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.
Here in Atlanta, Georgia Power used to have a deal with business customers who maintained their own backup generators to allow Georgia Power to turn those generators on remotely and feed the output onto the grid when they needed more power. This was an extremely low capital cost way to get reserve generation capability. For example the building where I work has two 2 megawatt units outside — sufficient to run the entire building including the data center floor. The building next door has another generator; I don’t know the capacity but it’s probably around 2 megawatts. With the right interconnect, all those generators could be spun up and feeding 5-6 megawatts onto the grid in 30 seconds or less.
But with metro Atlanta under EPA orders to improve air quality, the use of deisel generators to provide power for the grid was banned. I’m sure Los Angeles imposes a similar restriction. Now what happens when grid power capacity and stability is not adequate to run power-critical businesses like data centers, financial clearing houses, public safety facilities, etc., ? Why they will turn on their deisel generators of course, spewing exhaust pollution into the pristine LA environment.
The only way to stop that is to force power-critical businesses to shut down or move …
Oh wait, you’ve covered that already.
The government in California appears to want to get rid of all those nasty, scary producers and consumers among the “unwashed peoples.”
The reverse is also true.
The attached map showing US rates has an labeling error.
The state of NH (New Hampshire) is shown twice, with the second NH just to the right of the first. The NH to the right is the actuallty the state of ME (Maine).
LADWP:-
Los Angeles District of Waste & Penury?
Willis writes “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.”
This cost is not an additional cost and you’re adding it to bolster your short sighted argument. When people moved to the new fangled automobile technology from the perfectly good horses, who do you think paid for the roads?
Some sort of madness seems to have descended on our politicians around about the peak of the CAGW scare in 2007. One result, as previous posters have explained, is that lucky punters in the right circumstances were not only subsidised to put solar panels on their roofs, they were then subsidised to disrupt the electricity grid with unwanted power while not having to pay for electricity.
The naivete of the politicians and the canniness of the sharks in the business is shown in the quotes above – deals for 15, 20, 25 years. The sellers and installers are long gone. Homeowners, taxpayers and consumers who are subsidising these rorts are left with the bills.
A wise person once said something like – ‘protect me from enthusiasms.’ I can’t find the quote (grateful if someone could remind me.) And all because the planet was allegedy about to fry because of CO2.
Sigh.
“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.”
Willis, much as I generally enjoy your writings and astounding breadth of life experience you are able to bring to bear, here you are offering something with a very one-sided logic.
We are constantly told solar is such a piddlingly small contribution that it is insignificant , now you tell us going to produce “excessive amounts”.
Distributed generation can only _reduce_ the overall load on a system normally centrally fed. Electricity can flow equally well both ways along a transmission line, There is not problem about it heading “upstream”. In reality this will never (at least in our lifetimes) out-produce the local consumption , so it will simple reduce the load on the distribution system not overload it.
Your argument about the need to expensive back up production is equally dubious.
There was the usual anti-solar ranting here when there was a recent failure of a power station in California : “where was the solar when we needed it” backed up with graphs of production. What no one notices on the graph (or closed their eyes to) was that there was a surprisingly constant supply of solar_plus_wind. The two complemented each other perfectly. No one was shouting “thank goodness for the wind power being there when we needed it”.
Sadly this just shows that the political right are just a bigoted as the ecological left and while they are generally on the correct side of the argument with regards to global warming they are not more objective or honest.
Declaration if interest: I am currently buying a small PV installation for reasons similar to those of our host. I will not be taking advantage of local feed in tariff nor am I getting a grant or tax credit for the purchase.
Recent subsidies have resulted in sufficient volume and infrastructure in the solar market to bring once stupidly expensive prices down to an affordable level. That is the aim of subsidising a new technology. Both Britain and France (and I believe Germany now) are reducing subsidies and feed-in tariffs and this is as it should be, now the market is maturing.
I await the day they stop all the back door subsidies for the nuclear industry, which after 50 or 60 years still does not seem to be able to stand on its own two feet.
Oddly, those who decry subsidies for solar and wind usually seems to be great fans of nuclear so adopt a different set of values where that is concerned.
not the market is maturing should have read “now the market is maturing.”
[Fixed -w.]
WillR,
“We routinely pay nearby US states to take our wind and solar over production — that’s right we pay those high rates — then pay Americans to take the unneeded energy.”
As a resident of the state of Wisconsin in the US, I would like to thank the Province of Ontario Canada for subsidizing our electric rates.
🙂
The state of California will soon come to the realization that the current price structure and the buying – selling scheme is not economical. The wizards of smart will determine that the electric power grid is a one way system, and it would be cost prohibitive to upgrade it to allow energy feed-in at the points of consumption.
