Challenges Face the Large-Scale Incorporation of Renewables into US Power Markets

 
(3BL Media/Justmeans) —“Renewables and power markets are on a collision course.” So said Prajit Ghosh, head of Americas Power and Renewables Research at Wood Mackenzie in kicking off the GTM: U.S. Power & Renewables Summit in Austin, Texas this week.

Indeed, as one listened to one panel of experts after another, it was abundantly clear, that this upstart. renewable energy industry had never figured in the plans of the traditional utility industry, which had been humming merrily along for decades with little idea of the monumental changes about to come sweeping in from left field. Yet, it’s those very plans, for growth, distribution, regulation, investment in infrastructure and more that have allowed the system to work as well as it has, albeit while grievously harming our atmosphere, all these years.

It’s not something you hear a lot about, not yet, anyway. That’s because the penetration of renewables is s still small relative to the huge size of the market. But as renewables grow, they are reshaping that markets with plummeting prices that are irresistible to anyone with a budget to manage, and an emission-free footprint irresistible to anyone concerned about the future of the planet. Meanwhile the players on either side of this power divide come from different worlds and speak different languages, but at some point they will need to sit down together to figure out what the future of electricity market is going to be.

The inexorable march forward was first driven by those left-leaning states with their renewable portfolio standards, but now other players like cities and corporations that have joined the fray and made their way to the front of the parade.

To date, 46 cities and 112 corporations have pledged to purchase 100% of their power from renewable sources in the next so many years. They have money to spend and solar and wind project developers are happy to take it, as are we the public, minus a few coal miners, happy to see some substantive action being taken to fend off the specter of rising seas and ever-fiercer storms.

But here is the problem. There is not nearly enough coordination between stakeholders, the financial models don’t mesh, the regulations were never designed for this and no one really knows how to make it all work, though we are learning.

Solar and wind are very different animals from coal, or gas or nuclear plants. You can’t just turn a knob to get more or less, depending on demand, which, by the way is constantly changing. The installation of lots of solar in California, has relieved some of the burden on conventional sources and reduced emissions in the process. But once the sun goes down, the utilities need to scurry to find other sources to fill in the gap.

With the economics driving those conventional sources out of business, we could find ourselves at times, with not enough power available to do that, especially in a world that is seeing more and more extreme weather. It needn’t be a problem if we plan for it, and get it right, no easy thing, but it hadn’t even been a consideration before.

Then, there is the issue of congestion, where there is too much power available at a given time in a given place. Current demand-based pricing mechanisms have found prices actually going negative in places like Germany and China, causing those countries to roll back their expansion plans. That’s right, the power company will pay you to take a hot shower. That’s not a problem for consumers, but the investors who spent millions to build those projects might not feel the same way about it.

With cities and companies pouring millions into projects without any coordinated plan, or any effort to actually match the generation with their usage, not just on a monthly basis, but hour by hour, or minute by minute, which is where the true need is defined, these kinds of issues are going to present themselves. Flexibility is the new coin of the realm. Mixing solar and wind is better than either one alone.

So we need new, coordinated plans. But how is that going to happen here in the US, now the only country in the US not signed on to the Paris accord, with an administration intent on turning all the rules upside to try and save a dying coal industry, which no one on the stage today felt would do anything but postpone the inevitable, while gobbling up huge bites of our rapidly dwindling carbon budget.

Other issues include the fact that with prices falling so fast, how is anyone supposed to make any money? Companies that don’t make a profit have a nasty habit of going out of business and yet we’re gong to need lots more solar and wind if we are to have any chance of meeting the Paris target.

Utility stocks were always considered safe and stable with a steady dividend, perfect for seniors on a fixed income. But that is not the mentality that is being called for here, nearly as much as nimbleness, agility, quick response and rapid execution. That doesn’t mean that deliberation and care no longer matter. Indeed, the cost of mistakes at this juncture are higher than ever. How are the tortoise and the hare supposed to work together? Giving the Federal Energy Regulatory Commission (FERC) 60 days to make a decision that previously took two years to arrive, does not in any way provide assurance of the right decision. Yet, our current DOE head Rick Perry, recently did just that on a plan intended solely to bolster the coal and nuclear industries, in the name of reliability, based on a warmed-over rationale based from 1952. The flaw in Perry’s logic, as pointed out by Norman Bay, recently retired FERC chair, at the summit, is the assumption that system reliability is tied to the type of generation being used. Well-established data shows that over 90% of all power outages are due to fallen transmission lines, and nothing to do with whether the wind blows or the sun shines. While that might seem like common sense to Perry, he clearly is facing a steep learning curve in this job and would do well to listen to people who have been doing this for a while.

The same could be said for the president, who wants to put up a steep tariff on solar panels imported from China under Section 201. It’s a move that could potentially bring solar development in this country to a screeching halt, though most experts here didn’t go that far. It has been widely opposed from all across the political spectrum, but Trump might do it anyway because it suits his disposition and might appeal to his dwindling base.

These are just a few of the challenges that face the utility industry as it makes its way carefully but hastily into a very uncertain future. If there was one key takeaway, it’s that conventional plants still play an important role in maintaining system integrity that cannot be overlooked in the rush to deploy as many renewables as possible.

This is the first article in RP Siegel's series on the GTM: US Power & Renewables Summit. Catch up on Part 2 and Part 3