Renewable Futures Part 2 Idealistic Speak
This is partly a continuation of my last blog – Renewable Electricity Futures NREL Report Critical Assessment. I had personal emails on the assessment discussing the other topic I did not want to get into at the time – Cost. I also received references to the report put out by the WWF and Ecofys report. This report is very pretty in its design and perhaps a good document for a stretch goal concept, but in terms of application and reality it is far from real.
For some reason we have an idealism that the cost of placing renewables into the system will be at zero cost relative to the baseline. To address this topic let me first say in general; most people including myself would very much like renewable power that is until the discussion of cost and allocation is brought up. The executives at utility companies are also very inclined for renewables. Essentially almost every human being other than those individuals who are so incentivized to maintain current ways are pro-renewable. If it was really no incremental cost, I promise you renewable technology and implementation would be much further along. There is no hidden conspiracy – particularly at the generation level to not implement renewable. The utilities could/should care less where and what was making the electrons. There is very little connection between a utility and the various fossil fuel producers particularly for a regulated utility. The regulated utility is incentivized by capital investments. Most utilities should drive to achieve greater renewables which require large capital investments-that is a direct return to shareholders. Whereas operating costs are not, they are passed through – therefore shareholders get no return. However, what causes them not to build massive renewables is the cost. Higher cost limits the ability to spend on maintaining the system, since rates are limited by a political/societal demand. By allocating cost to renewables, it will leave little room for other spending- some perhaps more necessary than others.
The way to view cost from studies like this is to view the total investment needed. For some reason many want to discuss retail rates. However many fail to note and/or realize rate structures are very complicated and are not just a function of wholesale power prices and/or generation investments. The NREL Renewable Futures Report did note it, but ended up using a wrong proxy in my estimates – “…the retail price of electricity must also cover distribution and other costs. These additional costs are not estimated directly in ReEDS. Instead, the markup from wholesale to retail prices is estimated based on a calibration with historical (2006) prices.” I will promise you the difference between wholesale and retail will continue to grow. Many right now will see on their bill that the Transmission & Distribution (T&D) cost will be greater than the Generation (G). This is a function of many things. One was a failure for many utilities to allocate capital appropriately in the past for required T&D expenses. In addition, given many markets decoupling of generation many of the cost which are traditional G cost are being moved into T&D. As an example, many utilities are attempting to move their renewable requirements as T&D expenses.
The figure to examine in the NREL Renewables Future Report – assuming it is done appropriately to include investment cost – for cost is A-4 A. It shows the baseline investment of $4 Trillion dollars – $100 Billion per year for the next 40 years. For the 80% case it shows an additional Trillion dollars – $25 billion per year. It is true there will be a fuel savings which is the basis of many of the “crazy speak” announcing renewables are zero cost. However, the fuel savings needs to be discounted back to present since the savings are coming from the outer years. In addition, you are asking a society to think about the future when in general people are not thinking about their own personal finances with a median 401k savings amounting to $23K. Also, you have global financial system/society fixated on debt as a way of growth. To have society care about future savings is truly an uphill battle now. The cost to increase renewable generation is not free. However if we think about capital allocation and the areas to invest/spend money which we may or may not have, renewable investments certainly would not rank the lowest compared to wars, executive compensation, financial bailouts – but it will have to compete with other societies special projects social security, education, shelter, nutrition, etc…
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