When Renewable Energy Meets Power Grid Operations

[anorlunda]

The electric power industry faces much turmoil in the coming decades.  The business model of the electric utility company (public or private) may not survive. In addition, the power needs of high-density cities may diverge significantly from non-urban areas causing political turmoil and technical hurdles. 
The increasing share of renewable energy will be a major factor in the turmoil.  It can be viewed as a coming of age. When the percentage contributions of solar & wind to the power grid were small enough, it didn’t matter how they behaved.  But as their share grows, renewables become significant and ultimately dominant.
There’s nothing new about turmoil, or upheavals.  Technologists are sometimes proud of the disruptive nature of their inventions.  But in the case of electric power, we must never stumble in the reliable supply of electricity, not even for brief periods.  A total revamp while maintaining continuous operation is like reupholstering the seats in your car as you...

Continue reading...

 

[OmCheeto]

But in the case of electric power, we must never stumble in the reliable supply of electricity, not even for brief periods.

I'm not sure how to respond to this, as I can't imagine a flawless wind-water-solar system, that is 100% reliable.
But...
[google google google]

Electric power distribution became necessary only in the 1880s when electricity started being generated at power stations. [ref]​

Prior to 140 years ago, the reliable supply of electricity was zero, yet everyone seemed to survive.
[google google google]

Ok. Maybe electricity does help us survive a bit better. But the curve was positive before then. It's just more positive now.

The business model of of the electric utility company (public or private) may not survive.

As far as I can tell, the current business model is already broken, so I hope it does die.

 

[PeterDonis]

Prior to 140 years ago, the reliable supply of electricity was zero, yet everyone seemed to survive.

At a much lower population, with a much lower standard of living, with much slower communications...

There are still places today where there is not a reliable supply of electricity. I would not want to live in any of those places.

 

[PeterDonis]

The article notes that negative bids are becoming more frequent and that this is a potential issue. I'm curious about two things:

(1) Are there reasons for negative bids other than the two mentioned in the article (nuclear not being able to shut down/start up quickly, and solar/wind being subsidized)?

(2) Would solar/wind ever be able to make negative bids if they were not subsidized?

 

[anorlunda]

(1) Are there reasons for negative bids other than the two mentioned in the article (nuclear not being able to shut down/start up quickly, and solar/wind being subsidized)?

Any kind of "must run" situation. Perhaps the chairman is coming to see a demo of the new features.

But in terms of repeatable behavior, those are the only two cases I can think of.

A zero bid is more common. We call that "price takers" I want to sell at any reasonable price, not matter what the price. We do the same when selling stock. We give an order "sell at market" which means I want them sold regardless of market price. But in the stock market we never see negative prices.

(2) Would solar/wind ever be able to make negative bids if they were not subsidized?

No. It is a direct consequence of subsidies. I thought I said that in the article.

But it does point that subsidies destabilize the markets and that as solar&wind grow to a bigger fraction, the subsidies must cease at some point.

But even without subsidies, a flat price curve where costs do not vary in proportion to power produced is also destabilizing of the markets. That is pretty much true of wind & solar. Once installed and ready, the incremental cost to make one more watt is zero.

Thanks Peter, I may revise the article to more clearly separate subsidies versus flat curves.

Similarly, the ICAP market is destabilized by state mandates regarding the percentage of renewable power. If I have some solar, and if the state mandates that solar bids must win, then I can set the price as high as I want. The only thing that would prevent that would be competition from other solar and that the sum of all solar capacity exceeds 100% of needs.

All viable markets, stocks, energy, pork futures, ..., require sufficient competition so that:

1. More goods are offered for sale than needed. Some buyers and some sellers much go home empty handed at the end of the day. Market power or monopoly occurs when there is too little competition, so that some bids must be accepted. Subsidies and mandates distort and destabilize markets. Market stability is a continuous variable, not a binary choice.
2. In the long term, all participants in the market make sufficient profit that they remain in the market. If they don't they may abandon this business and invest their money in something else. Think of it on a personal level. You can invest your retirement money in a power project, or you could buy Apple stock. Nobody can command your choice. If you don't expect the power project to make a profit, you'll choose Apple.

 

[OmCheeto]

At a much lower population, with a much lower standard of living, with much slower communications...

There are still places today where there is not a reliable supply of electricity. I would not want to live in any of those places.

