Evidence Soup

Granular smart grid evidence creates 'aha' moment: Data every 15 seconds vs. 15 minutes.

Peak load not at 5:00pm after all? Typical communications from the local utility ask us to minimize applicance use around 5:00pm, because that's when peak load occurs. That's a busy time, no doubt. But our beliefs may be based on incomplete evidence.

Last week's Science Friday was recorded in San Antonio, Texas. The city's mayor, Julian Castro, and several others spoke about efforts to modernize the energy grid there and across the state. Turns out, their peak load happens closer to 10:30pm. This discovery was made after they began collecting very granular meter data during a pilot project.

Aha moment in Texas. Brewster McCracken, executive director of the Pecan Street Project in Austin, explained that "We kind of almost by accident have ended up with the world's deepest database on how people use energy and now gas and water. It's in 15-second increments.... The most granular data before that was 15 minutes."

"... that's obviously going to be pretty impractical and actually not necessary for utilities, but it is very important for product development to understand, you know, if you're going to try to create a product that is of value to a customer, it's really important to understand what the customer wants. And so one of the ways to do that is to find out their data. And we're finding out, for instance, in the summertime, surprisingly, that the peak time of electricity usage in terms of draw on the grid is 10:30 at night. It's not 5:00 in the afternoon, which was a huge surprise."

McCracken continued: "... here's why, actually. And it doesn't show up in 15-minute data. It only shows up when you take it down to a finer level. We do this in my family, a lot of folks do. You turn down your AC when you go to bed at night to make it a little bit cooler. And the AC has such a huge influence on your home energy usage that it's about - the draw, peak draw can be up to 20 percent higher at like 10:30 at night, 10:00 at night, as it is at 5:00 in the afternoon."

Anecdotal evidence from Colorado. It's 10:16pm as I finish this post. Next thing I'm doing? Cranking up the AC and turning in for the night.

Heavy hitters get sloppy with the evidence about changing consumer energy usage with real-time displays.

It's a tempting idea: Changing consumer behavior by providing immediate feedback on energy usage. (Think real-time display inside the house to keep people informed about their electricity consumption and pricing.) This week, some heavy hitters promoted this idea in a letter to Barack Obama. But instead of backing up their argument with evidence, they simply referred to "studies" and "experience".

Not good enough. Is this kind of statement acceptable? It's a letter, after all, not a research report, so how much hard evidence is appropriate? i think they should include something - footnotes, at least. By vaguely referring to "studies," they open the door to an examination of the evidence. So where is it?

Google, a sponsor of this letter, is famously data-driven. Would Google executives accept such an unsupported statement if someone were pitching an investment to them? (For folks who want more information, the letter refers us to a spokesman at Google. I will follow up.)

Wolf in sheep's clothing. Too often, statements that "studies show" are accepted without challenge. These claims are poorly disguised as evidence-based management, when in fact they are the enemy.

The letter (signed by AT&T, Best Buy, Dow, Environmental Defense GE, Google, Intel, HP, Nokia, and others) says in part: "Dear Mr. President: We are writing to ask that your Administration adopt the goal of giving every household and business access to timely, useful and actionable information on their energy use. By giving people the ability to monitor and manage their energy consumption, for instance, via their computers, phones or other devices, we can unleash the forces of innovation in homes and businesses.... Studies and experience show that when people have access to direct feedback on their electricity use, they can achieve significant savings through simple behavioral changes." (Information Week coverage here.)

Phil Carson of Intelligent Utility did a great job of explaining that although this idea may work, more evidence is needed. It just so happens that this week researchers from The Brattle Group presented a webinar on "Effects of In-Home Displays on Energy Consumption: A Summary of Pilot Results" [pdf of presentation here]. Carson asks "Does direct feedback on energy use change consumer behavior?" and finds that "a dozen pilot programs indicated the answer is 'yes,' and the average savings was 7 percent. But... Sanem Sergici pointed out major caveats to the results of each pilot, such that many if not most did not rise to the scientific standard of reproducible results."

Gold star for Mr. Carson. The Intelligent Utility piece ended by saying: "Faruqui's conclusion: Utilities may 'borrow' disparate industry data to make a point, but if they are mulling expensive programs and major capital decisions, they'd better spend the time and money in their own service areas to research the rationale for those decisions. Research is expensive, Faruqui added, but that cost is a tiny fraction of the cost of an ill-informed, major decision. The phrase 'studies show' helps make a convincing letter to the president. But it behooves us all to ensure that the data really is there to support the statement."

Investment without evidence? Here's the original of the energy letter [pdf]. The actions requested include: "Encourage the purchase and installation of technologies, devices and methods of delivery that will help ensure timely, secure, and clear information on energy consumption is available to consumers. To that end, we request that you consider access to this information as part of any program aimed at improving home and building energy performance."

