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The Wrongologist

Geopolitics, Power and Political Economy

Utilities Face Declining Demand for Electricity

The Daily Escape:

Mt Baker, WA – 2018 photo by np2fast. The two smaller peaks on the right are Colfax and Lincoln.

We are late to the story, but Bloomberg had a report in April, 2017 that electric power consumption in the US has been stalled for the last 10 years. Since the dawn of the electric light bulb, electricity demand grew in a direct relationship to the growth in GDP, but that relationship no longer holds. Here is a chart showing the divergence:

The white line is US GDP, indexed to 1997. GDP in 2016 was 151% of what it was in 1997, while the blue line, representing US electricity sales, is only at 118% of 1997.

Why? It is a combination of greater energy efficiency, offshoring of heavy industry, and both commercial customers and homeowners generating their own power. Demand for power from utilities is flat, and most forecasts expect it to remain that way.

Flat demand for electricity has big implications for the utility industry. They need to forecast demand for electricity about 20 years ahead, because they invest in large and capital-intensive infrastructure like power plants and transmission lines, costing billions of dollars. The utility wants to be sure that facilities they invest in will produce profits for many years to come.

But, investor-owned utilities (IOUs), which provide electricity for more than half of Americans, need to make money for their investors. They can’t make money selling electricity; monopoly regulations forbid that. Instead, they make money by earning a rate of return on investments in electric power plants and infrastructure. And with stagnant demand, there’s no value in new investment. And a drop in investment means a drop in profit. So, the IOUs are treading water as their revenues decline.

We are in a new normal. There is pressure from falling power prices, due largely to increased usage of natural gas and renewables to produce power. Wholesale power prices are down 70% percent from 2007, but little of those cost savings have been passed on to consumers.

We should see what’s going on as a good thing, says David Roberts at Vox:

For both economic and environmental reasons, it is good that US power demand has decoupled from GDP growth. As long as we’re getting the energy services we need, we want overall demand to decline. It saves money, reduces pollution, and avoids the need for expensive infrastructure.

More from Roberts:

Only when the utility model fundamentally changes — when utilities begin to see themselves primarily as architects and managers of high-efficiency, low-emissions, multidirectional electricity systems rather than just investors in infrastructure growth — can utilities turn in earnest to the kind of planning they need to be doing.

The electricity sector understands where things are headed: Coal is dying out. Renewables are coming on strong. Distributed energy and sophisticated grid controls are providing increased efficiency. Natural gas may or may not be a long-term answer. Roberts shows how the Trump administration is out of step:

Trump’s love of coal, steel, pollution, and other such manly 19th century pursuits is an anachronism and a curio, but it is having little influence on the thinking and plans of electricity-sector professionals.

So, we have a strategic US industry in transition. They are now stiffing their customers, who have nowhere to go. They are not helped by an administration that is focused on an ideological response guaranteed to make the electric power industry’s efforts to find a better economic model much, much harder to achieve.

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Saturday Soother – October 7, 2017

The Daily Escape:

Naiman Nuur (Eight Lakes) National Park, Mongolia. The lakes are just 22 miles from the Orkhon waterfalls, but are accessible only by hiking, or by horse. You can get to it with 4 wheel drive vehicles, but it is 80+ miles one way, 160 if there are heavy rains. You are probably never coming here.

Rick Perry heads Trump’s Department of Energy, (DoE). With the Russians, nuclear war with North Korea, ditching the Iran deal, and hurricanes, we have ignored Perry. But Perry hasn’t ignored the coal industry Trump hired him to protect. The DoE has asked the Federal Energy Regulatory Commission (FERC) to begin the rule-making process to subsidize coal and nuclear plant operator’s costs and profits. From Vox:

Perry wants utilities to pay coal and nuclear power plants for all their costs and all the power they produce, whether those plants are needed or not.

This takes a brief unpacking. The DoE did a study of power grid reliability that said:

The loss of coal plants had not diminished grid reliability; in fact, the grid is more reliable than ever. Reliability can be improved further through smart planning and a portfolio of flexible resources.

