Renewable Energy Enters Commercial Era

Issue 4 and Volume 108.

After struggling for decades to convince the industrial community, the financial community, the regulatory community, and the public community that renewable energy was ready for prime time, the effort is finally bearing fruit. Commercialization is happening, and renewable energy is poised to take a bigger bite out of the mainstream energy pie. At the inaugural POWER-GEN Renewable Energy trade show and conference in Las Vegas March 1-3 (co-sponsored by Power Engineering), Michael Eckhart, president of the American Council on Renewable Energy (ACORE), declared March 1, 2004, the first day of the commercial era for renewable energy. The enthusiastic applause from the audience — coupled with the 900-plus attendees at the show, and the 60-plus exhibiting companies — affirmed his declaration.

Retired Admiral Richard Truly, current director of the National Renewable Energy Laboratory, set the stage for the conference with a keynote speech titled “Energy Generation in Transition — A 21st Century Paradigm.” While acknowledging that the existing energy framework has worked, and will continue to play a role for the foreseeable future, Admiral Truly endorsed the long-term benefits associated with renewable energy. “I have concluded that our current ‘business as usual’ approach could be appropriately re-labeled ‘borrowing from the future.’ We are increasingly depleting our storehouse of fossil fuels, we are increasingly reliant on vulnerable infrastructures, and we are increasingly adding wastes into our environment. Though we may have little choice in the very short term, we are nonetheless creating debts for future generations.”

“Our current energy system will not change quickly, and considering our utter dependence on it, should not,” said Truly. “For example, the first oil refinery was built in 1861, but oil did not approach 10% of our energy mix until about 50 years later. The first natural gas pipeline was built in 1870, but natural gas did not reach the 10% mark for 60 years. But a transition must be made, and it can be made at a risk far lower than the risk of staying the course of our current ‘borrowing from the future’ condition.”

Admiral Richard Truly, Director, National Renewable Energy Laboratory
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Strategically, the transition to renewable energy will be gradual, and it will be achieved via incremental changes such as those taking place at the state level. Donald “Pat” Shalmy, president of Nevada Power, highlighted the troubles the power industry — and his company in particular — have faced in recent years, but balanced this with the renewable commitment present in Nevada. Reacting to unacceptable price volatility and uncertain power supply during and after the California energy crisis, Nevada enacted a renewable portfolio standard, requiring Nevada Power to meet 5% of its load with renewable energy by 2003 and 15% by 2013. Nevada Power didn’t meet its 5% goal in 2003, but is working diligently to meet its obligation, signing 277 MW worth of renewable energy capacity contracts in 2003. The final challenge, according to Shalmy, will be achieving a viable interconnection into a complex grid, enabling renewable power to flow to customers in an efficient, economic manner.

Dr. Barry Holmes, Renewable Energy Trade Promoter with the U.K. Department of Trade and Industry, provided an overview of how renewable energy is being integrated into the U.K. power supply network. The United Kingdom has set some fairly aggressive goals for itself, including an obligation on electric utilities to supply 15.4% of power from renewable sources by 2015. The plan has some particularly sharp teeth. Those unable to comply are penalized at a rate equivalent to about 5.0 cents/kWh, and the collected funds are disseminated to those utilities that successfully meet their obligations and so further encourage the development of new renewable projects. According to Holmes, the U.K. expects the renewable energy industry will require $20 billion in investment by 2020 and will create up to 35,000 jobs.

Reiterating the commercialization theme on Day 2 of POWER-GEN Renewable Energy, Dr. Robert Shaw, President of Aretê Corp., cautioned the audience that the incumbent asset owners in the energy industry are not going to give up easily. The renewable energy sector cannot rely on a “build it and they will come” mentality. It must compete, which requires renewable energy systems that work, that are competitive with respect to cost and reliability, and that inspire market demand. Such “plug and play” solutions will enable renewable energy to achieve lofty penetration goals, while protecting the planet for coming generations. Shaw proposed “moon shot” goals of 50% renewables by 2050 and 100% renewables by 2100, and urged the audience to act in the interests of “the seventh generation,” those who will inherit the planet in the next century.

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Picking up on the promising future for renewable energy, Dan Reicher, President of New Energy Capital and former Assistant Secretary of Energy, speaking on behalf of Northern Power Systems, had a particularly optimistic message: “The future is not what it used to be and, for those of us in this room, that’s a good thing…We can invent the future.” Reicher, who is actively involved in financing distributed generation and renewable energy projects through New Energy Capital, stated that the growth prospects for renewable energy were turning heads on Wall Street, but that three elements of market development must be addressed to achieve widespread success: advancing the technologies, putting smart policies in place, and ensuring adequate finance. “Unless we work and train ourselves on all three of these facets, we won’t succeed.” On the financial side, Reicher emphasized the importance of leveraging subsidies where available, but warned against excess dependence, which can lead to an on-again, off-again market. Further, because the EPC (engineering, procurement and construction) portion of a given renewable energy project can make or break it financially, Reicher recommended that special attention be given in the development stage to selecting a qualified EPC contractor.

Recognizing the bright future for renewable energy, but tempering this against the marketplace’s need for diversity in energy decisions, GE Energy CEO and President John Rice explained his company’s strategic positioning in the renewable energy field. “There is a need for change, but there’s also a need for choice,” cautioned Rice. “It’s not about renewable energy replacing existing energy generation, it’s about renewable energy displacing existing generation. While fuels like coal and gas will remain major energy sources going forward, renewable energy is at the beginning of its growth curve.” In fact, Shell International projects that renewable energy will account for more than 30% of U.S. energy consumption by 2050.

