Renewable Electricity Futures Study NREL Report Critical Assessment
Renewable Electricity Futures report study by the National Renewable Energy Laboratory (NREL) was just released. As with many reports done by numerous participants, there are several areas of concerns which I have identified below. I will admit, it is much easier to be critical of a report after the fact versus while you are working on it. However being accepting of critical assessments, which NREL based on my experience has always been willing to do, will improve the future reports. On the positive side NREL did a great job in directionally highlighting the concerns to moving to higher renewable electricity future.
As I pointed out in my previous blog, the levelized approach is not appropriate for the electricity market. NREL noted this as a concern and therefore addressed it by using GridView and dispatching hourly. However, they only went part way to truly analyze the situation of large amounts of renewables. They did note in their own report that the report lacked a reliability component. However leaving out the hourly and reliability analysis is similar to leaving out the concerns for refill stations in an analysis to convert to hydrogen and/or natural gas vehicles.
My concerns for the report is the extent of work that was done while leaving out some very important analysis. They noted they did 12 scenarios. The key for this type of study is the information going into the models. Given most of the information should have been available from laboratories; this keeps the study cost down. Based on that, my personal budget for the modeling portion for this type of project is around $120-150K – see below for more details. In addition, I would have not left out a very critical piece of the study. Reliability is the key to sustained large penetration of renewables. They noted in the study they could not do this in multiple parts of the report. In addition they noted a full reliability assessment cannot be done. I agree with this statement, but that does not preclude running some various sensitivities to understand the reliability issues. I will show below one easy add-on that would have indicated some level of reliability. One can model directionally, the reliability balance needed for large renewables without doing a full blown transmission study. I understand their following statement:
“System Adequacy: To understand overall system adequacy fully, detailed simulations would be required to measure loss of load probability with the correct probability density functions of various power system variables. Many scenarios would need to be analyzed to understand whether the overall electric system has adequate system capacity to meet load under a variety of operating conditions. With conventional generation units, this type of study typically involves running reliability models using the forced outage rate and mean time to repair of the full suite of conventional units, while also considering possible changes in electricity demand, to estimate the loss of load probability. With high amounts of variable generation, analyses of this type become somewhat more difficult due to the unique behavior of variable generation. As discussed elsewhere, ReEDS addressed system adequacy largely on a statistical basis, whereas GridView was used to analyze a subset of the scenarios to determine whether loss of load would be expected in 2050. Further analysis of system adequacy would require an assessment of a broader array of scenarios, using GridView or alternative tools, as well as more detailed assessment of system voltage and frequency.”
However the study is about renewables penetration not the existing reliability of the grid. The addition of renewable generation produces a dynamic similar to loss of load probability via the loss of generation as weather changes. Having an understanding of the incremental needs of reliability with more renewable is the key. Modeling a level of reliability is not that hard once you have hourly dispatching model.
The critical scenario they left out and perhaps the big fault of the study is the level of generation capacity needed to balance the system to produce a level of reliability of a loss of load probability level. With significant renewable, particularly wind and solar, one could mathematically derive an acceptable level of the expected loss of generation level given the sporadic weather patterns. This expected loss of generation should have been focused on the peak time period. Running the analysis on average weather expectations is not an appropriate level of capacity planning. I am sure there is a reasonable level of risk expectations to see limited and/or sporadic wind and solar performance during peak time periods. Figure ES-6 should have been supplemented with this “weather risk case” (perhaps only few days of work). What I find immediately alarming in the report is the limited amount of capacity build of gas units as more renewables penetrate the market – Figure ES-3. In my mind, I would expect a sustain if not larger capacity buildup of gas units as the larger penetration of renewables. However, they have it declining. I believe the generation piece can grow very large for renewable, but I suspect the capacity chart not to look the same. The likely error in the study is largely because the choice of fossil fuel technology was limiting. Looking at the Black & Veatch study used for technology selection for the study, I am shocked to see very limited flexible power selection. I know for a fact B&V should have known and included reciprocating engines to aero-derivatives given the study was about significant renewable generation. As the study noted, flexible generation is a requirement including requiring conventional plants to be flexible. This requirement would have driven technology improvements and/or adoption of the un-traditional manufacturers. The current selection choices biases the study to traditional technology manufactures (GE & Siemens). Balancing the system can be done by generation not just transmission, storage, and curtailments. However one cannot see this without offering the choice in the model. Depending on large transmission builds where a 90 mile line takes 13 years is a problem. Also the dependence on large compressed air energy storage (CAES) when it has yet to be deployed in either bedded salt or in porous rock formations is another problem.
