The ‘Variability’ of Renewable and Non-renewable energy

The ‘Variability’ of Renewable and Non-renewable energy | 29/05/14
by John Brian Shannon John Brian Shannon

The ongoing debate about the effects of the Variability of Renewable Energy on national electrical grids

Merit Order ranking control room
Most utility companies have Merit Order ranking control rooms similar to this one where decisions are made about which power producer will contribute to the grid in real time. Microprocessors make the instant decisions, while humans are present to oversee operations and plan ahead.

Solar Variability

Some people argue that solar photovoltaic (solar panels) produce ‘variable’ electricity flows — and they assume that makes solar unsuitable for use in our modern electrical grid system.

And it’s true, the Sun doesn’t shine at night. Also, if you are discussing only one solar panel installation in one farmer’s field, then yes, there is the variability of intermittent cloud cover to consider, which may temporarily lower the output of that particular solar installation.

But when grid-connected solar arrays are installed over vast areas in a large state such as Texas or throughout the Northeastern U.S.A. for example, it all balances out and no one goes without power as solar panels produce prodigious amounts of electricity during the high-demand daytime hours. If it’s cloudy in one location thereby lowering solar panel outputs, then it is likely to be sunny in 100 other solar locations within that large state or region.

Therefore, solar ‘variability’ disappears with many, widely scattered installations and with interconnection to the grid. So much for that accusation.

NOTE: The marginal ranking (which reflects the wholesale kWh electricity price) for solar is (0) and that ranking never varies. (More on this later)

Wind Variability

The situation with wind power is essentially the same, One major difference though; In many parts of the world the wind tends to blow at its most constant rate at night, which helps to add power to the grid while the Sun is asleep.

In fact, complementary installations of solar and wind help to balance each other through the day/night cycle — and through the changing seasons. There is even an optimum ratio between the number of solar panels and the number of wind turbines to better complement the other, but I won’t bore you with the details.

NOTE: The marginal ranking for wind is (0) and that ranking never varies.

Natural Gas Variability

What? Natural gas is not variable!

Oh really? Over the course of the past 60 years, how has the natural gas price per gigajoule changed? Got you there. The natural gas price has increased by orders of magnitude and wild price fluctuations are quite common.

OK, that’s not ‘output variability’ but it is a variable factor with regard to energy pricing. And that’s a variable that actually matters to consumers.

Natural gas prices have swung wildly over the years forcing utilities to peg their rates to the highest expected natural gas rate. No wonder investors love natural gas!

So there is ‘supply variability’ and wholesale ‘price variability’ with natural gas, which is why it is the last choice for utility companies as they meet the peak demand hours of the day. Gas is a good but expensive option, however, it comes with its own variability baggage.

We won’t even talk about the associated CO2 cost to the environment. (OK, it’s about $40 per tonne of CO2 emitted)

Coal variability

Not to the same degree as natural gas, but coal also faces price swings and potential supply disruptions — again forcing utility companies to set their rates against unforeseeable labour strikes at a mine, a railway, or shipping line — and against coal mine accidents that can shut down a mine for weeks, or market-generated price spikes.

These things are impossible to foresee, so this ‘averaging up’ of the price results in higher energy bills for consumers and better returns for investors.

Yes, there is variability in coal supply, in coal supply lines, in coal power plant maintenance cycles which can have a plant offline for weeks, and coal market pricing. These things can affect total annual output, and is yet another kind of ‘variability’. (Again, that doesn’t factor-in the other costs to society such as increased healthcare costs from burning coal which releases tonnes of airborne heavy metals, soot, and nasty pollutants besides CO2 which some estimates put at $40-60 per tonne emitted — in addition to the environmental cost of $40 per tonne for plain old CO2 emissions)

NOTE: Should we talk here about how much water coal plants use every year? More than all the other energy producers put together, and then some.

Hydro power variability

What? Hydro power is not variable!

Oh yes it is. Nowadays thanks to global warming, many hydro dams in the U.S. can barely keep water in the reservoir from August through November. They cannot produce their full rated power in a drought, in late summer, during maintenance, or during earthquake swarms. Just sayin’ hi California!

An impressive-looking body of water behind the dam is meaningless when the water level isn’t high enough to ‘spill over the dam’. If the water level isn’t high enough to spin the turbines then all that water is just for show. Take a picture!