I agree. I was doing followup research on the notavolcano, and found this:

Gauri Shilimkar died due to electrocution after she accidentally touched an electric pole at Janata Vashat on April 15​

​

Another resident, Mahadeo Pandit, said, “The live wires are dangling from scores of electric poles in the area and the MSEDCL has not acted against the problem,” he said​

[ref: India]​

But then again, I would say being inconvenienced with periodic outages would be better than being dead:

The death toll from the so-called Camp Fire has risen to at least 63, with hundreds of people still unaccounted for. California state investigators in June faulted PG&E-owned power lines for sparking a dozen blazes in Northern California in the fall of 2017 that killed 46 and incinerated nearly 9,000 homes and other structures. ​

But I'm a former electrical operator on a US Navy submarine, and am somewhat prejudiced.
Options:

1. Dead​

2. Periodic outages, that are technologically solvable.​

 

[anorlunda]

But I'm a former electrical operator on a US Navy submarine

Could you imagine your submarine being built without the aid of electricity? Could you imagine PF without electricity?

But we need contrarian views sometimes. You can fill that role for us re: electric power.

 

[OmCheeto]

Could you imagine your submarine being built without the aid of electricity?

No.

Could you imagine PF without electricity?

No.

But if the power were to go out at my house right now, I'd be fine for at least a day or two.

hmmm... Not sure if my dollar store version of a Tesla Powerwall counts as a hack.

But we need contrarian views sometimes. You can fill that role for us re: electric power.

As I said earlier, I'm not sure how to respond to this thread/insight.
There are two constraints which make this problematic:

1. The power can't go out.​

2. This is primarily a p°li+ical problem.​

If we were to focus on technical fixes, then I'd have something to say. But with these two constraints, I have nothing.

 

[OmCheeto]

...somewhat prejudiced...

A few other things, also, make me a bit prejudiced.

1. My dad lived off grid in the middle of Arizona for years. I have NO idea how he did it. 250 watts worth of solar panels and a monster of an inverter, are all I know about his system. I'd ask, but he's been dead for over a decade. But he was retired, like me now, and had lots of time to solve such problems. So I can understand why working people don't want to deal with such a problem.

2. After my stint in the Navy, I worked in a hospital for 30 years. I noticed one day that some of their electrical outlets were different than others. Upon query, I was told that they were outlets that supplied power, no matter what. Made sense. We have hierarchical type electrical systems in the Navy as well.
(Nuclear reactor primary coolant pump: plugged into the "no matter what" outlet)

So I'm envisioning homes, or at least certain appliances, in the near future, should have very similar features.
Very much like the laptop I'm using right now.
I believe if the power went out, it would continue operating for several hours, and I'd be totally oblivious to the fact, that my ceiling fan had stopped spinning.

 

[anorlunda]

I lived off grid for 12 years myself. I had 205 watts of PV panels. It was plenty.

So I'm envisioning homes, or at least certain appliances, in the near future, should have very similar features.

Yes indeed. Some home loads, notably hot water heating, have great flexibility in when we schedule them.

But please stick with the actual article topic:

Caveat
This article discusses the bulk power system and the wholesale markets, not distribution not retail, not personal use or personal costs, or personal production. To understand this article, you must think of energy supply at the level of continents, not individual homes or neighborhoods or even individual countries.

 

[essenmein]

But even without subsidies, a flat price curve where costs do not vary in proportion to power produced is also destabilizing of the markets. That is pretty much true of wind & solar. Once installed and ready, the incremental cost to make one more watt is zero.

I would disagree that the cost to make one more watt is zero. I would assume that its calculated much the same way we calculate capital expenditure blocks for line capacity. Ie one pick and place machine costs one unit of capital, that capital is the same if you run one unit per hour, or 2 units or 10 units per hour, however you typically do not pay for the unit of capital and then not try to fully utilize it. So you keep throwing product at the line and eventually you reach your limit of units per hour, and if you want to go even one unit above this limit you need one whole new block of capital to buy another machine.

Now the key off course is if you calculated your unit cost running one unit, 2 units or 10 units the amortization you would have to apply to recoup your capital varies dramatically with through put.

So back to the solar, you do not put in a 100W panel and if you only need 1W, so your capital cost per generated W is most likely calculated with the system running at maximum capacity for the amount of average solar radiation in the area. If the number of watts being sold is less than the calculated capacity for the plant, then no way around it your capital cost per W produced has gone up since you have bought capacity you are not using.

Maybe the better way of putting it is that the $/W calculated is at maximum (generally), and selling less means the cost per W goes up.

 

[PeterDonis]

I would disagree that the cost to make one more watt is zero.

You left out the key qualifier he gave: "once installed and ready". He is talking about the marginal cost per additional watt generated, not the average cost per watt obtained by dividing the capital cost by the total number of watts generated. His point is that once you've built the thing, the capital cost is a sunk cost; it's there no matter how many watts you generate. But the additional cost of generating more watts is zero. That means the bidding strategy of someone who has built this kind of system will be very different from the bidding strategy of someone who has built a system with a nonzero marginal cost to generate additional watts (for example, the cost of the additional fuel needed to generate those watts).

