3 Ways Wind and Solar Can Continue To Grow In a 21st-Century Grid

Earlier this year, MIT researchers were the latest in a series of analysts to raise alarm about the perceived limitations of solar PV’s continued growth. In short, these analysts propose that variable renewables will depress wholesale prices when they run, thereby limiting their own economic success.

These concerns have garnered coverage in other venues (including Vox, Greentech Media, and The Financial Times), leading observers to suggest that the future prospects for renewables may be dim.

But are these concerns really justified, or do they rely on outdated assumptions about the grid and about electricity markets? We argue that these critiques, assuming a static grid and unchanging market mechanisms, can be used to make any innovation look bad. However, more integrative assessments of a least-cost, clean, and reliable power system of the future will factor in high fractions of variable renewables, along with more-efficient markets (and usage) and new technologies to integrate these resources seamlessly and resiliently.

In this article, we argue that falling wholesale prices is a good problem to have, and that concerns about economic limitations ignore remedies available from supply-side evolution, demand-side resources, and updated market mechanisms. As the world gathers in Paris for COP21, these messages are as important as ever for charting and pursuing a low-carbon clean-energy pathway.

Understanding the "Problems"

There has been increasing concern that variable renewables such as wind and solar may face an upper limit to adoption in the U.S. grid. The argument is that large amounts of variable renewables will create excess supply concentrated at the particular times of day when they produce. The notorious "duck curve" is an example of this—the duck-like shape of a particular, daily demand curve modeled for California’s grid when the production of large amounts of solar photovoltaics (PV) is netted out.

Critics argue that this technical characteristic of variable renewables, specifically PV—a daily generation pattern that is not perfectly matched with load—can have economic consequences for all forms of generators, especially the renewable resources themselves. Large amounts of renewable resources can sell a glut of power when it’s available, offsetting production from higher-marginal-cost resources (like gas-fired power plants). Since power prices are generally set by the resources with the highest marginal cost that clear in the market, additional generation from renewables tends to lower market prices.

This "merit order effect" often decreases revenues for fossil generators. This impact has been particularly dramatic in Europe, where generation from costly-to-run thermal plants during the daily solar peak was formerly very profitable for fossil generation owners. PV has decreased energy prices so much there that the top 10 EU utilities lost half their market capitalization. However, the merit order effect also means that variable renewables themselves may also earn lower profits as their adoption rises. A common conclusion is that variable renewables can play only a modest role in power production, marginalized by declining wholesale value at higher adoption levels.

The Other Half of the Thought Experiment: Three Factors That Can Accelerate Renewable Energy Adoption

Analysts who have put forth these arguments have elaborated only the first half of a microeconomics thought experiment. The problems they hypothesize hinge upon the laws of supply and demand, but omit important aspects of both, drastically overstating the perceived "problems." Let’s see how.

1) Supply is changing holistically, not incrementally

Many of these thought experiments consider adding just a single supply resource (often solar PV) without considering many of the other supply-side changes happening at the same time. In reality, solar PV, wind, and natural gas are all joining the supply mix in a big way at the same time; the first two are often complementary and the third is dispatchable, so together, they can do a lot to mitigate the "duck curve" often portrayed.

At the same time, retirements of uneconomic assets will provide a countervailing buoyancy to wholesale prices. For example, even though old, dirty plants often have low production costs, they may exit the market anyway due to high costs of compliance upgrades or other fixed costs that erode their profits. The resulting less-abundant supply can cause the marginal supply curve to contract in quantity, leading to higher prices and higher profits for renewables and remaining fossil generators—unless demand drops too, as it’s doing in the industrialized world.

2) Demand is increasingly flexible, not fixed

Analysts arguing that renewables’ variability will limit their growth often assume perfectly efficient wholesale markets, but unchanged retail markets and fixed demand profiles. This incomplete and asymmetrical treatment ignores the emerging capability to harness the demand side of the equation. For example, people like and respond to time-varying pricing programs, and these programs are starting to roll out at scale. The electricity demand of many appliances including electric water heaters and electric vehicles is inherently flexible without disrupting the service provided. Furthermore, new business models (from both utilities and third parties) are driving this convenient flexibility by providing seamless solutions, unobtrusively, conveniently, and without requiring customers to become part-time energy traders.

