The Un­stop­pable but Chal­leng­ing Growth Path for Green En­ergy

Trillions - - In This Issue -

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.

Why Re­new­ables?

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 ccpix

Im­age by mattwalker69, CC

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