 

[essenmein]

You left out the key qualifier he gave: "once installed and ready". He is talking about the marginal cost per additional watt generated, not the average cost per watt obtained by dividing the capital cost by the total number of watts generated. His point is that once you've built the thing, the capital cost is a sunk cost; it's there no matter how many watts you generate. But the additional cost of generating more watts is zero. That means the bidding strategy of someone who has built this kind of system will be very different from the bidding strategy of someone who has built a system with a nonzero marginal cost to generate additional watts (for example, the cost of the additional fuel needed to generate those watts).

Absolutely agree that there is zero fuel cost in solar. To me though, this actually amplifies the capital cost factor, because that is the only operating expense (that and maintenance).

I would assume someone somewhere made a business case to front $ to build a plant, maybe its a bank that wants monthly interest payments, so in the case of solar, you have basically fixed overhead that you have to pay regardless of the generated output, so if you generate less for a given time period, those watts are more expensive.

If the capital cost could be so easily shrugged off as "sunk", solar wouldn't need subsidies!

 

[PeterDonis]

o me though, this actually amplifies the capital cost factor, because that is the only operating expense

Capital cost is not operating expense. Capital cost is what you pay up front.

that and maintenance

Maintenance is a genuine operating expense, yes, and it means the marginal cost of generating an additional watt is not exactly zero; there is some positive marginal cost. But it's still much, much smaller than for a type of plant that requires fuel, and its relationship to the number of watts generated is also much less straightforward.

If the capital cost could be so easily shrugged off as "sunk", solar wouldn't need subsidies!

You're missing the point. The fact that the capital cost is sunk does not mean it can be "shrugged off". It means that it's already been spent before the plant starts operating, and it is the same whether the plant generates zero watts or a billion watts.

Nor does that mean the capital cost has no impact on the bidding strategies that are used in the markets @anorlunda described. Obviously it must have an impact, since those costs, as I've just said, cannot be just "shrugged off". Unless, of course, they were subsidized--which means that subsidies do in fact make a big difference.

 

[PeterDonis]

I would assume someone somewhere made a business case to front $ to build a plant, maybe its a bank that wants monthly interest payments, so in the case of solar, you have basically fixed overhead that you have to pay regardless of the generated output

If the plant was subsidized, that would make a big difference to this business case, wouldn't it?

so if you generate less for a given time period, those watts are more expensive.

No, they're not, because the cost you are paying is not for generating the watts; it's paying off the capital investment, and, as you yourself point out, that amount is the same regardless of how many watts the plant generates. So, again, the marginal cost of an additional watt, which is what @anorlunda was talking about, is zero (if we leave out maintenance cost). The average cost per watt will be different depending on how many watts are generated, but that's not the important cost if you're trying to understand bidding strategies and the stability of the energy markets.

 

[Rive]

I would like to throw in one more 'cost' to think about: since (I think) most of us has a wallet more interested in the financial parts belonging to the end user side, maybe we should consider the grid costs related/generated by the renewables too.

 

[essenmein]

No, they're not, because the cost you are paying is not for generating the watts; it's paying off the capital investment, and, as you yourself point out, that amount is the same regardless of how many watts the plant generates. So, again, the marginal cost of an additional watt, which is what @anorlunda was talking about, is zero (if we leave out maintenance cost). The average cost per watt will be different depending on how many watts are generated, but that's not the important cost if you're trying to understand bidding strategies and the stability of the energy markets.

I really don't understand this position, in solar power the only cost you have for generating electricity is the capital cost (ignoring maintenance for the time being), this capital cost is more or less fixed. So form a business perspective you get best value is generating at 100% capacity, worst value is not generating. Then, if you want 200% capacity, you need to spend the same capital again.

Are you telling me that the overhead, which is to say paying all the bills needed to keep your doors open, does not factor into the cost per W?

Bidding strategy is something else, as a business you may decide to have an hr of negative revenue if that means you get lots of revenue other times. A nuke plant could conceivably build a dump load so that when the grid does not want that power they could literally burn it off, or pump store hydro, rather than paying to deliver power.

 

[PeterDonis]

form a business perspective you get best value is generating at 100% capacity

You can't always generate at 100% capacity. First, the sun isn't always shining; second, the grid can't always accept what you are generating. That's the whole point of @anorlunda's article, to explain how the process of allocating the load (power demand) among the various possible sources (power suppliers) actually works. It's a lot more complicated than you appear to be assuming.

The specific point I've been trying to make (or rather reinforce, since @anorlunda originally made it) is that the optimal strategy in the bidding process @anorlunda describes for a supplier of solar power is very different from the optimal strategy for a supplier of, say, natural gas or nuclear power, and a key factor that makes the difference is that the marginal cost to the solar power supplier of each additional watt generated is zero. The cost you keep talking about is the average cost, but that is not the cost that plays a primary role in determining the optimal strategy; the marginal cost is.

