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Establishing a competitive market to achieve 100% clean energy

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Robin Duquette's picture
CEO Pyxidr

Robin Duquette is CEO of Pyxidr, a firm dedicated to capturing value with data, analytics, and information technology through commercial optimization principles.Our current initiative is to put...

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  • Sep 10, 2021 10:14 am GMT
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Today's primary approach to decarbonizing the electric grids is to add renewable capacity to offset thermal generation. For instance, many corporations have signed power purchase agreements (PPAs) with renewable producers to offset partially or totally their annual electricity use with renewable energy.

However, the efficiency of renewable energy linked to the reduction of CO2 decreases considerably as soon as we exceed a certain threshold of installed capacity. Indeed, four problems impact their effectiveness:

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  • The need to profile intermittent solar and wind production to meet demand, which today is relatively rigid.
  • The high uncertainty of short-term solar and wind forecasts during specific periods forces grid operators to have more responsive reserves than usual.
  • The strong correlation between wind power generating assets in a region exacerbates the renewable generation gaps between periods when adding more wind capacity. The case of solar is even more apparent to observe (i.e., daylight against night).
  • The lack of transmission capacity between zones with low residual load (i.e., demand less renewable generation) and high residual load leads to renewable generation curtailments.

In regions with a critical share of thermal generation, these four issues force an extended use of flexible but inefficient thermal power plants, resulting in marginal carbon intensity increases. Germany is an excellent example where the strong seasonality of solar and the high variance of onshore wind require the use of some coal-fired power plants for the foreseeable future. We need to address all these issues to decarbonize the electric grids adequately. That's why organizations like Google, Microsoft, and the US federal government advocate a 24/7 carbon-free approach that consists of sourcing clean energy for every location and every hour of operation.

A cash market to cost-effectively decarbonize the electric grids

We want a market mechanism that rewards clean energy, flexibility, and location to reduce carbon emissions more effectively while ensuring price competitiveness. For example, we should modulate our consumption according to, among other things, the current carbon intensity of the system and be rewarded accordingly, and not just for reducing our energy bill. It will be critical when electric vehicles represent a significant portion of energy consumption.


The principle is to tag each unit of energy produced by power plants with its associated CO2 emissions and to follow the energy path to the end-user. The related carbon accounting should include the embedded emissions for construction and operation and the upstream methane emissions to be as accurate as possible concerning the actual carbon reduction. This measure allows making the best technological choice to decarbonize the electric grid and reward the elimination of upstream methane leakage potentially associated with carbon capture and storage (CCS).


We define the following three rules that will allow us to put a price on clean energy, flexibility, and location:

  1. We meet the hourly electricity use at a specific location with dedicated generation and spot purchases.
  2. We have sufficient transmission rights to protect against congestion between generation and consumption.
  3. We ensure that the carbon intensity linked to allocated production and spot purchases does not exceed consumers' annual carbon intensity targets.

The result is like how we trade gasoline, where specifications, timing, and locations matter. An over-the-counter or organized forward market can straightforwardly emerge from this approach.


We can implement this market mechanism to complement existing energy, capacity, and green certificate markets so that participants can tap them for additional revenue. For example, we ask holders of renewable energy credits or guarantees of origin who have sold energy in the proposed market to withdraw the associated credits or guarantees to avoid double counting. We can coordinate with initiatives like EnergyTag and M-RETS, which work on a granular version of green certificates.


Finally, we can set up a shared ledger that unifies all the participating entities and ensures the consistency of the approach. This represents a good application of blockchain technology.

An illustration using Texas and Great Britain

We have set up a prototype pricing model based on the proposed market mechanism to illustrate how such a market can work in practice. We chose to apply our prototype on Texas (ERCOT) and Great Britain (GB) because they have a significant share of renewable and fossil energy production. We have chosen 2019 as the base year because it symbolizes the last typical year before COVID-19.

Four points are worth mentioning about our implementation.

  • We use the carbon intensity stated in the IPCC Fifth Assessment Report for the different means of production found in ERCOT and GB (see appendix).
  • We have implemented an approach similar to de Chalendara and Benson (A Physics-informed data reconciliation framework for real-time electricity and emissions tracking) to determine the carbon intensity of spot purchases.
  • We subject energy storage assets (e.g., batteries) to carbon balance equations, i.e., the carbon injected into storage to eventually meet a given load must be attributed to it once withdrawn.
  • We force the load to acquire clean energy resources close to their market price or at cost price if the latter is more expensive. For instance, if we can build a solar project for $40/MWh with associated market revenues of $50/MWh, the price is $50/MWh.

