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No Fuel Costs: The Sexy Seduction of Renewables

renewables and costs and fuels

No fuel costs. That is renewable energy’s most powerful and seductive selling point. No need to discuss climate change with all its emotional hot buttons. No need to explain and justify how much carbon is avoided. No need to politicize the discussion. It’s simple. It’s sexy. It’s seductive. And it will drive investment. No fuel costs.

Renewable energy has been the subject of endless heated emotional debates and diatribes. Some more rational than others. It has also evolved to incorporate different arguments used by different sets of apologists. Such arguments warn of intermittency, solar “free-loaders” on the grid, the death of birds and the aesthetic horrors of wind farms. I don’t know…I kinda like them! These same arguments, however, are heard over and over again until they have now become trite. Is anyone still listening?

Well, we need to be listening not to old “stories” but to new facts.

Money talks. So if you want to see where the next trend is look for the investment potential. And there is massive investment potential in decarbonizing the economy. So much so that I am going to make a prediction. Once investors and policy makers really comprehend just how much money can be made by transitioning the economy away from fossil fuels, there will be no stopping that train. Here’s why…

No fuel costs.

Yep, that’s it. No fuel costs. Because no fuel costs avoids the vagaries of the commodity markets which in turn equals price stability. And less involvement in politically unsavory regions. It also means significant additional capital becoming available which would otherwise go up in smoke in the form of burned hydrocarbons. That is what will drive the markets toward renewable adoption. It doesn’t hurt that wind and solar are technologies too. And technologies always get cheaper as they reach scale. So now we have no fuel costs and falling prices. It also helps that energy is the bedrock of the global economy and so anything using energy will benefit from…you guessed it…no energy fuel costs. So now we have no fuel costs, falling prices and price deflation across the global economy. And I used that word deflation on purpose though not in its more common sense. Here’s why…

Investopedia defines deflation as a decline in prices. They go on to state:

“Declining prices, if they persist, generally create a vicious spiral of negatives such as falling profits, closing factories, shrinking employment and incomes, and increasing defaults on loans by companies and individuals.”

It is precisely this aspect that I find so utterly fascinating about renewables. When renewable prices decline, profits increase. Profits increase because demand skyrockets. Manufacturing can now pass on cost savings to the consumer because their energy bills have fallen. Employment rises as more and more people want solar panels on their roofs. And investment returns increase often at exponential rates because of the growth and perceived potential. And this is bearing out in the markets as I write. This is not Camelot hyperbole.

For instance, the most recent numbers being used to actually structure institutional investment in renewables are coming in at astonishing rates. The National Bank of Abu Dhabi issued a report in March 2015 which stated:

“…fossil fuels can no longer compete with solar technologies on price…The latest solar PV project tendered in Dubai returned a low bid that set a new global benchmark and is competitive with oil at US$10/barrel and gas at US$5/MMBtu.”

And this was without subsidies.

Further, investors did not place monies into this project out of the goodness of their hearts or for moral purpose. They expect a reasonable return. And their projections tell them they will get it even at such low prices.

Employment has also increased for solar particularly when juxtaposed against oil and gas. Solar jobs have increased to more than double the job creation in oil and gas since 2012. And this in spite of the shale revolution and before the massive layoffs in the fossil fuel sector. Which brings us to another point. Oil and gas created jobs over the past 15 years while oil prices rose 450%. As prices have declined, jobs have been slashed. It is estimated by Continental Resources that over 100K jobs have been cut to date in the oil sector globally. This is in direct contrast to solar which has created more jobs as prices fell rather than as prices rose. Seeing the usual deflationary modes being turned on their head is like waking up and realizing that Newton’s laws of physics no longer are valid.

Going back to the no fuel costs scenario, IEA estimated in 2014 that it would cost approximately $50 trillion to decarbonize the global economy by 2050. That is a cost, true, but it is also an investment opportunity which could potentially generate returns. But IEA went on to state that the fuel costs savings would amount to about $117 trillion, far outweighing the $50 trillion price tag to decarbonize. And that is capital that can be employed in something other than the burning of fossil fuels. Stop and imagine the potential impact of $70+ trillion dollars of new investment in the global economy that would otherwise, literally, have primarily poured out of exhausts. Moreover it is simply a more efficient deployment of capital. Why burn money if you don’t have to?