Are you telling me that the overhead, which is to say paying all the bills needed to keep your doors open, does not factor into the cost per W?

It does not affect the marginal cost per watt, as I've repeatedly explained. I'm beginning to wonder whether you have actually read my posts.

Bidding strategy is something else

As I said above, bidding strategy is a lot more complicated that you appear to be assuming. The article goes into this in some detail. I'm beginning to wonder whether you have actually read the article.

A nuke plant could conceivably build a dump load so that when the grid does not want that power they could literally burn it off, or pump store hydro, rather than paying to deliver power.

In principle they could, yes. But they don't. Why do you think that is?

 

[russ_watters]

I would disagree that the cost to make one more watt is zero... ...So you keep throwing product at the line and eventually you reach your limit of units per hour, and if you want to go even one unit above this limit you need one whole new block of capital to buy another machine.

That's where the issue is. One of the key points regarding the grid is that it never runs at full load. There must always be spare capacity. Management of that is one of the key components of running the grid. It may be easiest to see if we flip it over: the cost of putting out one LESS kWh instead of one more.

And one of the key points of the article (perhaps even the entire thesis) is that *today* the intermittent renewables can ignore that issue and just provide 100% of their currently available power (almost) all the time, but in the near future their need to run at less than full capacity for a significant amount of time and kWh will become a big problem - as much because of the business model of the grid as for the engineering.

 

[russ_watters]

As I said earlier, I'm not sure how to respond to this thread/insight.
There are two constraints which make this problematic:

1. The power can't go out.​

2. This is primarily a p°li+ical problem.​

I don't think "political" is the right word. I think it's consumer/culture (or consumer-culture) driven. And I see two ways to look at it:

1. It's expected because it's expected.
For most of us, losing power is such a rare and unexpected event that we see it as a tragedy. But for most of us, a few hours without power barely affects us at all at home and at worst with a business sends you home early. No big deal, right...?

...Well actually, it *IS* kind of a big deal:
2. Our infrastructure is designed under the expectation that it's expected. Because our infrastructure is designed under the assumption that our power is reliable, most of us have no backup. A few hours of lost productivity every week is a potentially big deal for the economy, and a few days is all it takes before people start dying due to lack of HVAC in some locales. Critical businesses have local backup generators and in a place like Puerto Rico most businesses of any significance do as well (restaurants, banks, hotels, etc), but even then after a few days they run out of fuel, which caused a lot of deaths in Puerto Rico and a few in Florida. And the article even describes how the grid has a difficult time re-starting from an outage; a system designed never to be turned off isn't necessarily designed with good provisions for re-starting.

I think it is reasonable to expect power to always be available, but I think it is also reasonable to question whether that power has to come from the grid. Or, perhaps, what might happen is that if more power generation and storage becomes distributed, the grid's reliability or at least excess capacity can go down without the perceived reliability at the end user being affected.

The article mentioned how it's currently possible in many places to voluntarily allow your reliability to be reduced in exchange for a lower rate/credit. These are somewhat predictable, weather-based programs and you generally receive a certain amount of notice. It might be up to 10 days, for 4 hours at a time (IIRC), on the hottest days of the year, the electric company will notify you that you have to decrease your usage by a certain amount. This voluntary load shedding prevents blackouts and/or reduces the need for additional new power plants.

My electric company had a similar provision for automated load-shedding of residential customer HVAC. Perhaps if systems such as the Tesla Powerwall become more prevalent, they can be incorporated into such programs. I think I've heard of smaller appliances potentially having this capability in the future, which you were alluding to as well.

 

[russ_watters]

But please stick with the actual article topic:

Caveat
This article discusses the bulk power system and the wholesale markets, not distribution not retail, not personal use or personal costs, or personal production. To understand this article, you must think of energy supply at the level of continents, not individual homes or neighborhoods or even individual countries.

Could you comment though on how you see distributed production and storage fitting into that? To me, if one house puts up a solar array, that's an individual house issue -- but if EVERY house puts up a solar array (as California claims they are going to mandate), that's a grid issue. Similar examples would be the tesla powerwall and load shedding/scheduling at an end user level, but under grid control.

Just one small scenario, but I see a potential problem if the power company is legally mandated to buy every kWh residential solar arrays produce, at a fixed rate, while curtailing or negative-price selling other sources. What would happen if residential solar got so big it provided more power than the grid could absorb? Do you refuse the power but pay the "customer" for it anyway? And what does that do to the utility generators?

I've put a lot of thought into the technical problems of integrating a high fraction of intermittent renewables, but to be honest I'd never really considered the grid collapsing for largely economic reasons. But I suppose the current fights over nuclear power receiving "renewable" energy credit - or shut down - are an early manifestation of that.

