Stuck in the Past: Old Models Stymie Clean Energy Transition

With the upcoming COP 24 session in Poland, I recently published a post that looks at the progress that has been made since COP 21. COP 21 is when we saw the drafting of the Paris Agreement. COP 24 is the opportunity to truly put together implementation strategies for countries to meet their greenhouse gas reduction goals. There are several market sectors that are impacted by the Paris Agreement. Here I want to take a quick look at the electric power sector and the slow transition to more clean energy power systems.

What’s the Hold Up?

One uncertainty ahead for renewable energy is how investors will take to the coming period in which project revenues have less government price support, and instead depend on private sector power purchase agreements or merchant power prices.

Why can’t this transition happen more quickly, particularly in regards to electric power generation and consumption. When countries submitted their INDCs in 2015, the energy world was a bit different than today. One of the most significant differences from then to today is the price of clean energy resources, particularly solar, wind and batteries.

With significantly lower costs for clean energy power generation since the Paris Agreement shouldn’t we be seeing a more rapid transition. A key  argument has been that the higher costs of renewable energy was a key barrier. It is very difficult to make the same argument today. As demonstrated by the most recent levelized cost of energy studies.

Economics are there for clean energy

According to the Lazard Levelized cost of energy report, in 2015 combined cycle gas plants and utility solar were pretty much event in cost per kWh. Solar was a bit cheaper at $64 and Gas combined cycle was $65. Wind was less expensive than both at $55. If we look at the most recent Lazard report for 2017, prices have continued to drop for all technologies, but solar and wind by considerably more. In 2017 wind was $15 less than gas at $45 and solar was $10 less than gas at $50. Solar made the largest gains in price reduction per square foot and closed the gap on wind. There is now only a $5 difference between wind and solar applications.

The other argument has been that renewable energy is intermittent and too much renewable energy on the grid would hurt grid reliability. This argument appears to be losing some of its validity. One would expect that with early deployment, there was not the diversity of resources, solar and wind, nor the geographic disbursement of these systems to ensure grid stability. However, as we see greater deployment of solar and wind, we see the complementary nature of these resources and how they are better able to support the overall grid when coupled together. Throw in batteries and you really solve the intermittency issue. Granted, solar and batteries is still a bit more expensive, than your base load combined cycle natural gas plants, but not by much.

Texas Not Showing the Way

A recent decision by the Texas Public Utility Commission (PUCT) on AEPs Wind Catcher facility is a good example of how developers may not be using the appropriate assumptions for their models and how the PUCT is slow to adjusting to the clean energy transition. What this means for both the developers and the regulators is that they have not been able to properly model the long-term benefits of clean energy resources and future risks of a fossil-fuel based power grid.

The AEP’s Wind Catcher would have been a 2 GW wind farm in the Oklahoma Panhandle. The largest wind farm in the United States. AEP argued that customers would receive significant benefit due to the expected fuel savings of the project. Because power would be provided to Texas, the PUCT had a say on whether the project was seen as beneficial to Texas customers. The PUCT denied the project on grounds that it placed too large a burden on rate payers.

What has changed in the market?

The clean energy market is tougher place to be than it was a year ago. Three key factors a lower federal tax rate, low natural gas prices and in Texas the fact that the renewable portfolio standard has long been met and provides no requirement for utilities to take on additional clean energy.

Because the renewable energy standard goals of Texas have been met, AEP had to demonstrate that the costs of the plant were competitive and provided cost savings to customers. Another strike against the project was when first conceived, the federal tax rate was higher. Higher tax rates provides a greater benefit to projects looking to participation in the federal production tax credit. When taxes go down, less tax burden and less benefit via this credit. AEP saw a $245 million decrease in tax benefit with reduction in federal taxes.

Old Way of Thinking Continues

Those are two valid concerns that have a material effect on the value of this project. There are two concerns expressed by the PUCT that are more difficult to accept. The first is that the PUCT does not feel there will be a carbon tax or any other climate regulation supporting clean energy investment in the near to mid-term. However, that is likely to be only as long as the current administration stays in power. Looking beyond 2020, we should anticipate a swing back toward carbon related regulations which would get the US back in line with the rest of the world.

Further, as we continue to see greater climate related extreme weather activity, it is increasingly likely that more interest will be paid in mitigating climate risk through the development of policies for more clean energy resources. This could be done through a “punctuated equilibrium” event such as an extreme long-term drought or the largest fire in California’s history, that would mobilize voters for more climate focused policies. Not only may a large event drive policy change, think Fukishima, but so would current state and local efforts. We are seeing a significant horizontal diffusion across states and communities of climate policies. As this builds, we could very well see a vertical diffusion, a snowball effect that drives action at the federal level. We see from COP 23 that a sizable portion of US cities and states are “still in.” To not take into account, the possibility of future climate regulations is short-sighted energy planning that goes against many of the indicators that would suggest otherwise.

