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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Rolling Blackouts in Texas? One Easy Cure

Will the lights stay on in Texas this summer? With record energy demand and even higher energy demand this week, there are some doubts. What may be a solution? Greater focus should be placed on energy efficiency to reduce near and long-term risk.

Soaring Demand for Power

The Texas electricity market continues to hit record power demand highs. The most recent record high was 73,259 MW on Thursday. Demand is expected to go as high as 75,596 MW some time in the next few days as record temperatures hit the area. This will be close to 6,000 MW higher than average over the last few years, about an 8% increase from the previous year.

More importantly, this is almost 3,000 MW higher than was anticipated April 2018 when ERCOT made its last summer peak demand prediction for the summer of 2018.  With a generation capacity of 78,000+ MW ERCOT had planned for a reserve capacity of 5,428 MW during the 2018 summer peak. If the new prediction for this week of a peak demand of 75,529 MW happens, that reserve capacity goes down to 2,588 MW.

The Razor’s Edge

2,500 MW of reserve capacity is not a lot to play with when you start looking at the possible generation outage scenarios, such as natural gas plants have mechanical difficulties or the wind slows down in west Texas. ERCOT looked at a bunch of different scenarios to determine the potential risks that could eat into the reserve margin. When the reserve was north of 5,000 MW ERCOT saw that there were three scenarios where the reserve margin would be used. With the new possible reserve margin, all risk scenarios show inadequate capacity.

When there is inadequate capacity, we may begin to see brown outs and rolling black outs. Some of this threat is limited by demand response and load management programs that allows for voluntary reduction of loads by large energy users. This does not provide a lot of comfort because the demand response and emergency response service only gives us about 2,300 MW of spare capacity.

To sum up, Texas is running on a razor thin amount of reserve power this summer and there is not much that can be done in the short term to increase generation capacity. Due to such low electricity prices in Texas there is no appetite to build new merchant generation plants in Texas. Operators cannot make money in the current market due to such low prices throughout the year. Operators only get paid when they run. ERCOT is not a capacity market where generators get paid to have additional capacity onsite and standing by. After this summer, if peak prices get high enough for long enough period of times, and these higher summer prices appear as if they are here to stay, we may see some entering the market. But don’t hold your breath.

What to do? What to do?

There is one relatively easy solution. It doesn’t get the attention of a lot of people because it is not a shiny solar panel or a big turbine. Typically, most people never see it or know it is there. It is energy efficiency. Unfortunately, the state of Texas is a laggard at energy efficiency.

How Texas Compares to Other States in Regards to Energy Efficiency

I am not saying utilities responsible for energy efficiency programs run bad programs. They are very efficient operators of their efficiency programs. They do good work. The problem is that they don’t have to try to hard. The energy efficiency requirements for utilities is very low in Texas. We have the lowest energy efficiency goals by far across the entire United States. These goals are set by the energy efficiency resource standard (EERS). The state of Texas was the first state to adopt an EERS in 1999. We then quickly became laggards and fell of the pace. The image below, although a couple of years old, shows how far Texas lags behind other states in energy efficiency savings goals by utilities.

Everyone in the ERCOT market pays for energy efficiency. You may see it on your bill as the energy efficiency cost recovery factor (EECRF). You may not have noticed it because it is either bundled with other costs on your bill. Even if it was listed it is such an inconsequential piece of your bill you wouldn’t notice it anyway.

Saving Energy is Cheaper than Making Energy

Energy efficiency continues to be on of the cheapest ways to increase the amount of generation capacity in Texas. Solar and wind have come down in price significantly, that is for certain. However, energy efficiency should not be set aside. The United States wastes a lot of energy. If we waste less through energy efficiency programs, we put less stress on the grid and we will not have to be as concerned as to whether we have enough electricity to keep the lights on.

Energy Efficiency Simply Done

It doesn’t take a lot of time and requires minimal disruption to a business or household. It can be as simple as some behavioral change, such as not having every TV on in the house that no one is watching because they are on their IPad or Nintendo Switch.  Other simple things to do would be to buy new high efficiency LED light bulbs ( the light quality is excellent, they last forever and are really not that expensive anymore); adding insulation to your attic and walls; adding weather stripping and caulking to windows and doors; installing ceiling fans and finally, upgrading to a new high efficiency air conditioning system. A lot of options and there are ways to find out what you can do.

