Does decentralization make sense?

Ross Baldick Electricity ConsultingI attended The Sixth Annual Austin Electricity Conference last month, which included panels on decentralization (which I moderated), electricity business models, future grid design, and Mexican electricity market restructuring.

My panel asked: Does decentralization made sense? We had  discussions about proposed “distribution system operators,” grid cost parity for renewables, increased demand response, and the increasing fraction of transmission and distribution costs.

I questioned the timeliness of distribution system operators (DSO) in the absence of nodal transmission-level pricing applied to loads and load-serving entities. Various US protagonists have proposed, or are implementing, DSOs. In the long term, this might make sense, but in most jurisdictions currently, loads and load-serving entities are charged zonal average prices, thus putting the horse before the cart. Instead, I would propose that the better scheme is to go with the low-hanging fruit first: Price load at nodal prices, getting the economic efficiencies, and then discuss a DSO at a later point.

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How global-friendly are western energy solutions?

Ross Baldick ConsultingI recently presented a seminar, “Meeting Worldwide Demand for Electricity,” at the IEEE Innovators, Engineers & Entrepreneurs workshop in Austin. My point: we can’t just export approaches that work in the west to the rest of the world, because these approaches are often too expensive. So we need to ask: What would be a cost-effective way to satisfy increasing demand for electricity without increasing emissions in the newly industrializing world?

As a first step to an answer, I wanted to rule out what is not cost-effective. For example, solar energy is often put forth as a way to produce affordable, low-emissions electricity. In some contexts, it certainly is; however, cost-effectiveness depends upon carefully keeping costs down and tailoring utilization to specific applications.

To analyze, then, the potential for deploying solar energy solutions, I used the University of Texas at Austin campus solar charging stations as a case study, supported by a “back-of-the-envelope” calculation.

My conclusion: this particular solar solution would be cost-prohibitive for newly industrialized applications.

For details, download the full presentation.

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Why America’s power grid needs natural gas now more than ever | Ross Baldick ConsultingThis week on, an article I wrote with David Spence:

Now that the Obama administration has finalized its Clean Power Plan regulating greenhouse gas (GHG) emissions from the power sector, the focus of attention turns to the states, which must now find a way to reduce emissions consistent with the Plan. One question states face as they envision a lower carbon future is how much to rely on natural gas-fired generation.

The Environmental Protection Agency Plan encourages states to use existing gas-fired generators more and coal-fired generators less, and to build new zero-emission generators (wind, solar and nuclear). The Plan neither encourages nor discourages construction of new gas-fired generators, but some environmental groups oppose additional natural gas plants, fearing they will slow the advance toward a carbon-free grid. Owners of competing technologies also prefer fewer new gas-fired generators, recognizing that inexpensive natural gas has been a key driver of lower electricity prices that cuts into their profits.

As more renewable energy comes online, the reliability and environmental benefits of gas-fired power become more important.

But there are solid reasons why the electric grid needs gas more than ever as more renewable power comes on line.

First, in most electricity markets gas competes most directly with coal, not renewables. The reason is that electricity is dispatched on a marginal cost basis (that is, based on the operating cost of the next available increment of energy): whenever there is a renewable resource available, it will almost always be dispatched to the grid because its zero fuel price will trump the non-zero fuel price of coal- and gas-fired generators. The question, then, is which technologies will power grid operators use to supplement or back up renewable power when the wind is not blowing and the sun is not shining.

Second, gas-fired generators are better able than coal to accommodate more renewable power on the grid, because they can more efficiently adjust their output in response to the variability of renewables’ production. The Texas grid, for example, has been able to integrate large amounts of new wind power recently, in large part because of its complement of gas-fired generation. If Texas had only coal-fired power to back up wind, it would have dispatched less wind power to the grid, because the limited flexibility of coal-fired power would have reduced the ability to respond to variations in wind generation while keeping the lights on.

Third, modern, ultra-efficient gas-fired combined-cycle power plants produce only about half the carbon dioxide and small fractions of the other pollutants emitted by coal-fired power. Reducing carbon dioxide is a multi-decadal task, one we need to accomplish in a cost-effective manner. The U.S. has the oldest coal-fired generation fleet in the world in part because those dirty, old plants produce inexpensive, reliable power. We will need a combination of renewables and new gas-fired generation to replace the retiring coal-fired generators and maintain system reliability.

Indeed, there are technical characteristics of thermal generators (the nuclear-, coal-, and gas-fired generators) that remain essential to the operation of the grid. We currently have no cost-competitive ways for renewables and electricity storage to provide or simulate those technical characteristics.

Fourth, and perhaps most crucially, the enhanced reliability and environmental benefits of gas-fired power become more important with higher levels of renewable penetration, at least until cost-effective electricity storage options become available. While there have been great strides in reducing the cost of battery storage, it remains an extremely expensive solution to the problem of supporting renewable power generation.

In our capitalist system the future energy mix will continue to be determined in large part by price competition. Regulation affects prices, but decisions about which plants to build are made by the private sector, not by regulatory fiat. Gas is currently the most cost-effective complement to renewables and consequently will predominate in new construction of thermal generation.

We expect the costs of electricity storage to continue to fall, and for storage eventually to replace other generation sources as the primary supporter of renewable generation on the grid. But storage is not yet ready for prime time. In the meantime, we need flexible, efficient gas-fired power to ensure that the transition away from much dirtier, higher-carbon coal-fired power continues apace. It would be a dangerous bet to forgo new gas-fired generation now.