Natural Gas Prices to Remain Flat for 30 years?

The second argument by the PUCT against the Wind Catcher project was that natural gas prices are low and will remain low for the foreseeable future.  With such low natural gas prices, wind is not believed to be competitive and would increase cost burden to customers.

The analysis by the PUCT does not take into account the ongoing decrease in wind energy prices. As mentioned earlier, according the most Lazard report, the LCOE of wind is less than natural gas combined cycle plants. A recent Rocky Mountain Institute (RMI) report finds that an “optimized clean energy portfolio” is cost competitive with natural gas at $5 MMBtu gas now and with $3 MMBtu gas in the next 15 years. The study also looks at a Texas case study.  When comparing a combined cycle plant with a clean energy portfolio which includes energy efficiency, solar, wind, demand response, etc., the clean energy portfolio has a 25% savings over the cap ex of a the combined cycle plant.

The Chairperson of the PUCT, DeAnn Walker, stated that one of the key problems with the project is that “the costs are known…the benefits are based on a lot of assumptions that are questionable.” However, looking at the decision of the PUCT, one should ask the same thing of the PUCT assumptions of low natural gas prices. Natural gas prices are historically volatile. To base the conclusions on the premise that natural gas prices are going to remain stable and flat over the next couple of decades indicates that the PUCT has not learned from history. By assuming that natural gas prices will follow a very stable, minor increase for the next thirty years does not reflect the reality of the last 30 years. This false assumption puts energy consumers at greater risk.

Here is the PUCT’s assumption – natural gas prices is the orange line.

Here is the historic reality of natural gas price volatility.

There were some other strikes against the Wind Catcher project, particularly the additional costs of transmission construction to interconnect the system. Further, AEP should have done a better job on how it presented its analysis and assumptions with the more recent changes in the natural gas market and regulatory environment.

That being said, AEP and other developers should learn from this project. One key area that has yet to be touched to the degree necessary is future climate risk and the increasing likelihood of climate regulations. Energy planning models are not properly taking into account either of these risks. By not doing so, models will not adequately value clean energy projects and limit opportunities for speeding up the energy transition. More to come on energy planning in the next post.

 

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Paris Agreement: The Slow Walk Continues

COP 24 is quickly approaching. This COP will be held in Katowice, Poland. The intent of the 24th Council of Parties is to facilitate and adopt a set of strategies that will lead to the full deployment of the goals expressed during COP 21, i.e. the Paris Agreement. There will also be greater focus at this COP to identify not only mitigation strategies, but also more carbon sequestration strategies via improved land-use practices.

 

A Quick Review of Paris Agreement

In 2015 all of the countries of the world convened at COP 21. The 21st meeting of the UN’s Council of Parties. The goal of COP 21, aka 2015 Paris United Nations Framework Convention on Climate Change  (shortened to the Paris Agreement), was to identify the strategies that would help countries, and the globe at large, to reduce greenhouse gas emissions. The expectation was that by countries cooperating and coordinating on a variety of emission reduction and carbon sequestration efforts, we would decrease the likelihood of the planet warming more than 1.5 degrees. 1.5 degrees being the threshold that was set by climate scientists to be the maximum amount the plant can warm beyond the pre-industrial revolution baseline of the late 19th century. Beyond 1.5 degrees, and it is expected the earth would see some pretty catastrophic impacts. This would largely be an increase in number and intensity of extreme weather events, both short-lived such as hurricanes and of longer duration, such as droughts.

To establish the Paris Agreement, all countries worked to provide Intended Nationally Determined Contributions (INDC) for mitigation. These are largely the sectors countries will focus on to reduce their greenhouse gas emissions. This includes the energy sector; agriculture; land-use; waste; transportation, etc. By April 2016, 97% of all participants, 190 of the 196 possible participants, in the United Nations Framework Climate Change Covenant (UNFCCC) had submitted INDCs. This covered about 94.6% of all carbon emissions.

What has happened since the Paris Agreement?

What happened between COP 21 and COP 24? Some would argue progress was made, but largely not enough progress to adequately address the extreme risk we face with a rapidly changing climate. Some progress is better than no progress. We did see advancements in commitment for financing and funding both mitigation and adaptation activities; greater focus on supporting indigenous populations; and the development of additional coordination mechanisms that facilitate dialogues across countries, as well as between the public and private sector.

There was COP 22 in Morocco. This was largely a follow-up to COP 21 to demonstrate that countries are on board . A joint statement was issued to this effect demonstrating that countries are committed to the goals they established in COP 21. The COP did ask for not only ongoing commitment but also a willingness by countries to increase their financial contributions to this effort, both internally and to countries in need of greater financial support. It also recommended that countries up their goals a bit, as there was a increasing realization that the goals set during COP 21 were not sufficient to meet the 1.5 degree threshold.