 

[anorlunda]

Sorry to be slow to respond. I was very busy yesterday.

Are you telling me that the overhead, which is to say paying all the bills needed to keep your doors open, does not factor into the cost per W?

Talk about risks. My article was so wordy that I'm afraid that not everyone read it to the end. Sure there are captital costs, fuel costs, maintenance, operating, marginal, average and more. But there are also multiple sources of revenues to the owners, not just kWh energy.

The energy market described in the article uses primarily marginal costs to determine the optimum, and it compensates the owners for their marginal operating costs.

The ICAP payments, directly compensate owners for their capital costs. To a lesser extent, so do payments for providers of reserves, frequency control, and voltage support. All of those payments are for capabilities, not for generating energy.

I think the debate in this thread about marginal costs was caused by an attempt to assign all types of costs on to one measure, one kWh of energy. That oversimplification ignores those other forms of revenue streams.

Those markets I described were designed by the actual participants. That means the people who buy and sell wholesale power. The designs are constantly tweaked. All those people, each looking out for their self interest assures that no source of value, goes unrewarded. But again, let me stress I speak of wholesale markets, not retail. They are transparent and open for scrutiny, but they seldom attract press attention because it is so difficult to relate what happens there to a consumer's monthly bill. Remember, I mention in the article wholesale prices change every 15 minutes, but rates charged to retail customers are set by law and typically stay constant for a year or more.

Could you comment though on how you see distributed production and storage fitting into that? To me, if one house puts up a solar array, that's an individual house issue -- but if EVERY house puts up a solar array (as California claims they are going to mandate), that's a grid issue. Similar examples would be the tesla powerwall and load shedding/scheduling at an end user level, but under grid control.

Just one small scenario, but I see a potential problem if the power company is legally mandated to buy every kWh residential solar arrays produce, at a fixed rate, while curtailing or negative-price selling other sources. What would happen if residential solar got so big it provided more power than the grid could absorb? Do you refuse the power but pay the "customer" for it anyway? And what does that do to the utility generators?

You're correct, in southern California home rooftop solar has already grown to a very significant portion.

• Net metering, which is wildly popular among homeowners, is not sustainable if the portion of solar gets too large. With net metering, the PV owner is using the grid to provide the functionality of a Tesla Powerwall, but with someone else paying the costs. That's not sustainable at a large scale.
• Retail rate structures can be modified. Imagine a limiting case where every homeowner is self-sufficient for energy production, but they still want a grid connection for backup. There would be zero revenue to the utility for kWh charges. In that case, the obvious solution is to switch to a backup service monthly fee, and forget about kWh charges
• As you point out, there can be contradictions between the grids needs and various government mandates. That is what I mean by destabilizing factors. We can ignore them if the fraction is small, but as it gets larger we get forced to restructure, both technically and economically.
• There is one such restructuring movement underway in several states. That is to create a third layer. So called-agreggators form a buffer between retail consumers and the wholesale markets. The aggregator might offer "a deal" to say 1 million PV home owners, and represent the aggregate resource as a single wealthy and knoledgeable participant in the wholesale markets. I remain skeptical of this idea, but it is an attempt to bridge the transition between central power plant domination, to distributed consumer generation domination. (In the meantime, distribution engineers pull out their hair over protection against faults and short circuits, made complicated by distributed generation. That's a different domain than bulk power engineering.)
• If we take Russ' concerns to the extreme, then we need to revise the wholesale level to use something other than money to determine optimum. I mentioned that in the article, and I also mentioned my fears about such changes because of the risk of creating loopholes that allow cheating and stealing on a huge scale.

When tinkering with such critical things as the electric infrastructure, and hundreds of billions of dollars, the word prudence ranks extremely high in the minds of designers. But the prudence of central planning is hard to apply to a wild-west environment where every homeowner makes his independent decisions and who also lobbies his congressman.

I should also mention a huge factor the article doesn't address. How specifically are owners of power transmission lines compensated for their investments and services? That is even more abstract and difficult to understand than energy generators/consumers. It can also be big bucks, with up to $3 billion for each major new line. And with renewable advocates calling for 250K new miles of HVDC lines in America, and 500K new km in Europe, the magnitude of the transmission problem could itself become dominant.

In the article, I allude to political problems if the needs of high density cities diverge from everyone else. Distributed generation and high rise apartment buildings don't dance well with each other. In the USA, it is roughly a 50-50 split between people in single-family multi-family dwellings. That same split has a high correlation to red/blue political views which makes it even more volatile.

I love this topic precisely because it requires so many disciplines. Energy conservation, Ohms Law, economics, politics, cybersecurity. To me, it will never be boring.