Investment means growth and growth means economic prosperity for more people. Demographics tell us that we can’t provide energy security to a burgeoning human population based on a finite source of energy. But wind and sun are infinite and completely without fuel cost. And that is what will drive investment.

Call it the holy grail. Call it the pot of gold at the end of the rainbow. Or just call it no fuel costs. That’s seductive enough.

The post No Fuel Costs: The Sexy Seduction of Renewables appeared first on Energy Policy Forum.

Photo Credit: Renewables and Fuel Costs/shutterstock

Deborah Lawrence's picture

Thank Deborah for the Post!

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Discussions

Bob Meinetz's picture
Bob Meinetz on April 16, 2015

Deborah, I posted in another thread how Georgetown, TX relies on coal, natural gas, and nuclear to disingenuously make the claim of being “exclusively powered by 100% renewable energy”.

Your claim that renewables have “no fuel costs” is equally disingenuous, because renewables cannot stand on their own – integrating them into any grid mix requires the combustion of fossil fuels.

If I was so easily seduced by renewables, I couldn’t face myself in the mirror the next morning.

Deborah Lawrence's picture
Deborah Lawrence on April 16, 2015

Bob, you’re a funny guy! I just don’t happen to agree with you. No fuel costs WILL drive investment in renewables. It’s already happening.

Bob Meinetz's picture
Bob Meinetz on April 16, 2015

Deborah, your taste in comedy is exquisite, and I must admit your enthusiasm is admirable.

Despite our differences I remain hopeful there is a way to power the world cleanly and economically.

Deborah Lawrence's picture
Deborah Lawrence on April 16, 2015

There is, Bob. It is called renewable energy.

Kevon Martis's picture
Kevon Martis on April 16, 2015

Duplicate.

Kevon Martis's picture
Kevon Martis on April 16, 2015

Hmmmm…no fuel costs.

GE says: “Energy generation from renewable sources like wind and solar have zero emissions and very low variable cost of generation. However, if flexible generation assets, such as gas turbines, are not available, these renewable technologies will not be deployed. In other words, gas turbines are an essential component of renewable energy sources’ ability to penetrate the market.”

https://www.whitehouse.gov/sites/default/files/omb/assets/oira_2060/2060...

GE appears to be saying “No gas, no wind”.

In fact wind is essentially in a parasite/host relationship with gas fired generators. If the parasite dies, the host thrives. But if the host dies so does the parasite.

The question is what happens when the host approaches death, as appears to be happening in parts of Europe. Who pays and how much do they pay to prerseve uneconomic but requisite host generators?

 

Kevon Martis's picture
Kevon Martis on April 16, 2015

And nearly zero capacity value will be the ultimate demise of wind and solar.

 

Deborah Lawrence's picture
Deborah Lawrence on April 16, 2015

Kevon, with all due respect, of course GE says that…they make the gas turbines!

Deborah Lawrence's picture
Deborah Lawrence on April 16, 2015

Kevon, one more point. I have spent a long career analyzing company financials and have even crafted corporate messages. The fact that GE finds it necessary to justify their gas turbines is a very big clue that they feel vulnerable. Just sayin’

Kevon Martis's picture
Kevon Martis on April 16, 2015

I was hoping for a substantive response rather than thinly veiled ad hominem. I think by protocol you were supposed to say “Koch Brothers”.

 

GE is the US largest manufacturer of wind turbines too. They also authored the wind-o-philes favorite book the PJM Renewables Integration Study as well as the NEWIS, etc.

 

But you are onto something: GE loves wind because they get to sell 2MW of wind+gas for every 1MW they used to sell in gas, nuke or coal. And when one realizes that wind turbines last only 20 years according to most wind developers, they actually get to sell 4MW of capacity for every 1MW of coal or nuke with a 60 year service life. And of course avoding an semblance of a federal tax obligation works nicely for them as well.

 

Just like CFL bulbs, GE never loses. But the ratepayer/taxpayer does every single time.

Kevon Martis's picture
Kevon Martis on April 16, 2015

You need to stick to messaging and not pretend to understand generation.

NERC, NEWIS, PRIS: they all say the same thing: no gas, no wind.

nerc.com/pa/RAPA/ra/Reliability Assessments DL/NERC-CAISO_VG_Assessment_Final.pdf

http://www.iso-ne.com/committees/comm_wkgrps/prtcpnts_comm/pac/reports/2...

https://www.pjm.com/committees-and-groups/subcommittees/irs/pris.aspx

It is pretty well established.

