Smaller Generation Incites Largest Renewable Energy Gains

Date: 14 Apr 2011 | posted in: Energy, Energy Self Reliant States | 2 Facebooktwitterredditmail

While seeming counterintuitive, a focus on smaller-scale distributed generation enables more and faster development of cost-effective renewable energy.

Last week I wrote about the illusion that we can “move forward on all fronts” in renewable energy development; rather, a bias toward centralized electricity generation in U.S. policy reduces the potential and resources for distributed generation. 

Solar Economies of Scale Level Off at 10 Kilowatts

In contrast, distributed generation provides unique value to the grid and society, and its development can also smooth the path for more centralized renewable energy generation.

First, distributed generation is cost-effective.  Economies of scale for the two fastest-growing renewable energy technologies (wind and solar) level off well within the definition of distributed generation (under 80 megawatts and connected to the distribution grid).  Solar PV economies of scale are mostly captured at 10 kilowatts, as shown in this chart of tens of thousands of solar PV projects in California.  Wind projects in the U.S. are most economical at 5-20 megawatts, illustrated in a chart taken from the 2009 Wind Technologies Market Report.   

Besides providing economical power relative to large-scale renewable energy projects, distributed renewable energy generation also has unique value to the electric grid.  Distributed solar PV provides an average of 22 cents per kWh of value in addition to the electricity produced because of various benefits to the grid and society.  The adjacent chart illustrates with data coming from this analysis of the New York electric grid.  Grid benefits include peak load shaving, reduce transmission losses, and deferred infrastructure upgrades as well as providing a hedge against volatile fossil fuel prices.  Social benefits include prevented blackouts, reduced pollution, and job creation.

Distributed wind and solar also largely eliminate the largest issue of renewable power generation – variability.  Variability of solar power is significantly reduced by dispersing solar power plants.    Variability of wind is similarly reduced when wind farms are dispersed over larger geographic areas.

Not only are integration costs reduced, but periods of zero to low production are virtually eliminated by dispersing wind and solar projects over a wide area.

As mentioned at the start, distributed generation also scales rapidly to meet aggressive renewable energy targets.  Despite the conventional wisdom that getting big numbers requires big project sizes, the countries with the largest renewable energy capacities have achieved by building distributed generation, not centralized generation.  Germany, for example, has over 16,000 megawatts of solar PV, over 80 percent installed on rooftops.  Its wind power has also scaled up in small blocks, with over half of Germany’s 27,000 megawatts built in 20 megawatt or smaller wind projects.  In Denmark, wind provides 15-20 percent of the country’s electricity, and 80 percent of wind projects are owned by local cooperatives.

With all these benefits, distributed generation can also smooth the way for centralized renewable energy, in spite of energy policies that favor centralized power.  When distributed generation reduces grid stress and transmission losses by provided power and voltage response near load, it can defer upgrades to existing infrastructure and open up capacity on existing transmission lines for new centralized renewable energy projects.  A focus on distributed generation means more opportunity for all types of renewable energy development.

It may seem counterintuitive, but distributed renewable energy should be the priority for reaching clean energy goals in the United States.

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Distributed Solar Power Worth Far More Than Electrons

Date: 12 Apr 2011 | posted in: Energy, Energy Self Reliant States | 3 Facebooktwitterredditmail

From the ability to reduce peak demand on the transmission and distribution system, hedge against fuel price increases, or enhance grid and environmental security, solar power has a monetary value as much as ten times higher than its energy value. The cost of residential-scale distributed solar PV is around 23 cents per kilowatt-hour (kWh) in a … Read More

Michigan Editorial: We Prefer to Generate Our Own Renewable Energy

Date: 1 Apr 2011 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

The large transmission authority serving the upper midwest – the Midwest Independent System Operator – has plans for new high-voltage transmission lines leading from windy states like the Dakotas to places like Michigan.  The purpose is to bring renewable energy from big western wind farms to places East.

Some of these places – like Michigan – would rather do it themselves.

The initial list of projects in the MISO region has an estimated cost of $4.8 billion. But MISO has pointed to additional projects over the next several years that could total between $16 billion and $20 billion. Michigan’s share of $16 billion worth of projects would be about $640 million annually. And most of these funds would be sent out of the state.

…This would happen even though Michigan already has its own state law requiring that 10 percent of its power must be generated using alternative sources by 2015. And all of that renewable-source energy must be generated within Michigan — which means electricity consumers likely won’t be buying or using power generated in other states.

The article doesn’t even get into the meat of the issue: that renewable electricity imports may be marginally cheaper than wind and solar power in Michigan, but that the economic impact of locally developed projects doesn’t show up on electricity bills. 

Michigan isn’t alone in their desire for self-reliance.  Ten East Coast governors signed a letter to members of Congress to protest visions for a new nationwide network of transmission that would have them importing Midwest wind at the expense of domestically built renewable energy.  And the Canadian province of Ontario developed a comprehensive clean energy program with a requirement that all renewable energy and a majority of the actual components of new renewable energy facilities come from inside Ontario.