Then the DoE said to FERC: Address a crisis we determined doesn’t exist. They are asking FERC to adopt a rule forcing utilities in competitive energy markets to pay the full cost of plants that have 90 days’ worth of fuel on-site. Perry’s argument is that the levels of renewable energy produced from wind and solar is variable. And since backup is needed for days with calm winds or cloudy skies, we need to preserve the aging coal and nuclear plants to protect the power grid from dips in availability, because they alone among electric power sources, have 90-days of fuel on hand.

Perry’s contention is that coal and nuclear stored fuel is necessary for grid reliability, and, that these plants are unfairly being driven out of business by subsidies to renewable energy. This is patently false. It is cheap natural gas that is driving coal out of business.

Having fuel on-site does little for grid resilience. No one expects energy outages if coal and nuclear plants continue closing. But, let’s have more corporate welfare for the least useful part of the energy industry!

Perry’s alleged problem isn’t real, and his solution, subsidizing coal and nuclear plants, is a form of theft. A transfer from the most deserving, clean renewable and safe plants, to the least deserving, most polluting and dangerous coal and nuclear plants.

And people will be taxed through artificially higher electricity rates to subsidize coal and nuclear plants. More from Vox:

It’s hard to overstate how radical this proposal is. It is wildly contradictory to both the spirit and practice of competitive energy markets. It amounts to selective re-regulation, but only for particular power sources, which wouldn’t have to compete, they’d just have to have piles of fuel.

So does FERC have to do what DoE asks? No, but consider this: FERC has three commissioners (a quorum), two of which, including the chair, are Trump appointees. The chair is Neil Chatterjee, who was a staffer for Sen. Mitch McConnell, the Senate’s champion of coal. Chatterjee recently said:

I believe baseload power should be recognized as an essential part of the fuel mix. … I believe that generation, including our existing coal and nuclear fleet, needs to be properly compensated to recognize the value they provide to the system.

So, this market-wrecking plan to Make Coal Great Again is likely to happen.

This is an old-school Ayn Rand-style looter giveaway from a bunch of self-described free-market “conservatives” trying to rescue a dinosaur industry that is choking the world.

Just another issue that raises our anxiety level. It’s Saturday, and we need to dial it back, relax and stop thinking about how these Trump termites are quietly undermining everything. Grab a hot, steaming cup of Mystic Monk Paradiso Blend coffee ($15.99/lb.), find a quiet corner, put on the Bluetooth headphones and listen to Telemann’s “Concerto in D major for Violin, Cello, Trumpet and Strings”, TWV 53:D5. Here performed by the Bremer Barockorchester, recorded in a November, 2015 live performance at the Unser Lieben Frauen Church, Bremen, Germany:

Note the valveless trumpet played by Giuseppe Frau. It is an Egger (three-hole system) Baroque trumpet.

Those who read the Wrongologist in email can view the video here.

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Heading to Daylight on the Winter Solstice

The winter solstice is the shortest day and longest night in the year. The US East Coast sees only nine hours and 15 minutes of daylight today.

With an awesomely bad 2016 drawing to a close, the good news is that days will get longer. From now on, there will be more light, though little of it will emanate from Washington.

Wrongo has a nearly pagan appreciation of the Solstice as a turning point (and favorite day) in his year. We now count forward the added minutes of daylight. This map shows that winter arrived in the Northern Hemisphere @ 5:44 am:

Here are more fun solstice facts. From Yahoo:

Tonight, two astrological events will combine to create a truly rare occurrence. The winter solstice occurs tonight — or tomorrow morning, depending on where you happen to live — meaning that it’s the longest night of the year. Combine that with a lunar eclipse, which only occurs a few times per year, and you have the recipe for one of the longest, darkest nights that any living human has had the opportunity to witness. This rare combination hasn’t occurred since 2010, and before that it hadn’t happened in nearly 400 years, so it’s pretty special.

The eclipse should begin at around 1:30 a.m. EST, but the best time to view the eclipse will be around 3:17 am tomorrow.

With the Winter Solstice, there are 24 hours of darkness at the North Pole. It is the opposite at the South Pole, where the sun never sets at this time of the year. This reverses for the Summer Solstice.

Time for upbeat music about the sun, something that’s not all new age-y, or about cleansing your spirit. Here is George Harrison with “Here Comes the Sun” from the album “Abbey Road” released in 1969. Here, George plays with Paul Simon on Saturday Night Live in 1976:

This song should make your day brighter, and give you some hope in what are otherwise dark times.