My hypothesis would be including technology such as the Wartsila reciprocating unit – which is up and running in multiple US locations – will lower the cost for renewable penetration given the technology capability to ramp and start within minutes and also its very low plant minimum capacity (4%) with still a very good heat rates (7.2-8.5 mmbtu/MW).
Designing and running future scenarios and then deciding and understand the optimal and robust choices is my forte. Working at AEP I had to cover 11 states and had to deal with multiple resource plans with multiple biases to different fuels. Our decisions at AEP can and will influence the market therefore we modeled the entire US. Bi-yearly we ran 6 Scenarios for the US – at least two represented economic conditions (low and high). Others typically dealt with various legislations. The core team to model and evaluate these scenarios represented me and another colleague. The input team represented my entire team along with the various parts of the organization. The decision to build goes beyond economics, but it is a good place to start. However as many modelers will tell you – you will be only as good as your input. Therefore more time should be dedicated to the input than the output – particularly when you are starting out. It is crucial to examine the conditions confronting you and plan accordingly. Details of your runs need to balance with precisions of your knowledge. There is no point in over analyzing as much as under analyzing.
As many know, I have served on the National Renewable Energy Laboratory Advisory Panel. There are many very studious hard working individuals at NREL. They continue to improve and come up with new concepts and ideas. Though I was critical on this study, I do see much progress and expect further progress from them. Technically, I am sure the US can operate at 80% level of renewable generation. The question really is the cost and the benefits of obtaining that level. There are a lot more questions I can posed for the report, but I will have to leave it for another day and time.
At All Energy Consulting we can help you run and model your resource options/plans. We can either offer a third-party assessment or help design and build you a process plan for which you can manage yourself. To run a resource plan, the core offering would be a base forecast along with two scenarios. This would run would be about $60K. For additional scenarios and risk simulations we are talking about $10K/per design.
I hope all the fathers of the world had a great day with their family. I did! In fact, I got to spend some time with ALL my kids (5) – even my two teenagers. And I had time to read the report, write, ride 20 miles on my bike, go boating with the kids, wakeboard, run 50 risk simulations of the Eastern Interconnect for one of my clients, and have a picnic with the family and friends. Life can be short so make it worth it!
Your Energy Consultant,
614-356-0484
Coal to gas switching or should we say displacement volumes
Coal to gas switching is much talked about this year. Many people like the switching word; but there is a dynamic that is occurring and also the term switching in the power industry, typically refers to units who have dual fuel. The better word is probably displacement – semantics.
There is two parts to the coal to gas displacement – structural and economic. The structural part is quite easy to discuss. The US market typically has required 50%+ of its generation from coal. Assuming no decline in load growth if coal units retire other units would need to fill in that void of generation. This part is the structural part of the displacement. As many have shown there are significant EPA rules which lead to the retirement of coal units. Now with the addition of the economic competition to coal from low gas price that may exacerbate the volume of retirements. Obviously the selection of which coal unit retirement will likely be based on how much that coal unit is used and how economically competitive it is. Those units who still run significantly will either already have the necessary control equipment to meet the EPA rules or it will likely be economically to install those controls. Therefore for a proxy one could look at the coal generation by plant from last year and stack up the capacity and generation. Also if one is savvy, one can also get a proxy cost of generation from each plant.
Now that you have generation stacked with capacity and cost you can do a calculation to calculate the approximate amount of gas generation if X capacity of coal was going to retire. I would not use a Combine Cycle heat rate (7) since some of that generation may be actually at peak times since some of the older coal plants are likely running at those time. In this example I used an 8 heat rate. Summing the data to produce 20GW of capacity retirements, produces 1.3 bcf/d of additional gas demand. Going to 40 GW of capacity retirements we are looking at 2.7 bcf/d. All this is the structural piece. Given the push for green energy the numbers will be lower some of the above number. The surprising perspective for many is that the gas potential in the power sector can be as dependent on the renewable outlook as the coal outlook.