Armed with more evidence, now the regulators are blaming traders for wildly fluctuating oil prices.

Getting a grip on the evidence about what caused our recent oil price craziness has been especially difficult. There's been rampant speculation about whether commodity trading fueled the 2008 spikes. As explained in today's Wall Street Journal, Traders Blamed for Oil Spike: CFTC Will Pin '08 Price Surge on Speculators in a Reversal From Bush Findings, the U.S. Commodity Futures Trading Commission (CFTC) intends to publish a report during August suggesting speculators played a significant role in driving wild swings in oil prices.

 "In a contentious report last year, the main U.S. futures-market regulator pinned oil-price swings primarily on supply and demand. But that analysis was based on 'deeply flawed data,' Bart Chilton, one of four CFTC commissioners, said in an interview Monday. The CFTC's new review... adds fuel to a growing debate over financial investors who bet on the direction of commodities prices by buying contracts tied to indexes. These speculators have invested hundreds of billions of dollars in contracts that were once dominated by producers and consumers who sought to hedge against oil-market volatility." [Chart from Reuters via Wall Street Journal]

Not so fast, or we'll throw you into the dark pool. Commodity exchanges are crying foul. Craig Donohue, the CEO of CME Group, a large derivatives marketplace, says "We have not seen any empirical evidence that index funds and speculators distort prices, as has been widely alleged, nor is there any proof that putting position limits on these market participants will have any positive effect on the marketplace.... We are deeply concerned that inappropriate regulation of these markets will cause market participants to move to dark pools and other unregulated markets, causing irrevocable harm to the entire U.S. economy. We look forward to having an open dialogue on this topic with the CFTC, elected officials and industry participants to ensure the continued safety and soundness of an already highly regulated financial market, which remained one of the best operating components of our economy during the credit crisis of recent months." Donohue was scheduled to appear before the CFTC today to discuss position limits for energy futures trading.

Better evidence? According to the Wall Street, last year, then-acting CFTC chairman Walter Lukken "told the House Agriculture committee that CFTC's economists 'did not find direct evidence that speculation was driving up prices.' ...In preparing its 2008 report, the CFTC sought information from swaps dealers about their off-exchange derivatives transactions." But Chilton said "data the agency gathered was incomplete, with some players providing partial or no information.... [He] said the new report will contain a more-thorough analysis of the investors in contracts tied to oil and other commodities, and reveal cases in which single traders hold massive market positions."

BEAR model produces evidence that aggressive acceleration of clean energy assures faster, sustained economic growth.

A recent report, Energy Pathways for the California Economy, evaluates California's energy demand and supply horizons and predicts the economic impact of alternative energy sources. Based on results from the Berkeley Energy and Resources (BEAR) model, the researchers conclude that clean energy will grow the economy significantly faster than traditional sources will. The authors are David Roland-Holst and Fredrich Kahrl (Berkeley), whose work was funded by Next 10, a group "focused on innovation and the intersection between the economy, environment, and quality of life issues". You can download the 8-page executive summary here (pdf), see the press release here, or get the full report here (107-page pdf).

Clearly a lot of effort went into this report. But I wish the evidence had been presented more concisely and clearly, so people could get a quicker grasp of what evidence was used, and what assumptions were made to arrive at these predictions. Overall, the work is fairly transparent, and lots of charts are provided -- it's just not presented as nicely as it might be. For instance, the authors could give us tables and graphics summarizing key factors influencing the findings: What variables are they watching, in a nutshell? How does their model work, in plain English?

Top findings. The executive summary includes these conclusions:

• "From electricity to transportation, projecting status quo demand and supply horizons portends ever greater reliance on out-of-state fuel sources, and therefore greater exposure to fuel price volatility.
• "Five alternative forecasting scenarios show that the faster and farther California can improve household and enterprise energy efficiency, while accelerating deployment of renewable energy resources, the faster the state economy will grow and create jobs. The most ambitious scenario (50 percent renewable energy; 1.5 percent annual efficiency increases) produces the largest number of additional jobs and income – generating half a million new FTE jobs with over $100 billion in cumulative payrolls over 40 years.
• "Overall, from electricity to transportation, greater reliance on fuel imports means California will become even more vulnerable to external price and supply shocks. The carbon fuel supply is among the very least employment intensive economic activities, even before considering how these expenditures leak outside the state and national economies to foreign energy sources.
  Energy efficiency saves money and stimulates the economy through expenditure shifting, away from import-dependent carbon fuels and toward employment intensive in-state goods and services. Comparing the employment content of output across over a hundred different economic activities reveals this expenditure shifting can have a dramatic net effect on job creation. The disparity between job growth from a dollar spent on fossil fuels and one spent on services is so great that a logarithmic scale is needed to display it. Simply put, a dollar saved on traditional energy is a dollar earned by 10-100 times as many new workers."