These factors together increase flexibility of demand, an important low-cost resource, and enable what is the most natural response to changing prices in an efficient market where consumers find ways to use and benefit from cheap electricity from wind and solar. In other words, as renewables reduce energy prices during certain times of day, demand flexibility allows customers to shift demand to those times, which will both reduce energy prices at other (peak) times and raise the price paid to renewables during times when they produce the most.

3) Storage makes renewables dispatchable, not variable

Diverse supply and flexible demand will play a big role in easing renewable integration concerns but, to the extent that issues remain, the continuing decline in battery prices and the range of values available from batteries means that remaining variability issues can probably be addressed at modest incremental costs. At the retail level, this can lead to increasing self-balancing of distributed generation (we’ve already seen this in Germany and Australia, and it may affect utility business models in the U.S.). At the wholesale level, as variable resources begin to saturate the market, high-priced hours will incentivize developers to begin to look at storage. Already, storage is seen as a near-term replacement for peaking generation, and batteries installed for peaking capacity can also be used to smooth the economic impact of renewables on power prices.

Storage is already a common feature of concentrating solar power (via molten salt), and becoming an increasingly common feature of solar PV. For example, the all-renewable winning bids in the latest Chilean auction for unsubsidized electricity included not just solar power as low as $65/MWh in the daytime, but also nighttime solar power—via thermal or electrical storage—for $97/MWh at night. With storage, variable renewables become dispatchable, and dispatchable renewables do not have nearly the same merit order effect as variable ones. To be sure, our recent demonstration that 13 kinds of benefits of behind-the-meter distributed storage can make batteries cost-effective does not necessarily make them competitive with the many other ways to achieve grid flexibility, but similar reasoning suggests an abundant range of options for averting the problems that narrowly constrained models imply.

Whole-System Thinking Illuminates a Path Towards Least-Cost Outcomes

Analysts arguing that renewables will economically limit their own continuing adoption generally leave out the considerations listed above—and more importantly, these arguments are built on incremental thinking, assuming that today’s grid and markets are fixed and only one thing changes (e.g., PV or wind-energy market share). A more holistic, integrative, and accurate analysis would start with the ultimate objectives (reliable, resilient, and least-cost energy services), and promote a whole-system design to get there promptly.

With this perspective in mind, the characteristics of renewable energy that have caused so much hand-wringing—variable output and near-zero marginal costs of production—simply add to the list of design considerations for a market design that rewards efficient investment. Given supply diversity, demand flexibility, and emerging technologies like storage, variable renewables are unlikely to face any practical limit to growth even under current grid paradigms and market structures.

Nothing Sacred About Existing Markets

But even if renewables do face adoption limits in current markets, there is no reason we have to keep these markets the way they are. Wholesale power markets are largely a product of historical coincidence, formed out of the paradigms of the last century in which thermal power plants competed only with each other. Modern market design that reflects the realities and changing resource mix of the 21st century grid, being pioneered in Germany already, can go a long way towards aligning incentives for least-cost resource mixes. Particularly, incorporating behind-the-meter distributed energy resources and flexible loads into energy markets—as is being done in California and New York—can bring new capabilities and a refined level of control to the grid.

An Integration Challenge?

Evolving supply, flexible demand, storage, and updated markets can remove the limits to increasing renewable energy on the grid. In a later post, we will highlight how these same levers can address the common concerns—and misunderstandings—about "integration costs" of renewable energy. For example, a much-hyped recent paper claims that high-penetration renewables must incur steeply rising integration costs. But that turns out to be an artifact of extremely restrictive assumptions in the models used, combined with an assertion that competitive harm to thermal-plant incumbents is an economic cost of the renewables that beat them.

