This group brings together the best thinkers on energy and climate. Join us for smart, insightful posts and conversations about where the energy industry is and where it is going.

Post

Dismantling the Utility Model is the Fastest Path to a Cleaner Electricity Infrastructure

Utilities and Markets

In 1882 the Pearl Street Station became the first central electrical generation plant in the U.S., providing power to lower Manhattan. In 1935 FDR labeled the power companies which were then providing electricity to increasing numbers of American’s “evil”, which marked the beginning of regulated and price controlled electric utilities in the United States. The underlying premise was that guaranteed monopoly revenues would support low cost borrowing for the large capital investments needed to build out the system. In return the electric utilities would be tightly regulated and price controlled. The regulated utilities did complete the system build-out and succeeded in electrifying virtually every home in America by 1965. Despite having fulfilled the original rationale for the regulated industry, there has not been any effort to move to a comprehensively free electricity market in the intervening 50 years.

Utilities have come under increasing pressure from constituents, customers, and politicians in recent decades. Grueling battles are fought over how fast to reduce the industry’s air pollution, how much to spend to reduce water use, what generation plants should be built, and how progressive utility rates should be. Many of these issues have migrated from the states to Washington for resolution, and national politicians find themselves in increasingly uncomfortable and untenable positions. For example, we have politicians’ arguing against emissions reductions, arguing in favor of the federal government owned utility model as exemplified by the Tennessee Valley Authority, and even proposing to tax homeowners for their rooftop solar systems! The parallels to the Russian and Chinese controlled economies are also notable. The result of politicians being in charge of industry decisions for the past 80 years has been (perhaps inadvertently) deleterious environmental impacts and a dim record of new technology adoption.

Recent technological advances provide the opportunity to change all this. It is now becoming technically feasible to restructure our generation portfolio to deliver cleaner, more reliable, and less expensive electricity. We can get there by unshackling the forces of innovation from the control of PUC’s, politicians, and monopoly utilities. We often hear that new generation technologies are “more expensive”, and that renewable generation resources are “still subsidized”. Let’s take a look at those claims.

There are three fundamental issues that complicate broad claims about electricity costs:

  • When electricity is produced matters: Electricity follows normal laws of supply and demand, but it is not easily stored so its value fluctuates season by season and hour by hour. For example, electricity produced during hot summer afternoons can be 1,000 times more expensive than the same unit of electricity produced during a cool winter night. On the customer pricing side, utilities charge homeowners the same price regardless of when they consume electricity. The result of this continuous mismatch between electricity cost and price is opaque and illogical cost shifting, whose rules are determined at the whim of politicians and PUC’s.
  • Apples and oranges comparisons: Capital intensive power plants are built with planned 20 year lives, and are routinely kept in service for three times that long. When comparing the cost of generating resources, it doesn’t make sense to compare a newly built wind plant to a 60 year old highly polluting coal plant – this is like comparing a new car to Havana’s fabled 1950’s era Chevrolet’s. Unfortunately, this new to old cost comparison is regularly made.
  • Fuel matters: When comparing new generation alternatives extending 20 years into the future fuel prices are a big unknown. Utilities will use DOE projections or in-house custom forecasts to predict fuel prices. Both are guaranteed to be wrong, and can easily sway the financial analysis results in favor of any preferred outcome. The only accurate fuel price projection would be a contract to purchase the required fuel at a known price for 20 years, but contracts to do that are typically either unobtainable or determined to be too expensive.

In addition to pricing complexities, each electricity generation technology has multiple technical advantages and disadvantages. To provide a few examples, nuclear plants generate no emissions but have no long term waste disposal solution. Natural gas plants can offer rapid response to load changes but have historically exhibited volatile fuel pricing. Our existing 60 year old coal plants offer low costs but high levels of pollution and water usage. Wind and solar plants offer 20 year contracts with no price risk, emit no pollution, and use no water. Typically noted disadvantages include cost, intermittency, land use, and scalability.

If we compare new plants to new plants, unsubsidized wind generation is widely considered by knowledgeable industry participant to be the lowest cost option across most U.S. geographies today. Solar panels produce electricity during the most valuable time of day, and are less expensive today (unsubsidized) than utility-delivered power in high cost states such as Hawaii and California. Solar prices have fallen 7% per year for 20 years, and both wind and solar prices have fallen 10% per year for the past four years. There is no end in sight to these technology-driven cost reductions. U.S. utility prices have risen 2.1% per year for the past 20 years, and crossover points for these different generation technologies are now within sight.

Industry experts are predicting that wind generated power will fall below the marginal fuel cost of natural gas plants within the next 3 to 5 years. In a sure sign of the declining cost of solar, the electric utility industry association has declared customer-owned solar to be a “disruptive challenge” and recommends that their utility members act aggressively to financially penalize homeowners installing solar panels. As to the important question “why then are renewables still subsidized”, one might as well ask why natural gas drilling subsidies still survive after 98 years, or why billions in nuclear plant subsidies (first established in 1957) are still required to build each new plant today. The government has subsidized all forms of energy production for 100 years and shows no signs of stopping now.

Given that renewable generation options are already less expensive in many locations than traditional fueled plants (with renewables costs still falling 10% a year), the opportunity for a technology driven sea change in the U.S. electricity sector becomes apparent. Our debates over climate change, pollution levels, and the mix of our generation resources should now be left to free market forces to optimize. If Boulder, Colorado and other cities or states want to push the envelope of innovation and rapidly implement a 100% clean energy strategy, why do our politicians want to stop them? If a homeowner wants to generate clean power on their own rooftop, how is anyone benefitting if utilities, PUC’s and politicians want to penalize that choice?

A better course would be to trust the free market to work in the electricity sector. The challenge we face is how to implement the cleanest, most reliable, and most cost effective electricity system in the shortest time period. The free market is unquestionably better at this type of optimization problem than regulatory models driven by political influence. There are many constituencies who will argue that it can’t be done, including incumbent utilities and their state public utility commission regulators. A wiser course for politicians would be to end FDR’s regulated monopoly model and unleash the forces of innovation that can now feasibly revolutionize the industry. Our experiences in dismantling heavy regulations in the telecommunications and airline industries have been positive and resulted in great benefits to our economy. Now is the time to trust core marketplace principles and embrace a dismantling of the suffocating regulations and price controls which stifle innovation in our electricity industry. The results will be good for consumers, good for the environment, and good politics.

T Conroy's picture

Thank T for the Post!

Energy Central contributors share their experience and insights for the benefit of other Members (like you). Please show them your appreciation by leaving a comment, 'liking' this post, or following this Member.

Discussions

Nathan Wilson's picture
Nathan Wilson on Jul 20, 2014 7:20 am GMT

Thomas, you’ve obviously looked at the levelized costs for electricity (perhaps from a source like the US government EIA), but you’re still missing an important part of the picture:  24/7 dispatchability.

The grid must at all times precisely match electricity supply to demand; to do this, it must always have enough generation capacity available.  The simplified levelized cost analysis does not capture the cost of having this capacity available.  If you study the EIA data carefully, the costs are broken down into fixed and variable cost.  