There was then COP 23, held in Bonn, Germany and led by the country of Fiji. The focus of COP 23 was to further develop implementation strategies for COP 21 goals, as well as further develop a facilitative dialogue known as the Talanoa Dialogue. The intent of this dialogue is to build trust among participating countries. With greater trust, it is believed there will be improved knowledge sharing, as well as increased likelihood of greenhouse gas reduction strategies being implemented. Some other highlights includes United States’ cities and states recommitting after the US federal government pulled out of the Paris Agreement.  With Fiji taking the lead, there was also significant focus and progress on indigenous populations, particularly those that are most at risk to sea-level rise and other climate risks.

Where do things stand?

We have all of this improved coordination and cooperation happening across countries, as well as with greater public/private partnership efforts. Further, we have greater investment in mitigation and adaptation efforts. However, we still are very much falling short. In October 2017 the UN Environment’s Emissions Gap report was issued. The report was issued prior COP 23 in Bonn. It assesses the INDCs and the progress countries are meeting. The conclusion was not great. The INDCs meet only about 1/3rd of what needs to be done to keep under the 1.5 degree threshold and those pledges that have been made are not all reducing emissions as quickly as anticipated.

As a planet, we are way behind where we need to be to decrease the likelihood of hitting the 1.5 degree threshold. In the next blog post, I discuss the electric power transition and the current barriers that are slowing it down and the ways in which to reduce these barriers.

This is the Truth About Coal

There has been a recent push to revive US coal-fired power plants in the name of electric power resilience and reliability. Why is this a bad idea? It is a bad idea for several reasons. Following is a list of the top 4 reasons why coal is a bad idea

Electricity from Coal Plants is More Expensive

Coal requires all of us to pay more on our energy bills. It’s expensive compared to most other forms of power from renewable energy to natural gas. According to Lazard’s most recent report on the unsubsidized levelized cost of energy, the lowest cost coal plant is $60/MWh this is in comparison to wind at $30/MWh, gas combined cycle at $42/MWh and utility scale solar at $43/MWh. When there is an apples to apples comparison between coal and renewable energy. This means that we are looking at plants that produce the same amount kWh per year, coal is much higher than solar and significantly higher than solar. The facts demonstrate that coal is more expensive than most other viable options. Keep in mind that this is unsubsidized costs, none of the “unfair” investment tax credits or production tax credits are included in this price. Further, this does not include the social and environmental costs that come from coal. That is covered later.

Coal Plants are a Public Health Nuisance

Speaking of social and environmental costs, coal power plants emit mercury and a variety of other greenhouse gas emissions that should be properly accounted for. The key concern here is the amount of mercury emitted by coal plants. which can result in significant health risks. According to a recent EPA analysis, over 42% of mercury emissions in the United States come from coal fired power plants. Overall 50% of mercury emissions comes from fossil fuel plants. This does not include all of the other dioxins and heavy metals that come from primarily coal plants. Below you can see the dispersion of mercury/toxic emitting power plants.

EPA – Toxic Rule Facilities

The problem with mercury is that it significantly increases a community’s health risk. High levels of mercury emitted from power plants can harm brain, heart, kidneys, lungs and immune systems of people of all ages. Further, mercury from power plants has been found to have a significant negative impact on a baby’s development, with particular impacts to a baby’s nervous system.

Coal Plants are not that Resilient

Coal power plants are not as resilient as some would like us to believe. Coal plants and the supply chain that gets coal to the power plants are highly susceptible to cyber, physical and climate risks. A recent study by the National Academies of Science titled Coal: Research and Development to Support National Energy Policy found that ““The rail net­works that transport the nation’s coal—like air traffic control and electric trans­mission networks—have an inherent fragility and instability common to complex networks. Because con­cerns about sabotage and terrorism were largely ignored until recently, existing networks were created with potential choke points [like some rail bridges over major rivers]…that cause vulnerabili­ty…[and] the potential for small-scale issues to become large-scale disruptions.”

Climate Change May Hurt Rail System

The Department of Energy further elaborates on the fragility of coal transport by finding  “Hardly a month goes by that delivery of Powder River Basin (PRB) coal somewhere in the supply chain is not interrupted by a derailment, freezing, flooding, or other natural occurrence.” Climate change is likely to increase heat that buckles rails, floods and storms that undermine tracks, and extreme weather that spikes electric demand. Meanwhile, utilities, having cut coal inventories threefold during 1980–2000 to save cost, keep trying to squeeze out more cost, exacerbating risk.” A recent example of coal not being that fuel secure was the Texas WA Parish plant. During Hurricane Harvey, the plant had to switch from coal to natural gas due to saturated coal piles. Those proponents for coal should also recall the Polar Vortex that resulted in frozen coal piles. You can’t burn frozen coal.

