Moronomics

Guest Post by Willis Eschenbach

Reading my Sunday paper today, I find the following:

Customers Can Sell Back Solar Power.

The Los Angeles District of Water and Power will allow customers to sell back excess solar energy created on their own equipment.

Described as the largest urban rooftop solar program of its kind in the nation, the so-called feed-in-tariff program would pay customers 17 cents per kilowatt hour for energy produced on their own equipment. The DWP has already accepted more than a dozen applicants and will be taking dozens more as it accepts contracts for up to 100 megawatts of solar power through 2016.

My prediction is that this whole thing is going to turn into what we used to call a “righteous goat-rope” when I worked in Alaska. The problems with the proposal were spelled out before the vote by the Ratepayers Advocate, Fred Pickel. According to reports, he “told commissioners that 17 cents per kilowatt hour was above market rates and could force significant rate increases on DWP customers. Higher DWP bills could drive jobs away.”

Well yeah, duh. The Commissioners knew that, so they were careful to give Fred a fair trial before they executed him and voted for their proposal instead. This shows that it’s good for the LA DWP to have a “ratepayers advocate”, it gives the Commissioners someone to ignore, which is always fun, and that way they can say that they considered all sides of the question.

Figure 1. Retail electricity rates, in US cents, for 2010. SOURCE 

What is wrong with the moronomic math of the Commissioners of the Los Angeles District of Water and Power? Figure 1 suggests some of the answers.

The problem is that in order to break even, the Los Angeles District of Water and Power (DWP) has to sell the power at more than it cost the DWP to buy it, transport it, buffer it with adequate backup, and deliver it to the eventual customer. As a result, their sale price will be more than seventeen cents per hour.

How much more? Well, that’s kind of difficult to calculate. But we can look at some of the issues and make some first-cut estimates.

First, getting the power from the rooftops. Certainly for some installations the DWP will have to install interconnects to their main backbones. And even for residential installations, a sunny day can put a huge load on a local distribution network. Remember, that network was never designed to handle excessive amounts of power, particularly heading upstream. In addition, DWP will have to install a variety of wireless reporting instrumentation for the control of the intelligent network, to keep it from going off the rails. I’d guess the cost to upgrade local networks and provide intelligent interconnects and controls would be on the order of a cent per kWh.

Then we have to look at the question of backup. Solar is notoriously variable. When the clouds come over, output drops massively and pretty instantaneously. That power needs to be replaced, immediately, from some other source. That means that you will have to both purchase and install peaking power that is equivalent to the amount of solar that you are adding to your system. This need for immediate response is often met these days by huge diesels, which can respond much faster than gas turbines to power variations. But whether the backup is gas or diesel, it is going to be two things—inefficient and expensive. It has to be inefficient because you have to keep it running, at minimum load and in an inefficient range for the engine/turbine, all the time. Engines are designed to run at maximum efficiency under full load conditions, and elsewhere in the range they are much less efficient. You can’t shut the backup off, and to make it worse, most of the time you’re running at maybe 10% of the nameplate capacity. No bueno.

I discuss the levelized cost of various generation systems in “The Dark Future of Solar Electricity“. I’ll use the costs of conventional combined cycle gas as an example for the backup of the solar. The capital costs for CCG are about two cents per kWh, and the running costs are given as five cents per kWh. It won’t be running all the time, though, so we’ll take running costs at two cents per kWh. That’s a combined cost of four cents per kWh for the backup.

Finally, the electricity has to be delivered to the ultimate customer. The price of operating this transmission network is usually referred to as a “wheeling cost”. I would expect the wheeling cost to be on the order of a cent or two per kWh.

So we have seventeen cents for the power purchase. We have a penny for the intelligent network upgrade to handle the power, about four cents capital plus running costs for the backup generator, and we’ll call it another penny for wheeling costs to be conservative, although if their network is old the wheeling cost may be higher.

That gives a total out-of-pocket power cost to the DWP of about twenty-three cents per kWh of power delivered to the ultimate customer … but wait, it gets worse. The DWP still needs to both cover their administration costs, and to have funds to re-invest in upgrading plant and equipment as the years go by. So they’ll need maybe 20% above the raw costs to cover overheads and investments, which puts the sale price for the power on the order of twenty-seven, twenty-eight cents per kilowatt hour … might be a bit more, might be a bit less, this is an estimate, but that’s the range.

Of course, they likely won’t ask any single customer to pay that much. Instead, they’ll quietly spread the expense over all of their customers near and far, and it will be reflected in a price increase across the board.

Unfortunately, as you can see by the colors in Figure 1, California already has the most expensive electric power with the exception of the New England states, and this will only make it worse. Power in CA is far more costly than in any of its western neighbors. This is a result of California’s colossally foolish policy of requiring a certain percentage of renewables … plus an even more idiotic policy of not counting hydroelectric power as a renewable.

But wait, it gets worse. We used to have the “20% renewable by 2020” goal for our electricity, which is why the California power cost is already up to fourteen cents per kWh as shown in Fig. 1, and part of why people were fleeing the state even then.

But when Jerry Brown assumed the imperial governorship, he decided by fiat that the new policy should be:

20% renewable by December 31, 2013

25% renewable by December 31, 2016

33% renewable by December 31, 2020

And that, dear friends, that means that you can stick a fork in California, we’re done. By the time that the 33% renewable policy is implemented statewide, all Californians will be paying the twenty-five cent per kilowatt-hour price that the LA folks are test-marketing right now. And meanwhile, the neighboring states are ending up with the businesses that are fleeing California like cockroaches from the light, in part because electricity and fuel costs are so high that a business can no longer afford to run a factory in California.

As I have mentioned elsewhere, expensive energy is always a bad idea. It turns out that in California, it’s a lethal idea, it will both kill businesses dead and be very hard on the poor.

w.