A new study reveals America’s largest grid operator could exponentially increase the amount of solar and wind electricity on its system, while lowering consumer costs and emissions, without negative effects on reliability.
The PJM Renewable Integration Study, prepared for PJM Interconnection by General Electric Energy Consulting, concludes renewables could provide up to 30% of the electricity across PJM’s 13-state footprint by 2026.
While PJM’s report is great news for the rapid power section decarbonization needed to slow climate change and could outline a path forward for other grids, it’s not without any negative outlook — in every modeled scenario, revenue for conventional generation sources like coal, natural gas, nuclear, or hydropower falls.
30% Renewable Energy With No Reliability Concerns
PJM commissioned the study in 2011 to better understand how the grid would be affected if the renewable energy targets of the states within its footprint were achieved or exceeded. Since PJM’s main concern is maintaining reliable and adequate power supplies and all but two of its member states have some form of renewable targets, it’s a valid concern.
GE Energy and a team of other industry experts modeled ten scenarios, ranging from maintaining the current 2% renewables penetration all the way up to obtaining 30% electricity from wind and solar. The study examined expected power demand growth, wind and solar output, required transmission upgrades, emissions, the value of wind and solar versus conventional baseload, and operational costs, among other factors.
And the results? In every scenario, PJM’s geographic footprint could accommodate a larger percentage of electricity supply from wind and solar without significant reliability issues, so long as adequate transmission expansion (up to $13.7 billion) happens across the system.
Wider Geographic Area, More Clean Energy
Once again, GE’s analysis shows the benefits of integrating renewables over a large geographic area. “Given the large PJM footprint…the impacts of short-term variability in wind and solar production is greatly reduced by aggregation and geographic diversity.” Put another way, if the sun stops shining or the wind stops blowing in one location, other renewables from across the system can fill the gap.
In fact, as more and more renewables were added to the PJM system in various modeling scenarios, their efficiency increased while peak demand fell. Curtailment of renewable generators (“turning off” a power system when it could run) was minimal and resulted from localized congestion instead of overall system constraints. Higher renewable generation also shifted consumer demand, with solar “significantly” reducing net demand during peak demand hours.
Fewer Fossil Fuels, Lower Costs, Less Emissions
As additional renewables come online, dirtier forms of energy were replaced. On average, 36% of added renewables displaced coal and 39% displaced natural gas, mainly on a cost basis. In fact, lower coal and natural gas generation occurs under every scenario, as “wind and solar resources are effectively price-takers and therefore replace more expensive generation resources.”
But perhaps most promising of all, every scenario created lower consumer costs across the system while cutting emissions. GE’s analysis found PJM fuel costs, variable operations and maintenance costs, and lower locational marginal prices all decline as the amount of renewables increase, with an average production cost savings of around $63 per megawatt-hour.
At the same time, carbon dioxide emissions fall drastically in every modeled scenario, ranging from a low of 12% all the way up to a high of 41% compared to a business-as-usual scenario where PJM maintains the current 2% renewables mix. The report also notes that a $40 per ton carbon tax, if instituted, would push coal generation down even further than modeled in any scenario.
But even considering all these challenges, the PJM renewables outlook shows that the transition to a clean energy system isn’t only possible, but it is likely to come with economic and environmental benefits.
According to new figures from Bloomberg New Energy Finance (BNEF), global smart grid investment grew to $14.9 billion in 2013, up from $14.2 billion in 2012, and being led by China, who finished the year as the world’s largest smart grid market.
China’s place at the top comes at the expense of the United States, as the North American market continued to slow and China dollar investment into their smart grid exceeded that of the US, thanks in part to the installation of 62 million smart meters, a market which accounted for just under half of the total smart grid spending worldwide.
China’s investiture into smart grid technology amounted to $4.3 billion during 2013, with a large share going towards the installation of smart meters, bringing their national total up to 250 million. However, the country has indicated that it is aiming to extend the end-date for completing its metering program from 2015 to 2017.
On the flipside, US smart grid spending slowed during 2013, as the North American market shrunk 33% to $3.6 billion during 2013, thanks in part to the conclusion of US stimulus-funded projects.
