The economics have changed, new baseload power is likely dead

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Centrica’s withdrawal from the Hinkley and Sizewell projects will damage government’s nuclear ambitions. Image credit: Topato

Centrica has announced that it will not be going ahead with the construction of new nuclear power stations at Hinkley Point and Sizewell.

Via Centrica pulls out of UK new-build nuclear | Solar Power Portal.

Centrica is one of the largest energy companies in the U.K. They decided to pull out of the proposed nuclear power stations at Hinkley Point and Sizewell based on the economics: “Since our initial investment, the anticipated project costs in new nuclear have increased and the construction timetable has extended by a number of years.”

Time is money, and increasing the length of time until commercial operation means a lot more money. Perhaps more importantly, though, is the advent of retail competition, distributed generation, and alternatives that can be built more quickly.

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In the past when utilities had captive customers, Continue reading

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The Death of Load Response – By Solar, On The Roof, With The Battery

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What is load response and why is solar (with the battery) going to kill it?

Load response (LR, often also called demand response (DR) means that customers use less electricity at specified times and get paid for the electricity they did not consume. Originally, this meant classic DR, the reduction in usage by customers when there is a likelihood of insufficient supply to meet demand, typically during the peak hours of the year. Most wholesale markets pay DR program participants based on market capacity rates and the amount of capacity the participants supply during peak hours. Classic DR primarily targets capacity.

Relatively recently, people in the electric industry increasingly define LR to include both classic DR, and, more broadly, reductions in usage that address energy and ancillaries (see Constellation Load Response). PJM states:

PJM’s Economic Load Response program enables demand resources to voluntarily respond to PJM locational marginal prices (LMP) by reducing consumption and receiving a payment for the reduction. Using the day-ahead alternative, qualified market participants may offer to reduce the load they draw from the PJM system in advance of real-time operations and receive payments based on day-ahead LMP for the reductions. PJM Economic Load Response Description

LR has become big business. Many companies work with customers to enable them to participate in LR,either as their primary business (EnerNOC) or as a significant portion of business (Constellation, Direct Energy, Hess Energy). In turn, many customers can make a significant amount of money from participating in LR. So, both companies and customers have a vested interest in LR.

But,without high capacity market prices and a relatively small number of hours of supply demand imbalance, classic DR will become economically unattractive to customers. And  without spikes in spot prices, economic load response in  reaction to market prices will also become economically unattractive. So how will solar, on the roof, with the battery do this?

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For the U.S. Electricity Future, Look To Australia

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In many ways, Australia is similar to the U.S. It has abundant natural resources, an individualistic bent, large resource corporations that exert considerable market and political power, a schism between bedrock conservatives and bedrock liberals, and a free market mentality. Two differences, though, are high electricity prices and a lot of sun.

How high are the electricity prices? A residential customer’s marginal price ranges from 30 cents USD to 50 cents USD. There are two main drivers of these costs. First, extremely high peak demand and peak prices (some estimate generators get 30% of their revenues from 30 hours in the year (The world’s electricity business models are broken. What’s next?)). Second, extremely expensive additions to transmission and distribution investments driven by super peaks from air conditioning. Though the super peaks represent only a small proportion of hours, the electric industry chose to invest in transmission and distribution instead of some more cost-effective approach (see Air conditioning is peaking out, time to rethink cool comfort.)

Because Australia has so much sun, and such high prices, rooftop solar has been taking off, much to the chagrin of the utilities. The utilities’ efforts to deal with the explosion of rooftop solar have been, generally, public relations disasters. They seek to stop their customers (not ratepayers!) from doing things that are in their own economic self-interest. Naturally, customers see this as a transparent power-play for the utilities to continue to enrich themselves at their customers’ expense. And when the customers are the voters, this is not a wise approach. See How solar PV is turning utilities against consumersUtilities say no to gross tariffs, yes to battery storage; Is the solar industry being blindsided by utilities?

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Disruption On All Sides – What Is A Utility To Do?