A very well kept secret is that utilities provide free residential energy audits. In Texas, call up your utility, not your retail electricity provider (although some are now offering these services) and see who their providers are. We had our house done a few years ago. They came in, did and audit, and on the same day, installed new light builds, added weather stripping, sealed leaks in the A/C duct work and added insulation. You are paying for it with your EECRF so why not take advantage of it. Businesses should do the same thing. There are a large number of energy efficiency programs to take advantage of, but act fast the dollars go very quickly. Which gets me back to one of my pain points, Texas as a state sucks at energy efficiency. Not because of the work of the programs, the utilities do good work, but because of the lack of funding provided to these programs.

Regulators and Legislators Lack Sense of Urgency

Our legislators and regulators have not been convinced that energy efficiency is a priority for the state. The PUCT has actually put a pretty restrictive cap on what utilities can spend on energy efficiency.  If the state, marginally increased its energy efficiency goals under the EERS, and just brought Texas up to the state that is second to last, the amount of dollars would be significantly higher. SPEER, a state-wide energy efficiency organization finds that with modest tweaks to our energy efficiency goals, we should expect about a 10% decrease in energy consumption. That is a significant reduction and impact when we are playing so close to the margins.

There is a pretty clear path to reducing the likelihood of blackouts. The 2019 legislative session is coming up. Let your representative know that you don’t want black outs, you see energy efficiency as a simple fix and you want more funds to support it.

More funds would mean more energy efficiency, which means improved reserve margins which means a much lower likelihood of the lights going out in Texas. Plus your house or business will see lower power costs and probably be a lot more comfortable.

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With Climate Change, Where Will Be the Next Energy Capital?

No matter how civic leaders try to spin it, the Houston economy is still very much tied to oil and gas. Below are three reports that recently came out on the state of the economy of Greater Houston area. You will see that each report highlight the fossil fuel industry as being the economic engine for Greater Houston area. There is little mention of any other economic factors, other than services, which are largely here to support the fossil fuel industry. When we look at the global activity to decarbonize the economy to mitigate climate change, this continued reliance on a single economic driver may be a problem.

Economic Outlook for Greater Houston

Texas A&M Outlook for the Texas Economy –

  • Houston posted the largest monthly increase with 8,000 jobs, half of which occurred in professional
    and business services (often linked with the region’s energy sector).
  • The Greater Houston region added 30,000 jobs in the first quarter alone amid strength in the energy and manufacturing industries. (the manufacturing is largely oil and gas related.)
  • Increased drilling activity and weaClimate Change and Texas Economykness in the U.S. dollar supported 5,800 manufacturing jobs over
    the past two months. At the metro level, manufacturing employment surpassed 4 percent growth seasonally adjusted annual rate (SAAR) in both Austin and Houston, translating to 900 and 1,800 industry jobs this year, respectively.
  • The wave of professional and business service jobs grew higher, adding more than 50,000 jobs across the state in just six months. Many of these jobs supplement the energy industry and are located in the financial sectors of Dallas and Houston.

Greater Houston Partnership – Economy at a Glance

  • The region’s leading exports in ’17 were petroleum products ($18.2 billion), basic chemicals ($12.9 billion), oil and gas extraction ($11.5 billion), agricultural, construction and mining machinery ($3.5 billion) and plastics and resins ($3.4 billion).

Greater Houston Partnership Employment Forecast 2018

Approximately one-third of Houston’s GDP is tied directly to oil and gas. This figure doesn’t include energy’s impact on wholesale trade, transportation, and professional services. Nor does it account for how much of their paychecks energy workers spend at the grocers, in local restaurants or at the drug store. Factor in those expenditures and energy’s impact on local GDP is significantly higher.

Risk of Decarbonization

Although it may be less apparent in the US, there is a global push to decarbonize our energy and transportation systems. My concern is that the Greater Houston region is underestimating the pace of this global energy transition. This is problematic for the Gulf Coast in the mid to long-term. For the short-term things are looking pretty good with oil prices lingering around $70 a barrel. However, when we look at global factors relating to the decarbonization of our world economy, it is hard to be as optimistic. Much of the world is taking climate change seriously and is taking steps to mitigate greenhouse gas emissions.

Some indications of the risk include:

Climate Change Policies
Carbon Brief Map of Climate Change Policies

Oil and Gas Majors Are Taking Note of Climate Change

The large major oil and gas companies are taking note of the global climate indicators and appear to be conceding to some degree that business-as-usual may need to change. Shell and BP are both publishing reports in 2018 that will provide greater insight into operational risks due to climate policy. The realize the near term political climate is pushing for policies that are intent on keeping the planet below two degrees Celcius temperature increase. Chevron has provided some insight as to what the near to mid-term would look like with lower oil demand due to climate-related policies. Chevron does not see peak demand in the near term but concedes that there is a future where there will be less oil demand. This will increase competition among oil and gas companies and result in lower cash flows. Exxon Mobil and BP both see peak demand coming in the next couple of decades. The peak is driven by a shift to renewables and to electric vehicles, as well as improved efficiency of internal combustion engines.

