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How do you allow a monopoly and still have it lose money? Simple. Make it a state owned company. This week, Vietnam is considering a bold step forward, by possibly allowing electricity prices to rise by more than 60%. The result of this could be that more investment into the power sector will finally make its way to Vietnam, and that deep market inefficiencies in pricing will be fixed. Actually, not really. Quitepossibly the biggest remaining problem will be the continued existence of Electricity Vietnam’s (EVN) unrestrained power over consumer electricity supply and purchase of raw electricity from independent power producers. Raising prices for the monopoly will further exacerbate the strange squeezing phenomenon that both consumers and power producers feel when it comes to plain ol’ electricity. It’s possible that it’ll get a lot more expensive very soon to stay cool on those dry mornings in Vietnam. And, you may still get the rolling blackouts. The worst of both worlds.

On the flip side, if the higher electricity prices could invite more investment, and smarter investment into the power sector this could be a good thing. However, EVN itself has a long way to go. According to reports by academics and industry watchers, the state-owned monopoly has some serious inefficiencies in labor, technology, governance, and basic operations. One step at a time…I just hope that it’s in the right direction.

Some references on the current debate on power prices: VietNamNet. Tuoi Tre (Vietnamese).

Some thoughts on MIT’s Energy Conference last month:

1.  Government and our Energy Future
Possibly one of the most important takeaways from the conference was the sense that the US federal government recognizes the threats of climate change (and other environmental damage) on America’s future.  The DOE has been hard at work jump-starting programs to transition the structure of our energy economy onto a more sustainable path.  I think that most economists would argue that the government is not so good at selecting and directing the technologies that America needs, as much as providing the regulatory grounding and financial assistance to companies that can innovate and meet demands for clean energy.  But let’s start with this problem first, of clean energy demand.

One of the kick off discussions was a panel with clean tech financiers, Mohr Davidow Ventures, Credit Suisse, NGP Energy Technology Partners, and Steve Isakowitz the CFO of DOE.  An observation on the clean tech industry pointed to the very difficult problem of clean tech to cross the “Valley of Death”, the crucial period between productization and scaling up to production.  Building manufacturing plants and corresponding sales and marketing infrastructure is not cheap.  Especially when one considers the traditional structure of VC in rapid growth companies, this is a challenge.  There is no Moore’s Law for solar photo-voltaics, and capital requirements of producing all this stuff are relatively high.  Therefore, a particular role of government may be in “market-making”, putting in policies to ensure that markets will be there for innovators just breaking out into the Valley of Death.

In my opinion governments at US federal and state levels are engaged in a variety of second-best policy to encourage market viability of clean energy tech.  Required portfolio standards, for example, that mandate specific mixes of energy sources (eg 20% wind, 15% solar, etc) are heavy handed policies that probably aren’t choosing sources for least cost and best reliability.  A more economically desirable alternative would be to require a price on carbon and other pollutants that would leave decisions of energy mix up to the market to figure out. The government could let the market decide the appropriate price of pollution (cap-and-trade), or enact penalties on pollution emitters (i.e. tax).  Either way, the government shouldn’t be in the business of choosing technologies and then protecting the markets for them.

Perhaps a more benign role for government is in providing subsidies for clean energy innovation.  This seemed to be one of the proud strategies of Steve, CFO of DOE.  With programs like ARPA-E (tasked with finding and funding promising innovation, in a DARPA-like manner), the DOE can accelerate bringing new tech to the market that can help brin us closer to a de-carbonized energy economy.  One caveat, however, is to note the scale of such funding (only $151 million in 2009) is small compared to the overall problem and probably is much less effective without a price on carbon as a wider incentive.

2.  Incumbents in the Background…Keepin’ It Real
Remarks by John Rowe, CEO of Exelon, emphasized the practicality of the market at the level of power utilities and their customers.  Raising electricity rates are a good way to piss off customers.  So regardless of whether we are pursuing clean energy or not, keeping customers satisfied with their levels of service while minimizing their prices is an obvious priority.

John Rowe supports nuclear energy as an alternative to dirty fossil fuels, and especially with it’s historically cheap cost (at the kWh level).  Yes, nuclear has its own pollution issues, but when it comes to carbon emissions it’s pretty damn clean.  But there’s a caveat, at least in the short term foreseeable future.  Gas prices are extremely low at roughly $5/mmbtu on the spot market, and therefore gas burning power plants are the cheaper alternative compared with nuclear.  That, of course, is only if you ignore the environmental cost of burning natural gas.

So, for at least a while, we will continue down the path of fossil fuel dependency.  From Mr. Rowe’s point of view, markets are king, and if we don’t reflect the environmental, health, and other costs into the price of electricity we aren’t likely to see carbon reduction.  Nevertheless, he does acknowledge that the environmental impact of dirty energy is real.  It’s just a matter of how we deal with it in a way that’s realistic for businesses and customers that will decide how we change our energy profile.

3.  Emerging Technologies
One can’t attend an MIT event without admiring some of the awesome technologies coming out of the place.  We had some of the more predictable players represented – electric vehicle manufacturer Fisker and natural gas ala Chesepeake Energy.  But some of the incumbents in the good old oil, coal, and auto industries were missing.  Not that they had much reason to come anyway.  It wouldn’t have been an interesting conference if it were just more of the same..

