Joining natural gas production in the electricity generation winner's circle is non-hydro renewable energy.
The generation market share of non-hydro renewable electricity is up a stunning 43% during the first 4 months of 2012, when compared to the January to April 2010. Wind, solar, geothermal, and biomass power plants provided 4.21% of America's electricity generation from January to April in 2010. Production jumped to 6.00% of the nation's power for the first third of 2012. http://www.eia.gov/electricity/monthly.
When hydro production of 7.78% is added, renewable power facilities produced 13.78% of our electricity from January to April of 2012. That matters to keeping the lights on and keeping electricity prices affordable.
Or to put it another way, America's electricity lights would flicker, and electricity bills would skyrocket, without the 13.78% of power supplies provided by renewable energy.
Oh, please, must you maul logic in this way?
ReplyDeleteThe fallacy behind this post is breathtaking: your reasoned conclusion is that, since renewables (let's take out hydro for obvious reasons) generated 6.00% of electricity nationwide, then without renewables we would have had a production gap of 6.00% in the first four months of 2012!
Did you not happen to notice that governments nationwide are pushing risk-free ROI for investment dollars flowing to renewables? Should we not ask where those investment dollars would have found a home without government subsidies to wind, solar and biofuel production?
How much capacity in peak-following gas-fired plants (for example) was lost during the surges in wind and solar input to the grid? What was the wholesale price difference between the lost conventional productivity due to the combination of artificial-incentive-diverted investment and load following productivity reduction and the substituted renewable energy? Just how much did that 6.00% cost, and how much less would it have cost if supplied by the readily available alternative(!) production means?
You cannot argue for free energy consumer markets in one breath while supporting a distorted investment market on the supply side in the next. One of these two features of the electricity business brings retail prices down, while the other inevitably drives them up.
Parma John:
DeleteThank you for your comment (and you have a supporter in the next comment). A few points in response:
1. Electricity prices or rates are set in two completely different manners, depending where the generation is located.
2. In monopoly, rate-base rate of return jurisdictions, consumers pay a regulated rate to the monopolist that is cost-based. The capital costs of plants, the fuel costs, plus a return on investment are charged directly to consumers.
3. In market jurisdictions like Texas and Pennsylvania, consumers pay a market price for electricity established by supply and demand. The clearing price in Texas can be as much as $4.50 per kilowatt-hour. It has been regularly during above 25 cents per kilowatt-hour in summer months and not infrequently at $1.00 or more. The market price is established by the last generation unit needed to meet demand. In other words the most expensive bid made that is needed to meet the last units of demand sets the market price. Such systems are not cost based pricing.
4. The idea that Texas could lose 6% of its energy and not have market prices go even higher, much higher, is just wrong. That is true no matter where or how the 6% was generated. In Texas, non-hydro renewables contribute more than 6% of energy.
5. Texas does not operate an energy plus capacity market, unlike PA and PJM. It only operates an energy market.
6. Non-hydro renewables have typically the lowest or among the lowest production or operating costs. As such, in competitive markets, they always bid zero and accept the market clearing price.
7. If 6% of power is bidding zero, it is preventing much higher priced power from being dispatched and setting a much higher market price that all consumers pay. As such, renewables reduce substantially market prices. The reduction can be very significant when demand rises and approaches the limits of availability of energy. At such times the price curve looks like a hockey stick, with small increases in demand leading to big increases in market clearing price. Withdrawing 6% of power that bid zero would cost consumers tens of millions of dollars in a day or possibly more.
7. In competitive markets consumers pay little or nothing for the construction of new renewables. Again such markets are not collecting costs and passing them through to consumers in a monopoly rate. Investors use private capital not recovered in rates. They do get tax credits, much like the $1.7 billion worth of tax credits approved by Pennsylvania for a construction of a cracker plant.
8. But consumers get the price benefit of added supply that reduces the entire market clearing price. It saves them a lot of money.
