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Thoughts on the Energy Transition: Abundant Electricity for all

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Richard Brooks's picture
Co-Founder and Lead Software Engineer Reliable Energy Analytics LLC

Inventor of patent 11,374,961: METHODS FOR VERIFICATION OF SOFTWARE OBJECT AUTHENTICITY AND INTEGRITY and the Software Assurance Guardian™ (SAG ™) Point Man™ (SAG-PM™) software and SAGScore™...

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The i-waves (Internet airwaves) are full of chatter offering opinions on where the energy transition is heading. Topics range from “how are we going to stop cyber threats as more Distributed Energy Resources (DER) attach to the grid” to “what will the utility business model look like when we finally reach a stable state in the transition”. That’s a whole lot of room for discussions to take place and opinions to be opined; there is an abundance of chatter across this spectrum of topics.  This piece is an attempt to stimulate a discussion in the EC community with regard to just one of those topics “what will the utility business model look like when we finally reach a stable state in the transition”. There are plenty of reasons to be concerned with cyber threats, but that topic has had plenty of exposure on EC, so I’ll refer you to that piece, if cybersecurity is “your thing”.

I look to other business model transitions for guidance and one in particular that seems to offer some useful insights exists within the “Rental Car” business model. Anyone that has rented a car at an airport rental agency is familiar with the model. A business sets up shop as a rental car agency by acquiring vehicles which they provide to consumers for some defined period of time, in exchange for a revenue stream. The model has been evolving over the years, but one significant change may be finding its way into the energy transition. Here is just one more opinion for the i-waves to consider.

Do you remember when renting a vehicle required you to agree to a daily rate, plus a per mile charge? I do. This has changed, the rental cars that I have used over the past several years no longer have a per mile charge. Why? I suppose one answer is competition – if one agency forgoes the per mile charge then other rental car agencies might do the same, in order to compete. But, why would a rental car agency forego the per mile revenue stream to begin with? I don’t have any factual data to answer this question, but suffice it to say that “something changed” which enabled this change in business practices to occur. It could have been technology advances or some other effect, regardless of what caused the elimination of per mileage charges to consumers – the shift in rental agency business model practices did indeed occur.

Could this change in rental agency business practices offer some insights to the energy industry for how the utility business model may change as a result of the energy transition?

The parallels are strikingly similar. In wholesale electricity markets there are two significant categories of charges, capacity payments and energy costs. There are other charges, i.e. taxes, which occur in the rental car and utility business charges to consumers, but lets just focus on the capacity and energy costs for this discussion. The capacity cost is the amount of money a consumer pays in order to have access to a utility function, like transportation or electricity. The capacity cost is the daily rate for the car rental case and it’s the capacity payment provided to generators in the energy industry case, in order to “be available when needed”. You pay the rental agency a daily rate in order for you to have the car available, when you need it. It does not matter if the car is parked in a driveway or traveling down the road you must pay something to make the car available for your use. The same is true with generators and capacity payments – the consumer pays to have this generator available when needed – it may be producing energy or it may not – the consumer still pays to have this resource available.

Taking the analogy to the next step, we see that per mileage charges are no longer part of the rental agency revenue stream. Equating this to the energy industry would be like removing the “energy cost per kWh” from a customer’s bill. Wow, could that actually happen some day? Well, if the rental agency business model is any indicator, then the answer is – it’s possible. But what would have to change in order to eliminate the energy per kWh charge from a customer’s bill? The answer: an abundant supply of cheap energy, the type of which you get from solar and wind generators, which have no inherent and variable fuel costs to consider. It turns out that this is the fastest growing area for new generation coming onto the grid, which means the supply of this “negligible cost” electricity is increasing, at a rapid rate. With FERC Order 2222 now officially in play, this is like firing a second stage booster rocket to increase the velocity of this DER growth. How much more of these “no fuel” generating resources need to connect to the grid before it makes sense to “forego” the energy charge to consumers, because it no longer has the value it once did, because of the supply glut. We see this supply glut happening today, when wholesale energy prices go negative, which means a generator is willing to “pay” for the ability to generate electricity, resulting in a rebate to the consumer. I don’t see how this trend can continue, especially given the rapid supply expansions coming from wind and solar installations and FERC Order 2222. It seems inevitable to me that the “per kWh charge” for electricity could be abandoned like the “per mile charge” of car rentals, as electricity supply approaches an over-abundance. I assure you, generators do not like having to pay to generate power, they prefer to receive payment for generating power, as that is the sustainable business model. I’m sure Generator companies are aware of this very tenuous situation and they are pursuing methods to keep this “$/per kWh” in place through policy initiatives, like carbon pricing, but the rapid growth of “non-fossil fuel” supply resources is increasing and momentum is strong for these non-emitting resources through programs, like Clean Energy Standards, which incentivize investments in clean resources, like solar, wind and nuclear.