Some of the cooler companies represented, however, included ARPA-E grant winners like Agrivida and FastCAP.  There cool stuff.  Agrivida is working on some plant cellulose digestion mechanisms to produce ethanol.  FastCAP has some ultra-capacitor technology that could totally change the way electric vehicles and hybrid vehicles are made.  Basically, both companies are to do things cheaper (like way cheaper) to reduce or save energy compared to what we got now.  I got a chance to talk to these guys mano a mano at one of our events for the Energy and Environment Professional Interest Council at Harvard Kennedy School.  When talking with these guys, one gets image that America’s ethanol-producing cornfields and its car industry will be massively transformed. If you’re interested, I recommend checking them out at Agrivida and FastCAP.  Don’t be surprised to see them in your car or your utility grid sometime soon!

I know what you’re thinking. There’s still snow outside. It’s cold and rainy. You’re still planning your next ski trip. BUT…talk of summer internship is all the rage right now, and it looks like everyone has some kind of plan to get out of Cambridge and into something exciting.

What about me? It looks like I’ll be spending another summer in Vietnam! Yes. The land of Communism, cheap beer, and motorcycles. I’m not exactly sure what I will be doing in Vietnam. This will be decided in due time. But the important facts about being there and lined up. And yes, it will be bittersweet coming back to my motherland…

Last summer seems like it wasn’t that long ago at all. I took an advanced Vietnamese course funded through the Fulbright program, which was quite awesome. I barely had time to update the blog during that season, but I definitely have the pictures to prove that it happened. I hope that this time around I will be able to get a closer look at the Vietnamese economy in addition to working on my language skills.

You may have heard about Vietnam’s latest issues. Macroeconomic troubles are on the horizon for the country…that is, if it doesn’t fix it’s financial regulatory and currency regime. It has had q number of infrastructure projects lined up…some with a great deal of trouble…and in all sorts of sectors, from transportation to nuclear power. In some optimistic scenarios, within 10 years, Vietnam will have it’s own high speed rail system (going 100+ mph), a new metro train system in Saigon, new deep water seaports, a brand new international airport in Saigon, elevated highways, nuclear power, a burdeoning healthcare and pharmacutical industry, an electronics manufacturing cluster, etc. Basically, people think that the place is goingto develop fast.

But who’s right? Are there economic troubles on the way? Or a bright future for this country that is just starting it’s climb from post-colonial, post-Communist beginnings. I think you will just have to wait and see. There are a number of people studying these issues, including the Harvard Kennedy School’s Vietnam Program and the Fulbright School in Ho Chi Minh City. The verdict is still out…

After a semester around some of the world’s toughest public policy problems, the issue of climate change seems to be one of the most relevant and timely. My energy policy class with Henry Lee briefly touched on American consumers and disbelief of climate change as a legitimate or even noteworthy matter. The issue of climate change seems to be all the more relevant currently, and even though there’s currently a huge UN conference on the subject, few Americans care to acknowledge it.

According to a study by the Pew Research Center, only 35% of all Americans believe that climate change is a serious problem. Other countries, on the other hand, have much higher rates of alarm, with both China and India above 50%… and not surprisingly, Japan and France at about 65%.

I’m sure there have been intelligent analysis done regarding American consumers and the climate problem, but many experts (including Maxine Savitz, VP of the National Academy of Engineering) admit that out of all the aspects relating to climate change, consumer behavior in markets and toward policies is the least understood side of the problem. Perhaps it’s just obvious why Americans refuse to acknowledge climate as an issue. Perhaps it’s not. I’d like to make some unqualified claims about the reasons for US skepticism.

1. A strong preference for an “American” way of life. More crucially, a critical departure is just acknowledging that conventional aspects of it are more dangerous (and possibly more expensive) than previously thought.

2. Distrust in the “establishment”. This includes media, scientific community, and the government. In short, I think Americans are deep down skeptics…they need to “see it to believe it” and even then, they may not even believe “it” at all.

3. Faith in technology. The can-do attitude in the US helps us innovate the best technology on earth from the internet to nuclear or solar power. I would imagine most Americans thinking, can’t technology just fix this?

Rather than judge the values of Americans I’d be interested to see what factors drive the average US citizen to think and to act they way she does. Can America be persuaded? Could they be “nudged” into what others across the world demand as “responsible” action? Which factors in decision making and behavior to make an impact?

Been short of motivation lately, having come back to Afghanistan. It’s been over a week now, so I’m just starting to ease back into the routine. What’s made my transition back to here a little easier was my re-discovery of Bill Clinton’s webcast speech to UC Berkeley back in Jan 2002.

I remember originally watching this speech, shortly after 9/11 and wondering, “What is life going to be like after this?” Clinton’s address that evening was an answer to that question, with a recommendation that Americans continue the drive for assistance for the poor and undeveloped world. Spreading the rewards of a new, flat world and re-distributing the burdens would turn out not just to be a mission of compassion, but a cost-efficient strategy to reduce violence in the world. This includes terrorism.

Now I also recall the nights I had with the roommates and students arguing about the war in Afghanistan and what would ensue afterwards. Years later, I’m deep in the hole here and seemingly with less perspective than back then. Once in a while it’s nice, however, to step back and regain some of that perspective. Watching that speech again brought back some of the motivation that drove me here, and it’s uncanny now how much more I understand his message. For those of you interested in America’s foreign relations and our role in the world of development, I suggest that you check it out.