 

[CWatters]

I think many of the issues raised in the article are already being addressed with a combination of mixed generation (solar, wind, nuke, biomass) overcapacity (and constraint payments), good interconnects between countries, storage and, in future, some demand control (via things like smart meters and variable pricing). It's not like we have no tools at all to solve them.

Edit: New York funds storage projects..
Greentech Media News: New York’s Energy Storage Incentive Could Spur Deployment of 1.8GWh.
http://feeds.greentechmedia.com/~r/...age-incentive-could-spur-deployment-of-1-8-gw

 

[essenmein]

Sorry to be slow to respond. I was very busy yesterday.Talk about risks. My article was so wordy that I'm afraid that not everyone read it to the end. Sure there are captital costs, fuel costs, maintenance, operating, marginal, average and more. But there are also multiple sources of revenues to the owners, not just kWh energy.

The energy market described in the article uses primarily marginal costs to determine the optimum, and it compensates the owners for their marginal operating costs.

The ICAP payments, directly compensate owners for their capital costs. To a lesser extent, so do payments for providers of reserves, frequency control, and voltage support. All of those payments are for capabilities, not for generating energy.

I think the debate in this thread about marginal costs was caused by an attempt to assign all types of costs on to one measure, one kWh of energy. That oversimplification ignores those other forms of revenue streams.

Those markets I described were designed by the actual participants. That means the people who buy and sell wholesale power. The designs are constantly tweaked. All those people, each looking out for their self interest assures that no source of value, goes unrewarded. But again, let me stress I speak of wholesale markets, not retail. They are transparent and open for scrutiny, but they seldom attract press attention because it is so difficult to relate what happens there to a consumer's monthly bill. Remember, I mention in the article wholesale prices change every 15 minutes, but rates charged to retail customers are set by law and typically stay constant for a year or more.

FYI, I did read the whole thing , the highlighted part explains why marginal is used for spot pricing, because capex is handled else where.

So from a power generation perspective to me at least it makes sense to cut through all the convoluted revenue streams, transfers etc, and put it in numbers that matter: $/TWHR over life and J/J over life:

Total cost to operate plant over life/Total predicted output over life

Then, since we are talking energy, another critical measure ought to be:

(Total energy produced by the plant)/(Total energy needed to build and maintain plant over life)

(Just for perspective it takes about 3 barrels of oil equivalent to turn iron ore into one tonne of cold rolled steel product)

If the above energy balance is <1 then there is zero point in building the thing!

Intermittent sources are problematic because we don't have intermittent demand and due to their intermittency they have poor equipment utilization.

IMO if the goal is to de carbonize, then tax carbon, don't force the market by subsidizing your ideologically based personal favorite idea. Create the economic incentive to de-carbonize and let the chips fall where they may in terms of technology.

Then re carbon tax you have to be pragmatic about it and only tax the avoidable carbon, and not the unavoidable carbon production in industrial processes, ie we should concentrate on de carbonizing energy production predominantly.

 

[Rive]

It's not like we have no tools...

Tools definitely exists, it is just some tools are a bit weird due the actual (financial and other) environment...

The original article is from here, but I can't link from that source. The reason behind the phenomenon is, that due the local regulations (Germany) the wind has priority in the grid and TSOs has to pay an extra fee for wind farms in case of any curtailment: so they went and tried to find a 'seller' who they could stop producing (!) cheaper.
Transmission costs of non-production included, I guess

And people tends to find PN junctions difficult to understand, right

 

[russ_watters]

So from a power generation perspective to me at least it makes sense to cut through all the convoluted revenue streams, transfers etc, and put it in numbers that matter: $/TWHR over life and J/J over life:

Total cost to operate plant over life/Total predicted output over life.

That's ok (if hard to predict) for planning purposes, but doesn't really address the topic of the article.

And the "hard to predict" isn"t just an understatement, but also the system is currently rigged in favor of renewables. When that math is used for a new solar plant it nullifies the calculation that justified building a conventional plant 40 years ago. That's in part why nuclear plants are closing and low capital cost fossil fuel (natural gas) plants are growing; their math is less affected by that slanted and unstable playing field.

But at some point, whether policy makers choose to deal with it or not, that tilted playing field will start affecting solar. At that point, someone will build a new solar plant that causes other solar plants to have to curtail production on their best days. That's when solar implementation hits the ceiling.

 

[anorlunda]

(Total energy produced by the plant)/(Total energy needed to build and maintain plant over life)

If the above energy balance is <1 then there is zero point in building the thing!

You're free to have your own preferences of course, but that ratio you use attaches zero value to services other than energy. It is hypothetically possible to build a power plant that sells nothing other than reserve capacity, never generating a single MWh in its lifetime. That makes your ratio zero, yet the plant still provides a valuable needed service to the grid, and deserves a share of revenues. The plant's profitability is a separate question.