To get to that point, however, will require further significant cost reductions. GE Energy has become a big player in the wind energy business in a few short years, but Rice stated that additional dramatic technological improvements will be necessary to get costs down to the 2.5-3.0 cents/kWh level where wind becomes broadly competitive. These improvements are likely in areas such as composite materials, advanced controls and compact drive trains. Commenting on GE’s growing interest in solar technology, Rice indicated that profitability won’t be as quick as with wind. However, by applying GE’s manufacturing experience — via enhanced system integration in solar roof designs, for example — the economics could improve markedly.

John Rice, GE Energy President and CEO
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Greater renewables penetration will depend on several other actions, according to Rice, including defined emission targets for CO2, a clear and stable regulatory framework, financial incentives, and R&D support. Ultimately, however, cost reductions are necessary to develop sustainable consumer interest. “Five or ten percent of a utility’s customer base participating in green power pricing program is not enough,” said Rice. “We need to drive costs down much further to get more people to join such programs.”

Wind energy sits in the most opportune position of the renewable energy technology options. Costs continue to decline, and, assuming production tax credits remain available and gas prices remain high, wind can be extremely competitive with conventional generation technologies. As part of the Day 2 keynote, Canadian Ambassador to the Environment Gilbert Parent proposed a “moon shot” goal for wind energy in his country. Blessed with ample wind resources, and ample land on which to develop these resources, Ambassador Parent proposed a wind power project that would add 30,000 MW of wind capacity north of the border within 10 years. The project is remarkably ambitious in both magnitude and scope, but Ambassador Parent is optimistic. He believes Canada’s previous experience in developing large-scale infrastructure projects — such as the James Bay Hydroelectric facility — using private equity would serve as a model.

More than 900 people attended the inaugural POWER-GEN Renewable Energy.
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At the other end of the wind spectrum, Ryan Jacobson with Black & Veatch described the challenges associated with developing wind resources in urban environments. In 2001/02, Palmdale Water District in Palmdale, California, saw its electric rates increase by 30% because of the California energy crisis. To reduce this price volatility — as well as show environmental stewardship, generate some positive public relations, and achieve a degree of self-sufficiency — the District decided to investigate renewable energy options. The District is taking advantage of two California incentive programs: a net metering provision that applies to generators of up to 1 MW in size, and a self-generation incentive that provides a 50% buydown of the project cost.

The project consists of a single 950 kW NEG Micon wind turbine, sited adjacent to the District’s water treatment plant on the edge of the city. Public acceptance has been split. NIMBY issues associated with view, noise and cost emerged and were addressed via visual simulations, noise estimates, and cost benefit analyses. When property value concerns were voiced, publicly available data regarding the impact of other wind power projects on neighboring property values were presented. Finally, a legal challenge by the City of Palmdale regarding the effect of the wind turbine on avian life forced the project to develop an Environmental Impact Statement, which will require the turbine to not operate during periods of low visibility. This legal challenge delayed the project by about eight months, and the turbine is now expected to become operational in June 2004.

Renewable energy is having significant impacts on the electric utility industry, to the point of convincing some companies to exceed required commitments and become outspoken standard-bearers. We Energies, for example, is on record as one of five utilities nationwide that has supported some recent federal renewable portfolio standard (RPS) proposals, according to Jeff Anthony, who manages the utility’s renewable programs. Within Wisconsin, where We Energies operates, the utility has already exceeded the state RPS goal of 2.2% renewables by 2011, and has committed to a voluntary target of achieving 5% renewables by 2011. To get there, We Energies is planning to invest in a mix of wind, solar, and biomass projects, and has even discussed “snatching up all the good wind sites in Wisconsin before other utilities do,” according to Anthony.

The opening keynote session featured, left to right, Dr. Barry Holmes, Renewable Energy Trade Promoter with the U.K. Department of Trade and Industry; Retired Admiral Richard Truly, Director of the National Renewable Energy Laboratory; Donald “Pat” Shalmy, President of Nevada Power; and conference committee co-chairs Michael Eckhart, President of the American Council on Renewable Energy, and Brian Schimmoller, Managing Editor of Power Engineering magazine.
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We Energies has operated a successful green power pricing program since 1996. Average participation the past three years has been about 1%, or 11,000 customers. In 2003, however, We Energies experienced a significant drop in participation – almost 1,500 customers – primarily due to emotional reaction to the utility’s efforts to develop a new coal-fueled power plant in the state. Because of budget cutbacks and the difficulty in marketing to and retaining residential customers, We Energies has turned its attention to commercial and industrial business consumers, who have greater buying power and who might be more interested in promoting a positive public image, according to Anthony. The focus shift has been a success. Initially projecting 112 new business customers by the end of 2003, We Energies ended up with 191 business enrollments by the end of 2003, and the number currently stands at almost 350 business customers.

Renewable energy will likely evolve in ways completely different from those of the conventional energy business. For example, the trading of credits for the environmental attributes of a given renewable energy project — separate from the value of the energy produced — represents a significant departure from historical business practice. Assimilating such practices into the broader energy market will take time and considerable effort, but it’s already happening, denoting a growing level of acceptance that will accelerate renewable energy’s penetration into the energy market.