When considering cleaner grids with new-build power, wind and solar power must be paired with fossil fuel generation for backup (arguments such as “wind and solar are often complementary” are misleading, since “often” is not good enough, the grid must always balance).  So first choose the backup technology, then compare its variable costs to wind and solar’s cost, not the levelized cost (the fixed cost must be paid, even if that plant seldom runs).

Compared to the variable cost of coal and gas power at 3¢/kWh and 4.5¢/kWh respectively, solar is never competitive, and wind is only competitive in the best locations, and even then only when transmission and integration costs are ignored.

Just for fun, go read about the NREL’s vision for high penetration renewables, or read some of the tech reports from Germany’s Franhoffer institute.  In each case, enough fossil backup generation to cover the majority of peak demand is projected to remain part of the renewable-rich grid, and energy storage is added also (see some discussion on the cost of energy storage here); so you’ll need to add that to your cost models too.

Trying to analyse the economics using market prices only confuses the issues (and generally gives the same new/old mismatched comparison you say you’d like to avoid).  The market can shift or hide costs, but they can’t make the cost go away, and can’t change the physics of power generation.

As to the notion that nuclear has “no long term waste disposal solution“:  Anti-nuclear activist keep telling us this, but it is actually not what experts in the field believe, so it is basically a very harmful form of anti-science dis-information.  Please read what the US Blue Ribbon Commission said about it here (hint, they never for a minute worried that nuclear wasted couldn’t be stored safely, but rather worried over how to explain it to the public).  Then compare that to our plan for fossil fuel waste disposal (dump it in the atmosphere for our children to breath), and our plan for solar panel and battery waste disposal (dump it in shallow land fills, and hope our children don’t blame us when the chemicals inevitably leach into the ground water).  Remember, no one has ever been killed by nuclear waste, but fossil fuel waste kills well over 10,000 Americans every year.

Bas Gresnigt's picture
Bas Gresnigt on Jul 20, 2014 6:47 am GMT

The grid is a natural monopoly.
Electricity generation and selling are not.

So the grid should be managed by an operator that:
– no strings with any utility, etc; and
– either be a government organisation or under close supervision of a government organisation
because the grid is a natural monopoly, which would allow exorbitant profits.

The grid operator should serve every utility or other unit that wants to deliver or consume electricity, as well as consumers that deliver rooftop generated electricity, and get the sole responsibility for grid stability and reliability.

Germany shows the huge success of that model!
Electricity reliability in Germany is ~10times better than in USA!

Bob Meinetz's picture
Bob Meinetz on Jul 20, 2014 6:47 pm GMT

Thomas, perhaps you could comment on what is different about the power companies once labeled by FDR as ‘evil’ vs. the new, non-evil variety you envision as a replacement for regulated utility monopolies.

“Unshackling the forces of innovation from the control of PUC’s and politicians” reads like flowery euphemism for deregulation – the same model which resulted in the unreliable and unsafe hodgepodge of standards of the early 20th century. It resulted in the Enron debacle, and has in the last decade boosted rates in Texas to among the highest in the country, while reducing service reliability in the state across the board.

Given the dismal record of “trusting the free markets to work in the electricity sector” would it be a major imposition to ask our distributed energy pundits to crack a history book, or at least read FDR’s Message to Congress Recommending Regulation of Public Utility Holding Companies so that they might understand how regulated utilities were the solution to a mistake we’ve already made? Or are we doomed to repeat it?

Roger Arnold's picture
Roger Arnold on Jul 20, 2014 9:44 am GMT

Arrrgggghhh! Another broadside from the Tinkerbelle school of analysis.  In this case, the pixie dust is the magic of the free market that will make everything wonderful.

People who talk about “unshackling the forces of innovation” are not presenting a reasoned case; they are preaching religion. There’s a lot to be said in favor of the free market, and a lot to be said about the perils of regulation.  If nothing else, there’s the inconvenient truth that regulators have a strong tendency — in this country at least — to transform into servants of the regulated.  They serve as tools that incumbents learn to use to protect their turf.  That sucks!  Don’t get me started about our healthcare and insurance industries, and don’t even mention bankers in my hearing!

But sweeping generalizations are always dangerous (he said, making a sweeping generalization.) It’s a mistake to elevate the virtues of a supposed “free market” to dogma, or condemn all regulation as an invitation to corruption and a drag on innovation.  You have to look at the specifics of particular industries and try to figure out what will work.

Those who tout deregulation of the utility business, in my opinion, generally have little understanding of how the business works, or why it works the way it does.  Or they have an angle that will allow them to profit from the changes they’re touting.  Hello, Enron!  I recommend they study up on the economic concept of a “natural monopoly”.

That’s not to say that the current regulatory structures are dandy and that there’s no need for reform. The prevailing system of setting rates to guarantee a specified rate of return on capital investment is peverse.  It does not reward efficient operations or encourage investments in innovative technologies for reliability and conservation.  And having to go through a bureaucratic approval process for new capital spending is indeed a drag on innovation.  So I’m not opposed to reform.  But the deregulation model that has been widely followed is worse than doing nothing.

Splitting transmission and generation, and mandating equal access to the transmission system by all generators is a recipe for increased costs and higher rates. There are some things that work best when they are self-organized under distributed control, but there are also things that work poorly that way, and work best under central planning and control.  The power grid is one of the latter.  Yes, it’s possible for the system operator to use day-ahead and hour-ahead auctions of power blocks to support the fiction of distributed control, but its an awkward substitute for simply being able to schedule generator startups, shutdowns, and rampings in a way that optimizes use of assets over the system as a whole.

 

Alistair Newbould's picture
Alistair Newbould on Jul 20, 2014 12:00 pm GMT

Rodger, New Zealand has a competitive electricty sector which is summarised here

http://en.wikipedia.org/wiki/New_Zealand_electricity_market

Distribution is the natural monopoly – and the marketplace where generators and retailers interact. The consumer buys from whichever retailer they feel gives them the deal they want. This system seems to work. Problems in distribution in Auckland are encountered and relate to weaknesses in the distribution network. Increased local solar capture by way of solar hot water or non connected PV would ease these bottlenecks (personal opinion backed by common sense!)

Nathan Wilson's picture
Nathan Wilson on Jul 20, 2014 6:49 pm GMT

Competitive electricity markets like the New Zealand system can work fine when all competitors use similar (i.e. fossil fuel) technology, with similar plant age.  When the system combines new&old plants, and fossil fuel & sustainable energy, such markets can appear to distribute the profit unevenly and lead to increased total cost.

One problem which gets worse as the renewable energy contribution starts to get significant, is that even though all players contribute energy to the system (which is priced), only the thermal generators contribute capacity (which is generally not priced, or is under-priced).  The low-capacity factor solar and wind generators also drive up transmission costs, due to their high peak-to-average ratio.

So this sort of market based system which “seems to work” today will get worse and worse as renewable penetration increases.

Bob Meinetz's picture
Bob Meinetz on Jul 20, 2014 7:48 pm GMT

Bas, you’ve got your work cut out for you if you want to continue holding up Germany as a renewable energy success story:

[Der] Spiegel reports here how Australia’s conservative government led by Tony Abbott is now using Germany’s failure as one of the main arguments for getting out of green energies and getting back to affordable and reliable coal power.

