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At what point do intermittent renewables compromise supply security and lose price competitiveness?

Jamie Steel 91

Quality Engineer, EDF SA

I am a Quality Engineer in EDF's supply chain audit team based in Paris.

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Aug 17, 2020Aug 17, 2020 12:34 pm GMT
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There has been much made in the press of the increased output of US electricity generation by renewables in the first half of 2020. Over this period around 14% of total generation came from intermittent wind and solar compared to 16% for coal. At the same time, several recent reviews indicate that these intermittent sources are also price competitive and can even undercut base-load fossil fuel and nuclear prices. The obvious path therefore is to invest principally in the cheap low-carbon generation sources.

However, it appears inevitable that for each unit of generation provided by intermittent sources at the expense of base-load power the security of supply will be compromised and compensatory battery or stand-by combined-cycle gas will also have to be built, consequently impacting the price.

This raises the question of whether these costs are currently being built into the life-time costs of intermittent sources, and what risk analyses have been carried out to evaluate supply security and price competitiveness as intermittent sources contribute a greater percentage of generation?

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Principal, Beezley Energy Advisors

August 24 2020

All: In our work, we no longer will do a renewable energy project unless it has a 24/7 fully dispatchable capability. Energy storage systems are evolving rapidly, and the price per KW or kWh of storage is plummeting. As a result, we can uniformly offer renewable energy done building by building, or at grid scale at a price that is easily below the price of any fossil fuel option. The ability to offer dispatchable renewable energy will make the utilities more likely to move to renewables and avoid the kind of issues noted in the question.

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CEO, Market Potential

August 18 2020

Jamie, thanks for the post. While you frame the issue as a choice between power security and onboarding intermittent clean energy, I think this is a false choice.If a utility is having to sacrifice security it needs for the grid in order to have clean energy, then the utility is not considering the right options. One must consider renewables plus storage so that critical baseloaded power remains. The more critical question becomes, how much fossil fuel base load power can you shed before having to bring on storage with renewables? I am not sure there is a general answer for this question, as it may be specific to each grid, their load demand, and power mix. Fortunately, the cost of solar, wind and storage is becoming cheaper by the month!

Regards,

Bill Buchan, P.E.

Gary Hilberg on Aug 18, 2020

Bill you identified the key point - it depends on the grid, the demand and generation profiles, etc.. If we are having this debate with renewable penetration at 20%, we will have a major challenge at 80%. There have been some good articles on how the ISO's have implemented Wind and Cloud forecasts to more accurately project their contribution. Here in ERCOT we see notifications 1-3 days in advance of expected high demand periods that will coincide with low wind profiles. This notification provides the users the ability to manager their demand due to generation pricing ramping up from 2-3 cents/KWH to over $2.4/KWH. The price estimates are not all that precise, but we know that for 2-3 hours we will be paying 10 to 50X more for power, so many consumers work around this. Even as a retail electric consumer in ERCOT, we can opt into market based pricing, so pretty much all users can respond to price signals - if they want to, most tend to let REP's manage this risk for them.

William Buchan on Aug 18, 2020

Gary, thanks for the reply. All good points. I was curious: do you see a high level of storage penetration with renewables given the level of deregulation in ERCOT? Degregulation should provide added incentive for managing prices through storage, not just balancing load and demand on the grid.

Regards,

Bill Buchan, P.E.

Jamie Steel on Aug 20, 2020

Hi Will,

Yes, I agree that once solar and battery storage attain price parity it could be considered baseload. However, despite both rapidly on a rapid price decrease trajectory, with the efficiency losses and current charge speed + decharge duration it may be a long time before this point is reached. I generally find that due to the natural modelling uncertainties and contrasting fossil fuel and renewables lobbies, it is hard to find objective data on this. However, this review by MIT is not bad http://news.mit.edu/2020/assessing-value-battery-energy-storage-future-p...

Personally speaking, even if solar/battery combo price parity were to reached in the next 20 years, a 30/30/40% mix (in no particular order) of nuclear, fossil fuel and renewables would seem a decent energy mix.

Regards,

Jamie

William Buchan on Aug 20, 2020

Jamie, I think you bring up a great point on the speed of charging and discharging, particularly when one is thinking about ancillary services. But if the the battery is BTM, I am not convinced that current technology is not adequate. Even in BTM, it is worth looking into. For our sake, I hope we can do better than 30/30/40 by 2040. Battery innovations are moving along at a rapid pace, so let's hope that the grid can change sooner than 2040. Thanks for your reply!...Bill Buchan, P.E.