So I'm free to reject your analysis as oversimplified. Those separate revenue streams compensate providers of different, but related, services. To make an analogy with cars, we pay the manufacturers, the fuel suppliers, and the highway builders separately, even though they all contribute to transportation. You could convert all that to cost per passenger mile, but I don't see that as being helpful.

IMO if the goal is to de carbonize

Another disagreement. Carbon can be a constraint, but never the goal of producing and delivering electric power. Affordable reliable power is essential to our civilization.

IMO, overpopulation rather than climate is our most urgent problem. I'm sure many will disagree with that.

 

[anorlunda]

But at some point, whether policy makers choose to deal with it or not, that tilted playing field will start affecting solar. At that point, someone will build a new solar plant that causes other solar plants to have to curtail production on their best days. That's when solar implementation hits the ceiling.

BINGO! You hit the nail on the head.

Even if we switched to climate rather than money as the optimized quantity, there is still competition between suppliers, and there is still incentive to cheat.

To amplify Russ' point: I could attach button-sized carbon scrubbing filters to the blades of my windmill, claim climate friendliness superior to competing windmills and demand 100x the normal price for my power. Of course that's technically absurd, but it takes time to plug loopholes.

I recommend the book "The Smartest Guy In The Room". It documents how Enron used dozens of absurd loopholes to cheat the public and make themselves rich. Enron got caught, but not before millions in California were harmed. The dangers I fear relate to inadvertent creation of loopholes as we undergo the transition Russ described.

 

[essenmein]

Another disagreement. Carbon can be a constraint, but never the goal of producing and delivering electric power. Affordable reliable power is essential to our civilization.

IMO, overpopulation rather than climate is our most urgent problem. I'm sure many will disagree with that.

Not going to lie, getting really confused about why we are bothering with all this "renewable" nonsense then if de carbonizing is not the over arching goal. Isn't that the whole climate discussion which is driving the initiatives?

We already have affordable reliable power generation, the only problem I thought was the CO2 thing.

 

[Jimster41]

@anorlunda A great article on a great topic. Thanks.

At my last gig we duplicated the NYISO settlement algorithm for a customer so they could gain more insight at the operational and bidding strategy level - into exactly when and why they were making good money. It was fascinating.

I don't see why, didn't see why, there couldn't be a term or two added to the capital value/cost and marginal MWh value/cost function to account for characteristics of generators relevant to climate change. IOW add the "renewables subsidy" terms to the economic dispatch function, or rather, move it explicitly into the function.

It doesn't seem different to me than the value given to regulation, spinning reserve, etc. Those are considered are physical constraints the service of which merits compensation by grid operators - understandably so. Climate change is arguably a physical constraint to someone who believes the warnings of the scientific community. You can argue about whether that's a valid conclusion but saying that "subsidies for renewables make the stack marginal cost curve go negative" is just ignoring a missing value term. A value evidenced by the political fact that renewables are being built and people are letting that/choosing for that to happen. The negative price of product perceived by (what have typically been) fossil generation owners and the heirs to their awesome machinery is the value given by the polis to that de-facto hedge against risk of climate change from fossil energy. It's not an unreasonable model. It's just in too many pieces.

Electricity (the always standing wave function) has been way too cheap, and the justification for it's price and the struggle to make it way too opaque for a long time. IMHO. Just like clean water, good transportation, and waste removal.

I go between thinking
a) this is because almost everyone who uses it is too dumb to understand what it takes to provide these things
b) Everyone hates to consider what they most depend on (I am most convinced of this one).
c) The providers of these secretly like the power they hold and are unwilling or unable to explain what they do. (This is one that I think could be ruled out)

I think Explication - or application of higher costs followed by explication of why... might be a good strategy. Of course it takes the right politician to say to the rate payers, "Shut up and deal with it you big babies. This is the cost of adaptive infrastructure", Or, "This is the cost of competing with freaking China". Trump could say something like that and get away with it. I hate to say that I really do. But, wow, what an interesting shocker that would be.

Point I'm making is - I don't think the economic dispatch engine needs to get broken by renewables and other slightly vague transitional forces - it's a simple summation of terms - it just needs to evolve a little tiny bit to include a couple terms that value climate change related features of sources and sinks and maybe the cost of walking away from stuff that we now know might be dangerous but spent a lot of money on - maybe those and a lot more explanation.

 

[PeterDonis]

getting really confused about why we are bothering with all this "renewable" nonsense then if de carbonizing is not the over arching goal

The original issue that made renewable energy a thing was predictions, made in the 1950s, 60s, and early 70s, that we would run out of oil, or more generally fossil fuels, some time or other around now. That is still a significant driving force behind renewable energy and has nothing to do with de carbonizing for climate change reasons.

