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What’s Weatherill’s plan for South Australia, and why do we have the highest power prices in the world? Oh, and I should mention Elon Musk here – might get me more hits

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just a superhero pic to rope people in

I’ve written a few pieces on our electricity system here in SA, but I don’t really feel any wiser about it. Still, I’ll keep having a go.

We’ve become briefly famous because billionaire geek hero Elon Musk has promised to build a ginormous battery here. After we had our major blackout last September (for which we were again briefly famous), Musk tweeted or otherwise communicated that his Tesla company might be able to solve SA’s power problems. This brought on a few local geek-gasms, but we quickly forgot (or I did), not realising that our good government was working quietly behind the scenes to get Musk to commit to something real. In March this year, Musk was asked to submit a tender for the 100MW capacity battery, which is expected to be operational by the summer. He has recently won the tender, and has committed to constructing the battery in 100 days, at a cost of $50 million. If he’s unsuccessful within the time limit, we’ll get it for free.

There are many many South Australians who are very skeptical of this project, and the federal government is saying that the comparatively small capacity of the battery system will have minimal impact on the state’s ‘self-imposed’ problems. And yet – I’d be the first to say that I’m quite illiterate about this stuff, but if SA Premier Jay Weatherill’s claim is true that ‘battery storage is the future of our national energy market’, and if Musk’s company can build this facility quickly, then it’s surely possible that many batteries could be built like the one envisaged by Musk, each one bigger and cheaper than the last. Or have I just entered cloud cuckoo land? Isn’t that how technology tends to work?

In any case, the battery storage facility is designed to bring greater stability to the state’s power network, not to replace the system, so the comparisons made by Federal Energy Minister Josh Frydenberg are misleading, probably deliberately so. Frydenberg well knows, for example, that SA’s government has been working on other solutions too, effectively seeking to becoming independent of the eastern states in respect of its power system. In March, at the same time as he presented plans for Australia’s largest battery, Weatherill announced that a taxpayer-funded 250MW gas-fired power plant would be built. More recently, AGL, the State’s largest power producer and retailer, has announced  plans to build a 210MW gas-fired generator on Torrens Island, upgrading its already-existing system. AGL’s plan is to use reciprocating engines, which executive general manager Doug Jackson has identified as best suited to the SA market because of their ‘flexible efficient and cost-effective synchronous generation capability’. I heartily agree. It’s noteworthy that the AGL plan was co-presented by its managing director Andy Vesey and the SA Premier. They were at pains to point out that the government plans and the AGL plan were not in competition. So it does seem that the state government has made significant strides in ensuring our energy security, in spite of much carping from the Feds as well as local critics – check out some of the very nasty naysaying in the comments section of local journalist Nick Harmsen’s articles on the subject (much of it about the use of lithium ion batteries, which I might blog about later).

It’s also interesting that Harmsen himself, in an article written four months ago, cast serious doubt on the Tesla project going ahead, because, as far as he knew, tenders were already closed on the battery storage or ‘dispatchable renewables’ plan, and there were already a number of viable options on the table. So either the Tesla offer, when it came (and maybe it got in under the deadline unbeknown to Harmsen), was way more impressive than others, or the Tesla-Musk brand has bedazzled Weatherill and his cronies. It’s probably a combo of the two. Whatever, this news is something of a blow to local rivals. What is fascinating, though is how much energetic rivalry, or competition, there actually is in the storage and dispatchables field, in spite of the general negativity of the Federal government. It seems our centrist PM Malcolm Turnbull is at odds with his own government about this.

So enough about the Tesla-Neoen deal, and associated issues, which are mounting too fast for me to keep up with right now. I want to focus on pricing for the rest of this piece, because I have no understanding of why SA is now paying the world’s highest domestic electricity prices, as the media keeps telling us.

According to this Sydney Morning Herald article from nearly two years ago, which of course I can’t vouch for, Australia’s electricity bills are made up of three components: wholesale and retail prices, based on supply and demand (39% of cost); the cost of poles and wires (53%); and the cost of environmental policies (8%). The trio can be simplified as market, network and environmental costs. Market and network costs vary from state to state. The biggest cost, the poles and wires, is borne by all Australian consumers (at least all on the grid), as a result of a massive $45 billion upgrade between 2009 and 2014, due to expectations of a continuing rise in demand. Instead there’s been a fall, partly due to domestic solar but in large measure because of much tighter and more environmental building standards nationwide as part of the building boom. The SMH article concludes, a little unexpectedly, that the continuing rise in prices can only be due to retail price hikes, at least in the eastern states, because supply is steady and network costs, though high, are also steady.

A more recent article (December 2016) argues that a rising wholesale price, due to the closure of coal-fired power stations in SA and Victoria and higher gas prices, is largely responsible. Retail prices are higher now than when the carbon tax was in place in 2013.

