods more affordable. (Quantitative Easing (QE) is a way of reducing long-term interest rates; it also seems to affect oil prices.)

Slide 44.

Since I made up this list, I can add another model to the list that seems to be wrong. The Human and Nature Dynamics (HANDY) model of Safa Motesharrei gives an inaccurate assessment of the likely future path of the economy because it leaves out both diminishing returns and long-term population growth.

In every case, the researchers put together models that represent only a part of the way the world’s self-organizing economy actually works. They pick out a few aspects that they think are important, but they miss other important aspects. This selection significantly affects the outcomes predicted by their models.

Slide 45.

Some readers may be familiar with the Energy Returned on Energy Invested (EROEI) model. This is a model that is sometimes used to justify the reasonableness of selecting certain substitutes for oil, such as the use of intermittent wind and solar. As with all of the other models, the model gets some things right, but it also gets a lot of things wrong. Without understanding how the economic system really works, it is hard to see what goes wrong with the model.

Slide 46.

Slide 47.

These are all disturbing signs.

Slide 48.

World leaders act in ways that they feel that those who vote for them would like. In some sense, they are trying to save their own part of the world, even if they create increasing problems elsewhere.

Slide 49.

It is difficult for any new technology to get a foothold in a situation where energy prices of all kinds tend to be low. In addition, the pressure seems to be in the direction of reducing energy prices further, even if this means less energy production of all kinds.

Slide 50.

The world has become increasingly globalized in the last thirty years. Because of the greater interconnectedness, if a collapse occurs in the near future, it could be much worse and more widespread than prior collapses. The adverse results could exceed those of the Depression of the 1930s or the Great Recession of 2008-2009. We have no guarantee of being able to preserve either the oil system or the electricity system. The population of the world could fall dramatically; the economy may need to organize again in a new way without either oil or electricity. We live in interesting times.

This entry was posted in Financial Implications and tagged , , , , by Gail Tverberg. Bookmark the permalink.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.

2,042 thoughts on “Electricity won’t save us from our oil problems

  1. “Shares of California utility PG&E tumbled Monday, because investors are worried it may go bankrupt.

    “PG&E (PCG) could be on the hook for tens of billions of dollars for its potential role in California’s devastating Camp Fire last year — the deadliest and most destructive wildfire in the state’s history. The company has indicated it does not have the cash or assets to pay anything close to that amount.

    “The utility, which provides electricity to about 16 million Californians, is contemplating filing for bankruptcy protection, Reuters reports. The stock fell 21% by midday Monday.

    “”The bankruptcy preparations could be designed to put pressure on the government to find a solution; however, we view the possibility of any legislation becoming law as uncertain,” said Christopher Muir, analyst at CFRA.”


    • “PG&E is asking for a rate hike of almost $2 billion from customers, saying more than half will go toward wildfire safety.”

      California already has extremely high electricity rates. Another big surcharge will make them even higher, relative to other states, and put more strain on the income of electricity purchasers.

      A big part of California’s problem is its insistence on importing a significant share of its electricity from out of state, particularly the state of Washington, where rates seem to be lower. The catch is that there are real costs to having all of this long-distance transmission in place. One of them is that these lines tend to cause fires, if it is dry or windy. Burying the wires is a theoretical solution, but it sends costs sky-high.


      The extremely variable output of California’s hydroelectric contributes to its problems. Let’s hope it doesn’t have a low year again soon.