 

[essenmein]

The original issue that made renewable energy a thing was predictions, made in the 1950s, 60s, and early 70s, that we would run out of oil, or more generally fossil fuels, some time or other around now. That is still a significant driving force behind renewable energy and has nothing to do with de carbonizing for climate change reasons.

True in the past there were other pressures that made renewables interesting. Today though, my understanding is that the motivation is the CO2, I think there is more than enough discovered supply in newly accessible hard to get to reserves, oil sands, shale gas etc as well as known light crude reserves that plain running out is less of a problem, at least in the short-medium term.

I haven't really heard the supply shortage argument for renewables in a while.

 

[anorlunda]

Not going to lie, getting really confused about why we are bothering with all this "renewable" nonsense then if de carbonizing is not the over arching goal. Isn't that the whole climate discussion which is driving the initiatives?

We already have affordable reliable power generation, the only problem I thought was the CO2 thing.

I don't see why, didn't see why, there couldn't be a term or two added to the capital value/cost and marginal MWh value/cost function to account for characteristics of generators relevant to climate change.

That is still a significant driving force behind renewable energy and has nothing to do with de carbonizing for climate change reasons.

Those are all fair points, and deserve good answers.

• Some people want to push clean energy ASAP. I don't need to agree or disagree with that. My concern is the risk of moving one iota faster than As Possible. That could result in market failure, and non-clean energy producers leaving the market while we still need them to keep the lights on. We need those unclean sources to stick around and remain profitable until the day we don't need them any more. We might like to punish them by forcing them out of business, but we mustn't punish the public as a side effect.
• One can argue for a carbon tax. IMO that is preferable to putting a thumb on the scale in markets. Energy markets, stock markets, commodities markets, any markets all depend on voluntary participation. Fairness, and and even playing field are paramount to convince participants to partake in markets. If they feel that the market is becoming unfair, they might walk away. So even if a carbon tax might annoy the hell out of some people, it is IMO far less damaging than putting a thumb on the scale in open markets.
• Solar PV and Wind power are wonderfully attractive technology. Not since Niagara Falls (hydro power) have we found something so close to free and unlimited sources. Carbon concerns aside, it would be foolish to not exploit those technologies as much as we can. So it is unnecessary to push carbon as a priority higher than keeping the lights on.
  
  Solar and wind will be expanded and utilized ASAP with or without climate concerns. They continue to have competitive cost advantages that assure that they generate as much as practical without giving them any unfair advantages. With less confidence, I also believe that withdrawal of all subsidies, priorities, and preferences would not slow down the growth of renewables significantly.
• I am confident that if we added an environmental term to the cost calculations, that we would loose the confidence of fossil fuel power makers. They could panic and stampede exiting the power business, and leave the public sitting in the dark.
• IMO too many people have their minds stuck in the old-fashioned utility model where the government could just order them to do anything and everything, as long as they authorized them to charge whatever fees they needed to make a guaranteed profit. Those days are gone. We the people (via governments) can order suppliers to shut down, but we can not order anyone to remain in the power business as participants or order anyone to invest new money in power infrastructure.
• South Australia should be a cautionary case study in what happens if you change too fast. They changed so fast to renewables, that they neglected reliability. They belatedly woke up to the reality of possible repeated brownouts and blackouts for a decade to come. It was a real panic until Elon Musk rescued them with a huge battery storage scheme, on a 100-days-or-it-is-free boast. But even Elon Musk would not be able to rescue a population much larger than South Australia.

 

[essenmein]

When evaluating cost of an energy source, given the customer demand (ie society) is for essentially continuous 24/7 up time, would a better strategy be to evaluate the cost of the intermittent sources together with the storage required for them to deliver the 24/7 energy supply?

This would certainly be more accurate when comparing to other non carbon based sources that do natively provide the continuous 24hr supply.

 

[anorlunda]

When evaluating cost of an energy source, given the customer demand (ie society) is for essentially continuous 24/7 up time, would a better strategy be to evaluate the cost of the intermittent sources together with the storage required for them to
deliver the 24/7 energy supply?

That's a good thought.

A resource does not need to be 24x7x365 to be useful.

Also, I think storage is considered a separate entity than the intermittent generation even if they are owned by the same party. Why? Because each resource has advantages and disadvantages, and should be free to bid separately to maximize their usefulness and their payments. Constraining the two to be coupled may be sub-optimal for the owner.

But most important, the market does not choose anything based on estimates. It chooses based on bids. It is recommended that owners bid their marginal costs, but it is not a requirement. Therefore, we can not assume that bids reflect costs.
Remember that accepted bids are paid the clearing price, not their bid price.