Global investment in the smart grid increased relatively modestly last year after five years of rapid growth. But the fundamental drivers of the smart grid – greater grid reliability, further integration of renewable energy, and improved demand-side management – are stronger than ever.
Asian and European markets will drive growth through 2020, while in North America the focus will continue to shift from hardware to software as utilities look to squeeze additional value out of the vast amounts of grid data now available. — Colin McKerracher, senior energy-smart technologies analyst at Bloomberg New Energy Finance
China and the US aren’t the only markets when it comes to smart metering, but they are the largest. Bloomberg noticed several “promising signs” during 2013 for the European market, including a large metering contract in the UK, a new tender in France, and the completion of the long-awaited cost benefit analysis in Germany.
Elsewhere, Japan’s utilities are currently in the tendering and procurement stage of their smart meter deployment, while in South America, Brazil’s smart meter deployment has been delayed due to certification and financing challenges.
Bloomberg New Energy Finance sees the following developments in 2014 and beyond:
Asia still has years of growth ahead. Despite China’s recently announced slowdown in meter installation, China’s 5-10 year meter replacement cycle means that as this major wave of installations finishes in 2017, the first wave of replacements is expected to commence. 2014-15 will bring also an increase in distribution automation spending in China while smart grid activity in Japan, Korea, India and South East Asia will also ramp up.
The US is entering a second major smart grid phase: information integration. With its growing penetration rates for smart meters and distribution automation, the next phase for the US smart grid is using the new data coming in off the grid to improve areas like outage management, customer segmentation and theft detection.
Europe is the smart grid’s sleeping giant. Europe has installed only 55m smart meters but this is expected to rise sharply to 180m by 2020. Spain will remain as the most active market in 2014 but large-scale deployments in the UK, Germany and France will begin to ramp up in late 2015.
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Joshua S Hill I’m a Christian, a nerd, a geek, a liberal left-winger, and believe that we’re pretty quickly directing planet-Earth into hell in a handbasket! I work as Associate Editor for the Important Media Network and write for CleanTechnica and Planetsave. I also write for Fantasy Book Review (.co.uk), Amazing Stories, the Stabley Times and Medium. I love words with a passion, both creating them and reading them.
Renewables are making headway in Europe and bringing a low-carbon electricity system to the forefront. Renewables were 69 percent of new capacity added in 2012 in Europe and 49 percent in the United States.
Not surprisingly, this threatens utilities unwilling to let go of outmoded business models and fossil-fuel generation.
Laments for Europe’s money-losing electric utilities were featured in an October 2013 cover story in the Economist. It said Europe’s top 20 energy utilities have lost over half their 2008 value, or a half-billion Euros—more than Europe’s banks lost.
Many utilities therefore want renewable competition slowed or stopped. Indeed, some European giants, like Germany’s E.ON and RWE, are in real trouble, and five of Europe’s top ten utilities have suffered credit downgrades.
So have some U.S. utilities—most recently Jersey Central Power & Light and Potomac Electric Power Co. – from the likes of Fitch, Moody’s, Standard & Poor’s, Credit Suisse, and others.
Should old, long- and often still-subsidized oligopolies be bailed out or shielded from competition when they bet against innovation and lose?
Those big European utilities were supposed, but failed, to prepare for renewables by reinvesting their hundreds of billions of Euros’ windfall from billing customers for the first decade’s tradable carbon emission credits they’d been given for free. Now they’re griping that disruptive technologies are upending their old models—just as innovators had warned them for the past few decades.
Disruptive technologies are meant to upset the status quo to bring worthwhile change. Should we have rejected mobile phones because they threatened to displace landline phones? Didn’t digital cameras make film cameras largely obsolete? Shouldn’t print newspapers have to invent new business models to confront the rise of the Internet?
Of course utility companies that refuse to let go of an archaic system are losing investors’ money. To be sure, some market reforms, like a well-designed, technology-neutral electric capacity market, could be worthwhile.
But botched investment strategy should not be rewarded. Nor should shareholders be surprised that utility stocks no longer perform like bonds when twenty-first-century technology and speed collide with twentieth- and nineteenth-century institutions, rules, and cultures.
