June 1, 2010 - market theory of policy, and the madness of crowds; FPL's 75 MW solar thermal

Tuesday, June 1, 2010

BP shares are taking a hit today. One estimate suggests BP has lost $50 billion in market value based on share price. Meanwhile, another estimate suggests the true cost to BP of the massive oil release from its Deepwater Horizon well is on the order of $20 billion.

From the policy level, it's interesting to observe the market perform its assessment of BP's liabilities. If the large-cap stock market is the product of the "madness of crowds", what is the gap between share price and true value? How does the size of this gap vary with time and conditions?

This inquiry has implications for the policy world as well. What is the absolute value, in economic or preferential terms, of a given policy outcome -- for example, affordable electricity, or reduced CO2 emissions? How does society value that policy outcome? What is the size of the gap between the value we place on an outcome, and its true value? What choices should we as a society be making that we don't find "worth it", but that are truly the lowest-cost and best path forward?

More grid-scale solar: FPL is building a massive solar thermal plant near Lake Okeechobee, Florida. At up to 75 MW, FPL's Martin Next Generation Solar Energy Center is on track to be the second-largest solar plant in the world. This solar thermal plant has a unique design. The plant will use mirrors to concentrate the sunlight 80 times, and then heat water up to 700 degrees. To get over the limitations of Florida's humid and often cloudy weather, the Martin facility is unique because it is co-located with an energy campus that already has 13 oil and gas-fueled generators. The heat exhaust steam from four natural-gas generators will be combined with the solar plant's steam to spin an existing generator. This saves the significant capital cost of installing a new generator, and seems like an efficient use of existing untapped capacity.

What's the cost? About $420 million, or about 16 cents a month to the average FPL residential bill.

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