“The prices for raw materials are crumbling, auto manufacturers Ford and Holden, a GM arm, have announced plans to close factories. Mining companies such as BHPBilliton are rethinking their expansion plans. ‘The Australians have their backs up against the wall,’ says Heribert Dieter, expert at the Science and Policy Foundation in Berlin.”

What’s especially embarrassing for German greens and the green media like [Der] Spiegel is that countries around the world are now citing Germany’s failure in marshaling through the Energiewende as a reason to abandon the green path. Germany is showing the world how not to produce energy.

http://notrickszone.com/2014/02/19/spiegel-germanys-failed-energiewende-dissuades-abbott-and-australia-from-pursuing-green-energies/

Spiegel reports here how Australia’s conservative government led by Tony Abbott is now using Germany’s failure as one of the main arguments for getting out of green energies and getting back to affordable and reliable coal power.

Spiegel, perturbed by Abbot’s direction, writes of his doing away with the CO2 emissions trading scheme and his plans to abolish the CO2 tax. Australian industry has been burdened by a 15 euro per tonne CO2 tax while in Europe it is only 5 euros. Spiegel writes:

 

The prices for raw materials are crumbling, auto manufacturers Ford and Holden, a GM arm, have announced plans to close factories. Mining companies such as BHPBilliton are rethinking their expansion plans. ‘The Australians have their backs up against the wall,’ says Heribert Dieter, expert at the Science and Policy Foundation in Berlin.”

What’s especially embarrassing for German greens and the green media like Spiegel is that countries around the world are now citing Germany’s failure in marshaling through the Energiewende as a reason to abandon the green path. Germany is showing the world how not to produce energy.

– See more at: http://notrickszone.com/2014/02/19/spiegel-germanys-failed-energiewende-...

Spiegel reports here how Australia’s conservative government led by Tony Abbott is now using Germany’s failure as one of the main arguments for getting out of green energies and getting back to affordable and reliable coal power.

Spiegel, perturbed by Abbot’s direction, writes of his doing away with the CO2 emissions trading scheme and his plans to abolish the CO2 tax. Australian industry has been burdened by a 15 euro per tonne CO2 tax while in Europe it is only 5 euros. Spiegel writes:

 

The prices for raw materials are crumbling, auto manufacturers Ford and Holden, a GM arm, have announced plans to close factories. Mining companies such as BHPBilliton are rethinking their expansion plans. ‘The Australians have their backs up against the wall,’ says Heribert Dieter, expert at the Science and Policy Foundation in Berlin.”

What’s especially embarrassing for German greens and the green media like Spiegel is that countries around the world are now citing Germany’s failure in marshaling through the Energiewende as a reason to abandon the green path. Germany is showing the world how not to produce energy.

– See more at: http://notrickszone.com/2014/02/19/spiegel-germanys-failed-energiewende-...

Keith Pickering's picture
Keith Pickering on Jul 20, 2014 8:19 pm GMT

The German “success” has come at a price, and the price is laid mostly on the poor.

Sure, the grid is the natural monopoly. In the US, distribution and generation are usually co-owned, and both are regulated by Pubic Utilities Commissions in the various states. That allows the PUC to strongly skew the rates: the price ratepayers see on their electric bill for generation (i.e., energy) is much higher than the cost, while price we pay for distribution (i.e., the grid) is much lower than the cost.

That’s done deliberately, to keep the monthly fixed cost on the electric bill low, which encourages the poor to get hooked up to the grid. It’s a feature, not a bug, and it’s one we should all support.

That model is undermined when homeowners install their own generation sources, because they’re displacing overpriced energy costs (which artificially lowers the relative cost of solar or wind), while using the same amount (or more) of the grid. Thus they’re getting a break both ways. And the losers are everyone who is not a landowner and cannot put up solar or wind.

 

Schalk Cloete's picture
Schalk Cloete on Jul 20, 2014 8:33 pm GMT

What would be the main reasons why electricity prices in the US are more than 3x lower than in Germany? RE techology forcing has something to do with that, but definitely don’t explain all of this enormous difference. Would the German vs. US model have something to do with that? 

Bob Meinetz's picture
Bob Meinetz on Jul 20, 2014 8:39 pm GMT

Alistair, I’ve always been interested in why people would seek out a deal on a product that’s virtually identical no matter where you buy it, and has a wholesale price which is virtually identical for all retailers.

That means all companies have the same business model. So if you see some kind of special demand-response deal, you can bet that the company is making up the difference with some other hidden fee, or their customer service is subpar. The idea there is a thriving market driving innovation is more or less a myth, and as it turns out, one which is making electricity more expensive for everyone (NZ electricity is 35% more costly than in the U.S.):

Claim: Attractive deals are on offer

The inroads made by smaller players haven’t been enough to hold prices steady, let alone force a drop – something consumers might reasonably expect in a genuinely competitive market when demand is flat and wholesale electricity rates have fallen.

Last year, the Electricity Authority reasoned that weak demand coupled with a sharp drop in rates on the futures market raised “some prospect of flat or declining retail prices”. That never happened. Statistics NZ figures show electricity prices rose 3 percent in 2013, nearly double the 1.6 percent rate of inflation.

https://www.consumer.org.nz/articles/electricity-prices

Engineer- Poet's picture
Engineer- Poet on Jul 20, 2014 9:04 pm GMT

I’m fine with unleashing the free market in electricity.

This means the immediate elimination of RE tax credits of all kinds, renewable portfolio standards (RPSs), net metering laws which force utilities to buy power for far more than it costs them to make their own, bans on long-term power purchase contracts, and every other bit of market-rigging do-gooderism that’s gumming up the actual discovery of what it costs to deliver power when and how people want it.

Robert Bernal's picture
Robert Bernal on Jul 20, 2014 9:08 pm GMT

Distributed verses centralized isn’t really the issue. Excess CO2 is.

Renewable generation is on the order of 15x more subsidized (per unit of energy) than nuclear (and even much more so for oil and gas).

The best way to overcome FF’s is to standardize advanced nuclear because it has a much better capacity factor and has the potential to power the world (many worlds) with CO2 free electricity and CO2 neutral fuels synthesized from just water with high temp nuclear heat. Of course, this proven scientific option is a little inconvenient from a non-centralized POV.

The free market has been strangled by fear, and half-truths constantly perpetuated by the anti-nuclear activists to such a degree that even the (once) most powerful nation on Earth choked and “terminated nuclear research and development” (the words of Clinton, and gang at his SOTU address).

Reality is such that if renewables can get cheaper (and they should), advanced nuclear should get cheaper too! The problem is that the anti-nuke activists use the political demise of nuclear errantly as an excuse to say that it is technically not viable. They refuse to think in terms of the same type of manufacturing techniques required of the renewables… factory, and machine automation.

Remember, nothing is as serious as what the damage will be from excess CO2. We need awesome amounts of “grid” energy to clean it up!

Bas Gresnigt's picture
Bas Gresnigt on Jul 20, 2014 10:24 pm GMT

The reason is tax; local tax + energy tax + general VAT + Energiewende tax (=6cnt/KWh).