Fortunately, those shareholders were already compensated for accepting well-known risks like new technologies, new environmental rules, and other regulatory and policy shifts—and they needn’t be paid twice.
Renewables Aren’t The Only Challenges To Incumbents
As the Economist acknowledges, those utilities’ financial crisis is due not only to renewables, which are often scapegoated for trends they reinforced but didn’t cause.
Overinvestment in fossil-fueled generation would have weakened utilities’ finances anyway as the global economic slowdown damped electricity demand growth and the efficiency revolution began to reverse it—on both sides of the Atlantic. U.S. weather-adjusted electricity use per dollar of GDP fell 3.4 percent in 2012 alone. In many regions, efficiency is outpacing service growth, shrinking utilities’ revenues.
U.S. shale gas has also displaced much coal-fired generation (though efficiency displaced nearly twice as much in 2012). Unsold American coal flooded European markets, temporarily displacing higher-priced gas.
Meanwhile, solar power took the utilities’ profitable afternoon-peak market and slashed its price premium.
And since Germany, among others, gave renewables both full grid access and dispatch priority (logically, because they’re cheaper to run than any fueled generator), low loads coinciding with high renewable supplies sometimes make wholesale markets clear at negative prices.
This further distresses utilities that must pay to keep their inflexible old plants running—much as they’d prefer to shift all the costs of adaptation to their new competitors. Their distress will rise as renewables keep getting cheaper and as old contracts to sell electricity at well above today’s prices expire.
Renewables Are Advantageous
The Economist article stated, “The growth of renewable energy is undermining established utilities and replacing them with something less reliable and much more expensive.” Undermining stubborn established utilities? Yes, to achieve important public benefits. But shifting to less reliable and much more expensive generators? Hardly.
Well-stoked fears of grid instability and unreliability due to renewable power are as widespread as evidence for them is unfindable. In the Central European grid, where pervasive electricity trading helps operators choreograph the ever-shifting mix of renewable and nonrenewable supplies, German electricity (23 percent renewable in 2012) and Denmark (41 percent) are the most reliable in Europe—about ten times better than in the United States (whose 2012 electricity was 6.6 percent hydro and 5.3 percent other renewables). Even on the edge of the European grid, Spain (48 percent in the first half of 2013) and Portugal (70 percent) kept their lights on just fine. This experience might help the puzzled Economist writer who claimed, “No one really knows what will happen when renewables reach 35 percent of the [German] market, as government policy requires in 2020.” Answer: probably nothing except lower emissions and lower prices.
The “much more expensive” claim, too, evaporates on scrutiny. In the U.S., new Midwestern windpower now sells at a 25-year fixed nominal price (thus a declining real price) as low as $22/MWh, and new Western solar power at below $70, both net of subsidies generally less than nonrenewables get. In many states, wind and solar beat efficient new gas-fired power plants. In countries like Brazil and Chile, unsubsidized wind and solar power routinely win power auctions. In Europe too, they have a strong business case; cloudy Germany has installed 35 GW of photovoltaics but hasn’t subsidized them since 2004. The Economist agrees that German solar power now costs less than residential tariffs (which are half taxes), and less than the feed-in tariff it still receives (because it still costs more than wholesale prices)—so solar power could keep growing even without the tariff.
“Much more expensive” is a more apt description for much nonrenewable generation, especially as the misdesigned European carbon market gets repaired so emissions are no longer nearly free. Exhibit A is the Hinkley Point nuclear plant that the British government wants 84-percent-state-owned Électricité de France to build, supposedly with part-Chinese financing, to generate 7 percent of U.K. electricity. To get ÉDF to agree, the British government had to offer a 35-year inflation-adjusted fixed power price twice today’s wholesale market level, plus a 65-percent loan guarantee, plus other concessions, many still secret.