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Utilities and generators face lower sales, lower prices, lower profits, disruption on all sides. What is a utility to do? It must identify and defend existing advantages and become a disruptor itself where there is no defense.

Technological change and regulatory requirements besiege utilities and independent generators today as never before. New means of delivering what customers want appear daily. Regulators increase demands to implement social programs, not always recognizing the full implications. Utilities struggle with a business organization designed for another time. Generators watch as lower demand leads to excess supply, leads to cratering prices, leads to capital destruction.

Most of utility / generator money is in assets, power plants and distribution. There is a huge incentive to protect their interests, to keep doing what they already know how to do. This means keeping the central station / distribution paradigm.

But the advent of new, distributed technologies eats away. Energy efficiency is already cost-effective, solar on rooftops increasingly so. Energy efficiency lowers sales. Solar on rooftops lowers sales. Lower sales mean lower prices and profits for generators without rate base regulation, lower profits for generators with rate base regulation, and lower sales and profits for all utilities.

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Lower sales, lower prices, lower profits, disruption on all sides. What is a utility to do?

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Energy Efficiency and Distributed Generation Reduce the Need for Urgent New Transmission in Germany

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This is a follow up to my post Just The Beginning Of The Awakening To Disruption From Alternative Energy. It turns out that last month Germany drastically reduced its forecast for grid expansion.

In my original post I talked about how a consultant told the NARUC conference “that cost alone will drive the power industry toward “non-transmission alternatives” (NTAs).” (NTAs include all forms of distributed generation plus energy efficiency.) Quite simply, energy efficiency, solar, combined heat and power (CHP), and load response will make additional new transmission unnecessary. Now that has occurred in Germany.

The Network Agency in Germany had projected an urgent need for 74 new power lines spanning 3,800 km. Now it thinks the urgent need is only for 51 lines of 2,800 km. Though not explicitly stated, it could be that the slowing in the development of offshore wind reduced the urgency of the lines necessary to carry the power from north to south.

One key result is that “two of the main cost drivers in the energy transition have been reduced considerably: offshore wind and grid expansion.” With the continued, electrifying growth of solar power in Germany, I expect urgent transmission need to further decline.

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Texas PUC Does the Right Thing, Relies on Markets and Innovation

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On October 25, 2012, the Texas Public Utilities Commission (PUC) decided to rely on market prices to provide adequate capacity instead of creating a capacity market to reward central station power plants, opening the front door for customer participation in the market through load response, energy efficiency, and solar. 

What Happened

On October 25, 2012 the Texas PUC decided to rely on market energy prices to provide adequate price signals to customers and producers with regard to the value of electricity in ERCOT. The Texas PUC voted to allow price caps to increase to $9000/MWh by 2015 from the current maximum of $4500/MWh. For reference, the average daily market price in ERCOT typically is $25-30/MWh and the average daily peak price typically is $40-50/MWh.

Texas faces a potential shortage of electric generating capacity, which could cause brownouts or rotating blackouts in two or three years. The Brattle Group presented three alternatives: 1) keep the current energy-only marketplace, 2) keep the current energy-only marketplace but add administrative programs to encourage demand response to help ensure adequate generating capacity, or 3) create a capacity market, similar to PJM, to pay central station power plants for existing and being able to generate power if needed.

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The Brattle Group’s evaluation all but recommended door number 3; the Texas PUC chose Continue reading

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Just The Beginning Of The Awakening To Disruption From Alternative Energy

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Non-Transmission Alternatives (Distributed Generation, Energy Efficiency) Take Spotlight At NARUC Conference

A consultant from Synapse Energy Economics, Doug Hurley, tells the National Association of Regulatory Utility Commissioners (NARUC) “that cost alone will drive the power industry toward “non-transmission alternatives” (NTAs).” NTAs include all forms of distributed generation plus energy efficiency. The FERC Chairman and state commissioners recognize regulatory rules do not give economically correct signals, and instead favor the existing paradigm.

That’s getting pushback from traditional transmission suppliers who see themselves left providing the backup power for consumers who expect to pay little each month but be able to turn to the grid on the hottest summer days or during blizzards.