It's a bear. The BEAR model is "a constellation of research tools designed to elucidate economy-environment linkages in California." The authors describe the four generic components of the model and explain how they interact. "BEAR is being developed in four areas and implemented over two time horizons. Components: 1. Core GE model. 2. Technology module. 3. Emissions Policy Analysis. 4. Transportation services/demand. (page 81)"

The equations of the model are documented elsewhere, so the authors discuss only the structural components. "Technically, a CGE model is a system of simultaneous equations that simulate price-directed interactions between firms and households in commodity and factor markets. The role of government, capital markets, and other trading partners are also specified, with varying degrees of detail and passivity, to close the model and account for economywide resource allocation, production, and income determination. The role of markets is to mediate exchange, usually with a flexible system of prices, the most important endogenous variables in a typical CGE model. As in a real market economy, commodity and factor price changes induce changes in the level and composition of supply and demand, production and income, and the remaining endogenous variables in the system.... The resulting calibrated general equilibrium model is then used to simulate the economy-wide (and regional) effects of alternative policies or external events. The distinguishing feature of a general equilibrium model, applied or theoretical, is its closed-form specification of all activities in the economic system under study. This can be contrasted with more traditional partial equilibrium analysis, where linkages to other domestic markets and agents are deliberately excluded from consideration. "

"A large and growing body of evidence suggests that indirect effects (e.g., upstream and downstream production linkages) arising from policy changes are not only substantial, but may in some cases even outweigh direct effects. Only a model that consistently specifies economywide interactions can fully assess the implications of economic policies or business strategies. In a multi-country model like the one used in this study, indirect effects include the trade linkages between countries and regions which themselves can have policy implications. The model we use for this work has been constructed according to generally accepted specification standards, implemented in the GAMS programming language, and calibrated to the new California SAM [Social Accounting Matrix] estimated for the year 2003. The result is a single economy model calibrated over the fifteen-year time path from 2005 to 2020. (page 78)"

Evidence shows U.S. greenhouse gas emissions increasing, but "intensity" decreasing.

We all know about the increase of greenhouse gas (GHG) concentrations in our atmosphere (see my recent post about EPA policy). But figuring out what to *do* about global warming is even more difficult than identifying causes and predicting effects. It means looking at the problem in the context of what's happening in the world, identifying potential winners and losers, and determining how new regulations will impact real people. The U.S. Energy Information Administration analyzes the evidence to put things in perspective.

EIA tracks the so-called intensity of GHG emissions in the U.S., a comparison of CO₂ releases to Gross Domestic Product. As shown in this chart, Carbon/GDP is steadily decreasing.

A recent EIA report explains that "From 2006 to 2007, the greenhouse gas intensity of the U.S. economy—measured as metric tons carbon dioxide equivalent (MTCO₂e) emitted per million dollars of gross domestic product (GDP)—fell by 0.6 percent, the smallest annual decrease since 2002.... Since 2002, the base year for the Bush Administration’s emissions intensity reduction goal of 18 percent in a decade, U.S. greenhouse gas intensity has fallen by an average of 2.1 percent per year, resulting in a total reduction of 9.8 percent from 2002 to 2007."

Energy efficiency is improving, but we're still carbon junkies. As shown on EIA's chart, the Carbon/Energy ratio is staying mostly flat — evidence that the "steady decrease in carbon intensity (Carbon/GDP) has resulted mainly from reductions in energy use per unit of GDP (Energy/GDP) rather than increased use of low-carbon fuels...."

Where does this stuff come from? EIA created this nice diagram showing the creation of 2007 U.S. GHG emissions along the entire energy cycle: From original fuel sources (left-hand side of diagram), flowing out to distribution among various end-use sectors (on the right). The center indicates the split between CO2 emissions from direct fuel combustion and electricity conversion. To see the details, go to EIA's report [DOE/EIA-0573(2007), released 3-Dec-2008].

Who will feel the most pain? It's going to be a wild ride, watching EPA and the business community agree on ways to reduce GHG emissions without causing too much short-term damage to the economy.

Emissions still on the rise. To put things in perspective, although we're seeing improvements in intensity, overall U.S. GHG emissions are still increasing, as shown here.

Evidence-slinging at the Natural Resource Committee.