The changes within the car rental agency business model may indeed serve as an “indicator” that changes are coming to the energy business model. I think the time is approaching, rapidly, when you may see “$/kWh” charges go the way of “per mile” charges. Go ahead charge your EV at 1:00 PM – it won’t cost you a penny, if this scenario plays out like the rental car case. I will definitely buy an EV when this day comes.

Just in case you're wondering; is there any evidence that negative electricity prices can occur across many hours I refer you to this article from Ireland which poses the same question I'm asking you to ponder in this article " The question that instantly arises when an event of this nature occurs is whether this [negative electricity prices where generators pay to produce energy] will become the new normal when there are even more renewables on the system. "

Here is a 20 minute video showing more analysis indicating that the potential for super cheap energy is within reach.

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Bob Meinetz's picture
Bob Meinetz on Nov 1, 2020

Richard, I'm glad you brought up the comparison of rental cars to electricity, it's a favorite of mine. The conclusions you draw from it, are fundamentally flawed. The key distinction:

"The capacity cost is the daily rate for the car rental case and it’s the capacity payment provided to generators in the energy industry case, in order to 'be available when needed'."

Solar and wind are not predictably available when needed. As much as you try to tap-dance around this fundamental liability, it's a deal-killer. The value of availability is trivialized again and again:

"You pay the rental agency a daily rate in order for you to have the car available, when you need it...you must pay something to make the car available for your use. The same is true with generators and capacity payments – the consumer pays to have this generator available when needed..."

until we get to

it may be producing energy or it may not – the consumer still pays to have this resource available.",

which makes no sense at all (when a resource isn't producing energy, its energy, by definition, isn't available).

Any justification for forcing electricity customers to pay capacity payments to  solar and wind developers only gets more absurd if we view it from their point of view: how much would you pay for a rental car if the car died whenever a cloud went over the sun; if you couldn't drive it at night, or when the wind stopped blowing? For all practical purposes such a vehicle would be useless - wouldn't it?

Fortunately, proponents of the imaginary "energy transition" are fond of pointing to horses/buggies vs. cars. I am too, because it only destroys the point they're trying to make: whether it's a modern rental car or Henry Ford's Model T, sources of transportation dependent on time of day or weather to operate would be useless.

The time when society relied on solar and wind for power ended centuries ago. If some wish to  power their lives with intermittent energy for nostalgia or as a hobby, I would say "By all means, do you thing. But there is a 21st-century world full of people who need reliable energy 24/7, and you're going to have to GTF out of their way."

Richard Brooks's picture
Richard Brooks on Nov 2, 2020

Bob, thanks for engaging in the discussion. The first automobiles had many flaws, but that hardly made them useless, as evidenced by the number of cars on the road. Wind and Solar recources are indeed subject to weather conditions, but that is changing as more of these facilities are being equipped with battery storage - making them dispatchable/more reliable. We are at the model T stage with regard to wind/solar generation and the future looks bright as technology advances.

Bob Meinetz's picture
Bob Meinetz on Nov 2, 2020

"Wind and Solar recources are indeed subject to weather conditions, but that is changing as more of these facilities are being equipped with battery storage - making them dispatchable/more reliable."

A common myth. I have yet to see evidence a single wind or solar farm "equipped" with battery storage isn't charging its batteries from a grid mix - and has only located the batteries next to a solar/wind farm to create the appearance the batteries were "green".* There would certainly be no financial incentive to limit their expensive investment to that purpose - at a solar farm, batteries would be useless for at least half of every day.