One other thing, coal or any other water-cooled power generation system can’t operate or at least not very efficiently when the water is too warm or there is not enough water to cool the plant. I covered this in a recent blog post on the power sector having a significant water problem.

Climate Change Induced Lack of Water Reduces Power Resilience

Coal Plants are Significant Greenhouse Gas Emitters

Can’t forget this one. Coal power plants emit significant greenhouse gas emissions. In the US, coal accounts for 67% of greenhouse gas emissions in the power sector. Of the total greenhouse gas emissions, 28% comes from electric power generation. Granted, overall GHG emissions have come down due to fuel switching since 1990, but not by much. This largely due to much of the switching is to natural gas, another greenhouse gas contributor, although not as large of one. Also, there have some increases in demand across parts of the country which has limited overall reduction.

Coal Power Plant’s Climate Change Problem

The current administration has not made the connection between greenhouse gas emissions and climate change. By not making this connection, that cannot see that sustaining or increasing emissions will result in a significant increase in storm intensity that will negatively impact the overall power system, i.e. hurt system resilience. Storm intensity, demonstrated by Superstorm Sandy, Hurricane Harvey, Irma and Maria, the Polar Vortex, to name a few, is anticipated to significantly increase under current greenhouse gas projection scenarios. If the concern of the administration is resilience of our power system due to extreme storms, there probably should be some effort to reduce the likelihood of this intensity by reducing the cause.

To Conclude

There are four really good reasons why coal fired power plants may not be the best option for a resilient and reliable grid. This was just a high-level overview. Each of these topics could be their own posts. For the long-term resilience of our electric power system, it is key that we not look to short-term fixes to the detriment of long-term health, economic and environmental well-being.

 

 

Why Nations Will Meet Paris Climate Agreement Goals

Paris Agreement and Climate Change Risk:

The Paris Agreement was the first time all countries came together to work toward a reduction in global greenhouse gas emissions in an effort to mitigate climate change. In a 2015 study published in Nature if the world was able to maintain its commitments toward meeting the Paris Agreement goals then it could be expected that:

  • A third of oil reserves
  • Half of gas reserves
  • 80% of known coal reserves

will stay in the ground. Although this would be good for the overall health of the planet by reducing impact of climate change, it would be disastrous for resource extraction based companies. However, with recent reports, companies that work on the extraction of oil, gas and coal may not have much to worry about if current trends continue. Even with the Paris Agreement accords we see many countries not meeting their goals and actually increasing their emissions. Globally, we see more coal plants coming online to support developing countries appetite for growth. Also, we continue to see increases in emissions from the transportation sector.

Is this growth in emissions a hiccup and expected to be short lived? Some would argue that it is.

Why could this be just a hiccup?

Due to growing global climate change risk countries and companies continue to take steps to transition from the burning of fossil fuel. With decreasing costs of fossil free alternatives, the effort to debarbonize is becoming much easier.

The most recent levelized cost of energy studies, show all PV solar and wind to be cost competitive with natural gas and coal fired power plants. This was not necessarily the case at the signing of the Paris Agreement. Costs will continue to decrease for these generation assets and it will be more difficult to fund more expensive fossil-fuel alternatives. Further, as more renewable energy facilities are built out, the diversity of locations for these systems will reduce the intermittency issues that have been a concern for power grid operators. Not only the number of systems and the diversity of location are a benefit, but so is the significant ongoing decrease in the price of battery storage. On a regular basis, new reports are published on the ongoing decreasing cost of battery storage.

The technology is coming quickly and is ready for deployment. Much of the barrier is now political. Globally, risk adverse elected officials responding to very powerful fossil fuel interests, has resulted in an unlevel playing field with markets and regulations not properly accounting for and allowing new clean energy technologies.

What happened after the Paris Agreement?

 It was expected that when the Paris Agreement was signed  everyone was ready to go and begin to implement all these climate change mitigating measures. The fact of the matter is that there were many well meaning pledges, but the economic and political reality was not yet there for many parts of the world. Although we needed these goals to be met sooner rather than later, it takes time.

Technologies needed to be further developed and costs had to continue to decline. The financial markets and capital providers had to become more comfortable with valuing and funding these new technologies. Government regulators and policy makers had to better understand the barriers to deploying these systems and start making the appropriate changes that would not hinder the deployment of clean energy systems. Finally, the clean energy sector needed more allies and a bigger voice to compete with the more powerful fossil fuel lobby. 