Renewables Are Here To Stay

The "problems" with renewables often brought up by analysts may be real in isolation, but are overstated when the full range of options is considered. Indeed, these are good problems to have: they’re the natural forces of supply and demand acting to send signals to market participants to diversify resource choice, incentivize demand flexibility, and invest in storage and other emerging technologies. Arguments against wind and solar PV conclude that these resources will need greater subsidies to survive in the "duck curve" era. But instead, we can tap the latent power of supply diversity, demand flexibility, storage, and market design to level the playing field for all resources, rather than clinging to the premises of the 20th century grid. Protecting the old system is far inferior to enabling the new one so that innovation can flourish, entrepreneurs can thrive, and all options can compete fully and fairly. Source

 

 

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How Demand Flexibility Can Help Rooftop Solar Beat Demand Charges in Arizona

The debate over rooftop solar has grown increasingly contentious, pitting solar PV companies against utilities in many parts of the country. But nowhere has the debate been more heated than in sunny Arizona, where many customers have flocked to rooftop solar as prices have come down in recent years. Most recently, utility Salt River Project (SRP) has introduced a demand charge for solar customers.

Already common among commercial rate structures but much less so among residential, a demand charge is a component of the overall bill based on a customer’s maximum demand (kW) each month, in addition to more-traditional charges based on total consumption (kWh).

SRP argues that it needs to recover costs from its solar customers that they impose on the grid through high demand. The utility position is that solar customers use the grid in much the same way as non-solar customers, and impose similar costs. Yet traditional rates coupled with existing net energy metering (NEM) riders mean that solar customers pay much less per month than other customers. SRP’s new rate is designed to recover the difference by imposing a charge on a customer’s peak demand each month, which generally occurs after the sun sets.

However, solar companies and others claim that this pricing structure is unfair. The largest PV developer in the U.S., SolarCity, has sued the utility, arguing that SRP is practicing anti-competitive behavior. In any case, whether the new rate is fair or unfair, it means that the PV market is growing much more slowly in SRP than it was a year ago; interconnect requests have More

 

 

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Energy Efficiency Simply Makes Sense

What simple tool offers the entire world an extended energy supply, increased energy security, lower carbon emissions, cleaner air and extra time to mitigate climate change? Energy efficiency. What’s more, higher efficiency can avoid infrastructure investment, cut energy bills, improve health, increase competitiveness and enhance consumer welfare — all while more than paying for itself.

Maria van der Hoeven - IEA

The challenge is getting governments, industry and citizens to take the first steps towards making these savings in energy and money.

The International Energy Agency (IEA) has long spearheaded a global move toward improved energy efficiency policy and technology in buildings, appliances, transport and industry, as well as end-use applications such as lighting. That’s because the core of our mandate is energy security — the uninterrupted availability of energy at an affordable price. Greater efficiency is a principal way to strengthen that security: it reduces reliance on energy supply, especially imports, for economic growth; mitigates threats to energy security from climate change; and lessens the global economy’s exposure to disruptions in fossil fuel supply.

In short, energy efficiency makes sense.

In 2006, the IEA presented to the Group of Eight leading industrialized nations its 25 energy efficiency recommendations, which identify best practice and policy approaches to realize the full potential of energy efficiency for our member countries. Every two years, the Agency reports on the gains made by member countries, and today we are working with a growing number of international organizations, including the European Bank for Reconstruction and Development, the Asian Development Bank and the German sustainable development cooperation services provider GIZ.

The opportunities of this “invisible fuel” are many and rich. More than half of the potential savings in industry and a whopping 80 percent of opportunities in the buildings sector worldwide remain untouched. The 25 recommendations, if adopted fully by all 28 IEA members, would save $1 trillion in annual energy costs as well as deliver incalculable security benefits in terms of energy supply and environmental protection.

