A state such as New York should be capable of absorbing and benefiting from well over 7 GW of high- value PV without having to incur significant integration costs beyond the cost of PV itself, further noting that the storage sizes involved could well be met with a smart deployment of interactive plug-in transportation...the low-cost penetration potential is large enough to allow for the development of a considerable localized, high-value PV generation market worth 100’s of GW in the US.
Toby Couture is one of the pre-eminent experts on cost-effectiveness of renewable energy policies and his comparative analysis of auctions (such as California recently adopted for distributed generation) and CLEAN Contracts (a.k.a. feed-in tariffs) is a must-read.
By Toby Couture, E3 Analytics
In his conclusion to a recent speech at the London School of Economics, Lord Turner, Chair of the Financial Services Authority in the UK, introduced an important distinction in reference to the financial crisis: he explained that “Stability matters a lot; minor gains in allocative efficiency matter little.”
The reference is specifically to the unprecedented financial innovation that occurred over the course of the last decade, innovation that was heralded by many within the sector as a means of improving the overall “efficiency” of the financial market. Efficiency in this context means that resources (financial and other) would be allocated in a way that would better promote human welfare.
As the economy continues to reel from the effects of the financial crisis, average citizens may be excused for failing to see the welfare gains that came from all this “innovation;” indeed, two years on, it is now generally acknowledged that this innovation was taken too far, and resulted in a net loss of welfare for society, and for the taxpayers who are now footing the bill.
One of the insights behind Lord Turner’s comment is that, in such situations, it is indeed possible for us to be penny-wise and pound-foolish, to put too much faith in efficiency at the expense of market stability.
A new iPhone app is networking electric vehicle owners, letting them share their outlets to expand the charging options for new plug-in hybrid and all-electric cars.
“We want to break down that barrier in people’s minds about where it’s acceptable to charge,” said Armen Petrosian, Xatori’s co-founder and chief technology officer. “We think the infrastructure to charge is everywhere.” [emphasis added]
Drivers can punch in their destination to see the availability of shared outlets as well as public charging stations along their route.
People who want to share their electricity indicate what type of outlet or charger they have, how to gain access and their preferred method of contact. Given that most outlets are located in locked garages or otherwise behind closed doors, Xatori expects plug sharers will ask drivers to schedule a time to charge by calling or sending a text message.
A great illustration of how distributed resources can help meet a new technological need. For more on electric vehicles (in the Midwest), check out our 2009 scoping report, Electric Vehicle Policy For the Midwest – A Scoping Document.
Update 3/16/11: Google added EV charging stations to Google Maps.
A month ago, I compared the fuel cell Bloom Box to distributed solar PV. I’m not linking the posts, because I’ve updated my cost models for both technologies thanks to some good input from others. The revised analysis follows.
Update 3/15/11: The data in the text was accurate, but I had a labeling error in the chart. It’s fixed now.
The Bloom Box provides a plug-and-play approach to on-site electricity, using natural gas-powered fuel cells to provide stable, on-demand power. While it competes favorably with solar PV, its cost is competitive in just a few states with high electricity prices.
Bloom Box v. Grid
Only three states (New York, Connecticut, and Hawaii) have average retail electricity prices for the commercial sector higher than the break-even price (14.7 cents) for the Bloom Box’s electricity (with natural gas at $9 per million BTU), assuming the user is able to use federal tax incentives and accelerated depreciation. A number of states (including New York, New Jersey, and California) also have state rebates for fuel cells. The following map illustrates the states where the Bloom Box breakeven price is equal to or lower than the retail electricity price for commercial users. (In blue states, the Bloom Box competes with only federal incentives; in green states, it competes with additional state incentives.)
The number of states where Bloom Boxes would make economic sense would be higher, but a recent story from Greentech Media noting that the oft cited price for a Bloom Box ($700,000-800,000) was incorrect. Instead, the unit retails for $1,250,000 with a 10-year warranty, essential because the fuel cells will require replacement at least once in that span.
Bloom Box v. Distributed Solar PV
The Bloom Box performs well compared to distributed solar PV, especially in less sunny climates. At $5 per watt, a competitive price for commercial scale installations, solar PV in sunny Phoenix and Los Angeles costs 12.3 and 14.1 cents per kilowatt hour, respectively; in New York City, solar PV costs 17.5 cents. (all prices include federal tax and depreciation incentives). Six of the 16 largest metropolitan areas (with a cumulative population of 36 million) have solar PV prices lower than the Bloom Box price, although not by a lot.
