By Cheryl Grey, on September 8th, 2008
According to the Energy Information Administration, the production facilities that in 2006 supplied the United States with 4,064,702,000 megawatts of electricity were mainly powered by coal (49%), natural gas (20%) and nuclear energy (19%). Clean, green and renewable sources lag far behind, with hydropower supplying 7% of U.S. electricity and renewable sources such as wind and solar only 2.4%. Although that balance has shifted slightly since those numbers were compiled, with wind power alone doubling in output capacity between 2005 and 2008, hydrocarbons continue to dominate the U.S. energy landscape.
<p>However, economically speaking, the major problem with the current method the U.S. uses to supply itself with power is not the generation system but rather the grid that transports it. For safety reasons, power production facilities are traditionally constructed at a distance from population centers, and the cost of connecting the two via high-voltage transmission lines is astronomical at best. When Texas recently formed plans to upgrade their grid system, channeling power from new windfarms in the Panhandle and West Texas to cities in the center and east of the state, they budgeted $1.5 million per mile for the lines and considered it reasonable. (There are a lot of miles in Texas, but at least that included the poles.)
<p><b>Small Generators</b>
<p>So if transmitting power is expensive, but large electrical generation facilities can’t be built near population centers, how about small ones? The burgeoning trend is for residences and businesses, particularly those in rural areas, to produce their own power through small wind or solar systems; however, rather than “going off the grid” in the classical manner, these small generators stay connected and feed any leftover power back to the grid.
<p>Under a system known as net metering, the meter runs backward when the small generator has power to spare and forward when clouds cluster and the wind dies. But an alternative system known as the feed-in tariff (FIT) requires the power company to actually purchase this electricity, meaning these small systems can pay for themselves and even earn a profit before they fall apart or become obsolete. After Germany initiated a FIT program in 1999, solar panels appeared on the roofs of Bavarian barns and small generation systems surged, now providing over 14% of German electricity.
<p>One problem is that, rather than spreading the initial capital costs across a large client base as the power company does, the family or business must eat it themselves. To address this, governments at all levels are increasingly providing incentives such as tax credits to make that investment more palatable. Back in Texas, for example, value added to real estate by the installation of a green generation system is exempt from property taxes, and businesses that manufacture, sell or install solar and wind energy products are exempt from corporate taxes entirely. And there’s no cap.
<p><a href=”http://www.dsireusa.org/index.cfm?EE=1&RE=1″ target=”_blank”>DSIRE</a>, the Database of State Incentives for Renewables & Efficiency, is a website maintained by the North Carolina State University’s Solar Center which provides lists of such incentives for all 50 states.
<p><b>Costs of Renewable Energy</b>
<p>Even with the transmission grid out of the picture, the cost of green generation remains a prohibitive factor. On average, despite a 5% rise in electricity prices in 2008 and another 10% expected in 2009, most U.S. customers, both residential and industrial, pay less than ten cents per kilowatt-hour for power or around a dollar per watt of generation capacity. This has come to be considered the “magic number” that green generation must meet or beat in order to compete, and for the most part, it’s just not there yet.
<p>Wind energy has come closest. The cost of wind generation varies inversely with the size of the turbine, and bigger, more efficient systems are currently very near that coveted level. Rural residential systems are hovering between $2 and $3 per watt. For rural areas with good wind resources, it’s become the small generation system of choice.
<p>Despite decades of research, solar energy remains expensive, and the classical photovoltaic system still costs $8 to $10 per watt installed, not counting the incentives. Solar shingles, a form of urban camouflage designed to pacify home owner associations, push the price up to $10 to $12 per watt but can be rolled into a mortgage like any other roof. However, thin film solar panels, which eliminate expensive silicon and instead use inkjet printers to distribute nanotechnological solar ink across almost any backing surface, have lowered the cost to around $2 per watt.
By Bhagwad Jal Park, on September 8th, 2008
How many of us remember what we studied in college? Unless your degree is a technical degree, and years later, you are in a field that calls directly upon that knowledge, the chances are strong that you have forgotten even the most basic information in your college textbooks. Even technical students are most unlikely to remember the exact details of how they proved a particular theorem or how they derived a certain result.
If no one remembers their college education, why is it prized so much? Is is really valuable, or is it only socially acceptable to have a college degree, and why?
Welcome to the world of signaling. In real life, it is often extremely difficult to make accurate judgments about anything. Is a person good or bad? Is a second hand laptop going to die out on you as soon as the sale is completed? Is a candidate for a job really as qualified as he says he is? How strong is a competitor for a market? However, in spite of the difficulty of making these judgments, we are called on to do it every day. So what do we do in these situations? What strategy do we employ to maximize the chances of a correct decision?