Even AWEA and CanWEA say it:

http://www.thespec.com/opinion-story/2226895-wind-energy-is-a-better-dea...

http://web.archive.org/web/20130511225107/http://www.awea.org/learnabout...

 

Mark Heslep's picture
Mark Heslep on April 16, 2015

“…fossil fuels can no longer compete with solar technologies on price…The latest solar PV project tendered in Dubai returned a low bid that set a new global benchmark and is competitive with oil at US$10/barrel and gas at US$5/MMBtu.””

Since solar by itself can not replace either that comparison is not useful.  As has been discussed on TEC before, fuel costs amount to no more than a couple cents/kWh in the typical fossil supplied electric bill. 


Mark Heslep's picture
Mark Heslep on April 16, 2015

‘”Going back to the no fuel costs scenario, IEA estimated in 2014 that it would cost approximately $50 trillion to decarbonize the global economy by 2050.”

IEA’s decarbonization plan described in the Energy Technology Perspective 2014 (referenced above) calls for quite a bit of coal, gas and nuclear, far from no fuel.  The ETP14 factsheet calls for 256 GW peak global capacity installed per year.  If the thermal sources are all run as baseload, with solar at 20% and onshore wind at 33%, offshore at 40%,  then the coal CCS, gas CCS, and nuclear could be as much as half (47%) of the average new generation. 

From the factsheet, pg 3:

“Average annual capacity additions to 2050 of low-carbon electricity generation technologies in the 2DS:

  • Solar PV: 92 GW, more than triple the 30 GW added in 2012.
  • Onshore wind: almost 80 GW, a 70% increase to the build-rate of 46 GW in 2012.
  • Coal with CCS: 15 GW; gas with CCS: 13 GW; nuclear: 22 GW; offshore wind: 16 GW; concentrated solar power: 18 GW.”
Bob Meinetz's picture
Bob Meinetz on April 16, 2015

Kevon, many good references here. Especially relevant is this excerpt from the New England Wind Integration Study:

At a 24% wind energy penetration, natural gas resources would still be called upon to provide more than 25% of the total annual energy (lower right pie chart). In effect, a 24% wind energy scenario would likely result in wind and natural-gas-fired generation providing approximately the same amount of energy to the system, which would represent a major shift in the fuel mix for the region. It is unclear, given the large decrease in energy market revenues for natural-gas-fired resources, whether these units would be viable and therefore continue to be available to supply the system needs under this scenario.

They appear to be saying that beyond 24% wind penetration it’s unclear whether maintaining gas generation would even be profitable, and might need to be subsidized.

How does that square with “no fuel costs” for renewables?

Kevon Martis's picture
Kevon Martis on April 16, 2015

Yes, that is precisely right.

 

PJM just confirmed this in testimony before an OH Senate committee this week.

Deborah Lawrence's picture
Deborah Lawrence on April 16, 2015

Guys, you have misconstrued the reference to no fuel costs. You cannot produce electricity in a CCgas plant without nat gas. That’s a fuel cost. You can’t produce electricity in a diesel or coal fired generator without diesel or coal as fuel. That’s a fuel cost. Wind and solar, on the other hand, CAN produce electricity without fuel inputs. Hence no fuel costs

Mark Heslep's picture
Mark Heslep on April 16, 2015

I don’t know how to make this clearer.  You described the IEA 2014 study as a “no fuel costs scenario”. The IEA 2014 study is not a “no fuel costs scenario”, far from it.  It is the IEA, not me, that calls for gas, coal, and nuclear along with solar and wind.  

Kevon Martis's picture
Kevon Martis on April 16, 2015

And absolutely massive transmission costs and tremendous lifecyle and CF adjusted capital costs.