Greatest Risk is Shift to Electric Vehicles

As seen in the LNNL graph below 72% of petroleum goes to transportation. The longevity of the oil and gas market is driven by the continued consumption of oil by the transportation sector. However, forecasts point to a growing number of EVs and improved efficiency of autos which will lessen oil demand.

Climate Change Changes Energy Mix

Lawrence Livermore National Lab US Energy Consumption 2017

BP predicts 300 million electric vehicles by 2040. This will account for 15% of all vehicles. The most recent Bloomberg New Energy Financing research estimates that by 2040 there will be 530 million EVs on the road. This potentially could displace 8 million barrels of oil per day, 336 million gallons. By 2040, over 50% of car sales will be EVs. Recently, Aurora Energy Research reported in Oilprice.com that similar to the BNEF report, it sees 540 million EVs on the road. EVs will make up a little over one-quarter of total vehicles on the road. More concerning is that the firm estimates that with EVs and improved efficiencies of internal combustion engines (IEC) total revenue loss by oil and gas companies may be around $21 trillion.

China Leads the Way

Who is leading the pack? China. Being a leader in EV technology and high-tech manufacturing is one of the key focus areas of China.  As part of its Made in China 2025 strategy, the government is pouring billions of dollars into EVs to make it happen. When the worlds second largest economy is looking to electrify the transportation sector, primarily driven by strategic concerns related to importing much of its oil and gas supply and the choking smog largely attributed to the internal combustion engine, it may be time to think beyond the short-term gains being reaped from the most recent resurgence of the regions oil and gas sector.

Natural Gas May Not Pick Up the Slack

As more EVs are on the road more power generation will be needed.

It is possible that combined cycle natural gas plants will be built to provide the additional power required to power the fleet. However, with unsubsidized renewables having a similar levelized cost of energy as natural gas plants,

building more natural gas plants to offset the decrease in fossil fuels used to fuel the transportation sector is not certain.  A recent Greentech Media analysis finds lithium-ion storage looks to compete head to head with gas peakers by 2022 and beat out peakers by 2027. See below.

Climate change and energy storage

Greentech Media Image – Storage and Nat Gas Peakers 

Where are Public Leaders?

In the Greater Houston area there needs to be more leadership to diversify beyond the oil and gas sector. There has been much excitement around how the Greater Houston survived much of the last oil bust cycle due to its growing export market. However, when you look at what was being exported, a good bit of it was and continues to be petroleum products.

The Greater Houston area must take concrete steps to seriously diversify the region’s economy. The Amazon HQ snub should be a wake-up call. Dallas is more attractive than Houston to Amazon.

Exporting more oil and gas products vs. importing is not really diversification. Further, it does nothing to limit the reliance of the economy on the fossil fuel industry. Houston is not seen as anything more than an oil and gas town. Otherwise, we would not have been the only large city not making it to the top 20 of the Amazon search.

There was a step forward with the announcement of the new Innovation District in Midtown. This is a $100 million project led by Rice University, in partnership with the city and business leaders, to kick-start the high tech start-up community. Hopefully, there is more being planned than this one initiative.

Does Extreme Weather Drive Investment in Resilient Infrastructure? Sometimes…

This is an excerpt of a white paper published at HARC on 5/21/2018…

Extreme Weather Events

Since 1980 the United States has experienced 219 separate billion-dollar-plus natural disaster weather events. The total cost of these 219 events is estimated to be $1.8 trillion dollars. This takes into account 2017, which is on record as being the most costly year for natural disasters, with a cumulative cost of over $300 billion dollars. The number and intensity of these weather events are causing growing concern across the globe as well.

The risks faced by the public and private sector related to climate include direct physical impacts on

electric power climate resilience
Pink Sherbet Photography from Utah, USA

investments, degradation of critical infrastructure, reduced availability of key inputs and resources, supply chain disruptions and changes in workforce availability and productivity.  The Global Risks Report 2016, finds that two of the top three concerns for business over the next 10 years are failure of climate change mitigation and a failure to adapt to potential extreme weather events. The concern indicated as most crucial is a water crises. All of these issues point to increasing likelihood of investment in more resilient infrastructure in order to limit these risks. It is anticipated that these extreme weather events are likely to increase over time, particularly with the intensity of floods, droughts, and/or heat waves. A similar increase in intensity is also predicted with tornadoes, hailstorms and thunderstorm winds, but there is still some uncertainty as to what extent and where.   These extreme storm events are intensifying disaster risk and will continue to have a significant impact on communities and infrastructure.  Recovery often requires enormous resources, which underscores the growing need for new adaptive infrastructure to make critical facilities and communities are more resilient.