This even recenter article from late March announces an inquiry by the Australian Competition and Consumer Commission (ACCC) into retail pricing of electricity, which unfortunately won’t be completed till June 30 2018, given its comprehensive nature. It also contains this telling titbit:

A report from the Grattan Institute released earlier in March found a decade of competition in the market had failed to deliver better deals for customers, with profit margins on electricity bills much higher than for many other industries.

However, another article published in March, and focusing on SA’s power prices in particular (it’s written by former SA essential services commissioner Richard Blandy), takes an opposing view:

Retailing costs are unlikely to be a source of rapidly rising electricity prices because they represent a small proportion of final prices to consumers and there is a high level of competition in this part of the electricity supply chain. Energy Watch shows that there are seven electricity retailers selling electricity to small businesses, and 12 electricity retailers selling electricity to households. Therefore, price rises at the retail level are likely to be cost-based.

Blandy’s article, which looks at transmission and distribution pricing, load shedding and the very complex issue of wholesale pricing and the National Energy Market (NEM), needs at least another blog post to do justice to. I’m thinking that I’ll have to read and write a lot more to make sense of it all.

Finally, the most recentest article of only a couple of weeks ago quotes Bruce Mountain, director of Carbon and Energy Markets, as saying that it’s not about renewables (SA isn’t much above the other states re pricing), it’s about weak government control over retailers (could there be collusion?). Meanwhile, politicians obfuscate, argue and try to score points about a costly energy system that’s failing Australian consumers.

I’ll be concentrating a lot on this multifaceted topic – energy sources, storage, batteries, pricing, markets, investment and the like, in the near future. It exercises me and I want to educate myself further about it. Next, I’ll make an effort to find out more about, and analyse, the South Australian government’s six-point plan for our energy future.

References and more reading for masochists

Written by stewart henderson

July 14, 2017 at 10:55 am

Is Donald Trump a great businessman?

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another failed venture and a probable scam

Today I listened to a ‘news report’ delivered in front of our small class by a teenage student from China, a sweet young lad, near 7 feet tall and skinny as a bean, with limited English, whom I’ve been coaching in grammar. Students are asked to choose from a list of articles, simplified, in our class’s case, to pre-intermediate or elementary English level, and report on the article in their own words. My student had chosen the topic ‘Why Hilary Clinton lost the election’, a simplified version of an article by Dan Roberts, originally published in The Guardian on 9 November 2016, the day after Trump’s victory. Before he delivered his report, he had to check it through with me, a routine procedure, but to my annoyance he didn’t have any plan or notes to show me, and assured me that ‘it was all in his head’. He also asked me if it was alright if he focused more on Trump than on Hilary. I told him it was best not to divagate too much from the article, but he was free to voice his own opinion of the candidates.

It wasn’t a great talk. My student was, of course, very nervous, and he glossed over Roberts’ view that Clinton lost the election due to the economy, lack of trust and the weakness of her message. His main point was that Trump won because he was a successful businessman, and running a nation is all about money and success. This was really the totality of his talk, delivered in a halting, repetitive way.

Naturally I was irritated at this, but I let it slide. This was a test of English and not so much a test of critical thinking and analysis, though that had to be a factor. So, the fact that my student didn’t provide any evidence of Trump’s great business acumen certainly was a problem for his talk, which was clearly tendentious. However, considering that this was a low-level class I was prepared to give him a bare pass, and to quash my feelings over this oft-repeated claim that Trump has great business smarts.

From other sources I’ve heard very different claims. Sam Harris, in his Waking Up podcast, regularly asserts his view that virtually nobody is more unfit for the office he currently holds than Trump – the ‘boy-king’, as he calls him. In a recent interview with David Frum, Trump’s business skills were ridiculed. First, Frum took aim at Trump’s foreign policy approach, which was to see other parts of the world, such as the EU, as essentially business competitors, or people you should try to ‘cut deals with’, obviously to the advantage of the US. The fact that he was often dealing with allies who shared the values of the US seemed irrelevant. Then Frum mocked Trump’s reputation as a business operator, pointing out that in Toronto, where Frum, a Canadian-American, is involved in business, namely real estate, which of course is Trump’s business field, Trump’s reputation is somewhere between mud (to people he owes money to) and a laughing-stock (to interested spectators). He went on to say that ‘No-one in the business world has any respect for him as a businessman’.

Business and economics are not exactly my strong suits, but it seems to me that Frum, a lifelong Republican with inside knowledge of the real estate business, is a reliable witness here. However, I don’t want to take on face value his claim that nobody in the business world respects him. I need more evidence.

