Penny-wise or Pound-Foolish Policies for Renewable Energy: Auctions and CLEAN Contracts

Date: 10 Mar 2011 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

Toby Couture is one of the pre-eminent experts on cost-effectiveness of renewable energy policies and his comparative analysis of  auctions (such as California recently adopted for distributed generation) and CLEAN Contracts (a.k.a. feed-in tariffs) is a must-read.

By Toby Couture, E3 Analytics

In his conclusion to a recent speech at the London School of Economics, Lord Turner, Chair of the Financial Services Authority in the UK, introduced an important distinction in reference to the financial crisis: he explained that “Stability matters a lot; minor gains in allocative efficiency matter little.”

The reference is specifically to the unprecedented financial innovation that occurred over the course of the last decade, innovation that was heralded by many within the sector as a means of improving the overall “efficiency” of the financial market. Efficiency in this context means that resources (financial and other) would be allocated in a way that would better promote human welfare.

As the economy continues to reel from the effects of the financial crisis, average citizens may be excused for failing to see the welfare gains that came from all this “innovation;” indeed, two years on, it is now generally acknowledged that this innovation was taken too far, and resulted in a net loss of welfare for society, and for the taxpayers who are now footing the bill.

One of the insights behind Lord Turner’s comment is that, in such situations, it is indeed possible for us to be penny-wise and pound-foolish, to put too much faith in efficiency at the expense of market stability.

Read more at wind-works.org…

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Is the Bloom Box Cheaper Than Solar?

Date: 10 Mar 2011 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

A month ago, I compared the fuel cell Bloom Box to distributed solar PV.  I’m not linking the posts, because I’ve updated my cost models for both technologies thanks to some good input from others.  The revised analysis follows. 

Update 3/15/11: The data in the text was accurate, but I had a labeling error in the chart. It’s fixed now.

The Bloom Box provides a plug-and-play approach to on-site electricity, using natural gas-powered fuel cells to provide stable, on-demand power.  While it competes favorably with solar PV, its cost is competitive in just a few states with high electricity prices.

Bloom Box v. Grid

Only three states (New York, Connecticut, and Hawaii) have average retail electricity prices for the commercial sector higher than the break-even price (14.7 cents) for the Bloom Box’s electricity (with natural gas at $9 per million BTU), assuming the user is able to use federal tax incentives and accelerated depreciation. A number of states (including New York, New Jersey, and California) also have state rebates for fuel cells. The following map illustrates the states where the Bloom Box breakeven price is equal to or lower than the retail electricity price for commercial users. (In blue states, the Bloom Box competes with only federal incentives; in green states, it competes with additional state incentives.)

The number of states where Bloom Boxes would make economic sense would be higher, but a recent story from Greentech Media noting that the oft cited price for a Bloom Box ($700,000-800,000) was incorrect. Instead, the unit retails for $1,250,000 with a 10-year warranty, essential because the fuel cells will require replacement at least once in that span.

Bloom Box v. Distributed Solar PV

The Bloom Box performs well compared to distributed solar PV, especially in less sunny climates. At $5 per watt, a competitive price for commercial scale installations, solar PV in sunny Phoenix and Los Angeles costs 12.3 and 14.1 cents per kilowatt hour, respectively; in New York City, solar PV costs 17.5 cents. (all prices include federal tax and depreciation incentives). Six of the 16 largest metropolitan areas (with a cumulative population of 36 million) have solar PV prices lower than the Bloom Box price, although not by a lot.

The Bloom Box and solar differ in one significant way, however. The Bloom Box produces electricity on demand and round the clock, whereas a solar PV project only produces electricity during daylight hours.

When comparing the Bloom Box to a solar PV power plant with varying storage capacities, the Bloom Box is more cost-effective, even in sunny regions.

However, even this quantitative analysis leaves out a number of additional considerations: If the goal is to provide stable, baseload power, then the PV system would need longer storage (at least in winter months with fewer daylight hours). This is especially true if the power plant is an off-grid application.

If the goal is instead to offset grid electricity, especially peak power, then the PV system may make more sense. It produces power during peak hours (when prices are higher), and even a small amount of storage capacity would be sufficient to smooth out variability during the day (e.g. periods of clouds), as well as to extend production into the high-priced, late afternoon peak period.

Additionally, the operations cost for the Bloom Box will fluctuate with fuel prices, and there are more carbon emissions associated with a fuel cell operating on natural gas than with a solar PV array (zero).

Bloom Box Financing

Bloom is emulating the creative financing tools of the solar market with a power purchase alternative to buying the fuel cells. Businesses sign a 10-year power purchase agreement at a discount to their current electricity rates and Bloom handles installation, maintenance, fuel purchasing, etc. The service mimics a popular strategy for installing solar PV on residential and commercial rooftops. Bloom purportedly offers a 5 to 20 percent discount to California’s 14-cent per kilowatt-hour average commercial electricity price, so the power purchase arrangement would likely only work in states with comparable or higher electricity rates.