In terms of the economic portion, this is the very dynamic portion. I have done much work in this arena and have given multiple presentations. This is very dependent on your price outlooks for both gas and coal, particularly on sustainable basis. In addition, time plays a crucial part in the analysis. One has to ask displacement for this week, next month, or next year. Each of those time periods various inputs into a dispatch model must be modified. Also the basis of displacement is being mixed in with natural load growth which in general is being filled in by gas or renewables. Therefore some analysis will say 10 bcf/d of switching will be seen in the next few years, but that includes a load growth which would have occurred regardless. If you are interested in getting some ball park numbers give me a call 614-356-0484 or email me [email protected] and be prepared to tell me the timeline, gas prices, and coal prices.
We positively and evocatively challenge the current thinking involving any aspect of energy use. We look for projects that offer meaningful, transformative, with impactful outcome to the marketplace or society.
Independent analysis and opinions without a bias right is what we offer to our clients. Please consider and contact All Energy Consulting for your consulting needs.
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Being Green is Hard
Once again I sit in the airport writing this blog. Your energy analyst has been very busy – which is a good thing. As I noted in my previous blog, I have been doing the twitter thing. The people I have chosen to follow are not just the people that believe what I believe in. One person I follow, David Roberts, is from the Grist. The Grist is an interesting publication focused on the environment. They claim not to be too much of a tree-hugger. Mr. Roberts is clearly a self-professed liberal – I deduce this from the continuous negative connotations for the GOP, along with little to none negativity with the democrats. Once again I don’t mind at all to view and read his point of views. Clearly he is right on many of the issues that he points out with regards to the GOP.
One of his latest blog he asked the twitter world whether he should buy a Prius V or VW TDI. I really didn’t think he meant to ask me, but I do follow him. Therefore I suggested to him he should probably think about buying a used car or better yet drive his existing car to death. This is largely due to the fact that most of a car CO2 emission is from the manufacturing and marketing of the vehicle versus the actual fuel consumption for the life of the vehicle. Those who feel they are being green by buying a new ultra-efficient vehicle, while they have a mechanically functioning vehicle, have not seriously examined the complete picture. I even note an article from the Guardian who also supports that claim.
I have yet received a reply for my kindness of taking the time and answering his request from his twitter follower. However, I write this only to point out the reality that it really is hard to be green. Being green takes sacrifice in your lifestyle, which many do not want to do.
We positively and evocatively challenge the current thinking involving any aspect of energy use. We look for projects that offer meaningful, transformative, with impactful outcome to the marketplace or society.
Independent analysis and opinions without a bias right is what we offer to our clients. Please consider and contact All Energy Consulting for your consulting needs.
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Capitalism to Creditism to Green Economy?
Mike Shedlock posted an interesting blog discussing Richard Duncan perception on the end of Capitalism, and the conversion to “creditism”. Mr. Duncan also noted the reversal of the situation is near to impossible, therefore he concludes government should go ahead and borrow and spend money to make the world a better place. Unfortunately, he chooses the recent Green Economy as his choice of government spending pointing out a government solar build out in Nevada would be an ideal project.
Mr. Shedlock argues the issue that government projects never seem to work out as planned. Generally speaking I agree with most of Mr. Shedlock arguments to Mr. Duncan plan. However, I think they both miss the point I have been preaching “Energy is a means to an end.” If the government wants to take the Mr. Duncan suggestions, the most effective way to advance society is to focus on the ends not the means. One can have all the energy in the world, but if you don’t plan on using it in a productive manner that advantage becomes irrelevant. We need to stop with this Green economy concept. We need to think about how we better utilize and use energy in order to produce and manufacture products and services that society can use to better us all. I believe if we do focus on this, naturally, we will produce “greener” energy. However right now we are just fooling ourselves that by making a Green Economy we will be better in the long run. I never have seen a case where if I challenge my means/path it produces a better end.
I am pro-renewables in many ways. The subsidization path, particularly without innovation beyond the engineering sense, will not lead to a better outcome in the long run. I discuss this some more in previous blog.
We positively and evocatively challenge the current thinking involving any aspect of energy use. We look for projects that offer meaningful, transformative, with impactful outcome to the marketplace or society.
Independent analysis and opinions without a bias right is what we offer to our clients. Please consider and contact All Energy Consulting for your consulting needs.