Deborah Lawrence's picture
Deborah Lawrence on April 16, 2015

The ratepayer/taxpayer loses every time? Really? How many of us truly think that hydrocarbons will be cheaper twenty or thirty years from now than they are today? Before the drop in crude prices last summer, oil had increased about 450% JUST SINCE 2000. That equates to significnat inflationary pressure on the economy. Now your claim that ratepayers will lose out is bogus because as long as the fuel costs to generate electricity keep rising such costs MUST and WILL be passed on to consumers. That means higher and higher bills. We’ve already seen this over the past decade. So this argument that nat gas and coal will be the economic saviors of electricity ratepayers everywhere is just nonsense. Wind and solar are capable of generating electricity without fuel inputs. Hence no fuel costs. So taking your scenario of continuing to use nat gas and coal to generate electricity, we are looking at inflationary pressure and higher bills, not lower bills. Unless of course you really are going to try to argue that hydrocarbon prices are going to defy their trajectory for the past one hundred years and begin to decline into perpetuity. I wouldn’t suggest that argument since CAPEX has actually exploded among o&g co.s since 2000. And yet, production has fallen every year since 2006 in spite of this enormous surge in CAPEX. So now your argument has two problems: oil and gas has become much, much more expensive to find and extract and reserve replacement is dwindling. In fact, looking at the Majors, production is now dropping in excess of 5% per annum. So boys, that means prices are heading up, not down.

 

Kevon Martis's picture
Kevon Martis on April 17, 2015

That’s what the wind lobby told state legislatures in 2007 and 2008 as the passed RPS mandates: gas is high and going higher.

 

But they were wrong.

 

Why would we believe you now?

 

Secondly, nuclear has very low and stable fuel prices.

 

And finally, since wind is paired with gas generation at roughly the inverse of it’s capacity factor your wind heavy solution increases ratepayer exposure to the most volatile fuel market, nat gas. Worse, as the gas+wind penetration rises it blocks out coal and nuclear which, unlike wind, offer true diversity of supply.

 

 

Wind is often peddled as a fuel price hedge but in fact it does not hedge at all. If anything wind mandates increase demand for gas supply which the raises the cost of the gas+wind combination.

 

And worst of all, consider my state Michigan: the capacity weighted power purchase price for wind is $75.00/MWh for 20 years. That means we are paying $75/MWh to save $35/MWh of gas fuel or $25/MWh of coal fuel.

 

Some hedge.

 

20 year wind PPA’s do bring market protection to one entity: wind operators. And in MI they have managed to hook the ratepayers for 20 years at $75 for electricity that has a wholesale value of only $30/MWh and if adjusted for time of delivery is even less.

Schalk Cloete's picture
Schalk Cloete on April 17, 2015

Firstly, the thing that drives investment in renewables is guaranteed profits secured through favourable policy. Many examples exist where investment in renewable energy has plummeted after the policy environment changed. For example, the most economic modern renewable, onshore wind, located in the most suitable country in the world, the US, experienced a 93% drop after the PTC expired as recently as 2013. 

Secondly, fuel costs represent a small fraction of the cost of electricity that comes out of your wall socket. All energy investors know this and when their own real money is at stake, they will do real calculations instead of repeating “no fuel costs” over and over. 

The most important barrier for “no fuel cost” intermittent renewables in the open market is that the value of the electricity produced by an installed facility will rapidly decline as more capacity is installed. An example for Germany is shown in a previous article. As an investor, I would certainly not invest in such a technology that will give steadily declining revenues over its operational lifetime unless the governments gives me a fixed guaranteed income. 

A more informative angle for the type of readership on TEC might be the attractiveness of technologies like wind/solar (and also nuclear) in an environment with steadily declining (now going negative) interest rates. Technologies with a cost structure heavily weighted towards CAPEX become more attractive in such an environment of stagnating/declining economic growth, whereas technologies with costs weighted towards OPEX (e.g. fuel costs) become more attractive in rapidly growing regions (i.e. the developing world that will emit triple the CO2 of the developed world as little as two decades from now). 

Deborah Lawrence's picture
Deborah Lawrence on April 17, 2015

I agree with you that the thing driving investment currently is favorable policy. But I do not see this as static going forward into perpetuity as you apparently see it. Further if your argument was true that all renewable investment falls off a cliff once policy is changed then we would not be seeing onshore wind and in some cases even solar now competing on a levelized basis WITHOUT subsidies.

Your point about fuels representing a small fraction of the costs of electricity is also subject to problems in that I doubt few of us truly think that nat gas will be cheaper twenty or thirty years from now. That has never been the long term trend in hydrocarbons. Further that point becomes especially true now that nat gas is coming from shales which are significantly more expensive to extract than nat gas from conventional reservoirs. Moreover, shales have never produced free cash flow. Taking a universe of 20 oil and gas companies, all the usual suspects, none have produced positive free cash flow since 2009. Again highly problematic and points to higher and higher prices in future. As for your advocacy of coal, that market is in structural decline. Period, the end.