Before I go on though, I should make the point that Trump has, of course, already shown himself to be unfit for office regardless of his business activities. His bullying tactics as a candidate, the profound narcissism in so many of his utterances, his inflammatory and stupid remarks about those who live south of the US border, his ‘moslem ban’, his treatment of the free press, his admiration for the Russian mafioso dictator above all other world leaders, his scientific illiteracy, his pathetic and disgusting attacks on women’s appearance, his attacks on the judiciary, his contempt for his own intelligence agencies, and so much more, prove him to be a disaster for democracy and proper governance, and the shame for his election lies squarely with those who voted for him, knowing, as any intelligent person would know, the kind of person they were backing.

So to the business. A brief dummies’ guide to Trump’s ventures is given here, and it shows that his failures outnumber his successes, which presumably doesn’t prove him a failure, just as one or two movie successes can recoup twenty movie losses. As to his actual value, it’s pretty well the length of a piece of string, and it’s unclear if he’s made any money at all from the wealth he inherited. And it’s also very unclear how much money he actually inherited. Trump himself said during the campaign that he started off with $1 million and built a company worth more than $10 billion, a remark he prefaced with ‘believe me’.

Funnily enough, nobody does.

Trump received a share of his father’s estate at his death in 1999, and though there’s no clear figure, it was a lot more than $1 million. More importantly, his father set him up financially long before that. Donald Trump became President of Trump senior’s real estate business in 1974, at which time it was valued at $200 million, according to one estimate. But who knows? Here’s an interesting commentary from a Quora finance expert, Will Wister:

The growth of his wealth since 1982 has been in line with that of the S&P 500, according to his own statements. Donald Trump’s self-described net worth was $200 million in 1982. If he invested that money in the S&P 500, he’d be worth about $8.3 billion today. Today he claims his net worth is $8.7 billion. So based on his own claims, he has barely outperformed the S&P since 1982.

Some articles claim that Donald Trump’s inheritance was somewhere between 40 and 200 million in 1974. Since 1974, the S&P 500 is up about 74-fold. So his current claimed net worth of 8.7 billion would equate to about 120 million in 1974, which is right in the middle of estimates of what he inherited. In other words, if the articles are accurate, his performance was very close to that of the market from 1974 to present.

What this tells me, above everything else, is how the world is geared to the massive advantage of the super-rich (if you inherited millions in the seventies, you’d have to be disastrously stupid or dysfunctional to be a failure today), but it’s totally speculative about the boy-king’s wealth.

You would think that the public have a right to know more about this subject, considering that Trump parades his success as a businessman, and has used the claim as evidence of his ability to be the bestest of Presidents. Yet Trump has managed to evade the call to present his tax returns to the public, rejecting a 40-year tradition, and why would a successful businessman do that?

This matter of his tax returns and the state of his wealth takes on added importance in consideration of Trump and his family’s seemingly murky relations with Russia’s kleptocracy. Considering the bumbling way that Trump is dealing with the US presidency, it’s virtually impossible to imagine him as anything other than a bumbling businessman. Loud, histrionic, bragging and bullying certainly, but also bumbling and quite likely manipulable, given his infantile narcissism. This makes it more urgent than ever to uncover whether or not he’s indebted to Putin and his billionaire henchmen, who, I have no doubt, are far smarter and more cynical than he is. There’s an Emoluments Clause in the US constitution which states that:

no Person holding any Office…shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State.

The legal question then becomes – do any Russian bail-outs for Trump’s incompetent business dealings constitute such emoluments? This would result in endless legal argy-bargy. Presumably Trump could squirm out of it if it was shown that, if there were any bail-outs, they occurred before he became President. But anyway it’s unlikely that he would willingly provide any information whatsoever about his financial dealings – which, given his well-known association with Russian political and financial figures, and given the well-established fact that Russia sought to undermine the democratic process in the recent election, and given the fact of Trump’s fawning admiration for the Russian dictator, whom he clearly admires above all other political leaders, should surely be sufficient reason, not for impeachment, but for removal from office. The Emoluments Clause, which in any cause wasn’t originally intended to be interpreted broadly, shouldn’t be given as the reason, it should be based on more serious matters. I’m not one to argue for treason, given my stance as an international humanist, but clearly Trump has betrayed democracy, the open society and the rule of law with his evasions and allegiances.

So far it looks like Trump is the kind of businessman you’d expect him to be given his performance as President, and given the character he displays. His ties to Russia are legion, and appear to be financially substantial, given that his many bankruptcies have exhausted the patience of US moneylenders. His business bragaddocio may fool the odd naive Chinese teenager, but the American public should have known better.

Incidentally, it seems the best business decision Trump has ever made was to run for President. The huckster’s chuckling now. Talk about playing the American public for suckers.

Written by stewart henderson

June 18, 2017 at 11:10 am