For this study, we explore whether the growing number and intensity of storm events have led to greater investment in more resilient power systems. A resilient power system is one that is built to lessen the likelihood of a power outage.  These systems must manage and respond to power outage events to mitigate impacts, quickly recover when the power comes back on, and learn from the outage event to reduce the likelihood of future outages.

Our study period is from 2000 to 2016. During this timeframe, the United States experienced more than99,000 power outages, some small and some rather large. This includes ice storms that knock out power for a few thousand customers to Superstorm Sandy, which at the height of the blackout left approximately 5.7 million customers without power across New York, New Jersey, and Connecticut.  Further, severe weather events, including hurricanes, extreme heat, and droughts between 2004 and 2013, resulted in over 25 significant power generation disruptions that led to curtailment of power generation and power outages across the US.

We test whether power outages as a result of natural disasters influence decisions by organizations and critical facilities to adopt methods to reduce the likelihood of potentially detrimental power disruptions. One way to test this assumption is by looking at the deployment of combined heat and power (CHP) applications across the United States. CHP is by no means the only approach to mitigate power outage risk at a site, but is one of the more likely options to be pursued.

Combined Heat and Power & Power Resilience

Combined heat and power (CHP) is being touted as a technology that can help with power reliability and resilience concerns. CHP produces power on-site, typically using natural gas which is highly reliable. This was demonstrated during Hurricane Sandy, where CHP systems performed very well in comparison to the grid and diesel back-up generators. We have seen anecdotal evidence that CHP is coming online to improve site resilience, and a handful of states have been pushing for rules to promote resilient CHP. In this study, we wanted to see if CHP is more generally being installed to improve site resilience.

Currently, there are 81 GW of CHP installed across the United States, and significant potential for much more. A 2016 DOE study demonstrated that there is 340 GW more of technical potential for CHP. There has been considerable effort at the federal level to push for more CHP in the near-term. Examples include the Energy Policy Act of 2005, Federal Interconnection Standards, 2008 Federal Investment Tax Credit for CHP, 2008 Accelerated Depreciation for CHP boiler Maximum Achievable Control Technology (MACT) in 2011, and President Obama’s Executive Order in 2012 that set a goal of 40 GW of new CHP by 2020.

There has also been considerable regulatory and financial assistance activity at the state, utility, and local level. This includes interconnection standards, as well as incentives, grants, rebates, and loans. Some of the more notable activity includes New Jersey’s Energy Resilience Bank which provides grants and loans to cover 100% of costs of resilient systems, The New York State Energy Research and Development Authority (NYSERDA) CHP Incentive Program, and California’s Self-Generation Incentive Program (SGIP) which funds systems of up to 3 MW. Some other state activities to promote CHP for resilience include legislation in Texas and Louisiana that requires all newly constructed state facilities or state facilities undergoing major renovation to assess opportunities for CHP.  Similarly, Connecticut’s Microgrid Pilot Program has a central focus on the role of CHP.  Missouri, Illinois, and Michigan also have various CHP-focused energy resilience planning efforts.

Finish Reading at HARC Research…

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?

How a Rapid Transition to Electric Vehicles Puts Gulf Coast at Risk

I have been discussing the double climate risk faced by the Texas Gulf Coast over the last year. Physical climate risk due to extreme weather and economic risk because of a decarbonizing economy.  This week, the economic risk became more apparent. In BP’s latest energy report, we see a decarbonizing global economy, with the adoption of electric vehicles (EVs) being one of the areas that may pose the greatest risk.

The EV Transition

Currently, 70% of total crude in the US goes to gasoline and diesel sales. With most of the major auto

Chevy Volts charging under a solar array

companies pledging to have all EV vehicles or at least multiple EV cars available in the next few years, it is expected that demand for crude oil could be peaking more quickly than expected. Some examples of automaker pledges include General Motors having 25 EV models available by 2023; Toyota will offer EV model options for all vehicles in its fleet by 2025; Daimler and BMW anticipate 15% of vehicle sales by 2025 will be EV; Ford is investing $4.5 billion in EV’s; Volkswagen plans on having 30 models by 2025 and anticipate 25% of sales will be EV’s; Volvo announced all vehicles sold after 2019 will be EV’s or hybrids. Everyone knows what Tesla is up to. So, we see now not just high end, luxury segment going EV, we see cars being introduced to the wider public at more acceptable price points.