Average whole sale electricity prices in Germany are ~3.7cent/KWh. Prices going down as shown by the prices of Futures for electricity to be delivered in 2015/16/17 as traded at the Leipzig exchange (price level 2017 ~3.2cent/KWh).

In general, trading is in chunks of 15minutes of electricity to be delivered in either next 15 minutes or at a Future time, e.g. at June 2, 2016 from 12.00-12.15hr. Of course, the actual trading is computerized following the merit order.

I’m not fully aware of US prices but I thought those are often higher. May be US prices went down substantially last years due to cheap shale gas. 

Electricity prices in NL (at Amsterdam exchange) are in general higher than those in Germany. So we often import the max. the interconnection allows.
We sell part of that electricity to UK where the prices are much higher than in NL (that trading delivers kind of wind fall profit). The future of that trading looks fine as UK guaranteed exceptional high prices for the electricity their new NPP at Hinkley will produce, and so UK government took measures to keep market prices high. Measures such as restricting the volume of renewable (wind, solar).

Aluminum melters need lots of electricity. Our last aluminum melter broke down half a year ago because it couldn’t compete against the German melters, who have cheaper electricity. 

Tennet, our NL state owned grid operator which also runs part of the German grid, is busy installing two extra high capacity interconnections with the German grid so we can import more, which will push down prices at the Amsterdam exchange. Those new interconnections may also allow to export more to UK, if a new sea cable to UK is installed.

Your idea may be based on sensational consumer price stories of Bloomberg or so. But those tell little as most of the consumer price is tax. Here in NL consumer price is ~21cnt/KWh; ~15cnt of that is tax.
Our idea is that high energy taxes save energy. So gas for cars is also taxed greatly (still not enough, considering their pollution) and you see here more economic cars than in USA.

Clayton Handleman's picture
Clayton Handleman on Jul 20, 2014 11:18 pm GMT

With the benefit of a little history of how we got where we are, Germany emerges as a hero not a goat.  Germany is nearly single handedly responsible for driving costs of solar down.  By assuring a market for PV Germany provided, China and others with the needed assurance to attract capital and build next gen silicon foundaries and state of the art module manufacturing.  That led to today’s factor of 10 drop in PV module prices.  Germany also showed how soft costs could be slashed by assuring a reliable market dropping installed rooftop PV below $2.00 / Watt US despite higher than US labor rates. 

Now the press and short sighted politicians punish the hero.  Germany deserves the lions share of the credit for jumping ahead and mainstreaming solar.  From SMA with their early high quality inverters to RWE rescuing the Mobile Solar EFG process and high quality module assembly lines.  These and many more steps showed the world that it could be done.  Sadly the US squandered the leadership opportunities afforded us with low energy costs resulting from bi-partisan programs such as CAFE standards and the Alaskan oil pipeline supported throughout the 70’s. 

Having squandered the economic recovery in which we had a reprieve to continue developing 21st century energy sources, we are now faced with destroying watersheds irreparably through mountain top removal and poorly regulated hydraulic fracturing.  This even as the Western third of the nation suffers from the worst drought in US history. 

So my position is thank you Germany.  I hope enough of us in the US see the importance of clean energy that we take the baton from you.  Alternatively, we can buy the FF propaganda that German’s are fools and the US should have an orgy with the hydraulic fracturing windfal rather than investing in the next generation of clean energy.

Bas Gresnigt's picture
Bas Gresnigt on Jul 20, 2014 11:22 pm GMT

“In the US, distribution and generation are usually co-owned, and both are regulated by Pubic Utilities Commissions…”
That situation hampers progress unnecessarily.
Furthermore it restricts consumers freedom unnecessarily.

In NL consumers can choose one of 20 utilities that compete to deliver electricity. Some deliver electricity exclusively generated by wind, some exclusively by renewable, some nuclear, some are cheapest, some offer additional services to help you save energy, etc. etc. Some only sell electricity, some expect you also take share in a wind turbine, etc.
We can easily exchange one utility for another. I now have my third utility for electricity.

Anybody should be able to produce, trade, sell electricity if he is financially sound and satisfies reliability criteria.

Of course the real costs of the grid is to be calculated as accurate as possible and charged to connected parties (consumers for their local connection piece, power plants for their high capacity connection pieces). In general those costs are more capacity related; the capacity of the grid connection is the most important factor.

“…model is undermined when homeowners install their own generation sources, because they’re displacing overpriced energy costs…”
There was a dispute about that in Arizona. The PUC started a real investigation and the conclusion was that the influence of that idea is marginal.
We had similar discussion. It was killed when the real figures were considered.

In addition: You describe unclear shifting of money / subsidies. As far as I know it is not the task of the PUC to redistribute money from the rich to the poor. A PUC that allows such practices is on an unclear social welfare path and makes itself vulnerable.

Bas Gresnigt's picture
Bas Gresnigt on Jul 20, 2014 11:25 pm GMT

Seems New Zealand has similar as NL and Germany!

Bas Gresnigt's picture
Bas Gresnigt on Jul 20, 2014 11:29 pm GMT

Bob,
It matters for quite a number of people how the product they buy is produced, etc.
Similar with electricity. Some only want to buy renewable, or nuclear, or wind, or ….
That you can do here.

Bas Gresnigt's picture
Bas Gresnigt on Jul 20, 2014 11:42 pm GMT

As the dutch electricity market also shows, competitive electricity market works best with a diversity of electricity offers; 100% wind; solar; hydro; renewable; nuclear; cheapest; best service (e.g. help you by giving more frequent feedback to minimize your bill), etc.
We even have an utility that expects that you take a share in their wind turbines.

If all producers produce the same using the same method, then there is no real choice. Hardly any price difference either. So no real consumer market.

Bas Gresnigt's picture
Bas Gresnigt on Jul 21, 2014 12:13 am GMT

“… nuclear has “no long term waste disposal solution” … it is actually not what experts in the field believe..”

Nuclear experts always came with “long term” wast disposal solutions.
The most famous was disposal in underground salt formations. They were sure about that.

Until the Germans did it and found within a few decades that they will have to dig the nuclear waste up from 600m below surface. Furthermore that no salt formation is actually stable…

So the French spent billions searching for a good solution without finding…
But of course if you restrict your horizon to a few centuries (as some governments do), there are solutions. However that implies transferring the problem and its costs to our grand-/grand-children.
I do not consider such transfer to be a solution.

Bas Gresnigt's picture
Bas Gresnigt on Jul 21, 2014 12:22 am GMT

“Splitting transmission and generation, and mandating equal access to the transmission system by all generators is a recipe for increased costs and higher rates.”

Experience here shows the opposite is true. It stimulates competition, hence a stronger drive to decrease costs. And the offers/services to the consumer become more diverse. So the consumer can pick the choice which fit him best.  

Bob Meinetz's picture
Bob Meinetz on Jul 21, 2014 12:55 am GMT

Clayton, possibly you’re aware that electricity prices in Germany are higher than every country in the world, save nine. Eight are island nations without any domestic energy resources; the ninth is the only country with more renewable energy than Germany: Denmark. Both countries rely on imported electricity as well as domestic coal to keep the lights on, and there is no evidence that either country’s solar policy has resulted in lower net carbon emissions, or ever will.