In 1984, the Hoover Dam on the Colorado River generated enough power on its own to provide electricity for 700,000 homes because the water level of Lake Mead behind the dam was at its highest point on record.

But since 1999, water levels have dropped significantly, and Hoover Dam produces electricity for only about 350,000 homes. — CleanTechnica

And then there is this problem; Global warming and resultant drought conditions mean that some dams are essentially finished as power producing dams for the foreseeable future.

Again, we have output variability; But this time it is; 1) lower power output and variable output due to reduced reservoir levels caused by anthropogenic drought and 2) the months of year that hydro dams cannot produce their full rated power.

Price variability: This is what Merit Order ranking is about

Merit Order ranking is a system used by most electric utilities to allow different types of electrical power producers to add power to the electric grid in real time. Thanks to a computerized grid, this occurs on a minute-by-minute basis every day of the year.

In the German example, electricity rates drop by up to 40% during the hours in which solar or wind are active, and this is what Merit Order ranking is all about; Using the cheapest available electricity source FIRST — and then filling the gaps with more expensive electrical power generation.

Solar and wind electricity are rated at 0 (default) on the Merit Order scale making them the default choice for utility companies when the Sun is shining, or when the wind is blowing, or both.

Why? No fuel cost. That’s the difference. And bonus, no environmental or healthcare hazards with solar and wind either.

Once all of the available solar and wind Merit Order ranking (0) capacity is brought online by the utility company, then (1) nuclear, (2) coal, and (3) natural gas (in that order) are ramped up as required to match demand, according to the marginal cost of each type of energy. (German Merit Order rankings)

NOTE: In the U.S. the normal Merit Order rankings are; default (0) for solar and wind, (1) coal, (2) nuclear, and (3) natural gas, although this order can change in some parts of the United States and around the world. Merit Order is based on cost per kWh only and different regions of the country have different fuel costs.

(The one cost that is never factored-in to the kWh price is the cost of disposal for nuclear ‘spent fuel’ and for good reason, but that’s a discussion for a different day)

The Fraunhofer Institute found – as far back as 2007 – that as a result of the Merit Order ranking system – solar power had reduced the price of electricity on the EPEX exchange by 10 percent on the average, with reductions peaking at up to 40 percent in the early afternoon when the most solar power is generated.

Here’s how the Merit Order works

All available sources of electrical generation are ranked by their marginal costs, from cheapest to most expensive, with the cheapest having the most merit.

The marginal cost is the cost of producing one additional unit of electricity. Electricity sources with a higher fuel cost have a higher marginal cost. If one unit of fuel costs $X, 2 units will cost $X times 2. This ranking is called the order of merit of each source, or the Merit Order.

Using Merit Order to decide means the source with the lowest marginal cost must be used first when there is a need to add more power to the grid – like during sunny afternoon peak hours.

Using the lowest marginal costs first was designed so that cheaper fuels were used first to save consumers money. In the German market, this was nuclear, then coal, then natural gas.

But 2 hours of sunshine cost no more than 1 of sunshine: therefore it has a lower marginal cost than coal – or any source with any fuel cost whatsoever.

So, under the Merit Order ranking of relative marginal costs, devised before there was this much fuel-free energy available on the grid, solar always has the lowest marginal cost during these peaks because two units of solar is no more expensive than one. — Susan Kraemer

It’s as simple as this; With no fuel cost, solar and wind cost less.

Although solar and wind are expensive to construct initially (but not as expensive as large hydro-electric dams or large nuclear power plants!) there are no ongoing fuel costs, nor fuel transportation costs, nor fuel supply disruptions, nor lack of rainfalls, to factor into the final retail electricity price.

As solar panel and wind turbine prices continue to drop thereby encouraging more solar and wind installations, we will hear more about Merit Order ranking and less about variability. And that’s as it should be, as all types of grid energy face at least one variability factor or more.

Only solar, wind, hydro-electric, and nuclear have a predictable kWh price every day of the year. Coal, natural gas, and bunker fuel do not. And that’s everything in the utility business.

Although utility companies were slower than consumers to embrace renewable energy, some are now seeing potential benefit for their business and henceforth things will begin to change. So we can say goodbye to the chatter about renewable energy variability and utility companies can eventually say goodbye fuel-related price spikes.

Buckle up, because big changes are coming over the next few years to the existing utility model that will benefit consumers and the environment alike.

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