Achieving even a small fraction of those gains does not require new technological breakthroughs or ruinous capital outlays: the know-how exists, and the investments generate positive returns in fuel savings and increased economic growth. What is required is foresight, patience, changed habits and the removal of the barriers to implementation of measures that are economically viable. For instance, as the World Energy Outlook 2012 demonstrates, investing less than $12 trillion in more energy-efficient technologies would not only quickly pay for itself through reduced energy costs, it would also increase cumulative economic output to 2035 by $18 trillion worldwide.

While current efforts come nowhere close to realizing the full benefits that efficiency offers, some countries are taking big steps forward. Members of the European Union have pledged to cut energy demand by 20 percent by 2020, while Japan plans to trim its electricity consumption 10 percent by 2030. China is committed to reducing the amount of energy needed for each unit of gross domestic product by 16 percent in the next two years. The United States has leaped to the forefront in transportation efficiency standards with new fuel economy rules that could more than double vehicle fuel consumption.

Such transitions entail challenges for policy, and experience shows that government and the private sector must work together to achieve the sustainability goals that societies demand, learning what works and what does not, and following the right path to optimal deployment of technology. Looking forward, energy efficiency will play a vital role in the transition to the secure and sustainable energy future that we all seek. The most secure energy is the barrel or megawatt we never have to use.

Maria van der Hoeven is the Executive Director of the International Energy Agency, an autonomous organization which works to ensure reliable, affordable and clean energy for its 28 member countries and beyond. This commentary appeared first this month in IEA Energy, the Agency’s journal.

 

© 2014

Renewable Sources Provide Over 20% Of Global Power Production

Global renewable electricity energy capacity rose to a new record level last year — more than 1,560 gigawatts (GW), up 8% from 2012. More than 22 % of the world’s power production now comes from renewable sources. Renewables currently meet almost one-fifth of world final energy consumption.

That is one of the conclusion of the new Renewables Global Status Report published by REN21, “the global renewable energy policy multi-stakeholder network.”

The Renewables Global Status Report relies on up-to-date renewable energy data , provided by an international network of more than 500 contributors, researchers, and authors.

With developing world’spolicy support, global renewable energy generation capacity jumped to a record level; 95 emerging economies now nurture renewable energy growth through supportive policies, up six-fold from just 15 countries in 2005.

These 95 developing nations make up the vast majority of the 144 countries with renewable energy support policies and targets in place. The rise of developing world support contrasts with declining support and renewables policy uncertainty and even retroactive support reductions in some European countries and the United States.

In 2013, an estimated 6.5 million people worldwide worked directly or indirectly in the renewable energy sector. O ther important developments include:

• Renewable energy provided 19% of global final energy consumption in 2012, and continued to grow in 2013. Of this total share in 2012, modern renewables accounted for 10% with the remaining 9% coming from traditional biomass the share of which is declining.

• Heating and cooling from modern biomass, solar, and geothermal sources account for a small but gradually rising share of final global heat demand, amounting to an estimated 10%.

• Liquid biofuels provide about 2.3% of global transport fuel demand.

• Hydropower rose by 4% to approximately 1,000 GW in 2013, accounting for about one-third of renewable power capacity added during the year. Other renewables collectively grew nearly 17% to an estimated 560 GW.

• The solar PV market had a record year, adding about 39 GW in 2013 for a total of approximately 139 GW. For the first time, more solar PV than wind power capacity was added worldwide, accounting for about one-third of renewable power capacity added during the year. Even as global investment in solar PV declined nearly 22% relative to 2012, new capacity installations increased by more than 32%. China saw spectacular growth, accounting for nearly one third of global capacity added, followed by Japan and the United States.

• More than 35 GW of wind power capacity was added in 2013, totalling just more than 318 GW. However, despite several record years, the market was down nearly 10 GW compared to 2012, reflecting primarily a steep drop in the U.S. market. Offshore wind had a record year, with 1.6 GW added, almost all of it in the EU.

• China, the United States, Brazil, Canada, and Germany remained the top countries for total installed renewable power capacity. China’s new renewable power capacity surpassed new fossil fuel and nuclear capacity for the first time.