9. Many renewable energy credits that may be charged to utility customers have crashed in price because renewable energy credits are market based. The supply of renewable energy exceeds the demand requirements, causing Tier 1 renewable energy credits to trade at about 0.1 cents per kilowatt-hour.
9. The reduction in market clearing price and its benefit for consumers dwarfs these state rec payments.
Thanks for the thoughtful reply. I am glad that you didn't simply throw out the "fossil fuels get subsidies, too" knee jerk.
DeleteThat said, your response has me drooling for plum tomatoes and eggs.
Here's what I take away from the list:
1) OK.
2) Fine, that would be a cost-plus model with clear passage of inefficiencies to the customer.
3) Great, so peak supply is most costly to the wholesaler.
4) This is the Enron model of supply and demand. Turn off a few generating stations and watch the replacement prices skyrocket. That still has little to do with the 6.00% not being available. My whole point is that the same dollars invested in those 6.00% would have made available at least twice that much in generating capacity had they ended up in a more efficient technology.
5) I believe you are putting Texas in the category of point 3).
6) This one is interesting. Naturally these sources have low operating costs--there's no fuel conversion.
As a non-expert in electricity clearing markets I can only infer from the second sentence that the low bid means a guaranteed sale, while the actual sale price will be set by whatever is the market rate at the time of sale. Too bad the bid price is not accepted by the buyer.
Looking at it this way it is suddenly clear why no feed-in tariffs are necessary in an open market--solar, and to a lesser extent wind, will almost always be riding the crest of the peak price range.
7a) By this logic any source that is bidding at zero will keep the asking price down. And if we take this argument to its extreme, then we should demand that the government shovel enough money into the energy supply market so that all of those zero bids result in zero price. That's free energy, right?
This turns us back to the good old days of state monopoly energy markets in a Rube Goldberg way.
Again, your premise is that the percentage of power generated by renewables would be gone if there were no renewables. My premise is that the investment dollars that could have generated that same power and then some more efficiently would find there way to this golden market anyway, driving prices down by that same supply and demand you mentioned earlier.
7b) I think I'm misunderstanding you here, since I can only interpret this point as saying that private investors like to throw their money away. Or they invest in renewables only as tax shelters. I think you would agree that the reasoning of your point 7a) is top in the minds of investors. Generated energy will be sold at a price allowing for capital recovery and a nice profit, even though there is no "monopoly rate." And since this particular energy will be (apparently) playing in the peak price range I imagine the payback will be favorably fast.
Then there is the reduction in the capital costs that will need to be recovered. You mention the big one in tax credits.
To be continued...
7b) I think I'm misunderstanding you here, since I can only interpret this point as saying that private investors like to throw their money away. Or they invest in renewables only as tax shelters. I think you would agree that the reasoning of your point 7a) is top in the minds of investors. Generated energy will be sold at a price allowing for capital recovery and a nice profit, even though there is no "monopoly rate." And since this particular energy will be (apparently) playing in the peak price range I imagine the payback will be favorably fast.
DeleteThen there is the reduction in the capital costs that will need to be recovered. You mention the big one in tax credits.
8) Summing up, the taxpayer shells out a good part of the initial investment costs of expensive renewables via the tax code. This state assistance will prop up otherwise untenable private investment projects, which divert will private capital away from more efficient projects. The return on this taxpayer "investment" will be some reduction in electricity bills.
As a businessman I would ask to see the ROI calculation on the investment that my government wants to make in my name. Then I want to see the same calculation based on doing nothing, allowing for private capital to make up the energy supply market. Please include the fact that those tax credits are not free to me.
9a) Ahhh, the REC's. As you admit, legislators like to think they can generate a market out of thin air, but they are nothing but a flop. An expensive one because you need bean counters to handle all of the worthless paper.
These are just one more market aberration, along with Minimum Renewable Energy Requirements, that legislators and regulators would leverage to keep their pet projects afloat in the open market.