Winds of Change

Financing and Investment in Clean Energy

Things are looking up. Specific to investing in clean energy, in 2017, clean energy investment outpaced fossil fuel investment by a significant amount, $333 billion vs $144 billion, respectively.  A specific funding instrument growing in popularity are green bonds. They are becoming one of the largest investment vehicles for energy efficiency and renewable energy investments. In 2018, it is expected that there will be $250 billion in green bond new offerings. This is 60% higher than 2017, which was $155 billion.  2017 saw a 60% increase in investment from 2016 (See graph below).

Source: Bloomberg

Political Winds are Changing

On the political side, at least outside of the US, we see a more robust shift to taking serious steps toward decarbonization and reducing climate change risks. The European Parliament is getting more serious in supporting plans to facilitate EU capital markets to meet long-term sustainability goals, which includes decarbonization, disaster resiliency and resource efficiency.

On May 29th the European Parliament adopted the sustainable finance resolution. Which includes:

  • Rules to orient financial markets towards environmental objectives
  • Policy framework to encourage investments into sustainable assets
  • Divestments from fossil fuels and unsustainable energies

The first two items are key areas that all countries must further develop to ensure Paris Agreement goals are met and exceeded. Without the proper market and regulatory framework in place, the investment community and companies will be less willing to transition to cleaner technologies. Item three, divestments are already happening. They will only become more rapid as the rules and frameworks around clean energy are developed.

Divestment Continues

What we are seeing in the market in regards to divestment should provide some hope for clean energy and concern for fossil fuel interests.

For example, hedge funds are seeing a 50% increase in demand for responsible investment offerings from current and prospective investors. This is according to a survey of about 80 managers from the Alternative Investment Management Association.

Another significant move was made by the state of New York and and New York City to actively divest from existing and future fossil based investments. To date, endowments and portfolios managing over $6 trillion are actively divesting from fossil fuel assets. Pension funds have come to the realization that they must protect their portfolios from climate change. Fossil fuels are not the future and their investments are at risk.

Stranded Assets Due to Climate Change

As divestment occurs, one of the primary concerns is the threat of fossil fuel stranded assets. These are largely reserves that will not be used as global markets move to clean energy resources.

What is a stranded asset? According to University of Oxford Smith School and Enterprise and the Environment, a stranded asset are “assets that have suffered from unanticipated or premature write-downs, devaluations, or conversion to liabilities and they can be caused by a variety of risks.”

At risk are assets listed on the financial statements of energy producers and a reduction in anticipated cash flows for future production which may be reflected in company stocks.

Risky Business

Oil and gas companies may see transitioning their business model to clean energy as risky. Some have made some initial transitions, Total, Statoil, Shell and BP for example. At this time, their clean energy investment is still minor compared to their overall fossil fuel investment strategies. For example, of Shell’s $30 billion investment budget only $2 billion goes to renewables.

Although this climate change transition may be risky, not paying serious attention and taking serious steps toward transitioning to clean energy assets may be even more risky. There is a lot of uncertainty as to the speed to which this transition will happen. A miscalculation in the speed of this trend could have dire consequences for fossil fuel companies. A recent report by the Oxford Institute for Energy Studies, “The Rise of Renewables and Energy Transitions,” lays out the significant risks of stranded assets that could be faced by those who do not choose wisely ( a little Indiana Jones reference). Moving to be an integrated energy company rather than an oil and gas pure play is probably the most appropriate choice in the current energy landscape. A recent study by Wood Mackenzie, finds that over the next 20 years renewables will be the fastest-growing primary energy source worldwide. They anticipate average annual growth rates of 6% for wind and 11% for solar. In contrast demand for oil, is anticipated to grow about 0.5% per year.

Growth in Renewable Energy vs. Fossil Fuels

Concerns over climate change risk are real and are being taken seriously by financial decision makers and policy makers. This would suggest that fossil fuel companies can no longer take a wait and see approach. The technology and markets are changing rapidly and for their own viability and of the communities they serve, they probably should get on board.

 

How does Texas Measure Climate Risk to Power Grid?

How does Texas Measure Climate Risk to Power Grid? The short answer is that it doesn’t.

I attended the Gulf Coast Power Association (GCPA) Houston monthly luncheon last week. It is always a great opportunity to learn something new about the power sector and talk with a bunch of energy experts. Today, Colin Meehan, Director Regulatory and Public Affairs with First Solar, gave a talk on “Solar Power in Texas.” It was a good presentation and Colin did a nice job explaining how solar is entering and will continue to enter the Texas market at an increasing rate.

There was one specific slide in the presentation that caught my attention. This slide looks at different ERCOT power generation capacity addition scenarios out to around the year 2031. One of the items that jump right off the page is the amount of solar that ERCOT anticipates coming online in each of the scenarios. Currently, solar makes up the second largest percentage of new generation capacity being considered for the Texas market; second behind wind. According to the ERCOT Generator Interconnection Status report, as of March 2018, 23 GW of solar is now in some stage of the interconnection process.

