June 22, 2010

On Projections

Yesterday über-officemate Commander Herb Carmen sent us this Robert Samuelson column from yesterday’s Washington Post, which I had until that point missed. Samuelson provides a range of statistics that show how very, very difficult it will be to scale up renewable fuels to levels that could displace fossil fuels in a major way. He uses the U.S. Energy Information Administration’s (EIA) Annual Energy Outlook 2010 to back his points. I hadn’t looked at this year’s Outlook yet, but am focusing much on energy through this summer, so decided it was as good a time as any to browse through it. I did not read the entire document yesterday word for word, but the more I read, the more I grew to think that Samuelson (I hope unknowingly) should have put these projections in context for his readers.

Anyone who looks at a lot of energy projections knows that these are commonly used methods – and should know that reality nudges these trajectories off course constantly. I’m of the mind that these kinds projections (especially business-as-usual scenarios) are a good way to show which trajectories need changing and where RD&D funding could be useful. They do not present a hard, unchangeable reality.

In the same publication Samuelson cites, the EIA is clear about the underlying logic (and limits) of its Reference scenario. I’m going to quote a bit extensively here to clarify that I’m not cherry-picking short phrases that fit a specific conception of the world that I’m pushing. You can skim these if I’m preaching to the choir. The Preface states the following:

The analysis in AEO2010 focuses primarily on a Reference case, Low and High Economic Growth cases, and Low and High Oil Price cases. Results from a number of other alternative cases also are presented, illustrating uncertainties associated with the Reference case projections for energy demand, supply, and prices…AEO2010 projections are based on Federal, State, and local laws and regulations in effect as of the end of October 2009. The potential impacts of pending or proposed legislation, regulations, and standards (and sections of existing legislation that require implementing regulations or funds that have not been appropriated) are not reflected in the projections…Projections by EIA are not statements of what will happen but of what might happen, given the assumptions and methodologies used for any particular scenario. The Reference case projection is a business-as-usual trend estimate, given known technology and technological and demographic trends. EIA explores the impacts of alternative assumptions in other scenarios with different macroeconomic growth rates, world oil prices, and rates of technology progress. The main cases in AEO2010 generally assume that current laws and regulations are maintained throughout the projections. Thus, the projections provide policy neutral baselines that can be used to analyze policy initiatives.

It also notes the following:

While energy markets are complex, energy models are simplified representations of energy production and consumption, regulations, and producer and consumer behavior. Projections are highly dependent on the data, methodologies, model structures, and assumptions used in their development. Behavioral characteristics are indicative of real-world tendencies rather than representations of specific outcomes. Energy market projections are subject to much uncertainty. Many of the events that shape energy markets are random and cannot be anticipated. In addition, future developments in technologies, demographics, and resources cannot be foreseen with certainty. Many key uncertainties in the AEO2010 projections are addressed through alternative cases. (Emphasis mine)


… the Reference case assumes that the PTC [production tax credit] available for electricity generation from renewables sunsets in 2012 (wind) or 2013 (other technologies) as specified in current law, but it has a history of being renewed and could be extended again. In the Reference case, renewable generation accounts for 45 percent of the increase in total generation from 2008 to 2035. In alternative cases assuming the PTC for renewable generation is extended through 2035, the share of growth in total generation accounted for by renewables is between 61 and 65 percent.

Let’s look at one example. Samuelson cites this EIA Reference case projection to indicate only modest renewable growth outlook:

Although wind, solar and biomass are assumed to grow as much as 10 times faster than overall energy use, they provide only 11 percent of supply in 2035, up from 5 percent in 2008.

Luckily, the EIA provides a handy tool for comparing data across its multiple cases. You can select which tables and data you’d like to compare, and up to 4 scenarios at a time. Just playing around with the EIA’s other scenarios for wind power generating capacity by 2035, projections include 68.87 gigawatts in the Reference case, 79.52 gigawatts in the High Growth case, 53.46 in the Low Growth case, and 82.92 gigawatts in the case in which current tax credits and regulations have no sunset (this is all compared to 24.88 gigawatts in 2008). In other words, the EIA provides a range of projections, not a single, set percentage of the 2035 power supply. These variations don’t make a stark difference as compared to Samuelson’s selected projection, but it is important to note the full range of possibilities (albeit all only based on current technology).

In these kinds of projections, once you run the numbers, you can often see some strange underlying assumptions in the models. If you can see my blurry netbook screenshots in Scribd here, the EIA is projecting that solar thermal grows 3.5% and solar PV at 14.2% between 2008 and 2035 in each of these different scenarios for electricity generation. So I repeated the exercise for three additional cases (the second screenshot below), and again see 3.5% and 14.2% for every case. I find it a little hard to believe that none of the policy options in any of these different scenarios would cause any changes to growth rates for solar. Looking to the note at the bottom, I see that the EIA states that these figures do “not include off-grid photovoltaics (PV)” and that the projections are based on annual PV shipments from 1989 to 2007. This is probably the soundest way for the EIA to come up with a reliable projection without guessing about technological development. But that does not mean that it will prove to be accurate over the next 25 years. 

This is a relatively small additional gripe, but I’m also bothered by the Post’s choice of hyperlinks. The link to this massive EIA report (in the sentence: “The U.S. Energy Information Administration (EIA) expects energy consumption to grow only an average of 0.5 percent annually from 2008 to 2035, but that's still a 14 percent cumulative increase.”) is only to the 10-page section on U.S. energy demand. I understand not wanting to link to the full 231-page document, but the Post could have at least linked to the EIA page where readers can access all sections of the report and all available information.

In many ways Samuelson is correct – it will take a massive effort and much new technology to make significant advances in renewable energy generation capacity. And I would lean toward agreeing with him that taxing carbon or oil may be better than a cap-and-trade system. And presidents have always been less than frank about energy realities, without exception in recent history. But understanding the future of energy supply and demand is important to our security, and especially with those dependent on reliable fuel supplies like the armed services. None of us can know for certain what the future will be, but we could all be more rigorous in scrutinizing future projections, selecting data, and explaining any critical assumptions behind that data to readers. I don’t exempt us from that, and if anything, Samuelson’s article is a reminder to carefully select and explain what data we choose to use.