The automakers are not doing this because they necessarily care about the impact of their vehicle’s emissions on climate change. Much of these announcements are being driven by governments who care about climate change and are trying to meet their Paris Climate Accord agreements. A good way to reach these goals is to decarbonize their domestic fleets. To name a few, India, England, the Netherlands, France, Germany and Scotland have all made announcements to end sales of diesel and gas-fueled vehicles in the next 20 years. China has also made a pledge to decarbonize its fleet, but has yet to set a firm date. Although the United States Federal Government is not taking the climate threat seriously, the rest of the world is and that will have a significant impact on the US economy, particularly the part of the economy that produces the oil and gas.

Oil Projections Largely Slowing for Transportation Fuel Use

Projections vary considerably as to the rate at which EVs will be adopted. ExxonMobil and the DOE’s Energy Information Administration anticipate fairly low and slow EV sales. However, both anticipate that overall growth of consumption will increase at a slower rate, not peak. This is due to significant growth of vehicle purchases in developing countries, such as China and India, combined with increasing fuel efficiency of vehicles.

BP, Statoil, Morgan Stanley, Wood Mackenzie and Bloomberg New Energy Finance all anticipate more robust demand growth for EVs. For example, Wood Mackenzie anticipates a net decrease in oil consumption by up to two million barrels per day by 2035 due to EV sales. BP anticipates significantly slower growth of transport fuels out to 2040.

BP finds that during the last 25 years fuel demand increased by 80%. According to their new report, which assumes an “evolving transition” the next 20+ plus years will see significantly lower growth of 25%. Evolving transition is the assumption that technology, social preferences, and policies continue to evolve at the same rate as the present. In this scenario, the outcome is that due to EVs and efficiency gains, the amount of fuel consumed in 2017 will be about the same in 2040.

BP goes a step further and runs some models that consider a globe that bans internal combustion engines. We have already started seeing this in some countries. In this alternative scenario, we see that by 2040 all car sales will be EV and about 66% of total vehicle miles traveled will be with an EV. This is about double what would be anticipated in the evolving transition scenario.

The fact of the matter is that the oil industry may be at risk with this transition, and more importantly the livelihood and communities of the Upper Gulf Coast. Maybe some of this risk will be mitigated by the increased use of natural gas to fuel the additional power plants needed to charge all of the new EVs.

Barriers and Opportunities

There are major hurdles to significant demand growth in the deployment of EVs. The upfront cost of EVs remains higher than gasoline and diesel powered vehicles. Further, the charging infrastructure is not wide-spread enough to adequately power up a large EV fleet. There is also the problem, that like myself, a good portion of the population holds on to their vehicles for about 10 years.

That being said, the largest cost to EVs, battery prices are coming down very quickly and continue to decrease. The cost in 2010 was $1,000 per kWh. Today the prices is $209 per kWh with an anticipated cost of $100 kWh by 2025. Which according to Bloomberg New Energy Finance could be the tipping point for EVs. Also, there is a very large push to build out a more robust EV charging infrastructure. A lot of this new infrastructure may occur with the Volkswagen Diesel Emissions settlement. There is a discussion of approximately 2,800 stations being installed with the settlement funds.

The likelihood of these dire scenarios coming true is largely driven by the cost of EVs and the availability of charging infrastructure to conveniently recharge these vehicles in and out of town. The growing demand to decarbonize our lives and subsequent policy and market changes will also have a material impact.

Gulf Coast leaders should not take a wait and see approach. It is great that the region is coming out of its latest oil induced hangover. The problem is that you can tell a lot of our leadership is feeling pretty fat and happy again. We are again becoming complacent and less willing to take the steps to diversify the economy. We have a long history of falling back into business as usual as the oil and gas sector booms. After multiple crashes, why else would you still have a regional economy that is still largely fueled by the oil and gas industry?   The region can’t afford to become complacent. It should seize the movement to decarbonize and use our engineering and science expertise to our advantage.  There is no reason the region should not be leading the clean energy economy. Unfortunately, to our detriment, there does not seem to be a lot of desire to lead us in this direction. This is a problem. If the Amazon snub should tell us anything, it is that there may not be a lot of faith from outside business that the Gulf Coast can learn new tricks. Maybe they are right.

 

 

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.