Green Energy Better and More Sustainable without Subsidy
There is no doubt in my mind that green / renewable energy is capable of being sustainable without subsidies or even a CO2 price. Articles such as the one I recently read put doubt in many readers as they approach the issue on the basis of competition with fossil fuel. With subsidies and a CO2 price, renewable energy will come into the market; but the adoption into society as the right thing to do may not come as quick. The role of the government, as many see it, is to not only provide for essential infrastructure (roads, police, etc…) but to also induce appropriate behavior. Our decision on appropriateness can range significantly. Personally, I believe appropriate behavior will develop and be produced from innovators capitalizing on the fact that people will make good choices when someone makes it easy for them. This is an optimistic stance on humanity in that the premise is that the natural tendency is to do good. Let me caveat my statement, major behavior changes involving humane treatment for our fellow men do require government intervention (e.g. slavery, racism, etc…) to progress in a timely fashion. In terms of renewable, innovation in marketing and advancing the value of renewable has been very poor. I would suggest a reason for this is the subsidies. Subsidies have crowded out the innovators and put the path for renewable in the hands of mega-corporations. Significant lifestyle innovation does not come from large corporations, though much credit should be given to them for lowering cost of production for renewables.
I want to focus my case for renewables without subsidies on the organic food industry. The organic food industry was far from being promoted by the US government. Organic food trend also encompasses the desire to purchase local farmed products. There was no subsidy or “push” by government. The product is a premium in cost compared to the non-organic food. However through the innovative entrepreneurial spirits of people involved in companies such as Whole Foods, Trader Joes, etc… society has a rather large and growing organic food industry. This was not done by pushing cost to people who could not afford or see value from it. A decent portion of society has naturally decided that it would be appropriate to purchase from local farmers and to reward organic food producers and marketers. Those who could initially afford it eventually allowed more people to afford it later – as seen by Walmart offering organic food.
There is no doubt in my mind someone can take a segment of the economy to push forward into renewables. It is matter of changing the approach and tact on renewables. So many people have a deep commitment in green living, but act so little upon it. When I note some of the hypocrisy in their lifestyle choices, many note they don’t plan to change their lifestyle significantly unless we all do it. This is the failure of leadership. In addition, it shows no one has learned to extract a potential revenue stream. Someone needs to be able to create a mechanism where it makes it easy and desirable to be green. True innovation requires innovative marketing. People are always trying to relate renewables with fossil fuel. Learn from Apple, my Apple fanatic friends would give no credence to any competition/comparison with the PC. I can envision the possibility of creating communities /neighborhoods where people choose to pay a premium to live a renewable and efficient way of living. Obviously I am not Steve Jobs of renewables, so I can only envision so much in the future on how this revolutionary way of developing renewables may unfold. It could be quite a game changing event, if people chose a lifestyle that would incorporate and unify the energy incentives of the developer, property manager, and tenant.
A better tomorrow can be achieved if we realize the individual and the various actors involved in energy use cannot make the time to individually make appropriate lifestyle decisions when in aggregate make a large difference. Energy is a means to an end. An innovator is needed to make it easy and desirable to change our choices. As Steve Jobs has said “A lot of times, people don’t know what they want until you show it to them.” Remove and/or transfer the mechanism of subsidies to the innovators not the corporation, if you truly want society to massively and effectively adopt renewables and efficient living.
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Renewable Portfolio Standards – Require a Portfolio
Many utilities fulfill their renewable portfolio standards with very few options. The easy way for the utility is to do a Power Purchase Agreement (PPA). Most PPA’s are for wind as it has been the economic leader of the renewable choices. Essentially, the utility typically requires the commission to approve the agreement. Once the commission agrees the PPA becomes a cost pass thru. Given the numerous market structures throughout the country, the cost recovery is done through various mechanisms. In the end, the rate payer will pay whether they like it or can afford it. The worst form of cost pass thru is where the utility puts the cost in the distribution rates. This obscures the tracking of actual generation cost.
Regardless of the mechanism, utilities incentives to do renewable is to avoid costly penalties which are typically paid by shareholders not rate payers. The PPA usually will not mandate the developer to a fixed amount of volume. There is a performance criteria and several demonstrated calculations proving a certain yield is very likely. However, as we all know Mother Nature offers no guarantees. I can envision a year where the sun does not shine or the wind does not blow as much as predicted/expected. This could lead to a massive short of renewable credits. In developing an Integrated Resource Plan (IRP), much focus is given to reliability. Therefore a diversity of various generation options (baseload, intermediate, peaking, and market purchases) is a typical outcome. An IRP should strive for robustness not optimal planning, since the future is quite unpredictable and electricity is a unique commodity with limited storage and particular characteristics to maintain (e.g. frequency). I can tell you from multiple experiences, when the lights are out many would gladly pay more for better reliability.
