{"id":475,"date":"2020-12-04T15:13:59","date_gmt":"2020-12-04T20:13:59","guid":{"rendered":"http:\/\/box5924.temp.domains\/~lectrjc4\/?page_id=475"},"modified":"2021-01-09T16:17:34","modified_gmt":"2021-01-09T21:17:34","slug":"renewables","status":"publish","type":"page","link":"https:\/\/electrifyingourworld.com\/?page_id=475","title":{"rendered":"Climate2"},"content":{"rendered":"\t\t
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Many environmentalists are claiming that climate change is an existential threat. Organizations like the Extinction Rebellion scream that global warming will end civilization. It’s fine to raise awareness, but better to analyze problems and propose workable solutions.\u00a0<\/p>

“Renewables” are a bandwagon slogan for wind and solar energy sources to replace CO2-emissions from burning fossil fuels. Global investment<\/a> in renewable energy reached $282 billion in 2019 alone, with hopes that future energy storage technology can solve the intermittency issue.<\/p>

Can we electrify everything with renewable energy from water, wind, and solar sources? Is the green new deal feasible? What would be the cost? What about wind lulls, cloud shading, and nightfall? Can we store enough intermittent energy?<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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isThis is a simple model of a competitive market. The buyer would be the local utility company that distributes electricity to homes and businesses. The seller might be a natural gas power plant, a hydro plant, a wind farm, or PV solar array. Money and energy are exchanged at a typical price of $0.05 per kWh, with the buyer choosing power from the least expensive supplier. Unfortunately the “market” doesn’t work this simply.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Feed-in tariffs.<\/b> Legislators and regulators often dictate where the energy should be purchased. A decade ago feed-in tariffs were established. Tariff prices were set by regulators at levels high enough to encourage wind and solar developers to participate. Whenever the wind blew or the sun shone, the utility was required to buy the wind\/solar generators’ electricity at the dictated price, above the competitive market price. Less expensive power being generated by full-time producers was curtailed.<\/p>

Renewable portfolio standards.<\/b> Some states require utility companies to obtain enough wind-sourced or solar-sourced energy to compose a dictated minimum percent of all electric power purchased and distributed. That is the renewable portfolio standard. Usually the required percentage increases in future years, say 50% by 2050, leading to sloganism such as “50 by 50”. Many utilities and their suppliers do not have power line access to such wind\/solar sources, so regulations let the utilities buy the emission-free property of wind\/solar power generated far away. Such a distant generator sells the kilowatt-hours of energy locally, but is also awarded a renewable energy credit (REC) that represents the emission-free property of the power generated. That REC can be sold to the utility that needs the wind\/solar energy to meet its states’ renewable portfolio standards. There are multiple classes of \u00a0RECs: for PV solar, for thermal solar power, for big hydro, for small hydro, for off-shore wind, etc. RECs are sold at regular\u00a0auctions in New Jersey<\/a>, Massachusetts, and other states. The 2020 New Jersey solar REC price is $220\/MWh, or $0.22\/kWh. Note that such REC revenue is 4X the typical revenue from selling the energy.<\/p>

When you see headlines claiming record-low prices for solar power, such as $0.02\/kWh, understand that the developer may also receive an added $0.22\/kWh for RECs. That money is paid out by a utility company; it’s charged to the rate base, the pool of costs that are spread out to all customers, raising prices for utility customers a bit.\u00a0Paying for such RECs adds to the price of electricity in many areas of the US, masked by the fact that costs of electricity generated by fracked natural gas have dropped by almost half over the last years.\u00a0<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Many members of the public and the media anticipate that wind and solar power will deliver ample clean energy and solve the climate crisis. Legislators and regulators have obliged and created incentives. In the US the laws and rules are instituted by many overlapping governing bodies, such as Congress, the Federal Energy Regulatory Commission, state legislatures, cities, towns, and regional organizations that control dispatch of electricity from selected generating suppliers. The various subsidies differ by region and by year. The rules are complicated, changing, uncoordinated, poorly understood, and exploited by clever energy businesses, as was the intent of the incentives. Below are descriptions of the money flows available to developers.<\/p>

Electricity generated.<\/b> Consumers pay utilities who pay generating suppliers for kilowatt-hours delivered, $\/kWh. In some regions this sale of energy is less than half the revenue received.<\/p>

Electricity curtailed.<\/b> Feed-in tariffs specify that wind\/solar generators have first priority to deliver their energy, but sometimes the operating thermal plants (gas, coal, nuclear) can’t reduce generated power rapidly, so the dispatching organization curtails the generated wind\/solar energy, but they must be paid as if they did generate the electricity. The dispatching organization charges the slow-reacting thermal plants for this cost of paying higher prices for curtailed wind\/solar generation, creating negative prices for thermal plants’ electricity.<\/p>

Renewable energy credits<\/b> were discussed under renewable portfolio standards.<\/p>

Production tax credits<\/b>. Wind\/solar generators accumulate credits\u00a0of $0.023\/kWh\u00a0<\/span>for each kWh of electricity delivered. US income tax credits can be transferred to profitable organizations, so the credits are as good as cash. There are different production tax credits for geothermal, nuclear, landfill gas generators according to a schedule<\/a>.<\/span><\/p>