9b) So who needs REC's? I agree, they're worthless.
Note, however, that these credits have no bearing on the rest of the renewables-value argument.
Although I am enlightened to some of the energy market's intricacies I am not convinced by your argument. The secondary premise of that 6.00% generating capacity holding a high consumer value--high enough to offset tax subsidies and REC costs--due to that capacity's pricing in the peak range could be argued for any load-following energy source. There are much more efficient ways to produce that energy than through windmills and solar cells.
The original post's premise, that without the 6.00% of renewables capacity the lights would flicker, is not convincing for the reasons I gave in my first reply.
Best regards.
Just a couple more thoughts. I offered some points about the economics of many renewables in a reply to Jacob below. One of the key factors in renewables favor is their ability to offer very long-term cost stability. No fuel over 25 years makes it a completely different investment than other technologies that have highly variable fuel costs. For that reason alone, renewables belong in a portfolio of how electricity is generated. That advantage becomes stronger given sharp declines in the capital costs of especially wind and solar.
DeleteMost states renewable standards have been a success. States are ahead of schedule and their requirements. True in Texas, PA, and other states. The price of the credits has been much less than even the advocates of the policy suggested, because supply has exceeded demand, driving current prices often to slightly above zero. The competition to build has been intense and beneficial.
I agree completely with Parma. Another related point ---
ReplyDeleteIn Texas, we have roughly 10,000 MW of wind "installed capacity". Yet during the peak summer days when the capacity is most needed, windmills are actually generating 10% or less of capacity. So if gas generation operates at say 80% capacity, we could have an additional 7000 MW generated at the times we really need it, if this 10000 MW of capacity had been built for gas rather than wind.
- David
As Parma John notices, the concluding statement is awfully shallow and really just self-serving. Sure, if you were to remove enough of ANY generating capacity during highest demand periods, you would likely see the impact in flicker, or worse in brown outs. Completely unsubstantiated is the point on utility bills.
ReplyDeleteI'm lost on why the positive data about increasing generation from renewables is summarized in this way. A better way to summarize the milestone would be to point out that the negatives have NOT occurred. Flicker, ratepayers costs, and spinning reserves are all at acceptable levels despite the claims otherwise from detractors. But to imply that quality and costs are improved by renewable energy generation is, well, silly.
Far from silly. See the response to Parma John.
DeleteI'm not aware of the fact that ratepayers in TX and PA are paying real time prices to any large degree as you suggest (or I infer). If that is not the case, the pool pricing benefit is realized at wholesale (by the buyer and associated parties) and not at retail. I'm also not aware of any zero bids but can't contest whether it happens or not. The wind energy industry's reaction to current natural gas pricing suggests it competes and not at a zero bid level. But surely wind energy in this scenario has a marginal pricing advantage in the short term in a deregulated pooling market. At best it allows a near certainty that wind is dispatched whenever it is available. That doesn't speak to the real costs, however. If it were categorically true that wind energy, by its nature, were profitable under these circumstances for private owners or even IOU owners, why wouldn't the explosion of installations continue? Why is there such adverse and at times animated reaction to the potential loss of PTCs and corresponding downward predictions for wind energy growth in the near future as a result?
DeleteThe real costs associated with wind energy generation go far beyond the fuel related marginal costs, including its systemic impacts or grid management costs. And the truth is that an approximately two cent per kilowatt-hour credit/subsidy is a big enough deal to cause panic in the industry. Wind energy is a very suitable complement in a power network and is most valuable in peak demand periods, if available. It brings along certain power quality complications that at 6% penetration are very manageable. And only through spreading or shifting some of the real costs around - incendentally to people in states that don't even directly benefit - does it compete in the spot pricing scenarios you mentioned. It reminds me of the days when nuclear power was marketed as "too cheap to meter". That case is a bit different, but the intent was still the same where real costs and a changing regulatory environment finally caught up.