Even if this extravagance survives EU scrutiny as “illegal state aid,” the project may not win private construction financing. Investors may reason that nuclear electricity costing seven times the unsubsidized Midwestern-U.S. windpower price (the U.K. has Europe’s best wind resources) or 3–4 times the unsubsidized western-U.S. solar price, both falling, is so ridiculous that a subsequent U.K. government could wriggle out of the deal, putting private capital at risk—or simply that forcing the market to absorb so much extraordinarily costly electricity could prove unworkable. If the British government let all options compete at transparent prices, it could find such cheap efficiency, demand response, renewables, and cogeneration that this year alone in America, five old operating nuclear plants have been terminated as uneconomic just to run, even though their high capital cost was paid off long ago. New reactors’ capital costs are so prohibitive that eight years of 100-plus-percent construction subsidies have failed to make them privately financeable, and nine proposed new units were also terminated this year.
Calls for more nuclear power have largely abated in Europe, where flagship nuclear projects in Finland and France are at least twofold over their budgeted cost and time. Nuclear diehards still pull most policy levers in France, but its national utility isn’t charging enough to cover its nuclear repair costs, is about a trillion Euros underfunded for decommissioning its aging reactor fleet, can’t afford to replace it, and needs to consider what to do instead. Hint: renewables leader Germany, moving off nuclear and beyond coal, is the only consistent net exporter of electricity to three-fourths-nuclear-powered France.
Renewables Are Winning
Utilities’ dwindling profitability is the flip side of renewables’ benefits to customers. As renewables burgeoned, Germany’s wholesale electricity prices fell nearly 60 percent in the past five years. This enriched many German industries—thousands of which also shifted billions of Euros’ annual costs to German households via tripled exemptions from paying grid fees and renewable surcharges. (Only 15 percent of the German renewables surcharge is actually households’ share of premium prices for renewables, mostly for old contracts at higher prices; the other 85 percent reflects falling wholesale prices and industrial exemptions.) But the wholesale price drops are reaching most German households too in 2014, stabilizing their bills.
Moreover, German citizens can choose to microinvest as little as $600 in renewables, locking in a stable and attractive return for 20 years. Most German renewable capacity—investments largely spurned by big utilities—was bought instead by citizens, communities, or cooperatives. And Germany’s 382,000+ new renewable jobs, welfare relief, corporate and export earnings, tax revenues, and wholesale price drops yield not just long-term but current macroeconomic net benefits to the national economy.
The Need For New Business Models
Rather than lament that traditional utilities aren’t the low-risk investments they once seemed, and asking how we can protect their profits, we should be seeking to help progressive utilities and disruptive upstarts shape a new electricity system powered increasingly by clean, distributed renewables, doing exactly what they were meant to do: provide reliable, resilient, safe, clean power at moderate prices. That is the way the world market is trending.
Not only Germany but also in two more of the world’s top four economies—China and Japan, as well as India—non-hydro renewables now outproduce nuclear power. In 2012, China’s windfarms outproduced its nuclear plants (the world’s most aggressive program), and coal plants were run less: China added more generation from non-hydro renewables than from nuclear plus fossil sources. In the first ten months of 2013, 54 percent of China’s capacity additions were renewable (a third of those non-hydro). The coal-fired fraction of China’s electricity could drop by two percentage points in 2013 alone. Globally, in each of the years 2011, 2012, and probably 2013, renewables won a quarter-trillion dollars of private investment and added over 80 billion watts of capacity. Solar additions are now overtaking windpowers, scaling even faster than cellphones.
To adapt to these epochal shifts in both supply and demand, electricity providers everywhere, not just in Europe, need new business, revenue, and regulatory models, being developed in efforts like RMI’s e-Lab industry forum. For example, buildings using zero net electricity (an increasingly widespread practice) pay zero net revenue to utilities selling electricity by the kWh. That requires a different revenue model—perhaps like the Fort Collins (Colorado) municipal utilities’ proposed new approach, where the utility can provide a range of services and investments on the customer side of the meter, helping the customer navigate efficiency and distributed generation investments while providing low-cost finance and on-bill repayment. This e-Lab-aided innovation may offer a sound and scalable path beyond net metering, which breaks at scale.
An 80-percent-renewable, half-distributed, nearly decarbonized, highly resilient U.S. grid could cost virtually the same as business as usual, but could best manage its risks—security, technology, finance, climate, health, fuel, and water—and, uniquely, prevent cascading blackouts. Such transformative benefits justify transitional growing pains—not protection for incumbents already paid to accept the known competitive risks they got wrong.