The cases on which we have run our prototype are as follows:

We have used figures for CAPEX and O&M in line with the industry's median for the US and Europe/UK.

Key takeaways

  1. Suppose we rely solely on renewable energy and electrical energy storage (EES). In that case, we increase the wholesale price of purchasing 100 MW baseload of clean energy in Houston and GB by 224% and 119%, respectively. The high cost is primarily related to the attenuation of renewable intermittency with batteries lasting 5 to 6 hours.
  2. If we allow retrofitting an efficient gas-fired power plant with CCS (NGCCS) in the mix, we reduce the procurement cost by 40-50%. This is due to the dispatchability of NGCCS, which we use to manage renewable intermittency instead of relying on energy storage.
  3. We can use the price signal for incentivizing demand (e.g., charging an electric vehicle) to reduce the carbon intensity.
  4. We value renewable energy more, which entails a premium over the current market price. For example, in ERCOT West, the wind can reach up to 2 to 3 times the market price because the modulation capacity built makes it more profitable.

Deep dive into some results

We have run our prototype on numerous carbon intensity targets to assess how the procurement cost changes as we lower the target and how a 100% renewable strategy compares to a 24/7 carbon-free approach. Since we use life-cycle carbon accounting, zero-carbon does not exist without negative carbon solutions. Therefore, we assume that reaching a 45 kgCO2e/MWh target is considered clean for the sake of this article because it is about the median of the life-cycle carbon intensity associated with PV. Finally, we present our results with and without CCS to compare the cost of mitigating renewable intermittency when using EES or clean dispatchable energy.

The following two exhibits illustrate the cost of procuring a 100 MW baseload based on the marginal value of clean energy for different carbon intensity targets.

The CCS case is cheaper and relatively stable as we decrease the target because it provides clean and dispatchable energy that avoids extending batteries to regulate a large volume of renewable energy.

The next graphics show the installed capacity required for each carbon intensity objective – we present in annex the installed storage energy usage associated with batteries.

We can see the impact of considering congestion because, in ERCOT, it is better to build the battery close to the load. We also observe that a 100% renewable strategy is not always the most effective approach in reducing the carbon intensity of the load.

One of the critical points of setting up a clean energy market mechanism is to reward consumption for modulating its profile to lower the carbon intensity of the system. Suppose it takes five hours to charge an electric vehicle. In that case, the following illustration shows that the cheapest hours considering only the energy price, are very different when including carbon intensity.

Therefore, such a mechanism will allow consumers to participate in decarbonizing the system actively. In addition, it also rewards renewable energy better as it receives a premium above the price of energy for its low carbon intensity, as indicated in the annex.

Finally, we said earlier that we trade clean energy like gasoline, i.e., a bundle of organic compounds. This graph compares the distribution of the carbon intensity of the system with the one used to achieve the load target.

As we can see, we realize the goal by mixing a wide variety of carbon intensities, which minimizes the cost of energy while reaching our target. If we had been required to reach our goal on a daily rather than an annual basis, the distribution would have been much smaller but much more expensive because it penalizes renewable intermittency severely.

Appendix

Carbon intensity assumptions

kgCO2e/MWh

Installed storage energy usage

Clean energy premium

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Matt Chester's picture
Matt Chester on Sep 10, 2021

We define the following three rules that will allow us to put a price on clean energy, flexibility, and location

What are your thoughts on trying to put a price on reliability as well? 

Robin Duquette's picture
Robin Duquette on Sep 12, 2021

Indeed, reliability is vital for electric grids. Because the market mechanism I present is a layer on top of existing markets, the reliability is implicitly considered. For instance, if ERCOT has a real-time price of $9k/MWh, the value of clean energy will also be in the order of $9k/MWh.

Bob Meinetz's picture
Bob Meinetz on Sep 10, 2021

Robin, for decades the prevalent response to climate change has blindly accepted a singular premise: that with enough thought, enough time, enough money, batteries, analysis, passion, care, dedication, insight, talent, more batteries, technology, and attention to detail, we can overcome the problem of intermittency of solar and wind power.