If utilities would approach their renewable portfolio standard similar to their IRP, it would suggest a balanced portfolio approach. The portfolio would give some added value to the higher upfront capital risk projects such as geothermal and biomass. These types of generation would represent the baseload of the renewable portfolio. This will allow for a consistent level of renewable regardless of weather conditions. Adding to the diversity of the portfolio in many instances, I would suggest the utility to actually invest a portion to develop and operate renewable assets versus PPA. Given the similar operating features of geothermal and biomass to fossil fuel units, they would make an ideal candidate to be owned and operated within the renewable portfolio. In the long run, the capital spend will also likely payoff for the utility shareholders. As discussed above current wind PPA’s are just passed through with all the value going to the developer. An investment in actual renewable baseload generation allows the utility to capture some return on investment.
I have much experience in the renewable world. I have served on the technical review panel of the National Renewable Energy Laboratory (NREL). In addition with my utility planning background, I can bridge the two areas to help you create a robust renewable portfolio.
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 (see projects).
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Solar Projects being approved in California
I am going to be a little critical with today’s reporting. More than once EnergyBiz will report on a deal , but they never delve into the deal. Yes EnergyBiz is free, but seriously it doesn’t take much work with the internet. For example, today’s article I came across on EnergyBiz involves the California Public Utility Commission (CPUC) approving PG&E solar deal with Sempra. In the article, they note how the commission approved the project, the dates, and the size. However, how come no discussion on the cost or expected performance of the project? Yes the project is a bilateral deal so the information is somewhat hidden. A little investigated journalism you can conclude the project is likely a 25 year commitment for under 0.10852 $/kWh with an expected capacity factor of 23%. First you go to the CPUC website. Do a simple search on “PG&E Sempra Nevada Solar “and you will get this link to the deal. In the deal you will note in the beginning “Generation from the 150 MW Project is expected to contribute an average of 303 gigawatt-hours (GWh) annually towards PG&E’s annual procurement target”. This would calculate to a 23% capacity factor. This is not the best capacity factor, but not the worst either.
In terms of cost the same link shows the statement “Based on 2012 commercial online date for the Copper Mountain 2 facility, the 25-year PPA is below the 2009 MPR and accordingly the PPA does not have above-market costs associated with it.” A little more investigative journalism would have you search on the website to see the 2009 MPR. The 2009 MPR can be seen on this link. From the link there is a table showing the 2012 25 year contract MPR is 0.10852 $/kWh. Interestingly if they had used the 2011 MPR, the limit was 0.09274$/kWh a drop of more than 10%.
The next level of investigated journalism is to see what type of cost Sempra is paying to build this facility. To do this I went to a publically available levelized costing calculator supplied by the very capable National Renewal Energy Laboratory (NREL) – note I served on the advisory panel for the technical review team. In addition to the calculator, if you click on the labels NREL will display the tables showing the range of cost. The lowest cost for solar is $5000/kW. For the remaining variables I used period 25, discount rate 4%, capacity factor 23%, FOM 10, VOM 0.002, HR 10000, and Fuel Cost 0. This produced a levelized cost of 0.166. I then changed the capital cost till the levelized cost was below 0.11. This occurs at $3200. If the investment tax credit is computed from the $5000 basis you do get around $3500. Applying a negative fuel cost (-1) from the $3500 capital cost you would produce 0.108. This implies likely the technology cost is still around $5000/kWh with a need for a 30% investment tax credit and some value of renewable credit around $10/MWh.
If you are of the very curious mind, you will be asking yourself how in the world is the MPR that high? Since you will note in the MPR link they state – “The MPR represents what it would cost to own and operate a baseload combined cycle gas turbine (CCGT) power plant over various time periods”. Well you see that’s not really a “true” statement on many fronts. Obviously there are forecast that need to be employed to calculate a CCGT cost in the future. They decided on using a NYMEX future curve for fuel which is understandable. The big driver pushing the MPR high is the assumption of CO2 price.
If this forecast became true, in the near future (in two weeks), Californians would be adding an extra 10 cpg on gasoline and by 2030 they will be paying almost a dollar extra on gasoline. This CO2 cost stream adds roughly $19/MWh on the levelized cost of CCGT– almost a 20% premium. Even removing the CO2 cost and comparing it with NREL levelized cost calculator the CPUC model shows an additional 0.01 $/kWh cost using the same inputs.
With simple investigative journalism the article EnergyBiz reported, which anyone could do scraping a company’s website, transforms into real value and knowledge.
At AEC we are committed to giving you knowledge not just information. Feel free to email me your comments or suggestions David K. Bellman [email protected]