Speakers said major transmission providers are already asking state regulators to require users with larger on-site generation capacity to pay grid stand-by charges. They also worry large new investment in transmission lines may end up being stranded as more areas find ways to meet their electric needs with NTAs.

Quick Thoughts:

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Will Chicago seize the municipal aggregation opportunity for renewable energy?

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In a Midwest Energy News post by Kari Lydersen titled How Chicago’s Municipal Aggregation Could Be a Boon for Renewable Energy, she highlights the opportunities, and pitfalls, facing Chicago as it proceeds with municipal aggregation. She draws on much of the work being done by Paul Fenn in the San Francisco area. The idea is to take a long-held community-based business idea, the cooperative, and turn it toward the use of creating renewable, sustainable energy.

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Three Terrifying Numbers: 2 degrees Celsius, 565 gigatons carbon, 2,795 gigatons carbon in proven reserves

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Last July, Bill McKibben (350.org) wrote an article in Rolling Stone Magazine.  He told the future when he said:  ”Say something so big finally happens (a giant hurricane swamps Manhattan, a megadrought wipes out Midwest agriculture) . . .”

His article is titled: Global Warming’s Terrifying New Math, Three simple numbers that add up to global catastrophe – and that make clear who the real enemy is.  Setting aside the polemical part (the fossil fuel industry is the “real enemy”), he does put those numbers into terms we can understand.

2 degrees Celsius is the increase in world temperature that we likely cannot avoid (we already are up 0.8 degrees Celsius since the start of the industrial revolution).  The article explains the bad things that are likely going to happen even if we can hold to 2 degrees Celsius.  (Our current trend line is for a temperature rise of 6 degrees Celsius, assuming economies wouldn’t collapse first.  See Climate Change Is Simple by Dave Roberts.)

565 gigatons of carbon is our likely allowance to keep the increase in temperature to 2 degrees Celsius.  It is how much we can consume; it is not our allowance per year, it is our total allowance for the foreseeable future.

2,795 gigatons of carbon is the amount of carbon in worldwide proven reserves of oil, natural gas, and coal.  As Bill McKibben points out, that is five times our allowance if we are to keep the temperature increase to 2 degrees Celsius.  Logically, this means that if we are going to keep the temperature down, we can’t let 80% of these reserves be burned.  (The companies and countries that own these reserves will either have to forego profits on them or society will have to pay them to keep them in the ground.)

Young people have the most at stake; it is their world that is going to be forever changed, the only question is by how much. Bill McKibben provides an appropriate analogy:

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Big Data: The Management Revolution

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Really great article in the October Harvard Business Review by Andrew McAfee and Erik Brynjolfsson.  Big data shifts the value of various skills.  Traditionally, big decisions were made by seasoned executives who drew on their accumulated wisdom to make decisions in the absence of really good data.  Now, really good data can be available almost instantaneously, if you ask the right questions, so domain experts, people who really know their industry and operations, have significantly increasing value.

The key points:

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Clay Christensen, newspapers and the cliff of despair

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I feel a sense of foreboding with our current electric industry structure.  There is the increased spending on transmission, distribution, and smart grid.  There are huge amounts of development money being spent on technology that could make these very investments uneconomic.

Are we careening toward the cliff of despair?  If you work for a big, leading company, whether it is a utility, generator, wholesaler, or retailer, do any of the descriptions of newspaper incumbents, below, look familiar?  Or are you confident in the future?

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The Future Of The Electric Industry

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This is the first in a series of posts discussing the severe cross currents in, and the future of, the electric industry.

Past cost structures created our current electric industry organization. We use central station generation and a large network of transmission and distribution to deliver power to ultimate consumers. Technological change assaults this paradigm with new cost structures.

New ways of generating, storing, and minimizing the use of electricity creates opportunities for many new businesses. Most of these businesses will fail, but when just a few of them succeed, the industry will not be the same. Despite legal and regulatory bulwarks built by incumbent companies, new cost structures will drive electric industry structure, just as has happened in telecommunications where landlines are vanishing.

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