Clinging to and investing in antiquated business models should be neither rewarded nor celebrated. After all, it’s not as if their authors didn’t know big changes were coming. Ordering new coal plants in the face of renewable mandates and emerging carbon trading is akin to buying up carriage-makers just as automobiles began to relieve London’s horse-manure crisis.
Investment banking giant Goldman Sachs has declared the renewable energy sector to be one of the most compelling and attractive markets – and is backing up its talk with $US40 billion ($A46 billion) of made and planned investments.
Goldman Sachs is not the first big bank to talk up the renewable energy sector, or even “sustainable” investments. But it is one of the first to put real money behind it.
In 2012, the bank made a commitment to invest $US40 billion in renewable energy, and it has made a number of large equity investments, over and above the normal advisory and fund-raising work that is the usual bread and butter revenue for investment banks such as Goldman Sachs.
Goldman Sachs finds this market incredibly compelling, said Stuart Bernstein, who heads the bank’s clean-technology and renewables investment banking group, told Recharge in a recent interview in a story titled Goldman goes Green.
It is at a transformational moment in time.
Bernstein said the bank is taking a decades-long view and is convinced that renewable energy will be an important component of global GDP growth.
He dismissed suggestions that it was part of a PR campaign – such as BP’s infamous “Beyond Petroleum” pitch of a decade ago where it appeared to spend more in marketing than it did in new technologies.
It will be important from a societal perspective, and it will be good business for us and our clients, Bernstein told Recharge.
We want to be extraordinarily focused, involved and have the best franchise in the area. That’s how we think about it.
Among Goldman Sachs’ key investments are a recently-approved $1.5 billion investment for a near 20 per cent stake in Danish offshore wind energy developer Dong Energy.
It has also a substantial investment in BrightSource Energy, which is about to bring its huge Ivanpah solar power project (pictured) into full production – it will be the largest in the world.
Goldman Sachs also provided $500 million of finance to SolarCity, to allow the biggest solar installer in the US to expand its solar leasing business. Goldmans is one of a number of banks to do that –the latest was Bank of America/Merrill Lynch.
It has also been an early investor in First Solar, the largest solar PV manufacturer in the US, SunEdison, and made big money from the sale of Horizon Wind Energy to Portugal’s EDP for $2.15 billion in 2007.
Goldman’s commitment of $40 billion is based around a number of assumptions – that costs will continue to decline as efficiency improves, that solar and wind will reach grid parity without subsidies in the not-too-distant future, and that energy storage issues will also be solved.
It also believes that the position of coal at the top of the global fuel mix is eroding – something that it highlighted in a recent report that said the window for thermal coal was closing rapidly.
According to the Recharge article, much of Goldman Sachs’ investments will be focused on the emerging economies of Brazil, China, India and Mexico —along with developed economies such as Japan and South Korea that have also made a large commitment to renewables, and are reliant on expensive fossil fuel imports.
In Japan, Goldman Sachs has established a new independent power producer called Japan Renewable Energy (JRE) — to develop, build and operate solar, wind and other renewables projects. It is backed by the bank’s $3.1 billion GS Infrastructure Partners II fund (GSIP). It has already committed to a 250MW solar project in Okayama and a 40MW PV plant near Tokyo.
Goldman has paid more than $3400 million for a majority stake in an Indian wind energy business called Renew Wind Power, which plans to build 1GW of facilities within two years, and it is looking to build solar energy plants to supply mining operations in Chile, where even companies such as BHP Billiton are looking at alternatives.
Bernstein also heads Goldman’s venture-capital group, which has a key office in California’s Silicon Valley and which is focusing on late-stage venture companies. Recharge says it is also using its convening power to host conferences and forums for sector stakeholders.
Other investments include the FloDesign Wind Turbine, a start-up that was developing an experimental high-efficiency shrouded wind turbine, and South Korean wind turbine manufacturer CS Wind, which plans an IPO this year.
Giles Parkinson is the founding editor of RenewEconomy.com.au, an Australian-based website that provides news and analysis on cleantech, carbon, and climate issues. Giles is based in Sydney and is watching the (slow, but quickening) transformation of Australia’s energy grid with great interest.