electric trains and excavators
=economics =construction =mining =regulation
Many countries are supporting electric cars for environmental and independence reasons. But perhaps there are some targets for electrification with better economics than those, cost-effective without any government incentives. For example, trains and hydraulic excavators.
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In some countries, most trains
are powered by overhead electric lines. In America, most trains are powered
by diesel engines. Why?
The competent estimates I've seen for ROI of
electrifying US rail lines have it being worthwhile. This isn't a new
thing.
Here's a paper from 40 years ago estimating ~19% ROI. Arguments that the
economics are bad in America because of geographic differences are wrong.
Why, then, hasn't that happened? Yes, US high-speed rail programs have
not gone well, but unlike new high-speed rail lines, building electric lines
over existing rail doesn't require purchasing a lot of land.
One
major reason is that the
Association of American Railroads has lobbied against electrification
programs. Apart from private lobbying, they've put out some
reports saying "it doesn't make sense for America because American rail
networks are special" (wrong), "we should wait for hydrogen fuel cell trains
instead" (ultra-super-wrong), and various other bad arguments. Why would
they do that? Some hypotheses:
1)
Construction of overhead electric lines would be much more expensive in
America than other countries, making those ROI estimates inaccurate.
2)
The pay of rail executives depends on short-term profits, so they're against
long-term investments.
3) Manufacturing of electric trains would have
more competition from overseas companies, and there's cross-ownership
between rail operators and manufacturers.
4) Change would require work,
and might give upstart companies a chance to displace larger companies, so
it's opposed in general.
My understanding is that (2) and (4) are the dominant factors. Those aren't specific to rail; they're properties of US business management, so I think rail electrification is a good example of wider problems in US companies. Management is evaluated on shorter timescales than good investments provide returns on, so US companies eventually end up using outdated equipment and processes, and lose out to foreign firms. See also:
- GE under
Jack Welch.
- Private equity now having better long-term returns in the
US.
- US steel companies being outcompeted by foreign steel firms, and
then eg ArcelorMittal taking over steel plants in the US.
- US shipyards
failing to modernize, until they produce no commercial ships and Burke-class
destroyers cost 2x as much to make as the Sejong-class equivalents from
Korea.
When you look at the internal evaluations of proposed projects at large companies, it's fairly common for 15% ROI to be the minimum value for serious consideration. That is, of course, higher than the cost of borrowing. The usual explanation has been that a substantial buffer is needed to account for inaccurate estimations, but that doesn't make sense to me, for 2 reasons:
- The
required ROI doesn't increase linearly with low-risk interest rates or the
cost of capital.
- Some ROI estimates are known to be more accurate than
others. The spread between required ROI and interest rates doesn't increase
proportionately with estimate inaccuracy.
I have a different theory: the reason you see requirements for 15%+ ROI so often is because executives are often at their position for around 6 years, and they want most of the investment to have been returned by the time they're looking for a promotion or new job. What's really important isn't the true ROI estimated as best it can be, but rather the ROI in practice over the first few years. Fans of independent games have repeatedly seen some beloved game company get bought by a larger company, which then rushes out a release and squeezes out as much short-term revenue as they can with microtransactions, wrecking the company's reputation and causing employee burnout but producing a revenue stream that executives can claim is permanent and a great ROI. Meanwhile, investments with longer-term benefits get ignored despite the true ROI being better.
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When you look at a construction
site, you'll usually see a hydraulic backhoe. Those use a diesel engine to
drive a hydraulic pump, which moves fluid to a pressurized tank
("accumulator"). Valves connect the high-pressure tank to various hydraulic
cylinders.
Why do they always use diesel engines? That's because
governments allow tax-free diesel fuel for use off roads, because the fuel
taxes are nominally for road maintenance.
Most of the energy of fuel
is, of course, wasted by the engine. And then, no matter how much force is
needed, fluid is provided at the same pressure by the tank, so most of the
hydraulic energy is wasted by throttling in the valves. Modern equipment
uses variable-pressure tanks, so it can adjust somewhat, but different
forces are needed by different actuators and at different times, so most of
the energy is still wasted.
