May

30

I'm involved in some utility-grade solar projects in the US. The ideal size is 4 to 5 MW, which will require approximately 20 acres. With all government incentives combined, solar projects are currently not bankable.

If homeowners are going to take on solar, most shouldn't use their roofs as their platform. Most homes are oriented incorrectly and will their roofs will not produce the optimum amount of power. A better approach is to mount panels on the ground. Ground-mounted panels are cheaper to build, cheaper to operate and will always produce the optimum amount of power.

In most states, net-metered panels cannot produce more power than the customer normally consumes. This is normally not a problem for homeowners because panels only produce power a third of the time and peak consumption tends to occur slightly after the panels are dark.

For U.S. consumers, it is not worth the investment to go off the grid. Energy storage equipment are costly and inefficient; they will consume approximately 20 to 30 percent of all energy produced.

When judging the efficacy of solar, consider the various points of view. If you are a consumer in a deregulated state, you want your neighbor to build a lot of solar. Solar has production costs approaching zero. The market-clearing price of wholesale power is largely based on production costs. If your neighbor's solar facility is producing power, it displaced the marginal generator or most expensive power producer. In deregulated states, solar reduces the cost of wholesale power.

If you are a utility in a deregulated state, you are indifferent about solar. Electric utilities in these states are not regulated power producers.

If you are a policymaker, solar is a winner. It is an ideal peaking generators as it produces power during the peak of the day. It will displace the the most costly generator and, in all likelihood, the dirtiest generator. You have an economic win and an environmental win. Score!

If you are a utility in a regulated state, you are also indifferent about solar. Electric utilities in these states will get a return no matter what assets are deployed.

If you are a consumer in a regulated state, you might have some concerns about solar. The levelized cost of solar is high and you will have to pay that price plus a margin. High prices are offset by lower fuel adjustments, but not a full offset.

If you are an independent power producer such as Calpine, GenOn Energy, Dynegy, Exelon and Entergy you might not like solar. Solar is hitting your gross margins. When solar power facilities are producing, market clearing prices fall and so do your gross margins.

Keep in mind, most power production policies are set at the state level, not the federal level. This might explain why northern states (deregulated states) endorse solar power and why southern states (regulated states) do not.

Bruno comments:

This is what you said. The little guy is making sacrifices for the future.

If you look at the problem only from an energy standpoint, the German look stupid. They are building renewable capacity which is more expensive than nuclear.

But if you look at the whole picture, this is brilliant. They pay more today to have an even more competitive economy in the future.

It is like building autobahns and panzer divisions. Out of the box thinking, a bit of daring going against conventional wisdom, sacrifice for the population, flawless execution (> 26 GW solar installed in less than 3 years, that is no small feat, and they are doing the same with windpower), incredible discipline (they are doing exactly what they said they would do a few years ago).

If you were the little guy, what would you prefer? Consume a bit less today and still have a job in 10 years, or consume more today and have no job in 10 years?

Does it mean that each household is forced to pay for the "their" piece of the renewables infrastructure? If so, is this the new advanced German "invention": let's make the little guy pay for our competitive industry and that's how we'll finance our future competitiveness? Sounds surprisingly old school, if that's the case.

Stefan Jovanovich comments:

A few minor quibbles. The Germans did invest in panzer divisions; what they did not invest in were maintenance and supply corps. The basic logistics of the German Army in the field in WW II were handled as they had been in WW I - by horse-drawn wagons off-loading from rail depots.

When the German General Staff ran the military exercises for Barbarossa, they found that they had to stop in front of Moscow, even if the Russian Army completely disappeared; the forage loads for the horse transport were consuming 100% of the supply chain capacity.

The autobahns were almost entirely a show-piece; the national transport network was rail. The U.S. alone produced nearly 2.4 million trucks in WW II; the Germans made fewer than 350,000. The British built 100,000 more lorries. Using WW II as an example of Teutonic foresight is not - perhaps - the best example.

The local market for power is, as you say, deregulated; but the market for capital has the Federal government's thumb on the scale, along with many of the state's that have deregulated the buying and selling of power itself. It is, as you say, what it is. I may be expressing my bitterness at California's capacity to do everything so badly - slaughter raptors in the name of wind power, adopt the one kind of deregulation that could allow the clowns at Enron to think they were the smartest guys in the room since the ones from Baldwin-United. Happlly, after tomorrow, that is no longer my concern.