Your point about steadily declining revenues again assumes a static view of the utility markets. There are myriad ways for utilities to provide investor returns. In a  previous article, I advocated for utilities to buy out DG solar companies. This has multiple benefits both for the ratepayer and the utility. I refer you to that article.

This is an interesting statement:

“Technologies with a cost structure heavily weighted towards CAPEX become more attractive in such an environment of stagnating/declining economic growth, whereas technologies with costs weighted towards OPEX (e.g. fuel costs) become more attractive in rapidly growing regions (i.e. the developing world that will emit triple the CO2 of the developed world as little as two decades from now).”

Really? If one looks at Exxon or BP long term projections for growth, one is struck by the assumption, which you too have just made, that demographics are rising thus more people will need access to electricity….and here is the falsity of the assumption…and so fossil fuels will necessarily be the sole beneficiary of all that lovely growth. Now that is a good thing to tell your shareholders. But that is not what is happening. In fact, renewables are growing faster in non-OECD countries than in developed countries. If you have very little infrastructure for fossil fuels in place, then why put it in place now and subject yourself to the vagaries of the commodity markets for decades to come. Why not put in wind and solar and, yep, have no fuel costs? And that is what they are doing. And China has now agreed to commit to a renewable target as well though admittedly they have social unrest due to the appalling levels of air pollution which is partially driving this. And yet the target for renewable buildout they have set to accomplish by 2025 is equivalent to the entire current US grid.

 
Bob Meinetz's picture
Bob Meinetz on April 17, 2015

Deborah, the idea that increased oil prices equates to significant inflationary pressure on the economy made me do some rechecking on the ate over the last decade, because I thought it had been stable. It has.

I’m not an economist, but it seems that gasoline purchases in the postwar era have become less discretionary, meaning as gasoline prices rise consumers have less money to spend on discretionary purchases – with the net result of keeping inflation in check. If that’s not the case, I’m happy to be corrected.

Reserve replacement has been dwindling for a couple of reasons: cheap Saudi oil and reduced consumption, which make boiling sand and fracturing rock to extract oil unprofitable. I don’t think anyone commenting here feels nat gas and coal will be the economic saviors of electricity ratepayers, or doubts fossil prices will rise. But that’s bad for renewables, because the idea they generate electricity with no fuel costs is a simplistic reduction with little application to powering a grid.

Do your think T. Boone Pickens is interested in building out windfarms in Texas to diminish the value of his natural gas empire – or multiply it?

Deborah Lawrence's picture
Deborah Lawrence on April 17, 2015

Ike, I agree with you regarding storage to some extent. But the argument I hear all too often is that utility scale storage is very expensive and it does work yet. This is very true but why does it have to be utility scale? It is one thing to store electricity for a grid and quite another to store it for a home. Home storage capacity is available now on a cost effective bais. Solar City is already making money off it.  Further, this is expected to be a billion dollar market by 2018 so costs will no doubt fall as more penetration is reached. Some utility scale strange will probably be needed but not nearly as much as some are assuming. It really is not the most efficient way.

Deborah Lawrence's picture
Deborah Lawrence on April 17, 2015

Bob, the CPI EXCLUDES food and energy.

Bob Meinetz's picture
Bob Meinetz on April 17, 2015

Deborah, your point was about inflation, and the CPI is how the U.S. Bureau of Labor Statistics measures inflation as it relates to consumers.

Mark Heslep's picture
Mark Heslep on April 17, 2015

onshore wind and in some cases even solar now competing on a levelized basis WITHOUT subsidies.”

The US PTC grandfathered wind projects for ten years after contstruction for those built before its lapse. Afterwards, new wind installation fell 92% over the prior year. 

Daniel Duggan's picture
Daniel Duggan on April 19, 2015
The comment tail on this article made an interesting read; a perfect example of the arguments by both sides of the RE debate. We have Deborah Lawrence who believes that “no fuel costs” alone is just about sufficient grounds to invest trillions in RE. On the opposing side, Kevon Martis, Bob Meinetz and others who believe there are additional factors to consider before betting the farm. That the article is an option rather than a fact-based paper supported by proven and relevant statistical information is also typical of the debate.