Overall, the “power-in-a-box” concept can serve commercial and industrial enterprises with round-the-clock power needs very well and it’s a promising start for distributed electricity production from fuel cells. As prices for both technologies fall, the Bloom Box fuel cell and solar PV power plant will be complementary components of a distributed grid.

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Feed-in Tariffs Needed After Grid Parity

Date: 23 Feb 2011 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

Craig Morris has a thorough discussion of why feed-in tariffs (CLEAN Contracts) and other renewable energy policies are still necessary even when renewables get to grid parity.  It’s a direct response to an earlier piece on Renewable Energy World claiming that the best strategy for solar is to get off incentives.

First, he notes that there’s a pervasive myth that feed-in tariffs have failed:

In fact, every gigawatt market in the world for PV was driven by feed-in tariffs. Mints is right that some of these markets have gone bust, but do the other markets (like Germany) that haven’t gone bust not show us how to do it right? I can’t say that of other PV policies (think of the US or pre-FIT Britain).

Can we agree that solar feed-in tariffs have not failed in “most” countries – and that no non-solar FIT market has undergone boom-and-bust anywhere? A more accurate description would be that feed-in tariffs are the only policy that has led to major success stories for solar, but that some incompetent governments threw in the towel when they saw the price tag.

Morris also notes that the price tag is another myth – feed-in tariffs are a less expensive policy tool than most others:

Mints writes, “Here’s the golden rule of incentives: they are expensive, and someone has to pay the bill.” Actually, it’s photovoltaics that’s expensive, not feed-in tariffs. Studies have repeatedly found that feed-in tariffs are the least expensive way to promote renewables.

The bigger issue is that getting to grid parity is not an end in itself:

FITs for wind and biomass have generally always been below the retail power rate, so why should anything change when solar is no longer the exception? As Mints herself points out, conventional energy sectors also continue to be subsidized. Why should the situation ever be any different for photovoltaics?

Morris goes on to describe how solar below the retail rate will create a massive rush to solar that will actually make electricity more expensive (as solar installers take a larger cut of the favorable economics and increased solar capacity scales down baseload fossil fuel power plants during peak hours).  Instead:

But what we probably need over the long run are feed-in tariffs that pay for power production from intermittent sources (especially solar and wind) with a fluctuating premium based on power demand; when renewable power production approaches or exceeds demand too often, the premium will not be paid, and investments in such technologies will not pay for themselves as quickly. The floating cap will find itself, so to speak.

The Germans have already adopted such a policy, called “own generation“.  And a few U.S. states – where solar is already cheaper than peak electricity prices – will need a similar policy innovation.

Photo credit: David Parsons (NREL PIX)

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Solar Could Save Minnesota Schools Millions

Date: 18 Feb 2011 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

Currently, Minnesota’s public schools spend approximately $84 million per year on electricity costs, money diverted from the classroom.  But a bill to make clean, local energy accessible now (CLEAN) could help the state’s public schools use solar to zero out their electricity bills and add $193 million per year to their operating budgets.

The proposed bill would create a CLEAN Contract for public entities in Minnesota, requiring local utilities to buy electricity from solar PV systems on public property on a long-term contract and at a price sufficient to offer a small return on investment.  The program mimics the traditional model for utility power development, where the public utilities commission rewards utilities a fixed rate of return on investments in new power generation.  If schools maximize their participation in the new program, and cover their available roofspace with solar PV, the 750 megawatts of power would provide $193 million per year for school budgets, create hundreds of local jobs, and make the schools electricity self-reliant.  

The cost of the program would be negligible: adding less than two-tenths of a cent per kilowatt-hour to customer bills.  

Minnesota’s CLEAN Contract proposal is one of several programs spreading across North America, from Ontario to Vermont to Gainesville, Florida, and one that has ushered in thousands of megawatts of solar across Europe.  In Ontario, the full-scale program has contracted over 2,700 megawatts of renewable energy and is responsible for 43,000 new jobs.  Minnesota’s program is restricted to solar PV on public property, but as this analysis shows, it could still have a significant impact on school budgets without a significant impact on ratepayers. 

For more detail on CLEAN Contracts, read our 2009 report.  For more on CLEAN Contracts in Minnesota, check out Solar Works for Minnesota.