      • Also remember that PG&E Diablo Nuclear Plant is scheduled for shutdown and decommissioning in 2024 . I have seen initial cost estimates at $1.7 billion for the two Diablo reactors but remember that SCG&E San Onofre Nuclear shutdown 2014 and the decommissioning estimates are over $10 billion with about $ 4 billion already paid by ratepayers in advance. So I would expect Diablos costs to rise substantially.
        Also Calif. is still expanding commercial solar and there is already a large residential solar adoption rate . So for someone like me that already has solar and will see large rate increases to pay for “fire” risks plus decommissioning risks that the utilities will undoubtably add on to my rates that already have an annual meter fee that is about as high as my electric use bill there will be a strong temptation to just go totally off-grid. Those customers who want to go off-grid can collect a tax rebate for a tesla power wall or other battery options already on the market. So the utility companies are facing increased costs for Nuclear decommissioning, renewable mandates, potential customers pulling out of market, fire costs, endless lawsuits, and at some point maybe increased natural gas costs,
        The poor( yes there are poor people ) who can’t put up solar or batteries and that live in apartments or trailers will somehow be asked to pay much higher bills and they will figure out how to use less. New construction in Calif. already will have a solar requirement starting soon . So if anyone thinks PG&E is bluffing they should pencil out the numbers first.
        If the state is stratled with all these costs you gotta remember we just elected the most liberal governor we have ever had and he is very very green. So the state won’t back down on solar rebates, new construction solar mandates, or other efforts to choke off existing revenue streams from fishing, lumber, mining, or brown generating options like gas fired generating plants. Also a large coal generator in Arizona that used to send us electricity is shutting down.

        • I put my body on the line to try and stop Diablo, but they got it done, awash in government money and enforcement.

        • “Those customers who want to go off-grid can collect a tax rebate for a tesla power wall or other battery options already on the market.” – How can the gov’t afford to do this indefinitely?

        • Yes, I predicted such move some time ago, that in select markets with super expensive electric power rates, certain segments of population would turn into self generation mode coupled with storage at specific zone – threshold of affordability and tech capability, which seems to be about now. For the upper ~5-15-20% caste this is trivial task like not exchanging all their cars for newer model so often (5yrs instead of 3yrs), it’s manageable expense to go completely off grid in their residencies, plus it will quickly become must have social status symbol of their class.

          This flight of customers would bite back the utilities and also increase tension across the society since on the other end of the income spectrum people would be captured to high rates no matter what, obviously ricocheting into their lower overall consumption patterns, higher indebtedness etc.

          These trends seem to intersect and collude into predictable outcome: mid-term future of grid instability starting resemble 2.5-3rd world like conditions. All in all it’s the sign of system eating out itself, slow collapse, inner triage, ..

          Nevertheless it will be interesting to watch how US vs. Europe vs. Asia going to perform on this issue, the timing and severity will be likely different as the cultures and gov styles /goals differ.

          And remember he who keeps the grid operational longest for most of their pop wins (for the moment)..

        • I am glad I don’t live in California!

          I expect more people will be leaving the state and fewer moving in. Except perhaps people that other states don’t want and the very rich.

          • I expect more people will be leaving the state [California] and fewer moving in.

            Except that I think that California is a net benefit to the Federal Government, taking in more Federal revenue than it gets back in grants, etc.

            My guess is that California will secede from the US within a decade. On its own, it would be the world’s 6th biggest economy, but as it stands, it’s just a big bag of electoral votes, generally ignored by the Feds, except every four years.

          • I like it here. Fifth generation. I like the Mexicans. I love the ocean with the very real wilderness that the chaparel scrub coastal range offers. Ya there’s way to many humans but when things finally go haywire our nuclear plants will already be mothballed . We are spitting out so much solar that we sometimes pay Arizona to take the excess. So there isn’t any way to really feed all these people even if we do have some of the most productive yesr round agriculture in the world but for now we have tropical fruits, citrus, vegetables, seafood,and all the variety anyone could wish for. The climate is mild , the sun almost always shines and although our aquifers are stressed we have some very deep fresh water reserves. It will be paradise as long as it lasts ( except in the cities ) and there really isn’t anywhere to run anyhow.
            On the edge and from my experiance nobody wants us anyhow. So hanging on till it goes bust.
            I checked and a tesla power wall state rebate is ~$3,400 with another ~$3,400 tax break from the Feds but it really doesn’t get you off the grid because it needs to cycle on the grid to get the rebates. Does buy you a little security if the grid starts to experiance brown outs. The objective is to smooth out the peak energy demand hours and reduce needs
            for extra power plants for peak hours. Installed it will cost you about $8,000 after rebates.

            • The Tesla Power Wall is a horribly costly uninterrupted power suply (UPS) for terribly poor energy supply of the Age of Intermittency. It is like pushing the burden of the quality energy supply from the companies to the individuals. The more there are batteries at homes, the more intermittent energy can be distributed via the grid. No wonder, that the price of such energy will go down. But who will do installation and servicing of all those home UPSs and additional home solar panels, wind turbines and the grid etc.?