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4 Comments so far

  1. John Jaffray on May 30, 2012 11:31 am

    I admit to being puzzled, it sounds like perhaps solar is not a good idea? Remember, cell phones (in 1980 or sometime earlier) made no sense from a cost standpoint…. The capital cost of solar power (the cost to produce a single kWh) has been declining since photovoltaics were invented (or discovered). This trend continues.

    Solar (and batteries, too) benefit from a classic ‘virtuous investment cycle’ whereby by improvements arrive, investments in (the technology) pushes forward , new applications are created, and consumer behavior begins or continues to adopt for various reasons.

    Grid parity will further drive adoption in the entire world.

    Batteries have almost the same structural position.

    The best (by far) path to massive of adoption of solar is really “mini-rooftop” with installations not requiring three guys and a van. This needs to be coupled with excellent metering and load management at the house level, plus not-here-yet battery technology.

    All this can happen without regulatory change and under the net metering caps that exist in the US and elsewhere.

    I think we will be shocked at the ultimate penetration of solar PV at the distributed level over the next 50 years. It is truly the most elegant generation technology that addresses multiple critical needs and can be adopted and designed on a local, individual level. It does not get any better than that.

  2. JDT on May 30, 2012 2:45 pm

    The value of rooftop solar (within a city) is the lack of space required. Roofs are already dead space, thus it’s no sacrifice whereas empty space is a premium.

    @Bruno - it’s an interesting investment thesis since depending on your solar irradiation curve and load profile you’re going to have to back a significant percent with either pumped storage or natural gas (or new coal with ramping flexibility). So it saves you money on your operating costs but vastly increases your capital expenditure. As for the math working out that’s dependent on a number of variables but it does have geopolitical benefits to not being as dependent on Russian gas imports. Certainly not a no brainer and requires a lot of assumptions on the price curves of LNG/Russian gas. Further since the cost curve on solar is steeply negative, you’re better waiting on installation (let someone else pay the first adopter cost and get it 20% cheaper next year).

    It’s absolutely a mistake from the perspective of closing nuclear plants to build solar - you’re replacing a high capacity factor (90%) with a low (25%) one and there’s essentially no net carbon delta. Nuclear has slightly higher operating expenses than solar but below gas (especially at $15/mmbtu) and sometimes coal.

  3. Rich on May 30, 2012 8:10 pm

    Solar Needs No Subsidy? Really?

    “Spanish renewable-energy companies that once got Europe’s biggest subsidies are deserting the nation after the government shut off aid, pushing project developers and equipment-makers to work abroad or perish.” http://www.businessweek.com/news/2012-05-29/spain-ejects-clean-power-industry-with-europe-precedent-energy

  4. JDT on May 31, 2012 5:17 pm

    “Solar is hitting your gross margins. When solar power facilities are producing, market clearing prices fall and so do your gross margins.”

    Yes and no. Generally intermittent renewables will negatively correlate to price in the real time market but that doesn’t necessarily lower your net revenue since you get the money back supplying firming/ramping and through resource adequacy charges. And solar may not schedule into a day ahead market anyway, depending on the forecast reliability. It probably depends on the system -(CAISO vs MISO) and the particulars of what’s owned, what’s the tariff structure and a number of other variables.

    “If you are a consumer in a deregulated state, you want your neighbor to build a lot of solar.”

    Your neighbor is probably on a net metering system in which case he receives the benefit. Again it depends on the system and how it’s accounted for - if he schedules into a day ahead market then you might get some rate benefit but if it’s a net metering system you may actually pay more (depending again on how the costs are allocated).

    “If you are a policymaker, solar is a winner. It is an ideal peaking generators as it produces power during the peak of the day.”

    This only really matters in the south or summer. Otherwise more northern states will have a morning/evening dual peak demand curve with the midday relatively flat. Solar works well in the south in the summer since it does have an air conditioning profile that follows solar generation fairly well.

    “If you are a consumer in a regulated state, you might have some concerns about solar. The levelized cost of solar is high and you will have to pay that price plus a margin. High prices are offset by lower fuel adjustments, but not a full offset.”

    What’s worse is that you have to compare that levelized cost to the marginal (on a heat rate basis) cost of natural gas or coal generation in general. From a consumer perspective I don’t see how the math works out in your favor until solar drops in price significantly. At the end of the day in non-”sunny” states you’ll only get modest reduction in reliability driven capacity requirements from building more solar facilities thus the comparison comes back to that (adjusted) marginal cost of gas vs levelized cost of solar.

    Sorry for the double post, came back to this and thought it deserved a bit more of an answer.

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