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Manager, Gas & Power, Siemens

August 17 2020

Jamie,

to my knowledge variable renewables are not competitive without subsidy. The subsidies are often direct feed-in tariffs, and indirect i.e. tax rebates, guaranteed off-take, system services as necessary to stabilize the grid + extensive grid upgrades supplied at no charge to the variable RE producer. There may be exceptions such as low very electricity consumption and extremely remote & sunny locations with where solar cells are the best option. However, in today’s world reducing CO2 emissions is a greater concern than lowest cost electricity; that, and the fear of nuclear are the reasons we see massive and almost universal promotion of variable renewable energy.

By the way, adapting a grid to accept 14% variable renewable penetration is not a great technical challenge, the island of Ireland grid can today remain stable with up to 70% system non-synchronous penetration (consisting of wind generation and power supplied via HVDC interconnectors). Its just a question of money; Irish domestic electricity costs approximately 30C/kWh.

Jamie Steel on Aug 18, 2020

Hi Daniel,

I had understood from the literature that Solar was competitive in it's own right without subisidies and that the current low prices had been attained via innovation from historical investment subsidies. I am also currently looking into the effect of the flooding of the US and European markets with excess Chinese solar panels at below-cost price and the impact this has had on levelised price estimates.

It is concerning that it is so difficult to get reliable information on the input data of these reviews into levelised prices by source. Particularly as the end goal of a national energy strategy should be a reliable and cost-effective supply.

Thanks for the response. I'll let you know if I find anything interesting in re Chinese panel supply distorting US/Eu market distortions.

Jamie

Denise Kuehn on Aug 26, 2020

Even with heavy subsidies, solar does not have a quick payback as it is still an intermittent source. As the states that want to be 100% carbon free are discovering, without storage, the model has challenges. We did 'put the cart before the horse'.

Some of the challenges of understanding costs is with inconsistencies of the data. We worked with EIA to better define and scrub the data from utilities. In discussions with various utilities, we were interpretting values differently so at times, data is not 'apples to apples'.

Daniel Duggan on Aug 26, 2020

Hi Jamie, as mentioned in the 1st response to your question LCoE is not an appropriate tool to compare the total cost to consumer of electricity generated by variable RE with electricity sourced from dispatchable generation. A grid dominated by variable RE generation requires very significant additional expenditure over and above a grid supplied by dispatchable generation be that hydro, nuclear or fossil. A variable RE dominated grid requires 100% dispatchable generation back-up for the days / weeks when variable RE cannot meet demand, plus large investments in grid stabilization measures, and even with these measures, power quality still suffers. Batteries are ideal for providing some grid stabilizing system services, however they provide only seconds / minutes of grid back-up power. For grid security over longer periods synchronous generation which provides the inertia necessary to maintain frequency stability is required. A solar panel at your house does provide power when the sun shines, but work out all the costs incurred to ensure a power supply with annual availability of over 99% and which allows you to use the energy you need at all times, as facilitated by a connection to the electricity and gas grids. I have never seen a variable RE based power generation installation which can competitively provide 24/7 secure power unless there are numerous subsidies hidden and obvious in place. If cost of energy were the driver, we would not have today’s migration to variable RE, the reasons for our energy transition are; CO2 reduction, limited scope for expansion of hydro, independence from oil & gas sourced in politically unstable countries, and distrust of nuclear.

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Nuclear Power Policy Activist, Independent

August 17 2020

Jim, the smart folks at the U.S. Energy Information Administration (EIA) don't offer levelized marginal cost figures for just solar, or just wind, for the very reasons you mention. Instead, they cite a marginal cost for "Gas Turbine and Small Scale Renewable" generation combined, to take into account how renewables can't function as a source of grid energy without gas. Together, they're slightly cheaper than coal, but a full 36% more expensive than nuclear and three times as expensive as hydro.

Though they do cite a Levelized Cost of Energy for various sources independently, it's useless for comparison purposes. Claiming "solar is cheaper than nuclear", for example, is about as useful as claiming "fresh bananas are cheaper than nuclear." That doesn't stop Lazard and other investment banks from disingenuously using the comparison as a marketing tool.

Jamie Steel on Aug 18, 2020

Dear Bob,

Yes, it was, indeed, the Lazard review that I saw. Thanks for the link on the EIA cost estimates, very interesting.

There seems to be some sort of manipultion of the data, because otherwise why would China and India still be expanding coal generation faster than other sources if it weren't cheaper and more reliable?