Green bond discounts.\u00a0<\/b>A green bond is a fixed-income instrument designed specifically to support<\/a> specific climate-related or environmental projects.\u00a0Green bonds<\/a> often come with tax incentives or guarantees to enhance their attractiveness to investors.<\/p>

Grants.<\/b> Charitable organizations or government bodies sometimes grant money to defray costs of wind\/solar projects.<\/p>

Property tax exemptions.<\/b> States, cities, and towns<\/a> sometimes reduce property taxes for wind\/solar projects.<\/p>

State income tax credits.<\/b> Vermont, for example<\/a>, grants solar project developers a tax credit of 30% of the capital cost of building solar panel generators.<\/span><\/p>

Accelerated depreciation. <\/b>In vanilla tax accounting, you deduct froim taxable income the expense of a $20 million capital project with a 20-year expected useful life, at $1 million per year, for 20 years. With accelerated depreciation, much of the costs can be deducted in the first few years, reducing taxes enough to reduce borrowing costs.<\/span><\/p>

Federal income tax credit.<\/b> A federal income tax credit<\/a> of 30% helps to subsidize solar panel energy generation. Large generating suppliers can not take both this credit and the production tax credit.\u00a0<\/span><\/p>

Capacity reserve.<\/b> For their consumers, utilities rationally want assured future supplies of electricity from their generating suppliers. The regional dispatching organization negotiates supplier commitments to deliver electricity in future months and years, and will pay suppliers to make such promises, so suppliers build the plants and contract for fuel. For example, a natural gas electricity generating company buys enough future capacity in a pipeline from Texas to transport the gas to its power plant in New England. The rules are very complex and disputed, partly because wind\/solar generators are awarded capacity reserve payments even though they can not promise the wind will blow and the sun will shine.\u00a0<\/span><\/p>

Meredith Angwin’s new book, Shorting the Grid: the Hidden Fragility of our Electric Grid, <\/a><\/span>raises the specter of blackouts from irresponsible regulation.\u00a0<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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The US National Renewable Energy Laboratories is a US DOE organization chartered to promote “renewable” wind, solar, hydro, biomass, landfill gas, geothermal energy sources. Their very existence and continued funding depends on there being a favorable role for these sources, so I expect their cost estimates are not overstated.<\/p>

CAPEX<\/b>. Column 2 deals with the initial, capital expenses (CAPEX) for wind turbines on land with a nominal, name-plate power generation capability of 2.4 megawatts at optimum wind speed. NREL estimates CAPEX of $1,470\/kW of generating capacity.\u00a0<\/p>

Column 3 presents the allocated cost of paying back that CAPEX at 7.5% over 30 years, $30.3\/MWh.<\/p>

OPEX. Column 3 also presents the ongoing operating costs (OPEX) of $12.1\/MWh.<\/p>

The resulting NREL\u00a0estimate<\/a> is $42\/MWh for land-based wind turbines. The assumed lifetime of 30 years and the capacity factor of 42.5% may well be optimistic.<\/p>

LCOE<\/b> stand for levelized cost of energy, cost of the electricity delivered, ignoring when it was delivered. To be commercially useful, electricity must be available when needed. Wind power is subject to wind lulls, which can last for a week. Wind power sources must be matched with dispatchable sources that can be turned on\/off as the wind lulls\/blows. Typically the source is a natural gas turbine-generator, whose capital cost of approximately $1,000\/kW is never included in the wind cost estimates.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Here’s a similar analysis<\/a> for off-shore, seabed-mounted larger, 5.5 MW nameplate capacity wind turbines. The assumed capacity factor is higher, but not enough to make up for the higher construction cost, resulting in the $89\/MWh energy cost. I believe the 30 year life exposed to the ocean and storms to be optimistic.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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This plot is the result of measuring<\/a> actual capacity factors of actual wind turbines. The prior NREL estimates of 42% and 49% seem to be optimistic.\u00a0<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Lazard is a sell-side financial analysis firm whose energy cost estimates are often quoted in media. Sell-side analysts help companies sell investments. Buy-side analysts help find stocks and bonds for investors’ portfolios.<\/p>

Highlighted in red are summaries of Lazard’s estimates<\/a> of costs for electricity from utility-scale solar and wind generators. Such prices ~ 4 cents\/kWh are a bit lower than typical prices of energy sold to utilities. Lazard estimates are low in comparison to what utilities pay.<\/p>

For example, in Vermont the utility companies are directed<\/a> to\u00a0buy electricity at ~ 11 cents\/kWh from new solar panel farms. Older ones are paid ~ 20 cents\/kWh. The utility is forced to\u00a0buy electricity at ~ 21 cents\/kWh from net-metered, customer-owned, roof-top solar arrays. The costs of solar payouts are charged to the rate base and then shared among all customers.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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The largest contributor to the cost of electricity is the capital cost of the power plant. Knowing the $\/MW of capacity, interest rate, and number kilowatt hours sold to repay the capital cost, the PMT spreadsheet function computes the capital cost per kWh.<\/p>