Yes, wind power has no direct fuel cost. Does the consumer benefit as a result of this fact? I’m afraid that contrary to all the good intensions the answer to date is a resounding no because for every fuel Dollar saved by wind power, several Dollars are spent on unavoidable wind turbine induced costs such as additional power lines, energy storage, and smart metering, as well as constraint, capacity and system services payments to generators. It is for this reason that Germany and Denmark, the countries leading the move to renewable electricity today in 2015 charge domestic consumer US$0.35 for a single kWh of electricity, among the highest electricity rates anywhere on planet Earth. Another example of the economics of wind power is to be seen unfolding in Ireland where today 20% average wind generation results in a 40% capacity and constraints adder to the to the wholesale cost of electricity produced at Irish power plants. Should Ireland achieve the stipulated 2020 target of 37% wind generation expect this added cost to significantly increase. By 2020 the cost of purchasing 37% wind generated electricity at guaranteed above-market prices plus the new power lines needed to transmit wind power, plus system services, capacity and constraints directly resultant from wind will exceed the cost of the purchasing the 63% of Ireland’s electricity produced in power plants.
Of course GE and other OEMs are building gas turbines in addition to wind turbines, the GTs are built because they are necessary to provide the large volumes of vital grid stabilising system services such as Dynamic Inertia, Operating Reserve, Fast Frequency Response, etc. that asynchronous wind turbines cannot offer in quantities sufficient to maintain grid stability. Gas turbine power plants are also there to take the load when the wind dies, as it always does. There is currently no economic case for the widespread deployment of wind turbines, even in the windiest areas of our world. Will the economics reverse in 10, 20, or 50 years? I admit that I don’t know, but neither do those who make ridiculous statements on the economic benefits of RE.
As for CO2 savings, in the absence of a large-scale worldwide move to advanced nuclear plants, by far the lowest cost method of decarbonising electricity production is to replace coal with natural gas. This drops the base load CO2 per kWk from around 900g to as low as 350g without any of the huge direct / indirect costs of wind power. Sure, due to reserve requirements some gas power plants will operate at lower efficiency, and not all gas plants are latest technology, but the overall figure for a gas fired fleet can be under 400g/kWh, and in many countries this figure is substantially reduced to within a 50 – 300g/kWh range by the nuclear and/or hydro component of the generation fleet. 

 
Deborah, to write on a topic when lacking in-depth knowledge is a risky business, and I’m afraid that for the sake of consumers everywhere, I have to call your bluff. Society also need hospitals, old age care, good schools, clean water, etc. To unwisely spend trillions of Dollars on RE means less money is available for these very desirable social services.
Schalk Cloete's picture
Schalk Cloete on April 17, 2015

My point was simply that “no fuel costs” is certainly not what drives investment in wind/solar – favourable policy is. 

About the unsubsidized costs, you should scan through the data presented in the Seeking Consensus series I’m writing for TEC. Perhaps you can make some contributions. 

On the topic of developing nations, what you are actually referring to is China. In 2014, China was responsible for about two thirds of the clean energy investment of the entire developing world. Why can/must they do this? Because of coal. The Chinese economic miracle that lifted hundreds of milions out of poverty in record time (and facilitates heavy investment in more expensive clean energy) could not have happened on anything other than coal (take a look at the last graph in this article for some perspective). On the flipside, Eastern China burns half the world’s coal on about 3% of the world’s surface area. Obviously this will have negative effects that China’s increasingly affluent population is very concerned about.

China has to invest in clean energy to maintain social order and can do so because of coal. Thus far hydro has carried by far the most weight in this regard (again 6 times as much growth as wind and solar combined in 2014), but we will see what happens when hydro maxes out. In the meantime, there are many poorer nations that would like nothing more than to follow the coal-fired economic miracle of China. 

Bruce McFarling's picture
Bruce McFarling on April 17, 2015

The most important barrier for “no fuel cost” intermittent renewables in the open market is that the value of the electricity produced by an installed facility will rapidly decline as more capacity is installed.”

The economic value of the electricity produced does not decline rapidly as more capacity is installed.

It is common for the commercial value to drop if the price is regulated by constructing an artificial market and pricing according to required price to bring up the required generation. Which is a consequence of the topic of this post … that is a price regulation system designed to ensure that marginal costs of providing the power are covered, and where you have no fuel costs, the marginal cost is quite low, so the required price to bring up that generation is quite low.