The Bloom Box and solar differ in one significant way, however. The Bloom Box produces electricity on demand and round the clock, whereas a solar PV project only produces electricity during daylight hours.
When comparing the Bloom Box to a solar PV power plant with varying storage capacities, the Bloom Box is more cost-effective, even in sunny regions.
However, even this quantitative analysis leaves out a number of additional considerations: If the goal is to provide stable, baseload power, then the PV system would need longer storage (at least in winter months with fewer daylight hours). This is especially true if the power plant is an off-grid application.
If the goal is instead to offset grid electricity, especially peak power, then the PV system may make more sense. It produces power during peak hours (when prices are higher), and even a small amount of storage capacity would be sufficient to smooth out variability during the day (e.g. periods of clouds), as well as to extend production into the high-priced, late afternoon peak period.
Additionally, the operations cost for the Bloom Box will fluctuate with fuel prices, and there are more carbon emissions associated with a fuel cell operating on natural gas than with a solar PV array (zero).
Bloom Box Financing
Bloom is emulating the creative financing tools of the solar market with a power purchase alternative to buying the fuel cells. Businesses sign a 10-year power purchase agreement at a discount to their current electricity rates and Bloom handles installation, maintenance, fuel purchasing, etc. The service mimics a popular strategy for installing solar PV on residential and commercial rooftops. Bloom purportedly offers a 5 to 20 percent discount to California’s 14-cent per kilowatt-hour average commercial electricity price, so the power purchase arrangement would likely only work in states with comparable or higher electricity rates.
Overall, the “power-in-a-box” concept can serve commercial and industrial enterprises with round-the-clock power needs very well and it’s a promising start for distributed electricity production from fuel cells. As prices for both technologies fall, the Bloom Box fuel cell and solar PV power plant will be complementary components of a distributed grid.
Grid parity is an approaching target for distributed solar power, and can be helped along with smarter electricity pricing policy.
Consider a residential solar PV system installed in Los Angeles. A local buying group negotiated a price of $4.78 per Watt for the solar modules and installation, a price that averages out to 23.1 cents per kilowatt-hour over the 25 year life of the system.* With the federal tax credit, that cost drops to 17.9 cents. Since the average electricity price in Los Angeles is 11.5 cents (according to NREL’s PV Watts v2), solar doesn’t compete.
Or does it?
In Los Angeles, there are three sets of electricity prices. From October to May, all pricing plans have a flat rate per kWh and total consumption. During peak season (June to September), however, the utility offers two different pricing plans: time-of use pricing and tiered pricing. Time-of-use pricing offers lower rates – 10.8 cents – during late evening and early morning hours, but costs as much as 22 cents per kWh during peak hours. Prices fluctuate by the hour. Tiered pricing offers the same, flat rate at any hour of the day, but as total consumption increases the rate does as well. For monthly consumption of 350 kWh or less, the price is 13.2 cents. From 350 to 1,050 kWh, the price is 14.7 cents. Above 1,050 kWh, each unit of electricity costs 18.1 cents.
The following chart illustrates the difficulty in determining whether solar has reached “grid parity” (e.g. the same price as electricity from the grid). For some marginal prices, solar PV is cheaper than grid electricity when coupled with the federal tax credit.
Over the course of the year, solar is not less than grid electricity. A very rough calculation of the expected time of day production of a solar array in Los Angeles finds that the average value of a solar-produced kWh is 15.1 cents over a year. That suggests that solar power is not yet at grid parity, even with time-of-use pricing.
There are other considerations, as well.
For one, we ignored additional incentives for solar power, including federal accelerated depreciation (for commercially-owned systems) as well as state and utility incentive programs. These programs substitute taxpayer dollars for ratepayer ones, making the cost of solar to the grid lower.
We also didn’t confront the complicated issues involving a grid connected solar PV system. Net metering is the rule that governs on-site power generation and it allows self-generators to roll their electricity meter backward as they generate electricity, but there are limits. Users typically only get a credit for the energy charges on their bill, and not for fixed charges utilities apply to recover the costs of grid maintenance (and associated taxes and fees). Producing more than is consumed on-site can mean giving free electrons to the utility company. So even if a solar array could produce all the electricity consumed on-site, the billing arrangement would not allow the customer to zero out their electricity bill.
Where Can Distributed Solar Compete?