The solution will be to go ahead and buy the solar power generated by the consumers and simply dissipate the electricity as resistive heat. This way no power is actually fed back into the system eliminating the necessity of upgrading the grid.
It will be marketed as saving the citizens of California significant sums of money while keeping the sate on a firm economic footing.
If they chose to go for plentiful, INexpensive electricity instead, like their neighbors, they could use it in desalination plants like the one being built now in San Diego to solve their water problem too…
P. Solar,
“We are constantly told solar is such a piddlingly small contribution that it is insignificant , now you tell us going to produce “excessive amounts”. ”
The way the power grid is designed and operates it doesn’t take much to be excessive.
Solar and wind can both vary output on very short timescales, but the power grid has to have power out balanced with power in to within a few watts on a sub-second basis or something somewhere explodes.
You have no idea how much effort goes into managing this with just conventional generation to prevent the something somewhere exploding. There are safety systems in place that will automatically shut down large sections of the power grid to prevent this from happening.
Allowing residential wind and solar installations to feed excess power back into the grid at all is insanity. To pay people for it; there is no word to adequately describe the monumental stupidity of this.
Texas had average prices for electricity until they decided to boost Ken Lay and Enron Wind (now GE Wind – ecomagination). After becoming the state with the most wind generators, electricity prices rose over 50%. Now T Boone Pickens wanted in on the game, but his angle was to get control over groundwater rights under the land where his wind turbines were standing. The plan was to build a pipeline to Dallas. See? Wind power is just a scam for other purposes.
D Lawrence says:
January 15, 2013 at 3:59 am
Last week New Hampshire annexed the State of Maine. We’ll be exporting maple flavored lobster to Boston.
That or the map was filled west to east and whoever did it was getting tired as he neared New England.
Willis, some of your electric costs / tariffs are too low.
My baseline (PG&E) is 19 cents. Typical is about 26 cents. Upper bound presently 29 cents. Already in the ‘soon to come’ rate structure? 50 cents.
The quantity you can use to be in any one traunch depends on your neighborhood (so it pays to be the smaller house in the larger block…)
Some exploration of the mysteries of PG&E rate structure explored here:
http://chiefio.wordpress.com/2012/06/03/strange-how-economics-works/
At that time the rates were:
Which prompted me to figure out it was cheaper to use my camp stove and cook over gasoline:
http://chiefio.wordpress.com/2012/05/29/camping-at-home-is-cheaper/
Yesterday I figured out that it is cheaper to use my Coleman Lantern as combined heat and light in the winter than to use my electric heater:
http://chiefio.wordpress.com/2013/01/15/coleman-lantern-heat-cheaper/
In essence, I’m being motivated to live like folks in a 3rd world country using self powered appliances.
On the “to do” list for this summer is build a ‘rocket stove’ so I can cook on the patio using sticks from the yard (more efficient and cheaper than my charcoal BBQ, that also is on the ‘use more’ list…) I’m now also considering installing ‘gas lights’ ala 1800s, as gas is so cheap and 1/2 the year I want the heat.
Somehow this does not seem like the intended result. Or maybe it is and I’m just not creative enough to realize it.
But can these folks really have forgotten “substitution”?
I don’t NEED electricity. I need heat and light. I can get those from burning things…
BTW, I have an old 500 CC water cooled motorcycle that works. It would be very easy to make a “Redneck Powerplant” and plumb the hot water to a radiator in the house. Clip a big battery in parallel with the bike battery and put the TV on an inverter. Yeah, there would be a motor making noise along side the house. But it is profitable with gasoline at $4 a gallon.
At the present top rate for electricity (which is my marginal rate at winter peak demand) I get 144 BTU / penny. My Coleman lantern gives me 277 BTU / penny.
I’m reminded of those folks in the old USSR who fed bread to pigs because it was cheaper than pig feed…
So right out the gate, any business that can install a cogeneration facility and just leave grid power will do so. I’m looking at “DIY” off the grid and thinking it’s worth it. (A nice natural gas generator in a cement box next to the garage… who would know what it was…)
This is all just so wrong…
One thing Willis mentioned which deserves some elaboration is the meaning of “renewable”, which California has defined to exclude hydroelectric. Rainfall is just as renewable as sunshine and wind, but because water can be stored in large quantities hydro power is much more reliable than wind or solar. So excluding it from available options has the effect of forcing the addition of less reliable power sources to meet the renewable power mandates. Just one clue the mandates were skewed to serve political interests rather than rational objectives.
But if you think about it, every “renewable” power source also commits a limited fixed resource. The clearest example is biofuels: while you can grow a new crop each season, doing so requires dedicating a certain acreage of farmland, which is therefore unavailable for other crops (like food). The world’s total supply of arable land is fixed and converting other acreage to new farmland incurs a bunch of costs. In addition the required supply of fertilizers, pesticides and irrigation water must come out of their own limited supply sources.
