It’s telling that the insurance industry won’t touch nuclear projects unless governments cap their liability. In Canada, the cap is now $650 million on disasters that can cost many billions of dollars to battle, excluding long-term economic impacts. Taxpayers, of course, cover the rest. Without such caps, the industry argues the cost of insurance would simply be too high.
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Communities in California have been trying to become more energy self-reliant for nearly 10 years, but not a single one has managed to establish a "community choice aggregation" (CCA) network despite a state law requiring incumbent utilities to "cooperate fully." Only four states have CCA laws on the books – Ohio, Rhode Island, Massachusetts, and California. Most have only a single CCA; California has none. There’s a reason. Incumbent electric utilities aren’t big fans of CCAs. Read the full story over on our Energy Self Reliant States web site
Communities in California have been trying to become more energy self-reliant for nearly 10 years, but not a single one has managed to establish a “community choice aggregation” network despite a state law requiring incumbent utilities to “cooperate fully.”
Community choice aggregation (CCA) offers an option for cities, counties, and collaborations to opt out of the traditional role of energy consumers. Instead, they can become the local retail utility, buying electricity in bulk and selecting their power providers on behalf of their citizens in order to find lower prices or cleaner energy (or even reduce energy demand). Only four states have CCA laws on the books – Ohio, Rhode Island, Massachusetts, and California. Most have only a single CCA; California has none. There’s a reason.
Incumbent electric utilities aren’t big fans of CCAs.
In California, the CCA law passed in 2002 but utilities like Pacific Gas & Electric (PG&E) have stymied the development of local CCAs, even sponsoring a ballot measure – Proposition 16 – to require towns to get a two-thirds super majority to create a CCA. The measure was narrowly defeated (with a 52% vote) despite $46 million spent by PG&E to steamroll local choice. The ballot measure was only the latest in a series of attempts by PG&E to quash community choice, dating back to the utility’s bankruptcy and $8 billion bailout in 2001-02.
Advocates are continuing the fight with new legislation to clarify what was meant in the original law when utilities were ordered to “cooperate fully” with communities seeking to establish a CCA.
The CCA difference can be significant. Ohio’s largest CCA offers customers prices averaging 5% lower than the incumbent utility. And CleanPowerSF, the CCA certified (but not yet operational) for the City of San Francisco intends to get 51% of its power from renewable sources by 2017.
You can read more about Community Choice Aggregation in our 2009 policy brief.
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. Read the full story over at our Energy Self Reliant States web site. Continue reading
Cutting non-module solar PV costs with best design practices could make solar PV cost less than grid electricity for more than 25 percent of Americans.
Half of the installed cost of a solar PV array is the solar module, but the other half (the “balance of system”) involves labor, assembly, and other components. With module prices continually falling, significant decreases in total installed cost depend on reducing balance of system costs. The Rocky Mountain Institute held a design charette last year, and the result was a concept of how to reduce balance of system costs by 58 percent in five years.
From the report’s executive summary [pdf], this chart (right) illustrates the reduced costs.
Even more interesting, the report put those cost savings in the context of the levelized cost of solar electricity. They found that the balance of system savings (and induced reduction in module costs) could lower the price of solar PV electricity from 22 cents per kWh to 8 cents per kWh.
To put that in context, we recently examined distributed solar’s cost compared to grid electricity prices, concluding that “solar PV at $5 per Watt (with solely the federal tax credit) could not match average grid electricity prices in any of the sixteen twenty largest metropolitan areas in the United States.”
With the Rocky Mountain Institute’s best design from their charette, that sentence reads: solar PV (with solely the federal tax credit) beats average grid electricity prices in 13 of the largest 20 metropolitan areas, representing 78 million Americans. With time-of-use pricing plans, the number rises to 19 of 20 metro areas, representing over 100 million – one-third of – Americans.
With the federal Energy Policy Act of 2005, Congress gave broad powers to the Department of Energy and the Federal Energy Regulatory Commission (FERC) to identify “congested” transmission corridors in order to prioritize new high-voltage transmission development and to provide higher financial returns to transmission development companies. The decision created a lot of controversy, since… Continue reading
As long as the penetration of PV on the grid is low, the utility should have no trouble maintaining power quality as the output from PV systems fluctuate. However, even if overall PV penetration levels in a region are low, it is possible to have local “hot spots” where penetration on a single distribution circuit is very high. In this case utilities have concerns that power quality will suffer on that distribution circuit due to the high penetration of PV. [Kauai Island Utility Cooperative] KIUC is testing that hypothesis to the extreme with its 1.2 MW solar farm, by supplying 100% of a distribution circuit with PV during the day. [emphasis added]
Now for the good news: as the utility monitors the distribution circuit on sunny days and cloudy days, with the PV system turned on and the PV system turned off, they are seeing very little difference in the voltage levels, harmonics, and overall power quality between the different scenarios. These preliminary results suggest that utilities could go to very high levels of PV penetration in localized areas without causing problems for the grid. KIUC is continuing to monitor the system, but the initial results look very positive for the PV industry. [emphasis added]
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).
Craig Morris has a thorough discussion of why feed-in tariffs (CLEAN Contracts) and other renewable energy policies are still necessary even when renewables get to grid parity. It’s a direct response to an earlier piece on Renewable Energy World claiming that the best strategy for solar is to get off incentives.
First, he notes that there’s a pervasive myth that feed-in tariffs have failed:
In fact, every gigawatt market in the world for PV was driven by feed-in tariffs. Mints is right that some of these markets have gone bust, but do the other markets (like Germany) that haven’t gone bust not show us how to do it right? I can’t say that of other PV policies (think of the US or pre-FIT Britain).
Can we agree that solar feed-in tariffs have not failed in “most” countries – and that no non-solar FIT market has undergone boom-and-bust anywhere? A more accurate description would be that feed-in tariffs are the only policy that has led to major success stories for solar, but that some incompetent governments threw in the towel when they saw the price tag.
Morris also notes that the price tag is another myth – feed-in tariffs are a less expensive policy tool than most others:
Mints writes, “Here’s the golden rule of incentives: they are expensive, and someone has to pay the bill.” Actually, it’s photovoltaics that’s expensive, not feed-in tariffs. Studies have repeatedly found that feed-in tariffs are the least expensive way to promote renewables.
The bigger issue is that getting to grid parity is not an end in itself:
FITs for wind and biomass have generally always been below the retail power rate, so why should anything change when solar is no longer the exception? As Mints herself points out, conventional energy sectors also continue to be subsidized. Why should the situation ever be any different for photovoltaics?
Morris goes on to describe how solar below the retail rate will create a massive rush to solar that will actually make electricity more expensive (as solar installers take a larger cut of the favorable economics and increased solar capacity scales down baseload fossil fuel power plants during peak hours). Instead:
But what we probably need over the long run are feed-in tariffs that pay for power production from intermittent sources (especially solar and wind) with a fluctuating premium based on power demand; when renewable power production approaches or exceeds demand too often, the premium will not be paid, and investments in such technologies will not pay for themselves as quickly. The floating cap will find itself, so to speak.
The Germans have already adopted such a policy, called “own generation“. And a few U.S. states – where solar is already cheaper than peak electricity prices – will need a similar policy innovation.
Photo credit: David Parsons (NREL PIX)