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Solving Solar’s Variability with More Solar

Date: 17 Feb 2011 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

The solution to the variability of solar power is more solar. It’s true that individual solar power plants can experience significant variation in power output, especially on days with mixed sun and clouds.  “Output of multi-MW PV plants in the Southwest U.S., for example, are reported to change by more than 70% in five to ten … Read More

Listen: John Farrell Talks Distributed, Locally-Owned, and CLEAN Energy Policy on PRN

Date: 16 Feb 2011 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

Yesterday I was on the Political Analysis program of the Progressive Radio Network from 5-6 PM (Central).  Catch the interview with Sandy LeonVest at PRN’s website or click below to listen in:

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National Association of Counties and League of Cities Ask Congress to Support PACE

Date: 15 Feb 2011 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

February 9, 2011

Dear Members of Congress:

On behalf of the nation’s counties, cities and towns, we urge Congress to support legislation that clearly affirms the right of state and local governments to exercise liens or assess special taxes or other property obligations to protect and improve housing stock for the public good, including the installation of renewable energy and energy efficiency improvements, by directing federal regulators to enforce underwriting standards that are consistent with guidelines issued by the U.S. Department of Energy for Property Assessed Clean Energy (PACE).

As you know, the health and vitality of local economies are essential for reversing the national economic downturn. Despite sizable budget shortfalls, state and local governments, in partnership with the federal government, are working to maintain and improve efficiencies in federal programs that support the services that citizens expect governments to deliver. A further challenge, however, is that traditional mechanisms for local finance and revenue, such as sales and property taxes and bond financing, remain difficult to access. As a result, local governments are developing innovative financing programs, such as PACE, that will help neighborhoods realize community and economic development goals even in challenging fiscal periods.

PACE financing programs help property owners finance renewable energy and energy efficiency improvements – such as energy efficient boilers, upgraded insulation, new windows, and solar installations – to their homes and businesses. The PACE program removes many of the barriers of renewable energy and energy efficiency retrofits that otherwise exist for residential homeowners and businesses, particularly the high upfront cost of making such an investment and the long-term ability to reap the benefits of cost savings. Twenty four states plus the District of Columbia have already passed legislation enabling cities and counties to pursue PACE programs.

PACE is not a loan, but instead is built on traditional tax assessments, which local governments have managed for over 100 years. PACE was not designed to increase the risk of homeowners, business owners, lenders, or the financial system, and operates under stringent rules to ensure a net positive benefit to all parties. When fully implemented, PACE programs can achieve significant energy savings and provide positive benefits to the environment.

Unfortunately, rather than incent original solutions such as PACE, the Federal Housing Finance Agency’s (FHFA) determination that PACE energy retrofit lending programs present “significant safety and soundness concerns” effectively shuts the door on an important avenue for financing improvements that would deliver financial and environmental benefits long into the future. This determination is out of step with our nation’s economic recovery agenda and disregards the traditional authority of local governments to utilize the tax code in the best interest of its citizens.

In response to FHFA’s specific concern about the hypothetical risk to the secondary mortgage market involved with PACE homes, as local leaders responsible for investing hundreds of billions in public funds annually, we know well that risk is an inherent part of any investment. However, local governments constantly seek to minimize that risk; in our case, to the taxpayer. We believe that the standards and best practices called for in the Administration’s “Recovery Through Retrofit” report are sufficient to minimize any potential risk posed by the PACE program to both the public and private investments in a PACE home.

The PACE program is an achievement of the intergovernmental partnership to realize national policy goals, namely, reducing energy consumption, that will positively impact the fiscal conditions of every level of government. For these reasons, we encourage you to support legislation that will allow existing PACE programs to continue and encourage additional programs throughout the country. We look forward to working with you to ensure that local governments maintain the traditional authority to utilize the tax code for public benefit.

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This is How to Sell a CLEAN Contract Program

Date: 15 Feb 2011 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

Vermont’s Standard Offer: The Stories

We want a Vermont powered by clean, homegrown energy that doesn’t create radioactive waste or wreck our planet’s climate, and we want our energy dollars to stay in the state.   The pilot round of the Standard Offer moved us towards that reality.

Now we’ve put together a booklet that highlights six of these projects – from a dairy farm in Troy to a solar farm in Ferrisburgh.

Click below to get the excellent report.

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Poor Solar Permitting Rules Increase Residential Solar Prices by Up To 20 Percent

Date: 10 Feb 2011 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

A new report from SunRun recently revealed that permitting can significantly increase the cost of residential solar PV projects, adding as much as 20 percent to total project costs.  One large solar installer in California has two full-time “runners” whose entire job is dedicated to taking solar permit applications to city offices that require an in-person submission.

The problem of permit costs looms ever larger as solar module and installation costs fall, making permitting an even larger portion of project costs.  The adjacent chart illustrates the cost of permitting for residential solar PV, based on the size and cost per Watt of the project.  SunRun found average permitting costs of $2,500 per project.

Fortunately, there are already best-practice standards for solar permitting from the Solar America Board of Codes and Standards (Solar ABCs), and the SunRun report finds that implementing these practices can reduce permitting costs by 75 percent, to around $600.  The following table, taken from the report, details how the savings can be achieved.  The cost savings can be achieved across nearly every category of the permitting process:

For comparison, the following chart illustrates the substantial difference in the portion of project costs related to permitting when best practices are implemented.

 

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