• Growing numbers of cities, states, and regions seek to transition to 100% renewable energy in either individual sectors or economy-wide. For example, Djibouti, Scotland, and the small-island state of Tuvalu aim to derive 100% of their electricity from renewable sources by 2020.

• Uruguay, Mauritius, and Costa Rica were among the top countries for investment in new renewable power and fuels relative to annual GDP.

• Global new investment in renewable power and fuels was at least USD 249.4 billion in 2013 down from its record level in 2011. More

 

© 2014

Building the Electricity System of the Future: Thinking Disruption, Doing Solutions

The speed of disruptive innovation in the electricity sector has been outpacing regulatory and utility business model reform, which is why they now sometimes feel in conflict.

That disruptive innovation is only accelerating. RMI’s recent report,The Economics of Grid Defection: When and where distributed solar generation plus storage competes with traditional utility service, sets a timeline for utilities, regulators, and others to get ahead of the curve and shift from reactive to proactive approaches. Becoming proactive and deliberate about the electricity system's transformation, and doing so ahead of any fundamental shifts in customer economics, would enable us to optimize the grid and make distributed technologies the integral and valuable piece we believe they can and should be.

When RMI issued The Economics of Grid Defection three weeks ago, our intent was to stretch the conversation among electricity system stakeholders by looking out far enough in the future to discern a point where the rules of the system change in a fundamental way. We used the best available facts to explore when and where fully off-grid solar-plus-battery systems could become cheaper than grid-purchased electricity in the U.S., thus challenging the way the current electricity system operates. Those systems, in fact, don’t even need to go fully off grid. The much less extreme but perhaps far more likely scenario would be grid-connected systems, which could be just as or even more challenging for electricity system operation and utility business models.

The takeaway is this: even under the fully off-grid scenarios we modeled, we have about 10 years—give or take a few—to really solve our electricity business model issues here in the continental U.S. before they begin compounding dramatically. The analysis also suggests we should carefully read the “postcards from the future” being sent from Hawaii today, and take much more interest in how that situation plays out as a harbinger of things to come.

As an institute with a mission to think ahead in the interest of society, consider this a public service message that these issues will crescendo to a point of consequence requiring dramatic and widespread changes well within current planning horizons. For those who are serious about finding solutions, this is also a call to action and a commitment to partnership.

At RMI, much as we pioneered the concepts of the “negawatt,” the “deep retrofit,” and the “hypercar,” we have also defined what it means to be a “think-and-do tank.” It is not enough to do smart analysis. The solutions we champion must be practically tested, broken, fixed, refined, iterated, and ultimately adopted at scale for us to feel satisfied with our work. Partnering with leading companies and institutions is how we prove an alternative path is possible to a world that is clean, prosperous, and secure.

The highly distributed electricity system of the future

The Transform scenario of our Reinventing Fire analysis, the most preferable outcome of the electricity futures we have examined, described a future for the U.S. electricity system in which 80 percent of electricity is supplied from renewable sources by 2050, with about half of that renewable supply coming from distributed resources. Given the current grid is only a few percent distributed and less than 13 percent renewable (counting a generous allotment of hydropower), we have quite a ways to go.

Achieving that end state requires many changes. Some of those changes already have momentum and likely won’t require intervention, but others will need a kick start or some other form of “strategic acupuncture” encouragement. At RMI, we would certainly prefer that a transition of this scale be orderly and proactive, because having disruption rock the boat of the current system unprepared would undoubtedly leave some combination of shareholders, ratepayers, and taxpayers smarting.

As we look at the future electricity system—the one we need to be building today—we see five critical differences from the present system. Redesigning our regulatory and market models should reflect these emergent needs.