Regards,

Jamie

Bob Meinetz on Aug 18, 2020

Jamie, different countries have various degrees of access to different fuels, depending on local resources, geopolitical ties, subsidies, need, and other factors. I don't believe EIA makes any attempt to represent costs in countries other than the U.S. Otherwise, they might include LCOEs for burning firewood and dung - the primary sources of energy for almost 1 billion people on Earth.
It's important to recognize the link I provided shows only marginal costs - day-to-day O&M, security, and fuel. Capital costs - the costs of constructing a nuclear plant or solar farm, how long they can be expected to last, costs of financing, decommissioning, insurance, etc. can be roughly estimated at best.
I've communicated with staff at EIA on several occasions. They take very seriously their responsibility to provide accurate and impartial analysis, and are constantly reviewing it to see how it can better serve the public.
Another notoriously biased source of energy news and analysis is BloombergNEF (New Energy Finance), which typically hypes Michael Bloomberg's personal investments in gas and renewables.

Paul Chernick on Aug 21, 2020

Jamie, both China and India have been adding renewables and reducing plans for coal expansion. The economics of the coal units are highly suspect. But both of those economies are growing fast, and they are afflicted by inertia and perverse incentives, just like other polities.

See https://ieefa.org/wp-content/uploads/2020/05/IEEFA_Who-Would-Still-Fund-... on Indian coal plant use and economics.

Paul Chernick on Aug 18, 2020

Jim, you got some important points wrong.

First, you assert that "the smart folks at the U.S. Energy Information Administration (EIA) don't offer levelized marginal cost figures for just solar, or just wind, for the very reasons you mention." Wrong. That category is just the "other" generation that is not Nuclear, Fossil Steam, or Hydro-electric (Electric Annual Table 8.4 does not explain where combined-cycle is listed; it may also be in the gas turbine/other category.)

"Instead, they cite a marginal cost for "Gas Turbine and Small Scale Renewable" generation combined, to take into account how renewables can't function as a source of grid energy without gas." Wrong. The data are not some sort of weighted average for renewables and backup to firm the renewables. It's just the average for everything in the mixed-bag category. The $27.35/MWh fuel cost for 2018 and the $3.68/MMBtu for gas delivered to IOUs would imply that all the energy was gas burned at 7.4 MMBtu/MWh (a little low for CCs) or about 60% of the energy was gas burned at 12 MMBtu/MWh. So this price reflects the cost of gas CT (and maybe CC) mixed with a little solar and wind.

Note that the values you cite do not include any capital costs.

In favorable locations (the Plains, the SW), new wind and solar are coming in below $30/MWh and even $20/MWh. Some of those costs include storage.

Actual bids I have seen confirm that Lazard and BNEF are realistic to conservatively high.

Matt Chester on Aug 18, 2020

Thanks for more information, Paul. Can you share where we can read some of those bids that reflect that the real prices are coming in lower?

Paul Chernick on Aug 21, 2020

The utilities have kept the confidential the most recent RFP results I've seen (I saw the results in regulatory proceedings with utilities in Iowa, Wisconsin and Kansas). The Xcel Colorado Dec 2017 RFP report shows median bid price for solar/battery at $36/MWh, wind/storage at $21/MWh, straight wind at $18.1/MWh. Since the offers included much more capacity than Xcel needed, it could take bids lower than the median prices. Those are prices for projects to be completed in 2020-2022.

https://assets.documentcloud.org/documents/4340162/Xcel-Solicitation-Rep...

And there's LBNL report on costs of PPAs by in-serivce year, https://emp.lbl.gov/wind-technologies-market-report. Wind falling under $30/MWh in 2019, with a strong downward trend.

El Paso Electric has contracted for solar at $15/MWh and solar + storage at $21/MWh. https://www.utilitydive.com/news/el-paso-electric-sees-record-low-solar-... Sure, there's an investment tax credit, but it's only 10% by 2022.

In the Middle East, solar PPAs are in the range of $15/MWh to $20/MWh. https://www.powermag.com/record-low-solar-prices-drive-middle-east-proje... Apparently without subsidies, but with lots of sun.

Indian solar prices are about $30/MWh https://www.pv-magazine-india.com/2020/06/30/breaking-news-has-india-pos...

If you have the time, you can compile the wind farms that entered service in 2019 (from the EIA Form 860 database) for sales to IOUs, and the prices from the IOU FERC Form 1, p. 326-327.

Bob Meinetz on Aug 19, 2020

"So this price reflects the cost of gas CT (and maybe CC) mixed with a little solar and wind..."

Exactly, Paul. EIA's figures represent how solar and wind are used in the real world. As you say, "CT (and maybe CC) mixed with a little solar and wind."

Lazard's reports are investment bank advertising masked as "research". BloombergNEF promotes Michael Bloomberg's investments in renewables and gas. In terms of accuracy both sources can be safely ignored.

Paul Chernick on Aug 21, 2020

No, Bob. The numbers that Jim cited were a random collection of gas and renewable. They have nothing to do with the fossil generation needed to back up renewables.

Your characterizations of Lazard and BNEF can be safely ignored.

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