The Unstoppable but Challenging Growth Path for Green Energy
Progress doesn't come easy for many, but in the case of energy, it is inevitable.
Renewable energy is finally coming of age and with it the fossil-fuel industry and conventional-energy providers are seeing the sun set on their industries. The battle is not always pretty, but it is now more just a matter of time before most U.S. energy will come from sources such as solar, wind and tidal.
After many years of experimentation with various technologies and installation and deployment models, renewable-energy options – particularly solar and wind – are finally maturing so they offer highly predictable alternatives to fossil-fuel energy-generation methods. In many cases, subsidies have helped with the research and development aspects of this – allowing for expensive mistakes to be tried out and set aside – and systems and components once thought to be less likely have turned out to be more major players.
As how to manufacture, install, interconnect and manage renewables became a more reliable business model, more players came into the field – so many that their clout as companies grew big enough to take on the existing infrastructure when push-back began to happen. This also happened with sales volumes large enough for industry suppliers to provide economies of scale for their components and services, bringing down both the up-front costs and the ongoing expenses of maintaining their offerings over time.
The result has been that many states are finally beginning to see the change in renewables and even take it on as a matter of public policy. In California, for example, where in the early 2000s power blackouts based on fossil-fuel-driven energy supplies were common even in places like Silicon Valley and Los Angeles, just a few months ago, for the first time, most of the power in the state came from renewable sources.
Part of why renewables came into demand in the first place was to find alternatives to the massive greenhouse-gas-emitting alternatives of power plants driven by any number of fossil fuels, with coal being one of the biggest used. With the life of the planet in question, many pursued what was considered a holy grail of finding cost-effective means of mass-producing highly efficient and reliable solar-energy options, along with wind-farm options, mostly with the goal of lower energy prices being the principal driver.
In the beginning those solutions were expensive and required government subsidization in the form of tax breaks or outright direct investment to keep the options alive. Installations, especially for local and statewide solutions, would often never have been justified based on a balance sheet with the subsidies removed.
This is no longer the case. In Colorado in 2013, the state issued a request for proposals seeking alternatives to replace 900 megawatts of power currently being provided by coal. Six gigawatts worth of bids came back from renewable-energy alternatives, with the winning bids providing lower costs of power generation than the allegedly lower-cost coal plans. Similarly, Palo Alto, California, in February 2016, was able to negotiate a power purchase agreement (PPA) from solar provider Hecate Energy for a period of 25 years (with options to increase to 40 years) at a net cost of 3.7 cents per kilowatt-hour, or $36.76 per megawatt.
Bloomberg New Energy Finance goes so far as to say that in general the cost of setting up a new solar power plant is already about half that of what it would take to build an equivalent new coal-fired power plant right now, in 2017. The same organization’s analysis also shows that, by 2025, a one-megawatt ground-mounted solar system will cost an average of 73 cents per watt (versus the current $1.14 per watt) by 2025. That represents a 36% drop in cost. It also puts the cost of solar at less than coal, on a broad-scale basis, by less than a decade from now.
So now there are two “green” reasons for moving to renewable energy. The first is near-zero greenhouse-gas emissions, and the second is the pure financial advantage (more “green” for your “green energy”) of switching to renewables.
Yes, those tied up in coal production will need retraining and redeployment as the old ways are being phased out. But this is no longer just about the environmentalists pushing an agenda for lower emissions and helping fight the battle against climate change. It is now a far more straightforward one where even big business gets the point about renewables – that they are just a better investment.
This is why, among other things, President Trump and the U.S. Congress need to back down from their relentless defense of the coal industry. Jobs may suffer, but they always do in a disruptive transition. And even if there were such a thing as “clean coal” (there isn’t), the balance sheets do not lie. This is just the wrong place for the country to put its investments, both financially and in terms of the long-term health of the nation.
How Industry Has Fought the Renewables Juggernaut
This does not mean the transition to renewables is going smoothly.
As one might expect, the entrenched energy utilities in many states see renewables as a threat to their livelihood. For them, the threat comes both from individual building owners, both corporate and as individuals for the homes, and from new entrants to the energy industry building these renewable solar and wind farms, for example. That shift effectively moves power generation itself away from the centralized existing utilities and into a decentralized business model. It also means that, as each new kilowatt-hour produced in a renewable facility comes on line, some kilowatt-hours produced by existing fossil-fuel facilities will no longer be used. Then, just as suddenly, the financial model for the existing utilities slowly corrodes and eventually becomes unsustainable.
One way the public utilities can fight back fairly against the renewable upstarts is by developing their own renewable-energy options and then slowly phasing out their old fossil-fuel-powered plants. That is the way that most corporations hoping to survive in any other industry would respond, by investing in the new and restructuring their product offerings. Even if private, though, public utilities are not like other kinds of companies.