Meehan Solar First Solar

Things are looking good renewables in Texas. But that was not what really got my attention. What grabbed my attention was the Extreme Weather bar in the graph. First, it was good to see that there is some consideration as to how future weather conditions could impact power generation in the state. I was curious to learn more about what the extreme scenario entailed so I checked out the ERCOT Long-term System Assessment. I find that the ERCOT LTSA extreme weather scenario assumes there is a long-term condition that impacts water-intensive generating resources. In a previous post, I discuss how the Texas grid, as well as most of the US grid, is too water dependent.

In this particular LTSA scenario, ERCOT assumes a six-year drought occurs during 2022 and 2027 leading to significant stress to the power system. This includes derating the water-cooled generation systems, as well as the complete outage of these systems. ERCOT uses a drought prediction tool to build this scenario. This tool uses historical water usage data, current reservoir data, and current generator information.

What is missing here is a consideration of future weather patterns due to climate change. I have written on a couple occasions, most recently the article on How Smart Companies are Using Block Chain to Improve Resilience in Wake of Climate Change and The Key Reason the Texas Power Grid is at Risk to Climate Change. Many of our state’s key decision makers are still having difficulty coming to terms with climate change. This is unfortunate and climate risks should not be ignored particularly when long-term decisions are being made for power generation in Texas.

The capability to assess climate risks is available, particularly when considering future water risks due to climate change. The National Climate Assessment does a nice job laying out the risks for Texas and the southeast.  Hopefully, we will see the latest version sooner rather than later, but it appears to be held up.

In any case, new report or not, the data is available for Texas energy planners to start taking account future water conditions for the state. Water is not the only concern, another issue will also include the placement of power generation systems in areas with increasing likelihood of more intense tropical storms and hurricanes.

Increasing storm intensity, including flooding, as well as sustained droughts are two conditions that are discussed a good bit in Texas, depending on the most recent crisis. However, what is less discussed are changes in wind patterns and cloud coverage.

If Texas expects to have wind and solar providing a significant portion of the generation capacity, should we not take into account how future climate change may impact the ability of these resources to perform? The data and models are available to consider changing cloud coverage and wind patterns. I have come across a large number of studies for Europe but only a handful for the US.

With so much at stake, an effort must be made to consider climate risks. As the second largest economy in the US and the 10th largest globally, Texas plays a significant role in driving the global market. How does the state maintain this position or advance, if we can’t keep the lights on?

The Key Reason Texas Power Grid is at Risk to Climate Change

Energy Planning

Are energy planners in Texas taking climate change seriously enough? The question pertains not to mitigation but rather to long-term resilience and adaptation of the state’s power generation portfolio. The state is doing OK in decarbonizing the grid through its record level wind investment and growing solar portfolio. Across the US, on a regular basis, new announcements are made of record-setting production and growth in the renewable energy sector. Just last week, Friday the 16th,  the Southwest Power Pool set a record with over 60% of its grid being powered by wind. We see solar installations going in at a record pace surpassing 2015 installations, with 10.6 billion watts of installed capacity. 2016 still remains the highest year for solar installations at 15.1 billion watts.

 

Decarbonizing is not enough

Further, like the rest of the country, the state is realizing ongoing coal power plant retirements, with 5 GW coming offline in the near term. All of this activity has lessened the carbon intensity of the Texas grid and helps reduce the risk of price hikes if there is ever a carbon tax or carbon fee and dividend passed.

So Texas is to some degree pulling its weight in decarbonizing its grid. It could be doing significantly more to reduce energy consumption. For example, we are dead last with our energy efficiency resource standard goals. We have the lowest goals in the nation, by a lot. Other than that and also the significant lack of incentives and rebates across most of ERCOT’s territory to deploy distributed energy resources, particularly rooftop solar, we are doing OK.

OK, but we could be doing better if not for the lack of action on implementing battery storage into the market. Although I do hear that we should expect the PUCT to be making battery storage a focus of theirs in the next few months. That is good news for all of our decarbonizing efforts, whether rooftop or utility scale.

Where we are lacking, and where much of the country is lacking, is moving our energy planning from climate mitigation efforts to climate adaptation. As I mentioned, the state is reducing its climate intensity to some degree, with greater deployment of renewables and coal-fired retirements. All market driven.

What we are not considering with our new and future generation assets is to what degree they are going to be impacted by a rapidly changing climate. It is true steps are being taken on the transmission and distribution side to harden the grid and improve grid resilience. Hurricane Harvey, although highlighting where we are in need of improvement, did not cause the damage that could have occurred if we had not already started to deploy smart grid and grid hardening assets throughout the transmission and distribution system.