Wind and hydro are tied to suitable locations which are also limited. While continental drift will eventually make more mountains and hence potential hydro sites, it’s a very slow process and we can’t afford to wait. Once you put up a solar panel, you can’t get any more power out of the shadow. Does anyone worry about “peak grain” or “peak wind” or “peak sunshine”? They are all tied to fixed resources and we have no way to make more when we’ve committed every available site.
So the distinction between “renewable” and “non-renewable” is as much a matter of scale as it is of kind. What is the difference between building nuclear power stations where I have probably several thousand years of recoverable uranium (and even more thorium), and building biofuel plants which guarantee I will run out of productive farmland a lot sooner?
“Renewable” power always includes an implicit commitment of some limited fixed resource which is in shorter supply than fossil fuels which are thereby “saved”. When you consider the energy density of nuclear fuels is six orders of magnitude greater than coal/oil/gas, it is absolute insanity to subsidize even lower density power sources because they are “renewable”.
Quite simply meeting even 20% “renewable” power is already measurably increasing the cost to consumers. How can we possibly scale up to meet the demand of the world’s population in 50 years? I don’t see how; we’ll run out of land or water or some other fixed resource well before that. Which is why the other shoe to the renewable power push is rationing, usually called by the much less ominous sounding term “smart grid”.
Yes, according to everything we know now, coal, oil and natural gas will eventually run out. But according to that same knowledge it will be hundreds of years out. In the meantime the benefits of cheaper more available power in the present are numerous and significant. When appropriate we should replace them with something better, not something worse.
WillR says:
“How much was your chocolate ration increased?”
“Choco rations have been increased to 25 grams per week, up from 30 grams per week.”
~ George Orwell [1984]
Looking at that map of the USA I can understand why electric power in the Missouri River basin is relatively cheap: hydro-electric coupled with some nuclear. Same, same along the Ohio River Valley. I also understand, from experience, why electric power in Hawaii is so expensive: Diesel generating plants on each island, along with the need to import large quantities of diesel fuel. I don’t recall ever seeing solar in Hawaii, although I haven’t covered every square inch of the larger islands.
As far as California, and the New England states go, it’s just willful ignorance and insistence on the existence of unicorns.
I work in the industry and your numbers are good guesses. Pricing varies by region, but most utilities in the non-coastal West (coal country) spend about 5c to generate, 2.5c to transmit to the edge of town, 2.5c to distribute to your house.
In a nutshell, this is the cell phone question. The cell phone was able to uproot the land line monopoly.
Some people think solar panels can do the same thing to coal plants. With rapidly falling battery prices being brought about by EV production ramping up, I’m not sure if they’re wrong. Maybe neighborhood or house scale microgrids would be better.
But forcing the electric utility to subsidize and accelerate its own demise – that is just evil.
Whether you are running a water utility, a sewer utility, a telephone utility or a power utility, you know you are in trouble if you do not have excess capacity. If you are running at capacity you need to be looking at how to get ahead of demand and fast. In a sewer utility, a lack of capacity means bypasses or flooded basements. In a water utility, lack of capacity means rationing, or no water. In a power utility, getting close to capacity means brown-outs or black outs. Excess capacity and duplication in a utility from generation through distribution are not bad things, they are essential to reliable service.
An electric utility faces fluctuating demands continuously, it does not matter if there are wind generators or electric generators in the system, that requirement is there anyway, and the technical capabilities exist. Solar and wind sources do not suddenly turn off, they fade out. With an eye on the weather, those changes are more predictable than most of the fluctuations that a utility will have to pace. One of the main advantages of a natural gas generator is their ability to pace with demand. If that generator is running at 100% capacity, you have lost your ability to pace the supply with demand, you are at capacity, and as a utility you are in trouble. Generally a natural gas generating plant should not be running at 100% capacity.
I don’t fully know the economics of solar, but the the place for solar energy panels is on rooftops, occupying space that is otherwise unproductive, and that is close to the demand. Solar panels should be shading roofs, serving an additional benefit of preventing heat from getting into a building, along with the main function of generating electricity. They should not be occupying otherwise open space, shading rabbits, distant from any demand.
Great post Willis. It reminds me of the Nellis Air Base solar PV array that Obama promoted back in May 2009. I dug into the scheme back then and found this-
After a bit of digging (about 5 minutes), the cost of this solar PV installation is $100 Million, not including the land used for the installation.
http://www.metaefficient.com/news/north-americas-largest-solar-electric-plant-in-switched-on.html
Also, the actual output power is 14 MW peak. That works out to at least $7150/kW(peak).