Those who read the Wrongologist in email can view the video here.

Sample Lyrics:

Little darling
It’s been a long, cold, lonely winter
Little darling
It seems like years since it’s been here.

Here comes the sun
Here comes the sun
And I say
It’s alright.

Sun, sun, sun, here it comes x4

Little darling
I see the ice is slowly melting
Little darling
It seems like years since it’s been clear.

Here comes the sun.
Here comes the sun.
It’s alright.
It’s alright.

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Smart Guys, Smart Power

When we think of entrepreneurs involved in renewable energy, usually just one name comes to mind, Elon Musk, a smart guy who has given Tesla a new meaning. He just merged Tesla with Solar City.

But smart entrepreneurs in solar are emerging. The NYT wrote yesterday about Nicholas Beatty, a former banker who has covered about 25 acres of his farm in England with solar panels. This isn’t a new phenomenon, lots of farms have solar arrays both in the UK and elsewhere:

What’s new in Mr. Beatty’s field is a hulking 40-foot-long shipping container. Stacked inside, in what look like drawers, are about 200 lithium-ion cells that make up a battery large enough to store a substantial portion of the electricity the solar farm puts out.

The battery and its smart software give Mr. Beatty an advantage over other solar panel farmers. Power prices rise and fall depending on the supply and demand. The spread between the high and low price can be dramatic. By storing power in the battery, Mr. Beatty can feed it into the grid when prices are high:

The battery effectively takes power off the line when there is too much and puts it on when there is too little…

Improved industrial-sized batteries are a way of achieving that flexibility. Mr. Beatty’s battery storage system cost about $1 million, but could increase revenue for his solar farm by as much as $250k per year. Beatty is one of many entrepreneurs and businesses trying to play the fast-shifting electric power landscape. This is a capital-intensive business:

With about a dozen friends and family members…he spent £6.5 million ($8 .1 million) to build the solar farm in 2014. The solar panels…generate about £650,000 ($810k) in revenue a year…

Improved battery storage and its smart controlling software has been one of the two pillars required to make solar power competitive with non-renewable energy sources. The other is the cost of solar panels. Tesla has been working on both axis. They have built a solar demonstration project on the island of Ta’u in American Samoa that generates 1.4 megawatts of energy. The microgrid has 60 Tesla Powerpacks, the company’s large commercial battery with 6 megawatt hours of battery storage. These batteries can be fully charged with only 7 hours of daylight from 5,300 solar panels.

The microgrid facility can fully power the island of 600 residents for 3 days on battery power. It is expected to save the island 109,500 gallons of diesel per year or $8 million in fuel costs. Ta’u previously relied on diesel fueled generators for power.

Cost of solar energy per kilowatt or megawatt hour has been uncompetitive for a long time, but that is changing. And most countries and most US states now are willing to purchase power from independent generators, like Mr. Beatty in the UK. The Economist has this chart of the relative costs of sources of energy:

price-of-solar

All of this means that American farmers could open a new revenue stream by becoming smart solar power generators. Farmers own large acreage in sunny locations. They have a deep understanding of farming, another capital-intensive business. They understand that farming is a climate-dependent enterprise, another factor in common with solar power generation.

A key factor is whether their state allows interconnection with the power grid, and whether the state’s program to pay the independent power generator for power sent to the grid at an economic rate.

Let’s hope that Donald Trump’s fascination with coal doesn’t lead to bad policy. The Economist reports that Trump has promised to make more public land available to miners; but access to coal reserves isn’t their problem. Coal employment peaked in the 1920s, and today, fewer electric utilities want to use coal. If he intervenes on behalf of coal, he will be actively handicapping renewables and natural gas. If Trump’s energy policy is focused on a few unprofitable coal-mines, China will take a commanding lead in batteries, solar panels and wind turbines. That wouldn’t be so smart.

We are at a time when the cost of solar energy has dropped dramatically, and with greater economies of scale, it will fall even further.

It is past time for a few smart entrepreneurs to take up the disruption of the fossil fuel industry and its fellow travelers, the electric utilities.

 

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