              It is nothing else than another step away from simple and reliable energy supply: the distribution of the risk to consumers that requires securing and delivery of spare parts to individual homes, visits of technicians, the maintenance of the grid etc.

              It is cheaper to have all those batteries in one place, not at homes. But then all looks like costly energy from the grid. When you purchase the batter and have it at home, it looks like you have some kind of independency and cheaper energy. But NO, you are more dependent on the outside help and the energy costs you more, too. The grid distribution is always cheaper, as the various circumstances, like insufficient production capacities at the distant spare parts production facilities, the dysfunctional roads due to heavy snowfall etc. constitute further risks.

              The functional and good quality underground natural gas pipes are the most reliable power supply to your home. (No grids are safe in the areas with the seismic activity.)

            • MG, Of course it is terribly expensive but it is a way to insure against interrupted supplies. Our utility supplier may have huge liabilities for fires that nobody can prevent from happening. Earthquakes may be some sort of black swan event but nobody knows when. A relatively small generator would keep the water and a refrigerator going at least for awhile. In a litigious society the fires are probably a larger risk because there are wires everywhere and nobody wants to cut down all the trees. So I am trying to cover the bases from grid energy band aids, to pig fat fueled tractors. From farming to foraging, dry food storage and a deep knowledge of backcountry water and food resources. How am I suppose to know what comes around the next corner? My solar array will have payed back it’s installation costs in ten years of use. I am about four years in and so far it is working without need for any technicians after installation . Maybe the tesla power wall will also work for a similar amount of time? At this point I wouldn’t bet on PG&E lasting that long. Cheap gas is also a dubious bet but it is a good deal right now.
              City utility users are dependent upon water and sanitation services so they can never really get anywhere near off-grid. Keeping a farm running is crazy expensive also but some of us are willing to pay for our independence even if it is an illusion.

            • Dear Bruce, yes, I also live in the countryside, although in the populated area with various energy grids. The point is that the colder areas that are impacted by various negative influences which periodically destroy the grids are more prone to depopulation, as the example of Japan shows.

            • TSLA Powerwall is no longer the only option there, the availability and variety of these storage devices is exploding as we speak and while on some you can’t receive any tax incentives the higher – less restrained functionality pays for itself eventually..

            • Bruce> on “litigious society” yes that’s a very peculiar strange thing going on in Cali.. with power utilities and fires, very few collapse theoretician listed these on the top score board for incentives bringing the fall of civ sooner..

              Must be completely surprising and incomprehensible at first to outside watchers like China/Russia, although they face in their centralized empires different set of issues.

            • I agree with your strategy Bruce, but getting off grid will not insulate you from the utility costs. Ultimately they will tax everyone to pay for it, whether you are on grid or off.

            • We all use goods from businesses. Industrial use of electricity cannot possibly bear all of the costs of the grid. It needs to be supported by individuals paying their share.

              This is the same issue as with the Internet. Getting rid of all of the gamers and the movie watchers would leave too little revenue to support the Internet with just business users.

            • Isn’t the most likely stair case pattern that gvmt service will be more and more gone in rural areas, irrespective if cold.

              So people will more and more move to cities, where electricity and plumbing and sickcare is functioning.

              A few steps down gvmt services stops working and then cities become death traps.

            • The problem with battery backups and rebates is everyone is not going to get the rebate. Once a certain “off-grid” penetration is reached, electric costs are going to skyrocket and the rebates will be discontinued. So, if you want the rebate, you better install it now.

            • The urban verses rural aspects of utilities and how their costs are distributed may be drivers of the staircase to be sure. The fire risk in Calif. has been almost exclusively a risk for high end real estate and but costs of rebuilding the power poles ,grid connections ,and lawsuits are distributed/ shared by the urban rate payers. In Calif. many of these rural users are not agricultural producers. In the central parts of the country the large distance between power users does at least service agricultural operations we are all dependent upon for food. Without delving to deeply into how different regions cost distributions differ it seems to me people should think about when their personal interests and societies interests benefit each other as a functioning Union and when certain segments of society begin to parasitize other members of society.
              As the central part of the US has been hollowed out by corporate agriculture there has been a lot of anger building up. People there are angry in part I believe because their contributions to society at large aren’t appreciated or fairly compensated. If Calif. starts to become fractionalized over a sense of unfairness re. the rural / urban divide much of the rural population may have to face up to what their contribution to society really is. The Central Valley is already showing lots of signs of collapse and poverty in the urban areas so maybe parts of Calif. are already becoming more like the Midwest.