This is not propaganda; these are facts. Propaganda is pushing the drop in PV module prices as evidence solar could ever replace fossil fuels (even if they were free). It’s pushing maximum capacity as if it were less than an order of magnitude above actual produced energy.

I wouldn’t care so much if this atrocious  waste of public funds didn’t hurt people who rely on cheap energy to survive, and delay real action on climate change. You and Bas can continue to beat this drum as long as you like, placing blame wherever convenient, but you will find an increasingly unreceptive audience as the Energiewende experiment continues to prove you both wrong, and the non-tragedy of Fukushima fades into memory.

I’ll join you in thanking Germany, but for a different reason: thank you for taking the bullet for the rest of us, for being the Guinea pig, for financing the experiment. Though not particularly known for their humility, I hope the people of my ancestral homeland will be wise and humble enough to change course before things get too bad, and Vladimir Putin starts drawing maps with Germany renamed “West Crimea”.

Bas Gresnigt's picture
Bas Gresnigt on Jul 21, 2014 12:33 am GMT

“Renewable generation is on the order of 15x more subsidized (per unit of energy) than nuclear (and even much more so for oil and gas).”

You (and the author of your link) forget the huge liability subsidies that nuclear gets:
– low accident liability max. A real insurance against accidents will costs ~$50/MWh.
– restricted liability for the nuclear waste. The real costs of those are ~$50/MWh (just check the huge amounts the tax-payer pays already. And that is only the start…. Our grand-/grand-children still have to pay.

If you correct than nuclear is by far (~4times) the most subsidized method of electricity generation.

Clayton Handleman's picture
Clayton Handleman on Jul 21, 2014 1:40 am GMT

“Propaganda is pushing the drop in PV module prices as evidence solar could ever replace fossil fuels (even if they were free).”

“You and Bas can continue to beat this drum as long as you like, placing blame wherever convenient, but you will find an increasingly unreceptive audience”

I am sure that Bas feels lonely as I do.  What with the company of folks like Elon Musk and Navigant consulting, many of the VCs in Silicon Valley, we are clearly a pathetically misguided bunch.

While I disagree with your contention that solar is a big mistake, I do agree that Germany should have been more careful in their approach.  As I have watched this progress for over a decade, I have felt that they could have offered a much lower price for the electricity generated and still gotten the build out that they sought.  I also am not supportive of their hasty retreat from Nuclear.  If they were worried about their own Fukushima they should beefed up their oversight and then designed an orderly transition out of nuclear.

Neither of these issues has parallels in the US.  Yes we support solar but not at anything approaching the $/kwhr level that Germany did.  Further, we have a much better solar resource.  In the Southwest where the bulk of it is being deployed it is highly predictable due to minimal cloud cover.  Similarly for wind for which we have higher capacity factors in the areas of maximum deployment such as the midwest.  And in the great plains states we are starting to put in 50% CF wind as transmission lines are being built to optimal sites in places like Texas that were heretofore underserved or unserved.  In CA wind kicks in as the sun goes down for the highest load times and is a great match to peaking needs.  Yes they still are running into storage issues but the silicon valley guys are looking out the windshield not the rear view mirror. 

With nuclear, we are not agressively moving forward but we are not beating a hasty retreat either.  A few plants have shut down but basically our nuclear fleet is intact and churning out electricity.  In Tony Seba’s book, Clean Disruption, he devotes a chapter to nuclear power.  His case study of the Georgia Power’s Vogtle power plant he points out that the new nuclear age in the US is shaping up pretty much like the old one.  This is a 2.2 GW project.  Cost over runs, schedule slippage and tax payer bail outs are alive and well with the project shaking out like this:

– Fed loan gurantee – $8.3 billion

– Ratepayer financing $2 B

– Production tax credit $1 Billion   (why is a mature industry getting a PTC anyway?)

– Cost over run protection $2 B (taxpayer funded)

This is what you apparently support.

Regarding intermittency and fossil fuel lock in, that is pretty overblown as a permanent state of being.  The experience curve for Li-ion suggests that it will be phasing in for utility scale applications in 5 years or less absent a better solution emerging.  It will probably cross over into peaking applications before Vogtle comes online and will keep improving long after.  Unless of course you can point to something credible indicating that experience curves are fiction. 

 

Bob Meinetz's picture
Bob Meinetz on Jul 21, 2014 6:43 am GMT

Clayton, Vogtle is shaping up nothing like old nuclear plants. It’s on budget and on time with one exception: rebar to be buried inside the concrete foundation was connected to code, but in a different manner than was called for in approved plans. That ridiculously minor discrepancy would have been ignored in the 1970s, but because of the atmosphere of nuclear hysteria in which we live it resulted in a 7-month delay costing Georgia Power $1 million/day. Standard & Poor’s changed the company’s credit rating to Negative; it has since been restored to A/Stable. Not a dime has been spent of the Fed loan guarantee, so that’s irrelevant, and I’m not sure why you bring up taxpayer funding, which is dwarfed by taxpayer funding for solar:

Taxpayers, ratepayers will fund California solar plants

Taxpayers have poured tens of billions of dollars into solar projects — some of which will have all their construction and development costs financed by the government by the time they start producing power.

The cost for decades to come will also be borne by ratepayers. Confidential agreements between solar developers and utilities lock in power prices two to four times the cost of conventional electricity. The power generated by the mega-plants will be among the most expensive renewable energy in the country.

“What’s happening in California is a tragedy, on every front,” said Bill Powers, a San Diego-based electrical engineer and power plant consultant to government, nonprofits and developers. “It’s a huge waste of money…. I see a lot of this as just an old fashioned rip-off.”

http://articles.latimes.com/2012/sep/20/local/la-me-bigsolar-20120921

Your claim that intermittency and fossil fuel lock in are “pretty overblown as a permanent state of being” is more renewables industry hype with no basis in reality:

State utility regulators Wednesday authorized the construction of a quick-start, natural gas power plant in an industrial zone southeast of San Diego, citing the need to shore up electricity supplies with the retirement of the San Onofre nuclear plant.

Despite the expense, the San Diego Chamber of Commerce advocated approval to ensure reliable power supplies. San Diego Gas & Electric also pitched the plant as a needed backup to solar and wind energy that varies with the weather and sunlight.

http://www.utsandiego.com/news/2014/Feb/05/pio-pico-gets-thumbsup/

Finally, your experience curve for Li-Ion storage shows that batteries will cost $200/kWh in 2020. But that’s just for batteries; storage integrated with the grid currently costs $1,560/kWh. To shave a 5GWh peak off of California’s daytime demand curve will cost $4 billion in 2020, a figure even Jerry Brown doesn’t believe is reasonable. He’s hoping for 1.3GWh at a cost of $2-3 billion. That’s wonderful – now how do we get the other 820 GWh which California burns through every day?

The notion that solar will ever make a meaningful contribution to energy is delusional, and a horrendous waste of time and resources.

Bas Gresnigt's picture
Bas Gresnigt on Jul 21, 2014 7:41 am GMT

“The notion that solar will ever make a meaningful contribution to energy is delusional…”

So Austin Energy buys solar power for <5cnt/KWh in a 25yrs agreement!