These companies fight back in part by using their native ability to pass on most costs to their customers, even including the cost of maintaining a nonviable older energy-supply alternative just because it is already in place. These costs can include unique surcharges for the new renewable-energy suppliers to have the right to connect to the existing electrical distribution grid, much of which is being provided by the existing electrical utilities. They can even prove that connecting a new renewable resource will cost them dearly and then charge the new supplier – and eventually the end consumer – for the use of those resources.
They can also manipulate the laws of the state to prevent certain types of renewable energy from even coming online in the first place. In Florida (also known as the Sunshine State), for many years utility providers and regulators have managed to block many – including homeowners – from being able to use the sun to provide power for themselves. They have done so via a variety of regulatory policies and laws that use the jargon of being there to protect the public from the possible harm of connecting such renewable devices to the existing energy grid.
This logic, which has been followed by other states such as Virginia, South Carolina and other southern states, is somewhat like the same logic and laws that prevented the original AT&T telephone monopoly from being replaced. For those that do not remember, the original AT&T (not to be confused with the current company of the same name, which more or less just purchased the rights to the well-known name of the company when the original AT&T vanished from the scene) fought against those attempting to install their own internal phone systems, both in homes and in companies, by assessing significant “line use” charges that were eventually found to have been way out of line with the real costs of maintaining them. The original AT&T claimed it had to protect its networks from the possible (though highly unlikely) harm connecting alternative devices to their networks would cause.
It eventually took U.S. Congressional action to force the breakup of the national monopoly that the original AT&T once represented.
The battle continues to this day in those states, with, as an example, in Florida back in November 2016, an amendment almost passing that was promoted on the grounds it would assist consumers in being able to enjoy the full benefits of solar renewable energy around the state. That was a smokescreen, with the amendment allowing for far more control of connections of any kind into the existing power grid and a further block on the growth of renewable energy in the state. Fortunately, the bill did not receive enough votes to be adopted, but it was far closer a vote than most had expected. The regulators also vow to continue to “protect the consumer,” and, to date at least, there is still no rooftop solar industry in Florida.
Other regions such as California and certain states in New England, where far less sunlight is around than in the other locations, state and local governments have been far more supportive of the rise of renewables. One can hope their wisdom will soon be adopted by others, but it will still take a major push-back by voters to retake the reins of control of electrical power from the older enterprises that have dominated the field for so long.
Growing the Renewables Industry Requires Understanding What Is Unique About It
With the renewables industry being one that is rapidly lowering in cost and producing real value both for developers and the customer base, many paths exist for helping this still-young industry field become even more successful. The finance industry – and many national governments, notably including China and Germany – sees the payoff and has begun flowing money into the field. But what are the best ways to convert that into a long-term sustainable business model for the industry?
Part of the process is recognizing that although deploying renewable energy is much like rolling out any other kind of product line, there are differences.
As a business, unlike other energy industries, a much higher percentage of the costs connected with the enterprises are in the initial construction and setup, with the “fuel” itself being mostly free. This contrasts in a big way to the fossil-fuel industry, where supply and demand as well as government regulations can create major cost variances from year to year. On the other hand, it does mean the cost dynamic of the business requires a far more long-term view of the business than in other industries.
Another unique aspect of the industry is its need to understand things such as land-use laws and entitlement, something that is very different than in other places. The right location can make all the difference in access to sun or wind, depending on the renewable choice, as opposed to in the conventional fossil-fuel industry, where the plant location is not as critical. It has also opened up the unique opportunity for reuse of brownfields, landfills and contaminated lands for new solar energy and/or wind farms. This may make it possible to acquire certain land rights at far lower costs than expected – if the company involved is savvy enough.
Then there is the need to connect with existing power grids. This can sometimes involve somewhat-tricky discussions with the existing utilities, as has been noted. It also more often now involves finding ways to allow companies and individuals to “choose” to connect to renewable resources instead of fossil-fuel-powered alternatives. This can involve the need for regulatory changes along with an entirely new set of skills related to the power grids themselves.
Besides these issues, there is also the need to understand the unique nature of the technologies being used for each renewable offering. A detailed understanding of the true operating model for wind and solar is required to accurately project business-model considerations.
Then there is also the need for how to balance when power can be acquired versus when it is used by the customer base. For solar, daytime is the only time power is generated, and excess amounts must be stored and then poured out over time. Wind and tidal energy can be gathered at any time of day, of course, but these renewable sources also do not produce at
regular production rates. That is behind much of the work on new battery-based storage systems in the electrical grids. Such variable production rates also mean consideration of how to balance all energy-supply systems, including both renewables and fossil-fuel supplies, at least for the time being.
Along with all of these issues is the reality that this new industry has many other costs – both related to the region and regulated by law – associated with it. Managing those costs and the relationships with regulators will be an important issue for any renewable-energy entrant to consider.
Finally, since there are still risks involved in this new industry, public-private partnerships between government and industry connections of various kinds are often used to allow multiple organizations to co-shoulder the cost and risk the burdens of enterprises.
