AI data centers are forcing dirty ‘peaker’ power plants back into service

[Xebec]

The subsidies have been the same for decades, and they apply at some level to all extracted minerals, oil, and gas. I keep running into this special subsidies for oil story over decades, and yet it's not correct. The USG subsidizes gold mining too with a depletion allowance (it's a 15% income deduction for gold). Normally if I'm silly enough to get myself in a conversation like this, someone brings up oil drilling on federal land, thinking that's a subsidy, when in reality there's an auction for the drilling rights, it's still federal land, and the government essentially gets money from the leases and royalties on the oil extracted (so do the state governments in all cases I'm aware of). As for military policies being a "subsidy" for oil, that's a huge stretch. The military policies are driven by what the various administrations and Congress think are necessary for energy security and keeping the economy going. No one in the USG is going to get re-elected if people can't heat their homes in winter, or can't get fuel for their vehicles. I sat in the gas lines from the 1973 OPEC oil embargo, and it was obvious that it wasn't a sustainable situation.

Do you not consider tax breaks subsidies? It's trivial to find examples of these measured in the $B USD range.

 

[blueone]

That captures some of the distinction, but misses a few nuances.

Of course I did.

The 95th/100th percentile load argument is wrong here, because grid usage is so variable on different timescales.

I made up the 95th percentile example, though the strategy is real, especially for areas still dependent on coal plants or nuclear.

In summer months in the US Southwest, because of air conditioning load, the ratio in electrical demand between peak demand (late afternoon / early evening) and minimum demand (pre-dawn) in a given day can vary by a factor of 2 or more depending on the area. But it's also largely predictable because of good weather forecasting* and demand modeling, so the CAISO energy markets anticipate it (there's a day-ahead market in hourly blocks, and a real-time market with 15-minute and 5-minute dispatching) and schedule the up/down patterns largely ahead of time. Because of this variability, base load plants can't provide 95% of the load unless there is a place to put the excess energy. Batteries and pumped hydro storage (or even regular hydro, to some extent, by reducing flow) can take care of some of this energy on a minute-to-minute and day-to-day basis, but there is no technology that allows us to take large amounts of electrical energy and store it for long periods of time. So the "calculated level" here is where it makes sense economically to operate a plant for a long time or shut it down. Once you build a base load plant, because of the high cost of capital and low cost of fuel, you're basically going to operate it at this level forever, otherwise the economics don't work**. (Same with semiconductor fabs -- there's some variability, but if the utilization drops then it's no longer economically viable.)

You can also sell the "excess" base load power regionally if there is transmission line capacity available. There are numerous current examples.

 

[blueone]

Do you not consider tax breaks subsidies? It's trivial to find examples of these measured in the $B USD range.

Of course I do. I just have a problem with the assertion that oil and gas companies get special subsidies. They're not special, and they're not specific to oil. Like I said, I very much dislike subsidies of any kind. I like market economies; I think they are the best allocators of capital. I also don't like tax breaks or subsidies for EVs, solar panels, or wind power. I think any subsidies or tax breaks just distort the economy. I'm a fan of accuracy, even if it tastes bad.

 

[jms_embedded]

You can also sell the "excess" base load power regionally if there is transmission line capacity available. There are numerous current examples.

Well, that's true. Most of the power from the Palo Verde Generating Station (nuclear plant in Tonopah, AZ, just west of Phoenix) allegedly goes to California, but I don't have a source for this.

 

[Xebec]

Of course I do. I just have a problem with the assertion that oil and gas companies get special subsidies. They're not special, and they're not specific to oil. Like I said, I very much dislike subsidies of any kind. I like market economies; I think they are the best allocators of capital. I also don't like tax breaks or subsidies for EVs, solar panels, or wind power. I think any subsidies or tax breaks just distort the economy. I'm a fan of accuracy, even if it tastes bad.

I am 100% with you on free market principles. (Within reason - an industry that physically harms people is probably something that requires.. at least tweaking ).

Here's a few special subsidies that are unique to oil:

- See my post above about the government picking up the tab for plugging old and unused oil wells

- Intangible Drilling Costs Deduction (26 U.S. Code § 263. Active). This provision allows companies to deduct a majority of the costs incurred from drilling new wells domestically.

- https://en.wikipedia.org/wiki/Master_limited_partnership - a special business type with tax benefits that is essentially limited to resource gathering operaitons such as oil and gas ( "Section 7704 of the Revenue Act of 1987 limited which businesses could be MLPs, delineating that an MLP must earn at least 90% of its gross income from qualifying sources, which were strictly defined as the transportation, processing, storage, and production of natural resources and minerals. ")

- The US has a Strategic Petroleum reserve which is used to stabilize oil/fuel availability. While I think this is a good idea, I'm not aware of any other massive strategic reserves that support similar industries? It's a supply cost burdened by the US taxpayer that is unique to fossil fuels.