  2. “…credit spreads have widened considerably, commodity prices have softened and investors have started demanding higher yields for short-term US bonds than for those with longer terms. Unlike equity markets, “yield curve inversions” have not historically tended to produce false recession predictions. The overall judgement of financial markets is that recession is significantly more likely than not in the next two years.

    “Real economic indicators for the world’s largest economies, China and the US, also suggest considerable cause for concern. Almost every Chinese indicator in the last few months has come in below expectations.

    “Perhaps the US economy will enjoy a soft landing… But… given that we are starting from very high debt levels and low unemployment, a recession is the more likely outcome.

    “It is almost inconceivable that the global economy will remain healthy in the face of serious economic problems in both China and the US, even leaving aside their conflicts over trade and technology. Europe lacks economic energy and the uncertainties associated with Brexit, French protests, German political transition and Italian populism mean the continent is more likely to be a source of problems than a solution.

    “The Fed should signal that it is determined to avoid a downturn that would assure another decade of below target inflation. The People’s Bank of China and other central banks should also make clear that they recognise that avoiding another recession is the most important thing they can contribute to financial stability.

    “Fiscal policymakers should realise the very low real yield on government bonds is a signal that more debt can be absorbed. It is not too soon to begin plans to launch large-scale infrastructure projects if a downturn comes. The largest economies should try to limit trade frictions and signal that they are committed to co-operating to support global growth by assuring adequate capital flows to emerging markets and avoiding a cycle of protectionism.

    “Even if my recession fears are excessive, a shift towards emphasising growth will contribute to bringing inflation up to target levels and can be reversed. If I am proved right, the costs of delay in the policy response could be catastrophic.”


  3. “In developing our forecast for the [US auto] industry for 2019, the outlook appears grim. Economic indicators are pointing to contraction for the entire auto industry, which can be magnified if trade conditions worsen.

    “The question will be less about how the industry will perform, but rather how automakers should respond to market conditions.”


    • “Home purchase contracts in the U.S. fell 7.7 per cent in November, according to a National Association of Realtors index. Consumer confidence dropped in December.

      “And a gauge of U.S. manufacturing plunged by the most since 2008, only a day after Apple cut its sales outlook, prompting investor worries about a global growth slowdown.”


      • It is fortunate that long-term interest rates (which are self-organizing) have headed downward recently. Recent mortgage interest rates are lower, as a result. The catch is that the spread between short- and long-term interest rates becomes too low or negative, hurting banks profitability since they “borrow short and lend long.”

    • If US auto miles driven have risen less than 1%, as this article indicates, then auto miles driven are likely rising less than population. This is a sign of some would-be drivers being squeezed out of the market. Perhaps young people are waiting longer to buy their first cars.

    • I don’t know about where you live but, here in the south, low gas prices have created a boom of big trucks. People here have coined the phrase “brodozers” for them. They cannot give away sedans right now.

  4. “Brexit hasn’t happened yet but it’s already shrinking the United Kingdom’s financial services industry. Banks and other financial companies have shifted at least £800 billion ($1 trillion) worth of assets out of the country and into the European Union because of Brexit, EY said in a report published Monday.

    “Many banks have set up new offices elsewhere in the European Union to safeguard their regional operations after Brexit, which means they also have to move substantial assets there to satisfy EU regulators.”


  5. “The two leaders of Italy’s ruling populist coalition on Monday threw their support behind the “yellow vest” protesters roiling neighbouring France.

    “Yellow vests, do not weaken!” Deputy Prime Minister Luigi Di Maio, who heads the anti-establishment Five Star Movement (M5S), wrote on his party’s blog.

    “He denounced the French government for protecting the elite and the privileged, saying “a new Europe is being born. Of the ‘yellow vests’, of movements, of direct democracy” ahead of European parliamentary elections in May.

    “Matteo Salvini, his counterpart from the far-right, the anti-immigrant League, also backed the “yellow vest” protesters.”