Making It Happen: The Hawaii Model
One thing that is very clear is that this is going to be a highly competitive industry. With that will come the need to handle something the energy industry has never had before: a variable incoming power supply and one provided by many independent power providers. Managing that is going to be quite complex and will require some visionary thinking.
Fortunately, many states have already taken on the challenge of thinking about how to do this, but none have thought about it as much, perhaps, as Hawaii. With its electricity prices more than twice the national average in the United States and among the highest nationwide, Hawaii has good cause – just from an economic basis alone – to find solutions to support the change to renewables. That state made the decision on June 8, 2015, to be the first state in the United States to run entirely on 100% renewable energy. Its goal is to have this in place by 2045. Interim goals are in place for 30% by 2020, 40% by 2030 and 70% by 2040. It already supplies 25.8% of its power using renewable sources, so the 2020 goal seems at least to be well in hand.
A first step to making this happen is for investor-owned Hawaii Electric Company, which supplies approximately 95% of the power on five of the state’s six main islands, to begin work on changing the way its power grid works. One of the aspects of this is to find ways for the power grid to be as efficient as possible in moving energy along the grid, since solar and wind power may be provided at any given time in varying quantities. It also needs to do something many regions may not have thought of: curtail the uptake of power into the system when it has too much.
The way it plans to do this is via what it calls the renewable dispatchable generation (RDG) model for how the energy grid “takers” work with those supplying the power to the grid. Those suppliers, controlled by formal PPAS, had in the past had relatively simple agreements, with all the power pushed up into the system according to whatever the past deal was. The new approach changes all that, with the receivers of the power becoming not just passive agencies who take all they can get but instead becoming involved asset managers for their power supplies.
This gets complicated because it involves predicting what the demand will be – something becoming far easier to estimate with advanced management tools – and then estimating what the supply might be from all sources, accounting for potential unpredictable surges in the demand and finally determining how much excess power might be provided by the renewables over time.
Faced with the expected benefit of sometimes having more than enough renewable energy than needed, Hawaii has the highly desirable problem of occasionally being stuck with what to do with the excess. Some will be stored, with the amount that can be stored growing as storage technologies improve and become more cost-effective themselves over time. In the coming planning horizons, however, Hawaii has chosen instead to create a visionary model of active curtailment of certain renewable resources when the supply exceeds the demand.
Hawaii’s current estimates suggest that curtailment needs on Oahu could reach as high as 10%, with less-certain estimates of curtailment needs on Maui and the Big Island of Hawaii running from as low as 10% to as high as 50%. That represents a very high degree of variability.
To deal with this, part of Hawaii’s development plan for handling curtailment includes bringing together the energy-grid distributor and the independent power providers (IPPS) with unique contracted agreements unlike anything seen before.
In the past, such IPPS would have paid for the actual power delivered to the utility plus some consideration for the uncertainty of the exact amount of power the central utility might purchase. In the new approach, the contracts would include consideration of the following:
For the supplier:
• A guaranteed minimum availability of the power supply, including downtime and maintenance issues
• A detailed specification for how the solar developer or IPP would manage interconnectivity to the central utility, including things like voltage regulation and what is referred to in the industry as “disturbance ride-through,” a variability of power-supply characteristics because of the nature of the energy provided
• The need to provide near-instantaneous data on the availability of power from the IPP to the grid
For the central energy utility and grid provider:
• A forecast of forward-looking power needs by the utility
• An estimate of the expected curtailment percentages over time Other issues being looked at right now for Hawaii’s arrangements between the IPPS and the central utility relate to how the power costs are bid to the central utility. One approach to setting such PPAS is based purely on the capacity and energy requirements. A second approach – and the one far more likely to take hold – involves time-of-day considerations for what to charge for power over time.
The Future of Green Energy
The future for renewable energy is brighter than ever, thanks to many different factors. The technologies involved in solar and wind are now far more mature and more accurately modeled than even five years ago, which makes them a far easier bet than ever. Collateral technologies such as complex electrical grid and even micro-grid electrical power management are also becoming widely available. Power-storage systems able to capture excess power for release later are also becoming more available.
Beyond that, even though some backwards states such as Florida and others in the southern region may still be pushing back, the older companies that have run the energy industry for so many years – and run it using fossil fuels – are slowly realizing they have little choice but to adapt or they will go the way of the dinosaurs.
It will not all be easy to convert to fully renewables, as has been noted in the situation of Hawaii last described above. That state also has the unique ability to centrally manage what it is doing because of the 95% dominance of one single utility (Hawaii Electric Company) at the hub of everything. Its vision of thinking about what it needs to accomplish as one large system, rather than a patchwork quilt of differing solutions that would eventually be inefficiently stitched together, may point to a way for every state, other provinces and perhaps entire nations to follow as the industry moves forward.
There is no financial or technological reason we can't switch completely to green energy. The only obstacle is corruption and a lack of understanding of the issues.
We owe to the future to educate ourselves and others about smart choices for energy.
Image by mattwalker69, CC