Look at the diagram I posted in this thread and realize that this is not the end, but the beginning!

The recent (announced) premature closures of quite a number of NPP’s show, those cannot compete even while they are fully written off. Despite the massive liability subsidies those get (worth ~10cnt/Kwh).

 

Alistair Newbould's picture
Alistair Newbould on Jul 21, 2014 11:17 am GMT

Consumer organisation tends to look for the cheapest deal for consumers. A “good consumer” will hagle for the cheapest deal of adequate quality. Their articles revolve around this premise. To be fair, they also do some good product testing to identify the cheap and nasties. There are a number of questions raised by the quote you give: what would have happened to electricity prices to consumers if there had not been a “competitive marketplace”, what happens if we look at a different time frame than the one chosen by Consumer? This article:

http://m.stats.govt.nz/browse_for_stats/industry_sectors/Energy/water-wi...

shows the close relationship between weather (in particular rainfall – NZ has 60% generation of electricity from hydro) and wholesale electricity prices. So careful choice of dates could give huge variation in statistical outcomes (Lies, damned lies and statistics!).

I don’t know the answer to my own questions there and honestly can’t be bothered looking into it. What the system does provide (and this may answer your question about choice in this market) is for me to specify an electricity supplier who generates purely from renewables whilst potentially paying a premium for the privilage. I know that this does not directly reduce CO2 production in NZ electricity generating. However, it sends a signal to government and provides $ to a company who is committed to renewables. Given the 60% hydro available to the grid here there is a lot of room for wind and solar using hydro storage to smooth their variability.

A price on carbon may be a much better tool to achieve reduced CO2 production.

Interesting point about the cost of electricity in NZ v US. Even bigger difference in price of petrol. Anyone interested in looking up the per capital consumption of these two in our countries? Different subject though.

(sorry about the computer gobbledy gook at the begining – caused by reduced battery capacity in my laptop!!)

Alistair Newbould's picture
Alistair Newbould on Jul 21, 2014 11:25 am GMT

Unless you’re in our fortunate position of 60% hydro – which is providing capacity. The role of other renewables is (in my opinion) here to increase the % hydro by reducing fossil fuel generation. I think this can be done by using renewables to reduce peak demand. As I have posted previously this can be done by shifting water heating and refridgeration away from peak demand times and on to “in house” solar capture. Am I wrong somewhere?

Clayton Handleman's picture
Clayton Handleman on Jul 21, 2014 3:52 pm GMT

That ridiculously minor discrepancy would have been ignored in the 1970s, but because of the atmosphere of nuclear hysteria in which we live it resulted in a 7-month delay costing Georgia Power $1 million/day.

Bob,

It is not the 1970’s and they knew that when they started the project.  As such they should have been well prepared and ready for these types of issues.  This is a bloated project that has taken on a life of its own and never should have started.  There are a number of ways to avoid these problems being talked about today such as modular reactors.  Why weren’t they used?  Apparently these guys went back to the same old same old.  And got the same results.  These guys had the chance to save the US nuclear industry and instead they are nailing the last nails in the coffin.

 

 

PROJECT DELAY: Plant Vogtle reactors 3&4 construction contractors – Westinghouse and Chicago Bridge

& Iron – list new estimated commercial operation dates of Jan. 6, 2018 and Jan. 6, 2019 for reactors 3&4
respectively. The project is 21 months behind schedule. Total publicized cost estimates by project partners

sum $15.55 billion”

I think you may want to go back and check your numbers – it appears that the delay is not 7 months as you claim but 21 months . . . and counting.  This guy’s commentary seems on point.   Plenty of other news on this, just search on Google.

 

Clayton Handleman's picture
Clayton Handleman on Jul 21, 2014 3:44 pm GMT

Finally, your experience curve for Li-Ion storage shows that batteries will cost $200/kWh in 2020. But that’s just for batteries; storage integrated with the grid currently costs $1,560/kWh. To shave a 5GWh peak off of California’s daytime demand curve will cost $4 billion in 2020, a figure even Jerry Brown doesn’t believe is reasonable. He’s hoping for 1.3GWh at a cost of $2-3 billion. That’s wonderful – now how do we get the other 820 GWh which California burns through every day?


Bob,

I recently submitted a post on experience curves to TEC.  I hope they publish it as it would avoid a lot of this sort of rehashing.  The way experience curves work is that manufactured products go down in price the more you produce.  So for example, the $1,560 / kwhr project that you use in your example is a first of a kind project, bid in the 2009 / 2010 time.  According to Navigant Li-ion batteries cost about $1200 / kwhr at that time accounting for most of the $1560 cost.  That leaves about $360 / kwhr for the rest of this one-of-a-kind project.  Now Li-ion batteries appear to be coming in at about $270 / kwhr.  This is somewhat ahead of the Navigant projections of $300 by 2015.  Further, if the project you point to above were replicated the $360 / kwhr on top of the Li-ion costs would also come down.  So I am at a loss as to why you continue to confuse the issue with obsolete data in a rapidly changing industry.  It would be kind of like pointing to $4.00 / Watt PV modules of 2008 and trying to use that to benchmark a discussion of today’s PV costs which are nearly an order of magnitude lower.  That is the beauty of experience curves.  They capture this and make it possible to keep discussions current even in a rapidly changing industry.

Jerry Brown seems to have somewhat of a handle on things.  He recognizes that publicly funded alpha and beta deployment creates a marketplace that will leverage capital so that innovaters can battle it out developing a variety of technologies.  This will lead to cost effective solutions by the early to mid 20xx’s.  Maybe late 20xx’s.

Circling back to experience curves.  The Navigant and McKinsey studies were done prior to the Tesla Giga Factory announcement so they likely used somewhat conservative growth numbers.  With Tesla / Musk promising one Giga factory online by 2017 and hinting at having 3 online by 2020 volume will be considerably higher than Navigant and McKinsey projected.  A glance at the Li-ion experience curve makes it pretty clear that $200 / kwhr is an absolute max for Li-ion batteries.  My personal view is we will see something closer to $100 / kwhr. 

Whether it is 2020 or 2025, Li-ion storage costs will be driven down by volume which is driven by the EV industry, NOT the grid storage industry.  So most of the cost reductions will be purchased by auto customers not CA taxpayers.  The current taxpayer programs are much more about creating a market to leverage private capital for R&D.  The build-out will be in the 2020’s at much lower prices than today’s storage. 

 

 

Robert Bernal's picture
Robert Bernal on Jul 21, 2014 4:02 pm GMT

Look at this graph

http://budget.house.gov/UploadedPhotos/highresolution/a96008c8-57f5-4f98-ad63-aab78ca4f4e8.jpg

You are going to tell us that the authors “got it wrong” by a factor of 60x! I believe that they are not even “in it” for nuclear, as they are most probably interested in fossil fuels and not too concerned about excess CO2.

I’m not saying there is not problems with current nuclear. I’m saying that the current problems would be improved upon if we simply STANDADIZE all aspects of a high temp, meltdown proof reactor design for clean fuels synthesis and electrical generation required to properly power 10 billion at HIGH standards.