• The future electricity system will be highly transactive. Increasingly, the grid will become a market for making many-to-many connections between suppliers and consumers, with those roles being redefined on a daily basis as self-balancing systems decide whether to take from or supply to the grid at any given time.
• Correspondingly, asset and service value will be differentiated by location and timing of availability, and perhaps even by carbon intensity or other socially demanded attributes. In a system that requires instantaneous load matching at the distribution level, and where virtual and real storage are distributed throughout the system, resource coordination will require transparent markets (with increasing automation) that provide the ability to balance autonomously using value signals. A system historically governed by averages will instead migrate to specific, dynamically varying values.
• Innovative energy solutions will proliferate. As a consequence of market forces already unlocked, we are assured to see a regular stream of distributed resource innovations that better meet customer needs at costs comparable to existing utility retail prices. These could be market-based aggregation plays (e.g., demand response) or personal technologies (e.g., a home “power plant” such as solar plus storage or a gas microturbine).
• A consequence of these first three points is that the rules governing the network must be adaptive to constantly shifting asset configurations, operations, and other factors. For example, charging EVs may make more sense at night or during the day, depending on the penetration of renewables relative to base needs. There will be lots of inflection points on how and when to encourage the development of different types of assets to reach efficient and stable outcomes.
• Finally, the customer will be increasingly empowered. The services of the grid must de-commoditize to deliver against exact customer needs for reliability, “green-ness,” and other attributes. Failure to do so will result in customers finding higher-value alternatives.

This future still prominently features a robust wires network; defection from the grid would be suboptimal for a number of reasons. We would assert that everyone is better off if we create a future network that is easier to opt in to, rather than opt out of via the risk of defection.

Moreover, distributed resources—the same ones that could but needn’t threaten defection—have the potential to become a primary tool in the planning and management of grid-based distribution systems. Already, we are working with utilities and regulators in several parts of the country in exploring new ways to incentivize electricity distribution companies to take full advantage of distributed resources to reduce distribution system costs, increase resilience, and meet specialized customer needs. Good regulation will reveal value and facilitate transactions that tap that value, thereby increasing the benefit of distributed resources for all.

Forging solutions: our work on the emerging system

Our programs at RMI are designed to honor and accelerate progress toward an electricity system that harnesses these distributed investments. Hence, we have parallel and interactive efforts to accelerate the progress of economic, distributed, and low-carbon disruptive technologies (because we believe they have an important and positive role to play in the electricity system of the future), even as we work with utilities, regulators, and other key stakeholders to migrate to new business models that deploy and integrate these resources in ways that maximize the benefits to society as a whole. We think these dual efforts place “creative tension” in the system from which progress manifests.

Our work on disruptive technologies is focused on driving down the economic costs of deploying these systems by stimulating direct cost reductions, improving risk management and access to capital, and building new business models that are either behind the meter or aggregations across meters. To do this, we work specifically to help drive down solar “balance of system costs” through understanding cost reduction opportunities and then working to implement them, through identifying pathways to more market capital and then working with consortia like truSolar and Solar Access to Public Capital to unlock, and through working on issues like microgrids or researching the prospects for alternative asset models with a wide range of partners.

These insights into disruptive models directly inform our dialogue with utilities, regulators, technology providers, and other stakeholders around ways to migrate existing business models. Our most ambitious effort at transformation is the Electricity Innovation Lab (e-Lab), a multi-year, multi-stakeholder initiative focused on rapid prototyping and fast feedback on solutions for the future energy system. This network has issued seminal thought pieces on future business models, surveys of the costs and benefits of solar, and worked directly with stakeholders like the City of Fort Collins and the U.S. Navy to develop perspectives on pieces of future solutions for all. Beyond that, we work directly with utilities such as PG&E and states like Minnesota on one-off engagements to test different ideas together in a way that provides important experience for the “think-and-do” cycle that epitomizes our approach.

We at RMI are committed to expanding and accelerating the capacity to transform the electricity industry to one epitomized by innovation and customer service above all else, in a way that meets environmental, social, and economic demands. Toward this end, we are convening 13 cross-disciplinary teams from across the country in two weeks for our first-ever e-Lab Accelerator, designed specifically to workshop some of the toughest issues facing the industry in the transition to the next electricity system. This is just one of the broader set of commitments that we have made to not just thinking about solutions, but putting them immediately to the test. Therein lies the key to our change model: think and do. Then repeat. More

 

© 2014