It may seem counter-intuitive that citizens would prefer more expensive electricity, but when weighed against the economic opportunity of local ownership and development, perhaps it’s no surprise.

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Cash Incentives for Renewables Cost Half as Much as Tax Credits

Date: 30 Mar 2011 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

Using the tax code to support wind and solar power significantly increases their cost.  I wrote about this problem last year because project developers were selling their federal tax credits to third parties at 50 to 70 cents on the dollar.

Along these lines, the Bipartisan Policy Center released a study [last week] showing that simply handing cash to clean energy developers is twice — yes, twice — as effective as supporting them through tax credits. [emphasis added]

The problem is that all but the largest renewable energy developers or buyers can’t capture the full value of the federal tax credits.  So, prior to the economic collapse, a number of enterprising investment banks (and others) started buying up tax credits to reduce their tax bills. 

This was great for big banks, but lousy for taxpayers and electric ratepayers.  In fact, using tax credits instead of cash grants for wind and solar projects increased the cost per kilowatt-hour produced by 18 and 27 percent, respectively.  (Wait, why not 50 percent?  Because even though the tax credit is only half as good as cash, the cash payment only covers up to 30 percent of a wind or solar project’s costs.  So cash in lieu of tax credits can only improve that portion of a project’s finances.)

Seen another way, if the $4 billion spent on renewable tax incentives in 2007 had been given as cash instead, it could have leveraged 3,400 MW of additional wind power and 52 MW of additional solar power.  This would have increased incremental installed wind capacity in 2007 by 64%, and installed solar capacity by 25%. 

The increased costs come from higher prices that utilities pay for wind and solar power (and pass on to consumers) as well as the the cost to taxpayers of passing half of the tax credit value to investment bank shareholders instead of wind and solar projects.

The problem isn’t solved, but has simply been postponed.

When the economy tanked, so did profits (and tax liability) for big banks.  Wind and solar producers had no one to buy their tax credits and the entire industry was in danger of collapsing.  The adjacent chart illustrates the idiocy of relying on the tax code for energy policy.

Congress stepped in with a temporary fix, allowing project developers to receive a cash grant in lieu of the tax credit.  The temporary cash grant (currently extended through 2011) kept the wind and solar industry running during the recession and has saved taxpayers and ratepayers billions of dollars. 

It’s also helped level the playing field, allowing for local ownership of wind and solar projects, rather than requiring complex tax equity partnerships.  It’s meant more revenue from wind and solar staying in the local community.  And this means a larger, stronger constituency for renewable energy.

The cash grant option will expire at the end of 2011, but hopefully the climate hawks and fiscal hawks in Congress will take note: we can support wind and solar at half the price with smarter policy.

Hat tip to David Roberts at Grist for the study link.

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Grid on Hawaiian Island of Oahu Can Handle 25% Wind and Solar

Date: 28 Mar 2011 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

A new study released in February adds evidence that utility grids can handle high levels of renewable energy penetration.  The latest study examined adding 500 MW of wind to the electric grid on the Hawaiian island of Oahu (home to Honolulu).  The result would be a grid with 25% of the energy coming from wind and solar power.

Results of this study suggest that 400 MW of off-island wind energy and 100 MW of on-island wind energy can be integrated into the Oahu electrical system while maintaining system reliability. Integrating this wind energy, along with 100 MW of solar PV, will eliminate the need to burn approximately 2.8 million barrels of low sulfur fuel oil and 132,000 tons of coal each year. The combined supply from the wind and solar PV plants will comprise just over 25% of Oahu’s projected electricity demand. [emphasis added]

By its nature, the wind and solar power will be largely distributed generation, although much of the wind power reaching Oahu would arrive via undersea transmission.  Regardless, it’s a promising opportunity for Hawaiian energy self-reliance.

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Ontario’s Buy Local Renewable Energy Policy: An Update

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

In January, we released a report – Maximizing Jobs From Clean Energy: Ontario’s ‘Buy Local’ Policy – highlighting the impressive job forecast (43,000 jobs) from Ontario’s CLEAN Contract (a.k.a. feed-in tariff) program.  News from the province suggests that the program is overcoming hurdles and continuing to grow. Forecasts for 2011 indicate that Ontario could become North … Read More

U.S Grid Can Handle Lots of Solar PV with Low Integration Costs

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

A state such as New York should be capable of absorbing and benefiting from well over 7 GW of high- value PV without having to incur significant integration costs beyond the cost of PV itself, further noting that the storage sizes involved could well be met with a smart deployment of interactive plug-in transportation...the low-cost penetration potential is large enough to allow for the development of a considerable localized, high-value PV generation market worth 100’s of GW in the US.

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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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