But that is a commercial value that is driven by a policy choice regarding how to price wholesale electricity generation. Judging the economic value of renewable energy harvests by the price determined in an artificially constructed market is begging the question, since you need to have a judgement of the economic value in order to justify that the artificially constructed market is paying the “right” prices.

 

Bruce McFarling's picture
Bruce McFarling on April 17, 2015

Measurement by adjective like “absolutely massive” is quite vague. The transmission costs are substantially higher than the transmission costs of building a peaker NG plant near load, where an existing NG pipeline system is substituting for transmission capacity. But the long term external costs of the NG peaker plant is massive, and the transmission costs of harvesting renewable energy much lower than that … which is another problem with measurement by adjective, in that a “massive” “adds 10% to the cost” and a “massive” “quadruples or quintuples the cost” are both “massive” in vague relative adjective land.

Bruce McFarling's picture
Bruce McFarling on April 17, 2015

And here I thought that “insurance” was not a sexy topic.

A limititation of the “No Fuel Costs!” selling point is that in commercial terms it translates into “self-insurance against rising fuel costs!” … which means its like a hedge. And you often don’t fully hedge. So relying entirely on a “No Fuel Costs” argument could well put an artificially low ceiling on renewable energy.

Nathan Wilson's picture
Nathan Wilson on April 18, 2015

“...regarding storage…why does it have to be utility scale?…Home storage capacity is available now on a cost effective basis…

Absolutely wrong Deborah.  Variations on Net-metering may save money for the homeowner, or produce profits for the equipment supplier, but moving an uneconomical solution from one side of the meter to the other does not change the total cost to society.  The exact same technology (whether solar PV, batteries, fossil fueled generation, or pollution control) will automatically double in cost when moved from utility-scale to residential scale (due to various “soft costs”, overhead, and economy of scale).  Battery energy storage cannot compete in cost with fossil backup at utitlity scale, and it certainly cannot compete at residential scale.  

Any rate plan which makes home batteries look cost effective must be shifting cost to other rate-payers.

Nathan Wilson's picture
Nathan Wilson on April 18, 2015

If you have very little infrastructure for fossil fuels in place, then why put it in place now … Why not put in wind and solar

Deborah, for developed nations with built-out energy infrastructure, solar and wind are relatively easy to add.  But in immature grids solar and wind require nearly 100% backup from flexible generation (ie. fossil fuel or hydro); for wind, this backup fraction drops to 50% or so as a long distance transmission grid is built-out, but only for low wind penetration.  So in developing countries with grids which struggle to keep up with growing demand, solar and wind must be built out in parallel with (not instead of) the fossil fuel grid infrastructure,

In contrast, each nuclear plant which is built (often with the help of a developed country, to the benefit of both) eliminates the need for a coal-fired power plant, on a Watt-for-Watt basis.

The other thing which is important to understand is that the fuel cost for coal and nuclear plants will never become expensive, because the available resources are so large.  So developing nations which follow Germany’s and Denmark’s lead in adopting solar and wind will also follow their lead in remaining adicted to cheap coal (which is used to “backup” solar and wind, where “backup” is used loosely, since  these countries get more energy from coal than solar and wind).

“…coal, that market is in structural decline…

Coal is the fuel of choice when budgets are tight, regardless of whether the tightness is because of rapid development or because of over-spending on lavishly subsidized energy sources.  Coal is declining in the US due to very low fossil gas prices; modest increases in the cost of gas will make renewables more attractive, but expensive gas will make coal more attractive (as is the case in Germany and Japan today).

Bruce McFarling's picture
Bruce McFarling on April 20, 2015

“And finally, since wind is paired with gas generation at roughly the inverse of it’s capacity factor your wind heavy solution increases ratepayer exposure to the most volatile fuel market, nat gas. Worse, as the gas+wind penetration rises it blocks out coal and nuclear which, unlike wind, offer true diversity of supply.”

Blocking out coal and nuclear is an excellent example of combining a good effect with a bad one. We have a fixed budget of CO2 emissions, even if there is some uncertainty about how high the budget is, and the more coal we burn, the less energy we can recover within any given carbon budget. So locking out coal is a clear win: the “diversity of supply” that coal adds to the picture is the freedom to engage in economic suicide as an industrial economy more rapidly.