David Spence is Professor of Law, Politics & Regulation at the University of Texas at Austin, where he teaches in both the McCombs School of Business and the School of Law. Ross Baldick, is a Professor in UT Austin’s Department of Electrical & Computer Engineering.

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Tesla’s Powerwall: an expensive option

tesla test drive | Ross Baldick PhD | electricity industry

Test-driving the Tesla Model S.

Tesla’s new Powerwall, a home battery, has been widely reported in the media, and once again Elon Musk has spearheaded a very attractive product. In its press kit, Tesla touts the Powerwall for residential load shifting, backup, and storage of locally generated solar power.

But is the Powerwall an economical option for a typical household? In general, new products are not necessarily successful on basic economics alone, and we should expect Tesla to drive down the price of storage as the Gigafactory scales up. However, there is a long way to go in price reductions for such storage to generally make economic sense compared to “using the grid” to store excess solar production, or compared to owning a small back-up generator.

Tesla sees Powerwall as an attractive option for storing energy from rooftop solar. That may make sense for the future, when California reaches a very high penetration of residential rooftop solar and the cost of the using the Western grid to store energy has become prohibitive.

Otherwise, the basic costs of the Powerwall are currently not attractive for most residential applications.

So, how does the Powerwall stack up to its existing residential alternatives?

In terms of backup applications, the 10kWh energy capacity Powerwall model will apparently cost around $3,500. It’s tough to make direct comparisons, because backup generators are typically rated by their maximum power, not their energy, since the energy is only limited by the amount of gasoline on hand, or the size of the LP gas cylinder, or is effectively unlimited in the case of piped natural gas. It’s also hard to compare, because gasoline-powered back-up generators have their own problems, including the use of fossil fuels.

To make a stab at a fair backup generator comparison, I checked Home Depot.  Home Depot has a 7kW natural gas unit available for under $2,000, which would easily have enough capacity to power my house, including my AC in a Texas summer.  This is rather cheaper than the $3,500 pricetag for the Powerwall, and the Powerwall also needs a standalone inverter (not included in the $3,500) to actually function as a backup for a residence. Because the backup generator consumes fossil fuel, it won’t kick-on instantaneously like the Powerwall, but most of my critical loads have batteries anyway — and I can wait 30 seconds for the AC and fridge to come back on if an outage occurs.

How about operating costs for the backup generator? Using piped natural gas in Austin would cost on the order of a dollar to generate 10kWh. It might cost a little more with a gasoline-fueled generator, but that depends on the price of gasoline at the time. Overall, the fuel costs are a trivial fraction of the overall costs for a residential backup generator, because it will only be used rarely.

All in all, the Powerwall is an expensive option for backup power.

The fundamental reason is that the batteries are expensive, and they will only be used occasionally in a backup mode in the US and in most developed countries, where electricity is quite reliable. A better backup option may be to do double-duty with batteries that have been purchased for another purpose.

For example, my graduate students David Tuttle and Hunyoung Shin have been investigating the use of the batteries in a plug-in hybrid electric vehicle (PHEV) or a battery electric vehicle (BEV) to provide a backup source combined with rooftop solar.  (Nissan implemented such a package for the Leaf that was used in the aftermath of the Japanese tsunami; it’s not yet commercially available.) Instead of dedicating batteries for backup, the idea here is to use the batteries in the car when needed as a backup storage. Tuttle presented some of this work at the IEEE Transportation Electrification Conference and Expo in 2013. Click here to read his paper.

Using residential power consumption data from Pecan Street, an energy think tank, Tuttle investigated how long a residence could provide its own backup using rooftop solar and either a PHEV or a BEV.  With 5 or 10 gallons of gasoline and a PHEV, such a system can sustain residential loads for several days to several weeks. Even with a BEV, there are typically at least two days of backup available.

How much would such a vehicle-to-home system cost? Less than the cost of the Home Deport backup generator.

In terms of load shifting and storage of solar power, the 7kWh model costs $3,000. What is the retail price of the electricity that would fill that Powerwall? For me in Austin, 7kWh of electricity costs under a dollar. Admittedly, some residential customers in California are paying closer to $5 on the margin, which improves the cost-benefit there and in similarly high-priced areas, including Hawaii.

Three thousand dollars to store a dollar’s worth of electricity does not seem to make sense on its face, but it is important to realize that the $3,000 is paying for a device that will repeatedly store and discharge that 7kWh multiple times. But even supposing it lasts for around 3000 cycles (nearly ten years of almost daily cycling) and even ignoring interest payments, the cost of storage is as much as the retail cost of electricity. For a truly off-grid application, you’d have no choice but to store energy to use later, but for most of us, we already have a grid connection that allows for both buying and, increasingly, selling electricity. Adding a Powerwall is currently just an expensive way to avoid the buying and selling.

Does the Powerwall make sense for anyone? Yes, there are some places such as California and Hawaii, and in other countries with expensive electricity, where it might make economic sense. And it makes sense for those commercial and industrial customers who are exposed to charges for their peak demand. Shaving their AC-driven peak with storage can be attractive (although it will typically make sense for them to spend money on improved insulation and weatherization first).

Commercial and industrial customers with demand charges and high-priced residential customers are going to be the beachhead applications for the Powerwall. I am confident that Tesla and others will eventually bring the price of storage down. Then the rest of us can start installing them.

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