 

[blueone]

Well, that's true. Most of the power from the Palo Verde Generating Station (nuclear plant in Tonopah, AZ, just west of Phoenix) allegedly goes to California, but I don't have a source for this.

New Mexico also buys power from Palo Verde, though New Mexico utilities are quickly switching to renewables because New Mexico gives them so many tax breaks to do switch to wind and solar. Personally, I'd rather have nuclear that doesn't mess up the landscape and cost tax dollars. But that's just irrational old me being grumpy again.

 

[KevinK]

The military policies are driven by what the various administrations and Congress think are necessary for energy security and keeping the economy going. No one in the USG is going to get re-elected if people can't heat their homes in winter, or can't get fuel for their vehicles. I sat in the gas lines from the 1973 OPEC oil embargo, and it was obvious that it wasn't a sustainable situation.

The military investment admittedly isn’t a direct subsidy toward keeping energy prices low, but the 5th Fleet and its precursor deployments into protecting Anglo-American oil interests in Iran and Saudi Arabia had that intended effect. And for the exactly the reason you claim - higher gasoline prices at the national level are a “third rail” in US politics.

Today the 5th Fleet S. secures sea‑lanes used by all importers, Washington effectively socializes the cost of “energy security” while all consumers, foreign and domestic, benefit in the form of lower world prices. From a U.S. domestic perspective, this can be seen as an off‑budget energy subsidy: taxpayers fund the Fifth Fleet and related posture so that energy‑price risk is suppressed, a benefit that accrues to motorists, airlines, industry, and the politically sensitive pump prices.

To put it differently - the 5th Fleet and associated expenditures wouldn’t likely exist if cheap energy came from other sources.

 

[blueone]

I am 100% with you on free market principles. (Within reason - an industry that physically harms people is probably something that requires.. at least tweaking ).

Everything regarding human behavior requires some moderation.

Here's a few special subsidies that are unique to oil:

- See my post above about the government picking up the tab for plugging old and unused oil wells

That's what happens when drilling companies go out of business.

- Intangible Drilling Costs Deduction (26 U.S. Code § 263. Active). This provision allows companies to deduct a majority of the costs incurred from drilling new wells domestically.

- https://en.wikipedia.org/wiki/Master_limited_partnership - a special business type with tax benefits that is essentially limited to resource gathering operaitons such as oil and gas ( "Section 7704 of the Revenue Act of 1987 limited which businesses could be MLPs, delineating that an MLP must earn at least 90% of its gross income from qualifying sources, which were strictly defined as the transportation, processing, storage, and production of natural resources and minerals. ")

Good examples, but my understanding is that these are mainly for wildcat drillers.

- The US has a Strategic Petroleum reserve which is used to stabilize oil/fuel availability. While I think this is a good idea, I'm not aware of any other massive strategic reserves that support similar industries? It's a supply cost burdened by the US taxpayer that is unique to fossil fuels.

https://www.dla.mil/Strategic-Materials/About/

The Strategic Oil Reserve doesn't support the oil industry, it is used to stabilize oil prices due to geopolitical situations. And please tell Mr. Trump to get off his administrative butt and start refilling the Oil Reserve, since it was depleted by the Biden Administration after Russia invaded Ukraine.

 

[blueone]

To put it differently - the 5th Fleet and associated expenditures wouldn’t likely exist if cheap energy came from other sources.

Hmmm... I'm not knowledgeable enough to argue with that assertion.

 

[KevinK]

Hmmm... I'm not knowledgeable enough to argue with that assertion.

Would the US have jumped into the Gulf War the way we did id if it did not involve 3 of the biggest oil exporters (Kuwait, Saudi Arabia, Iraq) ? The re-formation of the 5th Fleet was basically driven by the aftermath strategy to the Gulf War.

 

[jms_embedded]

Personally, I'd rather have nuclear that doesn't mess up the landscape and cost tax dollars. But that's just irrational old me being grumpy again.

I think if you had the whole picture in front of you, with externalities included (tax subsidies to all sorts of industries, not only wind energy; net present value of storage and cleanup costs for nuclear waste), it might be very hard to decide.

I'm ok with nuclear as long as there are safeguards. Palo Verde is an odd duck, though; it gets its cooling water from Phoenix's reclaimed water (partially treated waste water not suitable from drinking), and at some point soon (now?) there will be (is?) economic competition over reclaimed water, and it's no longer this excess thing that we can throw at the nuclear plant to solve another problem.

Right now, the city of Chandler has a written agreement with the Gila River Indian Community (GRIC) where for every 10000 gallons of reclaimed water we give them, we get 8000 gallons of Central Arizona Project (Colorado River) water from GRIC's allocation. They get more water than they would from CAP, because they need water for irrigation, not drinkable; we get drinkable water from a source that is easier to treat. This works up to a certain per-year limit in the agreement. But there may come a time where treating our own reclaimed water is less expensive / more secure than exchanging it for other uses.