But we can't. Intermittency is not a complex problem to solve - it's a fundamental, inherent limitation of both, and we can no sooner escape that truth than we can rewrite history, stop the world from turning, or fly by flapping our arms.

If there was a solution, there is certainly no shortage of humans with the above qualities to find it. What we're running out of, however, is time.

It's time to open our eyes to the fact that nuclear energy is the only carbon-free, dispatchable source that can replace oil, gas, and coal, in any time frame that will prove useful to humanity. That it will eventually be the world's primary source of power is inescapable; the only remaining question is whether it will be soon enough.

Jim Stack's picture
Jim Stack on Sep 10, 2021

There are a lot of choices today. The new advanced storage make more renewable energy possible.

    I don't think the gas power is needed. It requires water and makes pollution and the cost to start and stop it so it can cover a short time is very poor. 

Robin Duquette's picture
Robin Duquette on Sep 12, 2021

Reply to the previous two comments.

 

The market mechanism I propose is agnostic to the means used to procure clean energy. My objective is to create a market where we can make the best technology choices to achieve clean energy delivered to our homes. The more alternatives we have that meet the criteria of clean energy, the better it is. 

Bob Meinetz's picture
Bob Meinetz on Sep 13, 2021

Robin, your premise appears to be that the most profitable solution will be the most effective one. On what are you basing this conclusion?

Robin Duquette's picture
Robin Duquette on Sep 13, 2021

Bob, the market mechanism I propose considers three elements associated with any technological solutions: Carbon intensity, flexibility, and location. So, a solution that provides inexpensive, intermittent clean energy built in a remote location may not necessarily be competitive for delivering baseload in a load center. For instance, the work done at TerraPower can eventually lead to a competitive offer for providing clean energy as flexibility and location should not represent a critical issue.

Bob Meinetz's picture
Bob Meinetz on Sep 14, 2021

Robin, you had me up to

"That's why organizations like Google, Microsoft, and the US federal government advocate a 24/7 carbon-free approach that consists of sourcing clean energy for every location and every hour of operation."

Google and Microsoft have lied so many times about being carbon-free they can't even keep their stories straight. In April, Google claimed it had been 100% carbon-free for four years. Then in August, they claimed their goal was to be 100% carbon-free by 2030. Yesterday I found a source where they claimed they had been 100% carbon-free since 2009. So I wouldn't put much credence in the idea these plans amount to more than marketing - and confused marketing, at that.

Though sourcing clean energy for every location and every hour of operation is a laudable goal, your means of achieving it relies on several naïve and simplistic assumptions. It assumes:

1) Consumers will be motivated to participate in decarbonizing the system actively (in practice, consumers are disinclined to give it much thought at all);
2) A market of perfect economic efficiency, where customers will immediately respond to price signals;
3) Renewable solar and wind are a necessary component of a carbon-free electricity grid;
4) The economic and technical viability of Carbon Capture and Storage (CCS), without any evidence thereof;
5) A grid without binding capacity constraints;
6) A quantity of available battery capacity that is at least two orders of magnitude too expensive to be affordable anywhere in the world;
7) Batteries are 100% energy efficient, when at least 20% of stored energy is lost to internal resistance and bi-directional inversion.

In general it suffers from complexity bias, or "our tendency to look at something that is easy to understand and view it as having many parts that are difficult to understand." The most practical, affordable clean energy system won't be built from the bottom up, but from the top down. It won't be assembled from thousands of pieces, placed in exactly the right configuration, with the intent of making it work every hour, of every day, in every location. It will be made from big, proven solutions that aren't perfect, but close enough - ones we can quickly put into practice, then fill in gaps where necessary. 

Michael Keller's picture
Michael Keller on Sep 14, 2021

Looks more like yet another artificially created market (scam) to enrich the financial industry at the expense of businesses and consumers.

Your “market” is based on conjecture concerning the need to reduce CO2 emissions with an underlying fact that what the US does to reduce CO2 is irrelevant on a global scale. The objective should be reasonably priced energy, with a secondary consideration of reasonably clean energy. Technical innovations driven by the profit motive consistently produces more cost effective energy. Ham-fisted inept government interference only serves to drive up costs.
 

The financial industry has a long history of hatching schemes to enrich itself. 

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