Recently, an article noting the increase in "paired" renewables/storage facilities appeared on the U.S. Energy Information Administration's website at eia.gov. Because EIA has no financial interest (neutral analysis is required by law), it's generally regarded as a technology-agnostic, reliable source of information. So I wrote and asked them: what percentage of facilities with both renewables and storage charge the batteries with exclusively renewable electricity? They responded quickly, admitting they had no idea.

Then I called 8-Minute Solar, developer of Los Angeles's highly-celebrated Eland 1 & 2 400 MW solar-plus-battery installation, and was told by a receptionist she had no idea either, admitting "that's a good question." She said she would have one of their engineers contact me, and I even had the impression she believed one would.

*"The way battery storage is typically used in the US today, it enables more fossil-fueled energy and higher carbon emissions. Emissions are higher today than they would have been if no storage had ever been deployed in the US."

Batteries Have a Dirty Secret

Matt Chester's picture
Matt Chester on Nov 2, 2020

You can also take the analogy to ask about the impact of the availability of services like Get Around which lets people who own cars offer out their cars to users on an hourly shared basis-- these are the DERs of the car rental market. Prosumers coming in, changing the supply/demand equation, and how do those markets then react? 

Richard Brooks's picture
Richard Brooks on Nov 2, 2020

I agree Matt - I made a case for EV's to offer their capacity as an ancillary service while parked during the work day at subway stations.

Dr. Amal Khashab's picture
Dr. Amal Khashab on Nov 2, 2020

- about the rent a car model , do you thinks for a while that the agent does not make a profit. It makes by account the yearly cost of the car plus a profit margin , then dividing that by 335 to get the daily rental fare. In the line item if yearly cost he added a value for depreciation plus value for maintenance and other yearly expenses. For a renting agency has multi cars , owner can make an average renting daily fair. Remember the traveller will pay for gasoline by his own.

-  about electricity utilities who have batches of generating unites, it is easy to follow the same calculation method to get average capacity charge for KW  demand annually. But , what about fuel costs ( coal , oil and natural gas) who will pay for?  You mentioned that RE are fuel free  , yes but for how who long ? just a range around 2500 hours in a year. 

- Therefor, demand charge is a must even if utility has 100% renewable, because there is a defect of generation ,has to be purchased from other supplier irrelevant to the utilities.

Richard Brooks's picture
Richard Brooks on Nov 2, 2020

I agree, a demand charge is a must. My position that $/kWh must change is based on the flawed way that energy is priced today. Generators pay to produce energy when there is an over abundance of energy supply on the grid, i.e. negative LMPs. Grid supply is increasing, rapidly due to DER deployments, producing a situation in which excess supply is nearly a certainty, many hours throughout the year. As more supply comes on to the system we will see more hours with supply abudnace , which means there will be more hours with negative LMP's when Generators will have to pay to produce power. My contention is this "The economics of how electricity is priced today is resulting in more hours with negative LMP's and the net result of LMP's for a given day could be a negative number, meaning the consumer pays nothing for electricity". It's inevitable that something has to change in the way electric energy is valued. If nothing is done, and supply continues to increase, there will come a time when there are more negative LMP hours than positive LMP hours and the net revenue to a generator for the day will be negative leading to "free electricity" for consumers. The current process for pricing electricity hourly needs to change in order to properly compensate generators for the electricity they produce; I cannot imagine genertors will continue to pay to produce power over the long haul - that's a going out of business strategy and that puts reliable electricity at risk, which is unacceptable IMO.

Dr. Amal Khashab's picture
Dr. Amal Khashab on Nov 2, 2020

Thanks Richard for your response. I would like to shed more lights : 

(1) In power business the LCOE ($/KWH) is a real figure along the power plant life time. 

(2) Obviously these figures differ according to generation technologies such as conventional and renewable.

(3) Integrating resource planning process determines the suitable technology and the best size of any expansion generation to meet the increasing demand. comparison between alternatives is a straight forward process resulting in the LCOE for the selected option.

(4) Independent System Operator (ISO)  is responsible to find the operation schedule in 24/7 justifying the most economic operation cost of the system.

(5) In that schedule RE loading are a must depending upon the weather forecast. Sometimes weather are diffusing (+ or -). Therefor, storage systems have large potential. 

(6) It was a common trend that excess RE lead to the Duck Daily Load Curve.

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