The power development that is occurring now, primarily wind, solar and natural gas are being developed using weather models and market information that does not take into account the near and mid-term impact of climate change. Climate models are finding that in the next few decades there will be changes in cloud coverage and wind patterns. There is also a higher likelihood of long-term drought across the state. This does not include the increased probability of more intense hurricanes and other severe weather events.

Market is Short-sighted

Have our energy planners thought about what the grid would like if there is more cloud coverage or the wind becomes less predictable? The market is largely determining the generation portfolio for ERCOT. This is great in the short-term, we get the most economical generation built. Currently, in the ERCOT Generation Interconnection Status report, there are over 67 GW of power generation systems under study to potentially connect to the grid. 81% of this is solar or wind power generation, with the remainder natural gas. Of course, not all of this is going to come online but it demonstrates the direction we are going in the development of the future grid for Texas. This is great news for emissions. Having such a large proportion of the new generation systems being renewables will further reduce the carbon intensity of the Texas grid and reduce overall emissions. There is a very large assumption here in regards to our future grid. The assumption is that the weather is going to continue to be how it has been. It is anticipated the wind patterns will remain predictable and similar to what they are now, as well as cloud cover. It is also assumed that water will be available to cool the large proportion of our power that will continue to come from water-cooled natural gas power systems.

The question here is whether we are doing enough to mitigate future climate risks to our power generation systems. Specific to future water risks, there have been studies that demonstrate we would be in a bind if the state had another 2011 style drought. Which is true, but these studies do not seriously consider future climate scenarios to provide recommendations on how to mitigate this risk. Largely, our current energy planning process does not do enough to mitigate risk. Much of this lack of foresight is due to state leaders that do not see climate change as real. So there is no effort to mitigate something that they feel is not a risk. Also, as I said earlier, our generation portfolio development is largely market driven based on lowest cost generation resources. It does not take into account whether these plants will be able to operate as expected in the next 5, 10, 15, 20+ years.

Solutions for Energy Planning

What are some solutions to mitigate climate risk? First, we need to start using regional climate models in our energy planning. Further, with these climate models, we need to deploy new decision frameworks, possibly a robust decision-making framework that allows for improved decision making under deep uncertainty. Another approach would be a multi-criteria decision analysis framework which is already being deployed by some energy planners, mainly in Europe.  With these frameworks, we need to start looking at our technology options. For example, it is key that we look for ways to increase the opportunity for battery storage to participate as a generation resource, as well as support transmission and distribution. We should further support the deployment of combined heat and power or small natural gas gensets. (Enchanted Rock has an interesting model that should be considered).  We should also look to deploy and/or convert large natural gas plants to hybrid cooling or air-cooling. Finally, to reduce impacts of cloud coverage, we should facilitate greater adoption of distributed solar for residential and commercial rooftops. We see some interesting distributed solar options being supported by new blockchain technology facilitating peer-to-peer selling.

 

Solar + Battery Storage – A Better Option to Improve Power Resilience in Texas?

Florida is on to something that Texas may want to start looking into. There is current legislation (HB 1133) going through the Florida State House to create a pilot solar + battery storage program to improve the resilience of critical infrastructure. It’s a small pilot, only about $10 million dollars, but it is focused on determining the feasibility of providing solar + battery storage to provide backup power at hospitals, emergency shelters and emergency response units. The systems must provide at least 24 hours of backup power to the site’s electrical load or at least five hours of average daily use.

Florida is realizing, along with some other states on the east and west coast that more options must be solar battery storagemade available for emergency backup power. Diesel and gas generators are not a great option, due to fuel supply issues, air pollution and the uncertainty as to whether they will work when called upon. What this Floridian effort is doing is helping to identify better alternatives to standard practices that can improve the resilience of its power infrastructure, particularly critical assets.

Solar + Battery Storage Market

Florida is not alone. Several states are way ahead. California, Hawaii and New York have been the leaders in solar + battery storage deployment to improve resilience. Systems are largely being installed for back-up power, as well as to reduce demand charges and overall power costs.

The installation of solar  + battery storage is growing. A GTM research report finds that in Q2 2017 saw 443 systems installed, about 32 MW. The report shows a significant increase in deployment over the next several years. Approximately 7,000 MWh projected to be deployed in 2022.

The Old Way to Do Things…

Traditionally for commercial, as well as some residential buildings, the backup power option is for diesel or natural gas-fired generation. These systems typically only run when there is a power outage and sit idle at other times.

Some of the commercial users of these systems have become a bit more sophisticated and use these backup generators to provide ancillary services to the electric power market, but that is not common and takes a level of sophistication and effort that is typically not available. (The exception is Enchanted Rock. They are a good example of how to take advantage of price signals in the ERCOT power market to make backup generation profitable for the vendor and the end-user.)