Now, in Nevada, the average solar insolation integrated over a year for a single-axis tracking PV array is 8.1 hours/day, or an availability of 34%. That boosts the cost for energy delivered to $21,000/kW.
Here’s the interesting part.
“The company that owns the panels is leasing the land at no cost, and Nellis is agreeing to buy the power for 20 years at about 2.2 cents/kWh, instead of the 9 cents they are paying to Nevada Power, saving the Air Force $1 million each year. None of the $100 million cost came from the Air Force.”
http://www.nellis.af.mil/shared/media/document/AFD-080117-043.pdf
The Air Force is paying 2.2 cents/kWhr for 20 years. With 30 million kWhr/year of energy purchased, that is a revenue stream of $660K/year for the owner. After 20 years, the owner has received $13.2M, or 13.2% of the project cost. After another few years, the panels all need to be replaced.
Where did the other money come from to pay for this?
“MMA Renewable Ventures, LLC has financed and will own and operate the landmark solar energy system, selling power to Nellis Air Force Base at a guaranteed rate for the next 20 years, as well as selling Renewable Energy Credits (RECs) to Nevada Power.”
So, the bulk of the cost, $87M, is dumped onto everyone else in Nevada Power’s service area to pay for the RECs. With 700,000 customers, that is about 50 cents/month extra charge on their power bill.
Sounds like a bargain? Try again. That 14MW solar farm only puts out, on average, about 14*0.34 = 4.76 MW. If Nevada Power decided to build enough solar to provide the energy of two nuclear reactors (about 2000 MW), it would cost Nevada Power customers an extra $210/month.
People are suggesting that Solar Power and Batteries could put the power company out of business — and the power company would be forced to pay for its own demise. Really? How could that happen. How much “battery” would be needed — just for the US of A..????.
http://physics.ucsd.edu/do-the-math/2011/08/nation-sized-battery/
The National Battery
Putting the pieces together, our national battery occupies a volume of 4.4 billion cubic meters, equivalent to a cube 1.6 km (one mile) on a side. The size in itself is not a problem: we’d naturally break up the battery and distribute it around the country. This battery would demand 5 trillion kg (5 billion tons) of lead.
Get the Lead Out!
A USGS report from 2011 reports 80 million tons (Mt) of lead in known reserves worldwide, with 7 Mt in the U.S. A note in the report indicates that the recent demonstration of lead associated with zinc, silver, and copper deposits places the estimated (undiscovered) lead resources of the world at 1.5 billion tons. That’s still not enough to build the battery for the U.S. alone. We could chose to be optimistic and assume that more lead will be identified over time. But let’s not ignore completely the fact that at this moment in time time, no one can point to a map of the world and tell you where even 2% of the necessary lead would come from to build a lead-acid battery big enough for the U.S. And even the undiscovered, but suspected lead falls short.
Yeah yeah — pumped storage — I know — Well, read the guys article on pumped storage — please… That ain’t gonna fly either — unless maybe you try to drain Lake Superior — but the Canadians got there first — we are marketing the entire lake to the Sauds — as ice cubes. Get in line!
Do the math!
@ur momisugly P.Solar
“I await the day they stop all the back door subsidies for the nuclear industry, which after 50 or 60 years still does not seem to be able to stand on its own two feet.”
I’d rather pay a subsidy to an industry which provides its output 24/7/365 – i.e. for whenever I want to use it; than to one which may provide ziltch at the times I need it.
Re:chris y says:
January 15, 2013 at 7:34 am
Good work, Chris! I wish more people would dig down into the fundamentals that way. Let’s take your example a step further and see what the actual cost per Kwh is over the 20 year life of the Nellis solar plant. The cumulative plant output each year at a 4.76 Mw average output is 4,760 Kw x 365 days/year x 24 hour/day = 41,697,600 Kwh.
The annual cost of $100 million at a bank rate of 5% compounded monthly for a 20 year term is $7,886,608.
Therefore, the capital cost alone is $7,886,608 / 41,697,600 Kwh = 18.9 cents per Kwh. Add to that a couple cents/Kwh for O&M plus taxes and you’re up to 22 cents per Kwh when a new CCGT plant running natural gas at current U.S. fuel prices can do the same job for about 4 cents per Kwh.
But then it gets even worse. “Availability” is not “capacity factor”. The typical photovoltaic plant capacity factor in the area around Nellis will be lucky to produce a 25% capacity factor. This drives the capital cost per average Kw output up to $28,600 and the average cost per Kwh over the life of the project to approximately 30 cents per Kwh.
Storing isn’t 100% efficient.
Extraction isn’t 100% efficient.
Transmitting to the store isn’t 100% efficient.
Transmitting from the store isn’t 100% efficent.
Now take the efficiencies, and multiply them all together.
Not a good strategy.