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614-356-0484
CERAweek 2012 Summary from the Outside
This years CERAweek marks my first year in almost 10 years in not going to CERAweek. I had the privilege to be invited and speak at CERAweek two times. The amazing thing about CERAweek is the shear size. I have seen it grown from the days in the Galleria area to now at the Hilton Convention Center hotel.
One of the values of being at CERAweek, which you cannot get from reading summaries, comes from the time to reacquaint yourself with your fellow energy colleagues. Also, one of things I always marveled at from being at CERAweek is the logistics of the staff to serve meals. When you attend CERAweek, it is not a buffet line – it is a three course meal for lunch and dinner.
In terms of content summary, Platts did a fine job summarizing many key points in their blog. In addition, twitter works out well when you search #CERAweek. The highlights, I believe, were noteworthy:
CERAweek Oil Day:
I have to agree with Iain Conn, group managing director and chief executive of BP’s worldwide refining and marketing group. Mr. Conn said refinery investments will continue happen in the Atlantic Basin, but it will be strategically done. He also specified he expected to see investments in facilities to take the condensates from the shale development and make products. Those who have been reading my blog will note I made that call early February.
A group made of a good aquiantance Marianne Kuh, Chief Economist ConocoPhillips, and my friend Frank Verrastro, senior vice president and program director at CSIS Energy and National Security Program; noted the high crude oil price is more of a function of actual demand growth, not only political uncertainty of Iran. I do agree with these points, but I still think monetary policy has influenced the price of oil as significantly as demand, if not more.
To prove my point, I have pulled annual oil prices, M2 money supply, and oil demand since 1981. I have graphed the information below. I also ran regressions on each of the variables to oil price. M2 money supply has a better R^2 with 0.61 vs. 0.48. Together they produce a rather strong correlation for an R^2 of 0.70. Another interesting outcome of this analysis is it shows for the first time the amount of M2 is now greater than 10% of the world demand expressed in millions of barrels/day. This started in 2009 as the FED aggressively moved to “save” the system.
CERAweek Gas Day:
There were several discussions of natural gas vehicles. I think it’s a clear choice for fleets to convert to natural gas. Mass transit vehicles should move towards CNG. There was discussion on a recent article in the Wall Street Journal by Robert McFarlane, served as President Reagan’s national security adviser from 1983-85. In the article Mr. McFarlane talks about methanol vehicles. Speakers at CERAweek disagreed with him largely on the premise of structural issues. I think the more valid concern would be the history and fate of MTBE. From what I have gathered methanol would be more toxic than MTBE. I do disagree in how we handle the MTBE issue – requiring MTBE then banning it. MTBE was a messenger to a problem that is still happening. MTBE gave you a mechanism to trace and track leaking gasoline. By eliminating MTBE you did not solve the real problem.
Apache CEO, Steven Farris, made remarks in regards to supplying utilities with long-term contracts, but with a floating gas price. Once again I have blogged about this before. It would be worthwhile to continue to watch this evolution. Many are trying to emulate coal contracts, but the reason and the value of contracting gas is not the same as it was with coal.
Of course it wouldn’t be gas day without a deluge of shale discussion and fracking concerns. Many speakers talked about transparency and the efficacy of fracking. I will have to agree here that it can be done in a responsible and safe way. It is a matter of regulators to effectively regulate, because there will always be bad actors.
My former consulting company, Purvin & Gertz, who got acquired by IHS had their own session at CERAweek. They spoke about the NGL markets. Once again I did note about the dynamics of what is going on in this market in my previous blogs. This is an exciting area, full of opportunities.
CERAweek Power Day:
For some reason, the day opened with a discussion of nuclear renaissance. I will have to agree with GE CEO Immelt – there has never been or will be a nuclear renaissance in the US. I will add the caveat – unless significant structural changes are made to our electric industry design. This country has cost-effective options whereas other countries do not (e.g. France, Japan, etc…).
I will have to differ with many of Alstoms thoughts. Alstom has been a very vocal and huge supporter of CERAweek for the past few years. They spoke many times during the conferences. I have read that they still are investing heavily in CCS. They believe the focus for clean energy should be on the technology side. Once again in my blogs, I elude to the point it is not the technology that is limiting “clean” energy; it is the business strategy and incentives. They also point out that gas generation should focus on bigger turbines with lower cost. Of course, that sounds ideal, but I think over the next 3 years the value proposition will be for more dynamic turbines versus bigger and efficient. I say this because of the need to serve the intermittent nature of wind.