 

Bob Meinetz's picture
Bob Meinetz on Jul 21, 2014 4:15 pm GMT

Clayton, the “way experience curves work” is that they create the ideal platform for idealistic thinkers like yourself to make projections subject only to the whims of the maker. “Past performance is no guarantee of future profits”, as they say in the brokerage biz. There is in fact a limit to how cheap anything will get and a lot of it is based on demand. Car batteries are in high demand because they make sense; storage batteries are not at all in demand because they’re still two orders of magnitude away from making any sense whatsoever. Why? Variable sources like solar and wind are incapable of keeping them charged once we have enough to do any good.

My price for grid storage was based on the price posted on the facility’s website, as of yesterday (the price has come down about $10 million since it was first posted in 2010). That’s the current price, and you have no basis to conclude that Navigant’s cost constitutes “most of the $1560 cost”. It most surely doesn’t, seeing as the current car battery price is ~20% of that. There’s apparently significant expense involved in  integration with the grid, which is conveniently glossed over here – part and parcel of the renewables playbook.

Robert Bernal's picture
Robert Bernal on Jul 21, 2014 4:17 pm GMT

They will buy solar but that will lock in fossil fuels lock in (the other 80% power generation) for… 25 years. Why not just standardize advance nuclear and reduce that 80% fossil fuels lock in to a far lower number!

Robert Bernal's picture
Robert Bernal on Jul 21, 2014 4:39 pm GMT

Nuclear, if done right, will merely have a (very) little fission products dosposal necessity for ten half lifes. That means we should reprocesses spent fuel (which is only 1% “burned”) and then dig a little hole in geologically stable ground for burial. In 300 years, it will be LESS radioactive than the original ore! Consider that an entire city’s worth of such wastes would occupy a very small volume, even for fifty years, however, that same city, powered by solar and wind (which equals at least 70% fossil fuels) would be drawfed in excess CO2 (if said excess CO2 was “isolated” somewhere near the city).

This is the ONLY acceptable solution for our grandchildren (unless solar and wind is fully supported by back up storage and made by clean electricity!

Bob Meinetz's picture
Bob Meinetz on Jul 21, 2014 5:37 pm GMT

Clayton, first of all I won’t comment on right-wing, free-market sources which disparage any government spending, because they can be particularly harsh on solar. Do you really want to go there?

Secondly – every public works project, whether it’s a nuclear power plant, a concentrated solar project, or a wind farm encounters thousands of discrepancies in the course of construction, and on-the-fly adjustments are made to get the job done. That requires an immediate and accurate evaluation of the significance of the adjustment, its implications for safety, implications for the cost of the project, and implications for the effectiveness of the project once built.

Anti-nuclear activists have become experts at exploiting this process to deliberately increase delays, regardless of their severity. They fabricate non-existent safety issues, with the only goal of costing nuclear projects money (see Bas’s post above). Fortunately, courts have gotten wise to this stalling tactic and are disposing of nuisance lawsuits in short order. While I understand that the prospect of twice as much clean, baseload energy coming out of Vogtle is an antinuclear activist’s nightmare, how does this on-track project represent a last nail in any coffin?

Engineer- Poet's picture
Engineer- Poet on Jul 21, 2014 5:58 pm GMT

May I suggest composing comments in Notepad to eliminate the extraneous Word formatting, or paste into Notepad before copying into the comment box.

Clayton Handleman's picture
Clayton Handleman on Jul 21, 2014 6:04 pm GMT

Reply at top.

Engineer- Poet's picture
Engineer- Poet on Jul 21, 2014 6:08 pm GMT

Spent LWR (not CANDU) fuel is closer to 5% burned than 1%, but about 85% of the total uranium is discarded as “depleted [of U-235] uranium tailings” so the net burn of natural uranium is about 0.75% in LWRs.  Spent LWR fuel is about 1% U-235 and 0.8% other fissiles.

Transatomic Power’s reactor design is claimed to be able to achieve 96% burn of fuel starting at 1.8% fissile content, which just happens to be about the composition of spent LWR fuel.

Clayton Handleman's picture
Clayton Handleman on Jul 21, 2014 6:24 pm GMT

@Bob,

The wind and solar industry’s each sell projects as PPA’s.  That is contractual obligations and no excuses.  If the contracted price is $0.021 / kwhr as has recently been seen with high CF wind farms, then that is the price it is delivered for. 

The nuclear model is a monopoly utility that incurs and passes on ever increasing costs to the customer on projects that are too big to fail.  The customer has no option to switch.  Their only option is to go off-grid which, interestingly, may be economical sooner than people expect.

Their is a parallel for wind in the Cape Wind project.  There the developer also does not have the luxury of passing through cost over-runs to the utility and the rate payer.  The utility has a contract and that is what they will pay irrespective of costs incurred by the developer.  And costs have mounted with multiple frivilous lawsuits.  It is the first off-shore wind farm in the US.  Already much has been learned to lower costs and other off-shore projects are in the works that are expected to cost less despite being in deeper water.

So far wind, solar and storage are following traditional learning curves associated with manufactured products.

As you point out there are some areas where learning curves don’t seem to apply as well.  Complex, low volume systems seem to work differently.  The learning curve still exists but its slope flips and instead of costs declining they increase.  Interestingly, nuclear power is the poster child.

 

 

Bob Meinetz's picture
Bob Meinetz on Jul 21, 2014 7:46 pm GMT

Clayton, customers have the option of going off-grid right now, but virtually none are doing so. EIA forecasts (as we’ve been over many times) that 2019 solar will cost 28% more to generate than nuclear. This is the bottom line – incorporating overruns, public financing, all the nitty-gritty details.

EIA does not share your optimism with regard to the future of offshore wind, which they estimate will cost 240% more than nuclear, nor your prediction that “low volume” nuclear costs will increase. The estimate for 2019 nuclear is $96/MWh, 11% less than their estimate from one year ago.

Bas Gresnigt's picture
Bas Gresnigt on Jul 21, 2014 8:13 pm GMT

“Nuclear has more liability insurance than any other…”
BP paid already far more, to compensate the damage the Horizon oil ridge caused, than the max. nuclear will pay. That max covers <1% of the damage if a real accident occurs; e.g. one with Indian Point with winds towards New York.
One can call that parasitize on the citizens and tax-payers.

Only nuclear waste is dangerous for >10,000years. Nuclear has no insurance or funds to cover those costs. Nuclear just transfers the dangers on to our grand-/grand-children without adquate financial provisions. Not even near the provisions needed.

New Nuclear
In addition new nuclear plants are subsidized for >50%. Just look at Hinkley:

– Inflation corrected guaranteed FiT during 35years. Which is $182/MWh in 2023 at the start (2.5% inflation), while Futures show that the market prices are then ~$80/MWh. And $277/MWh in 2040, halfway the guarantee period.

– $15billion loan guarantees. Which implies tax-payers carry the investment risk which the market estimates at ~8%. That is another yearly subsidy of $1,200million or ~$50/MWh.

Compare that with the non-inflation corrected FiT during only 20years, even going down so new big solar installations at 2023 will get ~$60/MWh in Germany.