Based on our own analysis, solar PV at $5 per Watt (with solely the federal tax credit) could not match average grid electricity prices in any of the sixteen largest metropolitan areas in the United States. With accelerated depreciation – an incentive only available to commercial operations – solar PV in San Francisco and Los Angeles (representing 21 million Americans) could compete with average grid prices near $4 per Watt installed cost.
Under a time-of-use pricing plan (where prices could be 30% higher during solar hours, as in Los Angeles), 40 million Americans would live in regions where solar PV could compete with grid prices at $5 per Watt with both federal incentives.
With solar at $4 per Watt, Californians would only need the tax credit (not depreciation) for grid parity with time-of-use rates. Adding in the depreciation bonus would increase the number to over 62 million Americans.
Distributed solar is nearing a cost-effectiveness threshold, when it will suddenly become an economic opportunity for millions of Americans.
*Note: for regular readers, we changed and improved our levelized price model (in response to some comments on our cross-post to Renewable Energy World).
The majority of studies indicate that the range of increased operations-period [economic] impact [of community wind] is on the order of 1.5 to 3.4 times…and operations-period [job] impacts are 1.1 to 2.8 times higher for community wind.
To support its solar PV program, Southern California Edison rolled out a map of its grid system, highlighting (in red) areas that “could potentially minimize your costs of interconnection to the SCE system.” A similar map is forthcoming from San Diego Gas & Electric.
The benefits for distributed generation are obvious.
Twenty MW is also consistent with Commission decisions. We have established certain contract provisions for small sellers because we have found they are unable to bid into a utility request for proposal, and generally do not have the resources or expertise to negotiate and enter into a bilateral contract. We define the size of those small sellers as 20 MW and less.
Have U.S. wind projects hit a size sweet spot? While average project capacity continues to grow, it’s largely because of increasing turbine size rather than adding more turbines to a wind farm.
The following chart illustrates, showing how the capacity of the average American wind project has more than doubled in a decade (to nearly 90 MW in 2009), but that almost all that growth can be attributed to a more than doubling in the average turbine size (from 0.71 MW to 1.74 MW).
Although the American definition of distributed generation may differ, it may be that the U.S. isn’t so different from Germany, where the country’s 27,000 MW of wind power is spread over 3,300 wind projects with an average project size of 9 megawatts. It may be that smaller wind projects are encountering fewer political and transmission barriers than their larger neighbors.
Caveat. The linked post shows an average of all installed German wind projects, and it would be interesting to see how Germany’s size progression compares to the U.S.
Last week the Colorado PUC released draft rules for the Community Solar Gardens created under a 2010 state law. We discussed the legislation in detail in our 2010 Community Solar Power report, with this conclusion (unchanged by our review of the new rules):
It’s clear that the policy will help overcome barriers to community solar, in particular by providing a legal structure for community solar projects and defining the type of generation they qualify as. Community solar gardens should expand participation in distributed solar generation and perhaps expand ownership as well. Solar gardens should help make solar more affordable by allowing for economies of scale in construction and installation, by enabling access to federal tax incentives, and by (unfortunately) using open fields instead of existing structures. Hopefully the distributed nature of solar gardens will encourage projects to connect to existing grid infrastructure. Perhaps the greatest strength in the bill is creating an easily replicable model for community solar. While there will be variations as allowed by law, the creation of a defined “solar garden” in state law and a mandate for utilities to buy their electricity should encourage the development of many community solar gardens. [emphasis added]
For more detail, see the summary drawn from our report below. Italicized text indicates clarifications from the PUC’s recent rules release:
Colorado Solar Gardens, Briefly
Definition of a Solar Garden
- 2 MW or less
- 10 or more subscribers (none owning more than 40%)
- Rooftop or ground-mounted
- For- or non-profit whose sole purpose is to own or operate a solar garden
- Must live in same county
- Must own 1 kW share or more
- Share must not exceed 120% of electricity consumption
- Compensation for subscription comes from a proportional share of electricity, virtually net metered, and renewable energy credits.
- Must buy 6 MW of solar garden electricity by 2013
- Half must come from solar gardens smaller than 500 kW via a standard offer.
- Must encourage solar gardens with renters and low-income subscribers – 5% of CSG capacity is reserved for customers at or below 185% of the federal poverty limit.
- Can own up to 50% of a solar garden
- RECs from solar gardens cannot add up to more than 20% of the utility’s retail distributed generation obligation under the state’s RPS.