It's fun to watch politicians sling evidence at each other. As reported in the Oil & Gas Journal, the "US House Natural Resources Committee's minority staff released its own report on Oct. 9 challenging one which the majority staff issued six months ago which has been the basis of many 2008 Democratic candidates' energy stands." The report (47-page pdf) is titled Drilling for Truth and Coming Up Empty. (Here's a 7-page pdf Executive Summary.) I'll give the House minority credit for identifying specific claims and offering evidence to counter them -- here's an example:

The Republican minority issued a press release saying the report "highlights numerous flaws and major inaccuracies in the Majority energy report that has become the guideline for the Majority’s opposition to addressing [sic] the nation's energy crisis." They say their findings are "based on factual information" and energy data from federal agencies including Energy, Interior, Minerals Management Service, and Bureau of Land Management. "The Majority’s report included unsupported and undocumented extrapolations regarding the oil and gas resources contained within the non-producing acres under lease, and illustrates a lack of knowledge about the onshore and offshore leasing process; the costs to the lessee to acquire the lease or leases; the nature of oil and gas deposits; and, the time required to explore, and if a discovery is made, develop a lease."

Obama has tire-gauge evidence on his side: McCain tactic backfires.

Happy Fun-with-Evidence Friday! Alas, pointing out the evidence on how to save gas took its toll on Barack Obama this week. He suggested that people could save considerable money by properly inflating their tires (this bit of advice might save a driver up to 12 cents/gallon, and also might save their life).*

Now, I realize the McCain campaign was trying to have some fun with Obama's suggestion. But it backfired and made McCain look silly -- after all, Obama was on the side of the Nascar Dads *and* gas-saving tips from the Bush administration's EPA. Coverage in Swamp Politics showed how Obama had evidence on his side. Eventually McCain was criticized for being out of touch and had to backpedal.

*However, it's impossible to prove or disprove Obama's claim that tire inflation could save as much oil as would be produced by more offshore drilling -- that's just not specific enough to evaluate. Happy FEF, everybody.

Does the evidence support Pickens' plan? Is the U.S really the Saudi Arabia of wind power?

Thursday I went to hear T. Boone Pickens talk about his bold new energy proposal for the United States. He gave the keynote at the Rocky Mountain Energy Epicenter in Denver (he still knows how to turn on the charm, and attracted a big, enthusiastic crowd). Pickens believes "a fool with a plan can beat a genius who has no plan." So I've taken a look at PickensPlan.com. It sounds fantastic on paper -- widespread use of wind energy and natural-gas powered vehicles could help solve enormous environmental, economic, and political problems. Pickens says right now he's spending $50 million to roll out the plan. He's everywhere in the press: Besides his appearance in Denver, I've seen his video on mass media outlets such as MSNBC (during Keith Olbermann).

Old school, meet new school. The most interesting thing about all this to me is that it's a veteran oil man proposing these new energy policies -- not someone like Mark Cuban or Paul Allen. In some respects, yesterday was a flash-back to the '80s, with Boone making references to college football like it's the only sport in the world, and referring to other oil men by only their first names. However, his PickensPlan.com site is powered by Marc Andreesen's Ning social-networking technology and has the requisite modern features for building an online community.

Show me the evidence that the United States can be the Saudi Arabia of wind power. I'm wondering what evidence is available to demonstrate that the plan is viable. Will substantial wind-power generation require too much land? How much will the power transmission cost? Pickens makes an interesting point that we already have a good natural-gas distribution system, running down most every street in the U.S. ...but can we really leverage that to fuel millions of natural-gas powered vehicles? (He asked why, if there are now 8 million of these cars globally, very few of them are operating in the U.S. And he answered the question by acknowledging that he didn't purchase a natural-gas powered car until *this week*.) The PickensPlan site says "A 2005 Stanford University study found that there is enough wind power worldwide to satisfy global demand 7 times over — even if only 20% of wind power could be captured." But they don't link to that study or give us the citation to look it up ourselves. I realize their site isn't the place to grind through every detail, but I'd like to see some hard evidence, rough numbers, that sort of stuff.

Leadership required to make it happen. Besides the economics of making this energy plan happen, there are of course political and marketing hurdles to overcome. And Pickens is doing some impressive things to keep it going. Most importantly, he's not aligning with either the Republicans or the Democrats. He's acknowledged the dismal failure of recent U.S. administrations to develop a coherent energy policy. Pickens cites a lack of strong leadership, saying the U.S. has no one to blame for its current predicament, that it's not the fault of anyone in the Middle East or anywhere else.

Go Pokes! Boone has a long, colorful history in business -- like any risk taker, he's been right sometimes, and other times not so much. (Funniest recent description of him: Good Morning Silicon Valley said he's a takeover artist from the classical period.) Besides Garth Brooks, Boone is probably the most famous graduate of my alma mater, Oklahoma State University (though my personal favorite is Sanjiv Sidhu, a fellow OSU Chemical Engineering major who created the supply chain management industry (i2 software) in his apartment in Dallas.)