  6. “Millions are set to walk out across India tomorrow as a two-day national strike begins against the neoliberal policies of Prime Minister Narendra Modi’s right-wing regime…

    “Farmers and agricultural workers promised to block roads across the country, bringing India to a standstill amid growing anger over poverty and rising prices.”


    • Gosh, it’s all so grim: are we all doomed?

      The videos on ‘How to survive the night wrapped only in a Highland plaid ‘ may well be of use, I fear.

      The Highland porridge spoon (family size) can also be a fearful weapon of defence, and is entirely legal, even in the UK. 🙂

      • Doomed soon enough, I fear, but in the meantime life is good and there is plenty of salted porridge for my collection of murderous spoons, which I use much in the manner of a Spetsnaz MPL-50 throwing spade.

        “The videos on ‘How to survive the night wrapped only in a Highland plaid ‘ may well be of use, I fear.”

        Xabier, I gather that such feats may be accomplished via Tibetan Inner Fire Meditation or ‘Tummo’:

        “Studies on Tibetan monks and Western control group have demonstrated the effect of increased thermal power output using the forceful breath technique that depends in part on meditative visualization.

        A 1982 study of the physiological effects of Tummo has been made by Benson and colleagues, who studied Indo-Tibetan Yogis in the Himalayas and in India in the 1980s. Conducted in Upper Dharamsala in India, it found that the subjects, three monks, exhibited the capacity to increase the temperature of their fingers and toes by as much as 8.3 °C.

        “In a 2002 experiment reported by the Harvard Gazette, conducted in Normandy, France, two monks from the Buddhist tradition wore sensors that recorded changes in heat production and metabolism.”


        A very Happy New Year to you, and indeed to all at OFW. 😀

      • How do you read the chances of UK govs eventually weaseling out of ‘hard brexit’ into either delay tactics (leaked today in the news) or perhaps mid-longer term even complete turn around by some gov-judicial lite coup, new referendum etc.. ?

        • WoH, I have no idea how this will turn out. I can see that Germany has just emphatically declared that there can be no extension, so a delay might be tricky. But as it stands, there is no way that Theresa May can get this deal through the house of commons.

          Furthermore, a large, cross-party group of MP’s has said that they will precipitate a Trump-style government shutdown if it looks like the UK is going to crash out without a deal by tabling an amendment to the Finance Bill that cuts of May’s ability to fund contingency measures, so political paralysis is not impossible.

          Re a second referendum, I understand that there are precedents in Europe but it would be a subversion of the democratic process and, at this time of heightened emotion in the UK, dangerously inflammatory IMO. And there is no guarantee that the result will not be the same.

    • So will he allow all 100 mns of starving Africans to emigrate there? The Dems do themselves a great disservice by claiming ownership of rhetoric so easily discreditable.

      • He means people already living in America..California doesn’t get to control how many immigrants come in from foreign countries..That is a federal issue..

      • Having the 5th largest GNP on the planet helps.
        (larger than the UK)
        The US would be even more third world without CA.

    • I think I’m going to be sick to my stomach, since I live in CA. It’s a state for people that have something going job wise, because it’s so expensive to live here. High rent/house values, higher fuel costs, higher just about everything, so allowing millions more will just mean more pressure on State costs, education, housing and a lot more desperate people walking the streets asking for handouts.

    • I’m glad I don’t live in Cali any longer, Gov. Newsom is nuts!
      Sanctuary to all who seek it!” That’s a recipe for DISASTER! Cali is mostly DESERT, it has too dam many people, not enough water & he wants to invite HORDES of migrants to come & live there!
      How will they be housed? How will they be FED? Who will give them JOBS, OUR JOBS!
      Cali has the largest HOMELESS population in the country, so he want’s MORE HOMELESS? MORE POVERTY? MORE CRIME?
      Too bad Oregon is also a stupid sanctuary state, I tried to vote that nonsense out but it lost or so “they” say but as corrupt as our “elections” are, I have my doubts that so many people would vote against their interests.
      I hope those working stiffs that “voted” against that measure have illegal immigrants taking THEIR JOBS on the cheap & they end up homeless, serves them right for being so stupid!

Comments are closed.