FERC commission, Philip D. Moeller, discussed the point that the consumer needed to see the real price. I believe he is trying to point out the desire of real-time metering. However I will disagree with this since there are several ways to make pricing more transparent to the consumer. Rate design in itself does not hide the cost of power, since regulation comes with cost recovery. It is the actors behind the rate design that hide the true cost of power – as noted in my previous blog. Real-time pricing will change consumption, but the bulk of the impact could be done by having block metering – on and off-peak hours with no dynamic pricing, but a statement to the consumer. The hours between 7am-10pm will be more expensive than 10pm-7am. This method would come at a fraction of the cost and involve much less complexity. I do understand the value of the “smart” grid that it comes from other forms, such as reliability; but this is not how it is being sold to the consumer.
I couldn’t agree more with CEO and President Bruce Grewcock of Kiewet – “In a lot of jurisdictions, people are going to see rate shock when they see the true costs.” Once again this is not coming from a smart grid realtime perspective, but the fact that there has been an underinvestment by the utilities. Instead of focusing on true needs over the past years, we have focused on projects and mechanism of style (e.g. CCS, IGCC, fuel deferral, smart grid, etc…). Inefficiency in markets will always come back to haunt you.
We positively and evocatively challenge the current thinking involving any aspect of energy use. We look for projects that offer meaningful, transformative, with impactful outcome to the marketplace or society.
Independent analysis and opinions without a bias right is what we offer to our clients. Please consider and contact All Energy Consulting for your consulting needs.
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Green Jobs the Renewable Quandary
The recent article on green jobs from the Wall Street Journal ends very well:
“Green energy is a future for all communities we should embrace,” he said. “But they shouldn’t tell us it is for jobs.”
Let me first start out and say I believe in renewable energy that there is a place for it in our portfolio of energy choices. In addition, it can survive without subsidies as I noted in my previous blog. The focus on jobs is a red herring. The issue is not job, but it is our commitment and our ability to be competitive and productive. Jobs are a symptom for the poor capital allocation in our economy. If the number of jobs itself was so important, there is no way renewables can compete with fossil fuel on a net basis. To prove this point, think about the massive supply chain requirements of finding, mining, and delivering coal. Each component of the supply chain has their ancillary needs, requiring merchants to support. In addition, the safety concerns and incidents occurring in fossil fuel support jobs from lawyers, doctors, to safety inspectors. If we examine renewables, particularly wind, once the structure is in place; God/nature is in charge of the supply chain.
The anti-renewables can use this logic to bash renewables. However, I would counter by saying renewables will be freeing up human resources to be more productive for society. This is true as I have been espousing; energy is just a means to an end. We can now allocate people to actually use the energy to advance society. Increasing a work force to support energy production, ultimately does not lead to productive advancements; unless increasing the workforce actually reduces the cost of energy in order to allow more productive advancements. When we have an underemployed society, it is reasonable to want to search for places for jobs in order to maintain order. In the long-run, we must not just focus on the number of jobs, but on the complete equation: productivity = jobs X [(value-add )– (cost of jobs)]. A Milton Friedman story I read, points out the fallacy of focusing on the number of jobs:
Milton recalled traveling to an Asian country in the 1960s. and visiting a worksite, where a new canal was being built. He was shocked to see that, instead of modern tractors and earth movers, the workers had shovels. He asked why there were so few machines. The government bureaucrat explained: “You don’t understand. This is a jobs program.” To which Milton replied: “Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels.”
We must not lose sight that we want to have jobs that are productive. Jobs delivering less productivity should be less costly – this applies to all spectrum, from Executives to Assembly line jobs. Energy is just a means to an end. Using energy efficiently to produce and make things to enhance our lives, and advancing society, will lead to positive growth to the economy. There is no doubt we cannot simply be a service economy, at the same time, we cannot just be a manufacturing economy. We need a balance economy focused on the productivity equation above. There are sacrifices which must occur in both ends of the economic spectrum to support a growing economy.
We positively and evocatively challenge the current thinking involving any aspect of energy use. We look for projects that offer meaningful, transformative, with impactful outcome to the marketplace or society.
Independent analysis and opinions without a bias is what we offer to our clients. Please consider All Energy Consulting for your energy consulting needs.
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