There is intense competition for retail consumers in PA and Texas and so wholesale price savings are passed through to retail consumers with at most small mark ups. That is why in Pennsylvania, electricity generation prices are below 1996 levels (see posting on topic).
DeleteLots of plants always bid zero. Wind, solar, and nuclear plants for example. They do so because their production costs are very low and the market price normally clears at price levels above their production costs.
Sometimes, rarely market prices clear at zero or even go negative (See posting about the strange, real world of negative electricity prices).
Parma John et al,
ReplyDeleteAre you implying that natural gas or other non-renewable fossil fuel generation is free market and renewables are not? Do you know the amount of US taxpayer money and PA tax payer money that is provided as subsidies to fossil fuel companies to produce the fuel used in power generation? If not, you should educate yourself.
There are also subsidies to aid in power production from fossil fuels.
Over the years, BILLIONS TO TRILLIONS of dollars have been spent on these mature, profitable industries. At the same time, the taxpayers subsidizing generation (vis a vis production) are receiving the 'glorious' air, land and water pollution and public health impacts that come from fossil fuel combustion. How much do these impacts cost? How much of this type of damage has already been done that no one has paid for?
Renewable energy is not perfect, but it is real capacity with low to no pollution, zero fuels costs, and does contribute to price suppression effects on the wholesale market.
"4. The idea that Texas could lose 6% of its energy and not have market prices go even higher, much higher, is just wrong. That is true no matter where or how the 6% was generated. In Texas, non-hydro renewables contribute more than 6% of energy."
ReplyDeleteThe big question is not how much energy renewables provide, but how much energy they provide at peak hours when it is needed, and the prices are high. For wind - the answer is: not much. If those 6% are provided mostly when not needed (at night) - then they are quite useless.
There are also other considerations.
When renewables are pushed by mandates and fashionable green drives, and traditional plants (coal and gas) are vilified, and hindered by propaganda, activism and judicial harrasment, you have less conventional capacity installed, and this CREATES the peak demand bottlenecks and high rates.
It is clear that any additional capacity add to supply and reduces consumer prices, but renewable capacity is the least cost effective way of acheiving this.
Renewables may have their utility, but trying to extol their economic virtues is simply false.
Here are a few points for your consideration: Wind resources vary around the country and within states. Some peak wind production correlates closely with a system's daily peak demand and some does not. Texas gulf wind farms are especially valuable and desired by the Texas grid operator because they generate well during daily peaks. Some wind resources in California actually have their daily peak production almost exactly at the time of the system's daily peak demand.
DeleteThe costs of renewables have come way down. GE states to investors that its wind turbines have a total levelized cost of energy of 5 cents. And that is locked in for 25 years. No other generation source can make such a claim. Gas, coal, nukes, solar cannot.
New hydro, new biomass can be among the lowest cost options. New distributed solar is at grid parity in 200 of 1200 utility service areas. And solar performs well during daily peaks.
Fine, so no more renewable mandates and subsidies. They aren't needed.
ReplyDeleteA few comments on this thread:
ReplyDeleteA. Renewable energy investments are far from risk free. In fact, in restructured markets, as Mr. Hanger points out, renewable energy investments are subjected to far more competitive pressures than existing generation resources ever were, virtually all of which were built either through guaranteed, regulated rates of return, or guaranteed long-term PURPA contracts. Today's renewable energy resources, must compete in the short-term wholesale energy market and in the state-mandated renewable energy markets. The latter markets are very thin, subjected to high levels of volatility, and extremely risky due to ongoing regulatory and legislative changes.