However, locking out low carbon energy from nuclear is not a good. Fortunately, at an economic cost for CO2 emissions, the impact of wind+dispatchable can be focused on coal and NGCC, and gas as the power source for the dispatchable capacity can be displaced.

 

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Bruce McFarling on April 29, 2015

The cost goes up when it moves to the home … for the same number of cycles per year, utility scale storage is lower cost per kWh stored. There are economies of scale for installation, there are economies of scale for equipment, there are some utility scale storage options that are not available at the residential level.

One difference on the retail side is that the economic value of the power is higher because it is retail power rather than wholesale. However, that is largely or entirely offset by the higher cost of placing decentralized storage.

The other difference is that the storage can be thought to provide back-up power in the event of an outage, and some consumers may be willing to pay a cost for that peace of mind. But by definition, storage that you cycle through in order to time-shift demand is storage that will be regularly depleted at some part of the day, and so it will not be available as back up power if there is an outage after it is depleted. If the primary target for the back-up power is to keep the freezer frozen, allow electronic gas heater controllers to continue to function, and allow low power electronic devices to charge, most of that would be power you are as likely to want to have for an outage at 11pm as for an outage at sunset, so the “back-up power” and the “time shift storage” do not share the same battery capacity.

So the best that any demand for back-up power offers is that the portion of the capacity bought for emergency back-up power is sharing some of the fixed costs of system installation with the portion of the capacity bought to time-shift solar production.

By contrast, if there is more detailed time-of-use pricing than simply on-peak, off-peak by fixed time of day … say five-tier pricing, with a base rate, peak and high peak premiums and low-load and very-low-load discounts … there will be demand shifts that pay off with or without solar PV, if they shift demand down one, two, three or even four pricing steps. They will still complements solar PV, since demand shifting is easier for smaller time steps than for longer ones, and solar PV installed for peak energy efficiency will peak earlier in the day than the high peak period for much of the year and will decline while the high peak or peak pricing is still in effect.

The cost of storage is why there is such interest in integrating the “intermittent” storage of EV’s into the grid … despite their intermittence on a per vehicle basis, with sufficient distribution of charging stations to places where EVs are parked while people are at work, there will always be some EV storage connected to the grid. And since people are buying that storage along with their vehicle, there will always be some people who have more battery capacity connected to the grid than they need to have available when they get back to their car. Experience in marketing a wide range of products under  wide range of pricing systems tells us that a lot of people will take up those kinds of discounts if they are made easy to select.

How much storage would be available through that approach depends on our assumptions about the motor vehicle fleet. Given that an EV is not just as unsustainable when sitting still, but actually less sustainable than a gasoline powered car when sitting still, a motor vehicle fleet in which most transport is provided by privately owned vehicles that sit still over 90% of the day on average is an egregious economic inefficiency, but the most optimistic projections of storage in EV batteries connected to the grid are typically assuming perpetuation of that same inefficient system.

Bruce McFarling's picture
Bruce McFarling on April 29, 2015

Thus the constraint on the variable renewables that can be integrated into the grid is the amount of firming power that is required, against the amount that can be provided by dispatchable renewables with no fuel costs.

At present, that is reservoir hydro, with moderate costs but, in most cases, a limit on total capacity, and concentrated solar power with thermal storage, which is a relatively high cost energy source, and if anything more substantial site constraints than reservoir hydro. Australia and Middle Eastern countries might concievably firm with a substantial amount of solar CSP, but its not an option for a lot of firming for either the US or the EU.

Other than that, even if you firm entirely with renewables, you will be firming with renewable fueled power sources, and so there will be fuel costs in the mix.

That limit on availability of non-fueled firming power makes this an argument that is only workable up to a relatively small total share of renewables. So, in the analogy, this is a sexy seduction that might be suitable for a one-night stand, but is not the basis for a long-term relationship.

 

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Bruce McFarling on April 29, 2015

However, if flexible generation assets, such as gas turbines, are not available, these renewable technologies will not be deployed. In other words, gas turbines are an essential component of renewable energy sources’ ability to penetrate the market.”

… GE appears to be saying “No gas, no wind”.

But note that the “In other words” does not actually follow from the “However” with a tacit assumed “under current market conditions”.

That is, the premise is that dispatchable generation is required. NG does not follow from that premise alone. That NG is the flexible generation of choice in the current commercial environment is largely based on the fact that the cost of NG is a lie, omitting the external cost of GHG emissions.

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