Oct

13

 Market prices for bulk power are dropping across most regional transmission organizations (RTOs or regional grids). The introduction of wind power, solar power and new demand-side technologies are three key reasons for lower prices.

Lower market-clearing prices mean lower margins for all market participants, including wind, solar, energy efficiency and nuclear power. Commercial nuclear power is particularly threatened because they lost their long-held position as the market's cost leader.

Five conclusions can be drawn from observing the power markets:

1) Because they have zero production costs, wind and solar power affect the market and lower average market prices for wholesale power.

2) Small amounts of renewable energy production can cause significant changes in market prices.

3) Trading energy efficiency products lowers average market prices even further.

4) Power markets are agnostic towards power generation; the market doesn't care how the energy is sourced.

5) Commercial nuclear power may fall out of favor, as they will likely lose significant margins and earnings.

Power markets are punishing generators of all flavors. Companies, such as Exelon (EXC), Entergy (ETR), Calpine (CPN), NRG Energy (NRG) and GenOn Energy (GEN), will see new pressures on their quarterlies. Summers should be good. Springs and falls should be terrible. Winders should be mediocre.

It appears commercial nuclear power in the United States is in for a rough ride. Existing fleets will become less profitable (see Exelon Generating's 10-Q). Except for TVA, new fleets of nuclear power plants will likely face postponement or cancellation.

The bright spot is transportation. Owning transmission lines will become vogue. Interstate transmission lines remain regulated assets and are a cost-plus business. The federal government is the economic regulator (FERC). New FERC rules favor independent and private ownership of transmission lines.Avoid distribution lines. While they also remain regulated, they are local assets. Their financial performance is subject to the [political] whim of state overseers.

David Lilienfeld writes: 

How much more efficient is centralized solar-based generation and then using the grid to deliver it vs decentralized (eg, homeowner/commercial buildings) generation? Are solar and/or wind competitive yet with coal/natural-gas based generation, and if not, what do the trends suggest in terms of parity (non-subsidized)? Are these trends acknowledged by the local regulators?

Carder Dimitroff replies:

Hi David:

I think you are asking about off-grid vs. grid connected. If I'm wrong, please let me know.

Off-grid will always be the most expensive option because more equipment is needed. Specifically, some form of energy storage device is required and two forms of energy conversion are needed. Not only does off-grid cost more to build, it costs more to operate. Every time energy is converted or stored, energy is lost in the process.

Grid connected is the most economic solution. In the utility world, there are two grid-connected options. One is a direct connection tot eh grid using utility-scaled solutions. The other is a net meter arrangement where the consumer pays only for the net amount of energy needed. Most state will not allow consumers to export more energy than they consume.

For most homeowners, net metering is the most practical option. If I were to add an energy storage device, I would not use batteries. If available, I would use water in a pump storage configuration. The benefit of water storage is it is simple, it can be efficient and it has a long operating life.

About economics. Energy analysis is always about point of view. From the point of view of the grid, wind and solar are far more competitive sources of energy than hydroelectric, nuclear, coal or natural gas. This is not a debatable point.

From the point of view of developers, incentives are still required. All forms of power production have incentives. The only incentive the federal government offers wind and solar are cashless tax credits.
 


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2 Comments so far

  1. Craig Bowles on October 15, 2012 8:27 pm

    Breakeven for a wind turbine is 24 years but the expected life is 20 years. I remembered my friend in Vermont talking about this when these were being pushed in their state. This link runs through the numbers.

    http://www.windpowerengineering.com/construction/projects/windpower-profitability-and-break-even-point-calculations/

    Coal, nuclear, and hydro power seem to be the only sources that cost less than 5c/kwh. Solar is over 20c/kwh and the highest cost with a breakeven of 40 years. Looks like the product life has a sustained power output for 20 to 25 years before you notice any significant dip in panel production.

  2. JDT on October 16, 2012 10:20 pm

    Power prices are dependent on gas prices given that most grids are currently in the gas stack. The drop in power prices thus has little to do with a sea-change in energy markets so much as a shift in gas from $6-8 to $3-4. A 10,000 heat rate unit is now selling at essentially 50% less wholesale on a dollar basis.

    “How renewables effect energy markets” is a much more complex topic that one could spend many hours attempting to explore.

    “About economics. Energy analysis is always about point of view. From the point of view of the grid, wind and solar are far more competitive sources of energy than hydroelectric, nuclear, coal or natural gas. This is not a debatable point.”

    Simply flat out false unless you meant to state that wind and solar are non-competitive. Wind is useless from a capacity perspective which is all that matters in grid reliability. Even solar is highly volatile, which again makes planning very challenging. Both are only developed because of political requirements and government subsidies. The demise in the wind development pipeline for next year is good evidence of the fairly obvious: wind power is an inferior product at a premium price.

    I suppose one can argue that in a spot market, wind and solar are competitive. That is true for the fairly obvious reason that the PTC allows them to negatively price. However in any comprehensive view, they’re not at all competitive technologies.

    “The benefit of water storage is it is simple, it can be efficient and it has a long operating life.”

    It is not efficient unless a fairly loose definition of the word is used. At least at a utility scale (the only scale I have examined), it is not practical without significant subsidies.

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