Bas Gresnigt's picture
Bas Gresnigt on Jul 21, 2014 8:40 pm GMT

“storage batteries are not at all in demand…”
Demand starts up now.

Check the successful German battery program for small rooftop solar owners <10KW. Now 30% investment subsidy only; decreasing next years. Expected to be zero befor 2020.

Read the dificulties SCE creates to connect rooftop owners with storage batteries, in California. While SCE is obliged to connect…

Bas Gresnigt's picture
Bas Gresnigt on Jul 22, 2014 12:19 am GMT

SMR’s are such a try.
However the smaller size seems to create more extra costs than the cost decrease of factory production. Significant smaller size implies significant more steel needed per MW at same production per m³.

A barrel that is 2 times bigger in all directions, contains 8 times more material and require 4 times more steel. One of the reasons nuclear reactors became bigger. As well as ships, etc.

Bas Gresnigt's picture
Bas Gresnigt on Jul 21, 2014 9:29 pm GMT

Separating the grid off from utilities has shown here (NL, Germany, etc.) to be an excellent move.

It implies utilities have to compete against each other and many new producers and sellers of electricity!
It makes electricity a normal product, just as internet, etc.

Bas Gresnigt's picture
Bas Gresnigt on Jul 21, 2014 9:32 pm GMT

Clayton,

Are increased security demands after TMI not an important factor in the upswing in NPP investment costs in USA?

Bas Gresnigt's picture
Bas Gresnigt on Jul 21, 2014 9:54 pm GMT

Several reasons. A few (among others):
– Germany is a rich economy. So the germans drive really high speed (>190km/h as I notice when I drive 170km/h on their highway, which I do sometimes when in a hurry) in big luxurous cars, etc.

– the country has a cold climate, so lot of heating (gas).
– it also has a lot of industry, which implies also lot of emissions.

But they are improving. Germany surpassed Kyoto targets already greatly.
They are now 27% below the Kyoto reference year (1990), while the Kyoto target is 20% below in 2020.
You can expect they are 35% lower in 2020!

Compare that with USA.
Much higher level of CO2 emissions and still at the 1990 level. No real target for 2020.

Roger Arnold's picture
Roger Arnold on Jul 21, 2014 10:16 pm GMT

Clayton,

I suggest that you read (or re-read) the Wikipedia article on power purchase agreements.  A PPA is an agreement to purchase,  It’s not a promise to sell.  Party A signs a PPA with party B that says, in effect, “if you (party B) can produce it, I agree to buy X kilowatt-hours of energy at a price of Y cents per kilowatt-hour”.  Party B then typically shows the PPA to portential investors and says “see, we have a minimum guaranteed market for the output from our project; now won’t you please invest?”  There’s no obligation for party B to actually deliver on the PPA at the stated price.  

SoCal Edison, I believe, not too far back signed a large PPA with a prospective satellite solar power company.  I don’t think there was a serious belief on the  part of SoCal Edison that the company would succeed in its plans, but they were willing to say “sure, if you can produce it at this price, we’ll buy it.”  So even if a wind farm project secures a PPA for 2.1 cents per kWh, that says nothing about their ability to deliver.

The price stated in the PPA not totally insignificant, of course.  It should have some relation to the expected cost, in that the project developers need to convince backers that at the price stated, the project would succeed financially.  They may or may not be right, and the (would be) backers may or may not believe them. But there are generally no consequences to the developer (“party B”) if the project never gets done.  And even if the project does go ahead, the contracts, as usually written, don’t require the developer to actually sell the stated amount of power at the stated price.  

Clayton Handleman's picture
Clayton Handleman on Jul 21, 2014 10:21 pm GMT

The EIA is generally pretty good at reporting what is.  They are notoriously bad at projections in the renewable energy industry and especially the solar industry.  See below for examples.  The SunShot initiative is starting to gain considerable credibility as PV costs drop rapidly.  They report that utility scale PV has already hit LCOE of $111 / MWhr which is lower than EIA is projecting for 2019.  With both Sunpower and FIRST solar promising substantial declines in their module pricing and Navigant is projecting unsubsidized PV cost effective in much of the world.

A little over a decade ago, I looked very carefully at PV growth and cost trends.  The EIA used a 14% growth model when in fact it ended up being closer to CAGR of 40%.  It was surreal to put it mildly.  It appears that they kept those same folks on the payroll and they are performing even stranger EIA forcasting than what I encountered as can be seen here

Below are a few graphs that show the quality of EIA’s renewable energy projections.  The high numbers are the actual values, the lower numbers are the EIA projections 5 years prior.  With that track record I am not going to put much store in their LCOE projections for 5 years from now.  Meantime, EIA lowers estimates for nuclear while the hard data of actual plant costs continues to rise.

From the comments to the article linked to above:  

“Ok bit the Bullet and put it together, the Blue line is the forecast for that year made in the AEO 5 years earlier, the Red line is the actual installed capacity at the end of that year all data from the EIA. YOu can see that the wheels fell of with the 2005 AEO for forecasts from 2010 on. In fact the 2013 error is even larger because the actual installations here are from the end of November not December.”

Clayton Handleman's picture
Clayton Handleman on Jul 21, 2014 10:23 pm GMT

I think that 9/11 related costs are part of it.  But again, that was all known at the outset of the plant design and does not explain the cost over runs.  In other words those considerations were not added after the fact. 

Clayton Handleman's picture
Clayton Handleman on Jul 21, 2014 11:55 pm GMT

Roger,

That is a good point.  In the solar industry, with which I have direct experience, the financers have very sharp pencils.  They need to be convinced that the numbers work at the quoted price and they do pretty extensive due diligence.  In other words, for projects that get financed and built the PPA $ / MWhr is a pretty safe benchmark for the LCOE.  Of course they will be happy with a higher price if they can get it after the fact but the finance guys don’t rely on that.  I assume it is similar in wind.

 

Bob Meinetz's picture
Bob Meinetz on Jul 21, 2014 11:57 pm GMT

Clayton, there is a significant discrepancy between LCOE projections at EIA for PV solar vs. Energy.Gov. I’ve emailed EIA (and they’ve been very good about providing detailed explanations) as to why.

That said, I’m sure Secretary Moniz got a laugh out of Zachary Shahan’s blog in CleanTechnica if he bothered to read his letter. Graphics look like they were created in Microsoft Paint with an EIA logo pasted on top. He shows one series of projections, ostensibly from EIA’s Annual Energy Outlook 2014. Whether Zachary even opened AEO is doubtful, as EIA presents three different series of projections based on No Sunset, Reference, and Extended Policies cases, with widely divergent results.

It seems fairly clear that Zachary set about constructing some graphs to try to discredit EIA for being the bearer of bad news (in some graphs, he shows solar generation soaring above capacity – just how does that work?). And why do you cut and paste this stuff without vetting it first?

Pages

Get Published - Build a Following

The Energy Central Power Industry Network is based on one core idea - power industry professionals helping each other and advancing the industry by sharing and learning from each other.

If you have an experience or insight to share or have learned something from a conference or seminar, your peers and colleagues on Energy Central want to hear about it. It's also easy to share a link to an article you've liked or an industry resource that you think would be helpful.

                 Learn more about posting on Energy Central »