As per the benefit-cost of renewables discussion, every-time this has been analyzed by an Independent System Operators (who have no skin in the gain other than ensuring reliability per their FERC agrreements) renewables have been shown to demonstrate more benefits in wholesale price savings than they have in costs retail electricity costs (essentially RECs). This is an admittedly complex discussion that can't be adequately covered in this blog comment space, so I will point the readers to a few sources that can explain it comprehensively, but clearly. Probably the best for a foundational understanding of how this works is "New York Renewable Portfolio Standard Market Conditions Assessment, Final Report." Pages 4-135 -- 4-155.
http://www.nyserda.ny.gov/Page-Sections/Energy-and-Environmental-Markets/Renewable-Portfolio-Standard/~/media/Files/EDPPP/Energy%20and%20Environmental%20Markets/RPS/RPS%20Documents/market-conditions-final-report.ashx
Our own state's ISO/RTO, PJM has also looked at this subject in terms of the wholesale price benefits of wind energy. PJM found that: "15,000 MW of wind offers wholesale price reductions of $4.50-6/MWH, translating to reductions in annual market-wide expenditures of $3.55 billion to $4.74 billion versus not having that wind in place." page. 3
http://www.pjm.com/documents/~/media/documents/reports/20090127-carbon-emissions-whitepaper.ashx
I agree that the story of public support for and investment in renewable energy resources is a complex one and just looking at the benefits/costs on price basis alone is not sufficient. If one believes that fossil fuels are infinite or infinite at today's low prices and that fossil fuel emissions have no external cost to society then I would agree that investments in variable renewable energy may not be the best use of taxpayer dollars. However, the story on the fossil fuel side is more complex than just today's wholesale energy price (which remember is also distorted since existing power plants had virtualy not investment risk on captial at all!!!). Fossil fuel prices are historically volatile, even in my 20 years in this business, I've seen two major NG price spikes and two price crashes. The resources are finite. I read this blog regularly and have seen it laud the "70-year" supply of Marcellus Shale in PA. That's not a long time. It means someone born today will see a dramatic shift in the key sources of energy production needed to support sustainable economic growth just in their lifetime. And, it is true, that fossil fuels do have external environmental and health impacts not accounted for in anyway by short-term, wholesale electricity markets. I agree it would be preferable and more efficient to have a "market structure" that more efficiently reflects the pricing of these environmental and health impacts and also the volatility of fossil fuels (say, development of long-term capacity and wholesale price markets). However, those markets don't exist. So, in the meantime, we are left with an imperfect system of renewable energy subdsidy that still requires renewable energy investments to participate in the most competitive structure any electrity projects have been forced to risk investment in, while (as demonstrated by the PJM report above) still creating an overall cost benefit for consumers, while investing in the types of technologies we will need in the not to distant future to sustain the world's ever growing appetite for clean electricity. That seems like a pretty good bargain to me.
ReplyDeleteEric T.
There are many real-life examples of the positive benefits of wind energy in lowering wholesale electricity prices - which then benefits electric customers. For example, Summit Blue Consulting, LLC performed an analysis of the market price impacts of renewable energy resources during The New York State Energy Research and Development Authority’s (NYSERDA) first three renewable portfolio standard procurements (2005, 2006, 2007). The results show that in 2010 wholesale electricity prices will be reduced by approximately $2 per megawatt-hour (MWh). In total this means that for each MWh of renewable energy added to the grid, electricity costs are lowered by $100/MWh.
ReplyDeleteIts important to remember that under the “single market clearing price” model, like in PJM the addition of renewable energy can help lower electricity costs. Since renewable energy sources like wind and solar have no fuel costs, once they are constructed they have little to no operating costs. Therefore, wind and solar can bid into the market at a price close to zero, helping to push out more expensive generators like gas peaking plants that rely on expensive and variable fossil fuels. This means less expensive resources like more efficient gas-fired units set the marginal price, lowering the cost of power for everyone
While the price of fossil fuels will likely remain unpredictable and could potentially increase in years to come, wind will always have zero fuel cost. In order to hedge against fossil fuel markets, help push more inefficient and expensive generating units off the grid and save electric consumers money, renewable energy is a critical and beneficial part of our electricity supply.