There are several concerns for diesel and natural gas generators. Backup natural gas and diesel systems are reliant on an offsite fuel supply that may become vulnerable during a natural disaster event and not always available or easily supplied. Diesel systems must keep a significant amount of fuel on site which is very expensive and may not be easy to refill during or after a disaster. Diesel and natural gas delivery systems are known to shut down during major disasters, as well.  The reason is that both systems are highly reliant on power to operate pumps, compressor stations, etc. If those systems go down, there is a risk to delivery.  Flooding, wildfires, and earthquakes also can wreak havoc on the delivery infrastructure. Finally, air quality concerns limit the operation of these generators. Depending on your location, air permits may only allow these systems to run a certain number of hours a year.

Fuel prices have a tendency to spike and remain high during and after events until fuel supplies are back online. This is currently being realized in the Northeast with the significant spike in natural gas prices due to soaring demand for building heating.  A similar spike was experienced during the Northeast US Polar Vortex in 2014. The 2014 Polar Vortex led the DOE request of FERC to subsidize fuel secure supplies such as coal and nuclear power. Not sure if that is a great idea. Other than the request distorting power markets, coal is not that fuel secure. Coal piles froze during the polar vortex and we watched Hurricane Harvey turn the coal supply at the Texas WA Parish Plant into a coal slurry. They had to switch to gas.

The benefit of diesel or natural gas generator is largely the upfront cost. According to an NREL study, the cost to install a 5 kW solar + battery storage system is about $7.8 per watt. In contrast, the cost for a similar size natural gas turbine is about $0.89 per watt. Kind of hard to make that pencil out looking at first costs. The high costs for the solar + battery storage system are largely due to the cost of the battery, about $10,000 for a 5 kW system according to the NREL study, as well as a good bit of cost for the labor and the balance of system components. Fortunately, the costs for solar + battery storage continue to decline significantly with some projections seeing the cost decline by approximately 70% over the next 15 years.

New Way of Doing Things? 

The upfront costs, at least for the next few years, is a big hurdle for solar + battery storage systems to overcome. However, the resilience benefits can be pretty significant. The benefit of the solar + battery storage system is that everything to operate the system is on-site. There are not fuel supply constraints, nor are their fueling requirements during the life of the system. This is a significant benefit if your solar + battery storage system is replacing a diesel generator option and even a natural gas-fueled option.

As stated earlier California, Hawaii and New York have taken the lead in this solar +battery storage effort. The east and west coast continue to be early adopters and first movers in trying out innovative power systems. San Francisco has developed the Solar+Storage for Resilience initiative (SSR) which is in place to develop a roadmap for San Francisco and the nation to determine the best path forward in deploying solar + storage systems to improve storm preparedness of critical infrastructure. They recently launched a solar + storage resilience calculator called SolarResilient. This calculator is to help building owners find the appropriate sized solar + battery storage system for their needs.  The National Renewable Energy Lab (NREL) also has developed a tool for commercial building operator and owners to determine the economic feasibility and the appropriate size for solar + battery storage systems at their site. The system is called REopt.

Another example of a City actively pursuing solar + battery storage for resilience is Salt Lake City, Utah. SLC is part of the DOE Solar Market Pathways initiative. This initiative has supported SLC to set goals and begin deploying solar + battery storage systems for emergency preparedness of critical facilities. It includes integrating solar + battery storage into healthcare facilities, as well as work with the private sector to put together emergency preparedness plans. This project is also developing a 10-year deployment plan for the entire state.

These are just a couple of examples. A great opportunity exists to expand our critical infrastructure resilience options. DOE, through its Solar Market Pathways program, is providing free technical assistance to build resilience with solar + storage systems. The program focuses specifically on how to integrate resilient solar into emergency management plans.

Time is Right for Texas to Consider its Options. 

The State of Texas and Houston, particularly, have witnessed increasing numbers of power outages in recent years. Two million people lost power with Hurricane Harvey. Fortunately, much of the power was restored fairly quickly. Hurricane Ike knocked the power out for 7.5 million people, 95% of CenterPoint’s Texas territory and that was only a Category 2 hurricane at landfall.

I realize that it is a bit sacrilegious to suggest other backup power alternatives other than natural gas. However, natural gas systems have their vulnerabilities. It is in our best interest to ensure we have available all viable options to ensure the long-term resilience of our communities. Solar + Battery storage looks to be one of the better options. It may not be a bad idea during this interim session, as the State thinks about ways to recover from Harvey and improve resilience to conduct a study of solar + battery storage options. We may then have something we can act on in the 2019 session that will lead to improved resilience of our communities.