It's possible to instead have an electric
motor and hydraulic pump for each hydraulic cylinder. (Those assemblies are
sometimes called "electrohydraulic" or "electrohydrostatic" actuators.)
Then, there's no throttling that wastes pressure. This approach is much more
energy-efficient, perhaps 6x as efficient. It also makes movement smoother,
increasing productivity by perhaps 15%.
Using electric motors makes
starting with electricity a better option, either from a battery, a
generator truck, or a grid electrical connection. Grid electricity is
substantially cheaper than diesel fuel, and excavators generally move around
less than cars, so it's easier to keep them connected to an electrical
cable.
Excavators using separate electric motors and pumps for each
cylinder are obviously more expensive to buy. What's the ROI on that
investment? My crude estimate was payback in ~2 years of full-time operation
- assuming you can usually plug in the machines while they're working.
This thesis concluded payback would typically be ~26 months; that
doesn't seem to account for slightly improved productivity from smoother
movement. So, that's basically consistent with my guess.
The
manufacturers of heavy machinery are aware of the advantages of electric
actuators, and several of them have made prototypes of fully-electric
excavators. But currently, those seem to be more of a long-term and
contingency plan than a near-term replacement for their current products.
Another option for electrification is to not use hydraulics.
Electric
rope shovels are sometimes used; they're more expensive to buy than
hydraulic excavators, but large ones have lower total costs. (Back in my
day, all the excavators were driven by cables, and the winches were
turned by steam engines.)
My view is that electrohydrostatic actuators should usually be cheaper than
using wire rope that way.
Using electrohydrostatic equipment is a different financial issue from railway electrification: faster returns on investment and equipment that doesn't last as long. I think the problem is largely risk aversion and uncertainty:
- Can you
resell the equipment for a good price if you need to?
- Will the
appropriate maintenance be available? (There should be less maintenance, but
look at the prices Tesla charges.)
- What if you need to work somewhere
without electrical lines? (answer: Presumably, you'd rent a generator
truck.)
It makes some sense for these
companies to be risk-averse. The potential benefit to them is relatively
small compared to total costs, some new procedures would be needed, and the
potential risk is something unknown going wrong that makes their initial
purchase worthless. A round of equipment purchases being completely lost
could bankrupt some smaller construction companies.
What, then, might
governments do about this situation?
One option is to tax diesel fuel
to account for pollution. How large a tax would be appropriate for that?
This paper concluded
that ~$3/gallon (in 2023 dollars) would be appropriate for diesel fuel in
the US. I can believe that: I can often smell air pollution from
construction sites before I see them, and air quality monitors often show
hazardous air quality in a small radius around them. That's not great for
construction workers, either. Well, if diesel fuel for excavators and farm
equipment had a $3/gallon tax, you'd certainly see some changes, but that
might be politically...problematic.
Also, in the US, the structure of
agencies involved is an issue. The EPA is tasked with environmental
regulation, but while it can ban things, it can't tax things. There are
other agencies with the power to tax things, but they aren't tasked with
considering environmental harms.
Another option is for government to
mitigate some of those risks. For example, if companies are worried about
electric equipment being unsuitable for them and not being able to resell
it, the US government could agree to buy equipment according to some
reasonable depreciation schedule, at prices that probably wouldn't be the
best but would reduce risk for companies involved. Things like the
politically successful (if economically questionable) "cash
for clunkers" program indicate to me that such a system could be
politically feasible.
As for extending this into some broader point
about companies or management, what comes to mind for me is actually food
ingredients. Companies used partially hydrogenated oil for years, and then
it was banned, and replacing it was a non-issue. Some US companies are still
using brominated vegetable oil, and now it looks like that will be banned
soon, and it won't be a problem. But companies still didn't want to change
their old recipes until they were forced to. And leaded aviation gasoline
will probably be around until it's banned, at which point switching to one
of the existing alternatives suddenly won't be a problem. This kind of
dynamic is how you can get upcoming or temporary government bans on things
that are actually necessary up until it turns out there's really no
replacement: the regulators don't understand the technology well, and the
companies lie to them even when switching is a non-issue because the
executives can't tell how hard something is, so a credible threat of a ban
is the only way to get them to honestly try to solve a problem.