Image Credit: MacIomhair
The truth is, even if we could take all the trouble to make an accurate decision, we usually don’t have the time for it. So in real life, we look for signals. Signals are indications that give us a quick idea of the item or person that we’re trying to evaluate. Haven’t you ever judged a book by a cover? Often it’s very difficult to tell in advance how good a book is going to be. We simply have to judge it based on the limited information that we have – and that happens to be it’s cover.
When gazelles are frightened by the roar of a predator, they give a little jump into the air. This is meant to signal to the predator that they are very fit and can easily outrun it if it decides to give chase. The predator can use the limited information in the jump to make the assessment of which gazelle is the slowest or least fit in a particular group so that he can chase it down and not make the mistake of attacking a fit one.
Coming back to our discussion of the college education, even though none of us remember or make use of the information in college in real life, we all know that college is difficult to go through. A person who has gone through college has signaled that they are at least hard working and smart enough to have done so. Conversely, we must assume that a person who doesn’t have a college education hasn’t been smart or hard working enough to do so. If a person is indeed good enough and motivated enough to pass college, then why haven’t they gone ahead with it? This is the real value of going through college, not that the knowledge will help you in later life. It won’t. But it’s a signal to the outside world that you are fit.
Since people rely on signals so much, it then becomes very important to manipulate signals to ensure that people assess you correctly. Unfortunately, the most reliable signals are reliable simply because they are difficult to manipulate. It would be impossible for an unfit gazelle to jump to a good height. However, sometimes, it is possible to send out a signal deliberately at a cost to yourself to make your assessor obtain an erroneous impression of your true capabilities. More on how to do this in my next article.
By G.L.C., on September 8th, 2008
There seems to be no end to the foreclosure crisis. In fact it is likely to get worse.
Option Adjustable Rate Mortgages (ARMs) allow homeowners to choose a low minimum monthly payment typically for five years. The low monthly payments often fall short of the interest due on the loan. The difference is added to the loan balance. After five years, the loan is recast, and the monthly payments are increased to ensure full repayment of the loan by maturity. Option ARMs were originally designed for self-employed people with fluctuating incomes and gained popularity with other workers during the peak of the real estate boom in 2004, when rapidly rising home values would have otherwise kept many buyers out of the market. It peaked in the first three quarters of 2006, exceeding 15 percent of the value of all first mortgage originations, according to data from the Mortgage Bankers Association.
According to a study released by Fitch Ratings, over the next two years, $96 billion of such mortgages sold with initial flexible payment options will switch to more stringent terms. The switch will hike the homeowner’s monthly payments by about 60%. This can result in more than double the number of homeowners falling behind on their mortgage payments on such mortgages issued between 2004 and 2007. Late payments and defaults on such mortgages are already as high as 24% in some areas. The potential average payment increase on recasting loans was 63% or $1053 extra due each month. Most of these mortgages will not reach the five year period until after 2010, but many of these mortgages have a limit on negative amortization generally between 110% and 125% of the original loan amount. And when the homeowner reached this limit, the mortgage may be recast much earlier.
The combined impact of payment shock, declining home prices, and restricted availability of mortgage credit may leave many homeowners with such mortgages unwilling or unable to continue making the monthly payments.
Optional ARMs have been a boon to many homeowners who otherwise would not have been able to own homes. But now it has become a ticking time bomb waiting to explode. Lack of legislation to regulate such mortgages is one of the reasons for the present state of affairs. But the sad part is that such mortgages would not have been possible without federal laws passed in the 1980s – the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) and the Alternative Mortgage Transactions Parity Act of 1982 (AMTPA).
DIDMCA abolished state usury caps that had limited the interest rates banks could charge on primary mortgages – and, in the process, gave banks more incentives to make home loans to folks with less-than-perfect credit. Before AMTPA, banks were barred from making anything but the conventional fixed-rate, amortizing mortgages. AMPTA lifted those restrictions, giving birth to all the new and exotic mortgages that have so many homeowners in trouble today, including optional ARMs. There were no substitute regulations to make sure these new mortgages didn’t turn out to be exploitative.
While it’s too late for some homeowners, efforts are being made by the Congress. An October 2007 report put out by the Senate and House’s Joint Economic Committee (which is chaired by Sen. Charles Schumer of New York) recommended that underwriting standards be tightened on adjustable-rate mortgages. The report suggests that the federal government should require lenders to determine that the borrower has the ability to repay a loan at the fully-indexed rate and assume fully amortized payments.
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