By Nancy Spring, Senior Editor
With strong support from the Obama administration, renewable energy could grow in spite of the economic crisis. To find out if the time really is “now” for renewables, Power Engineering magazine talked with executives and analysts, including:
Roger Duncan:, Austin Energy
Roger Duncan:, general manager of Austin Energy, the ninth-largest public power utility in the U.S. Serving a population of 1 million, Austin Energy is recognized nationally for its advanced renewable energy, efficiency and “green building” programs.
Tanya Bodell:, CRA International Inc.
Tanya Bodell:, vice president, energy and environment practice, CRA International Inc. Bodell: recently completed a comprehensive survey of U.S. practices to integrate renewable and other locationally-constrained resources into transmission systems.
David Manning:, National Grid
David Manning:, executive vice president, U.S. external affairs, National Grid. Manning: is responsible for federal relations and central to the company’s U.S. and U.K. teams, handling all issues and functions external to the company from climate change to communications.
Tim Mason:, Black & Veatch
Tim Mason:, project manager, renewable energy practice, Black & Veatch. Mason: is currently supporting the California Renewable Energy Transmission Initiative and the Western Governors Associations Renewable Energy Zone program, projects designed to identify renewable resources in the Western U.S. and the transmission required to access them.
PE: Let’s talk about the economy first. How much impact will the recession have on plans for renewables?
Roger Duncan:, Austin Energy: At Austin Energy, not very much, for a couple of reasons. The city of Austin is in a good position because our industrial base is high tech and very diversified. We remain one of the fastest growing regions in the country and we expect to see some revenue downturn for our industrial base but nothing significant. Plus, we’re in a pretty good position in terms of debt and cash, so we are not planning any dramatic changes to our strategic plan at this time.
David Manning:, National Grid: The cost of capital has gone up for large companies like National Grid. The availability of capital is a challenge but that’s not unique to renewables. It affects everyone’s corporate plans.
Tim Mason:, Black & Veatch: The cost of capital is having a major impact and some munis are having a hard time getting any kind of bonding completed at this point. I was talking with some bankers at a conference recently who have been very active in funding renewables and they are working on deals but nothing had been “punted” in the last month.
Tanya Bodell:, CRA International: The important wildcard here is what the ongoing environmental policy is going to be. Projections of lower demand for energy due to the recession will be coupled with lower fuel prices and those two supply and demand factors lead to lower electricity prices. In the absence of environmental policy, renewable resources start to be less economic, so we expect to see some cancellations. Also, tax equity investors that have been providing some of the financial support are pulling back. They have been investing in renewables by buying the tax benefits. But where the economy is now, they might not have as much use for those tax shelters. Without government support we think the outlook is bleak, but there have been some very strong statements from the Obama administration that they think the time is “now” and regardless of what’s happening with the economy they want to move forward and promote renewables and carbon policy.
Manning:: There has been so much conversation around stimulus and it’s a very different conversation than we had with the Bush administration. All of a sudden we have a new administration that is talking about spending real dollars. The challenge for our industry is to make sure that when people abbreviate the overall conversation to “roads and bridges” what they really mean is renewable energy alternatives and smart grid.
PE: What constraints impact renewables? For example, the lack of transmission infrastructure.
Duncan: That is the major constraint in Texas. We’re looking at something like 9,000 MW of wind projected to come online by the end of December and we have a 600 MW tie out to West Texas. I’ve been told the problem will be resolved in five years and I’ve been hearing that for at least 10 years. ERCOT (Electric Reliability Council of Texas) has decided we are going to pump $5 billion into building new transmission but it’s a problem that’s not amenable to just throwing money at. To build transmission across all the parcels of land between here and West Texas, you’d have to resolve a thousand zoning cases.
Bodell: Our electricity infrastructure was built in a fossil fuel age and to expect it to adapt quickly to a renewable resource focus of up to 20 percent is almost expecting a miracle, especially in the short term. But there has always been a tension between transmission and generation and what we’re seeing here is, if you want the optimium renewable resources you have to spend a lot of money on transmission to get out there.
Duncan: It is also creating some cost dynamics and shifts for distributed and onsite generation for renewables. West Texas wind is cheap, but the congestion costs we are expecting next year could add as much as 40 percent to the cost. We are looking at a plan for a 30 MW solar facility to build here in Austin. You can actually get 30 percent more energy out of solar cells built in West Texas than here in Austin because of the difference in insolation. But because of transmission costs, we expect it to be cost-effective to build in Austin.
Manning: There’s the siting issue, the regulatory issue and the cost issue, but the other issue that we face in the Northeast is that the grid in many parts of that country is old, so you have the huge capital expense of bringing it up to standard. What renewables really need is a smart grid, connecting renewables to a smart meter, allowing customers to control and conserve. That’s what we have to get to.
Mason: One of the things impeding renewables is that many are in very isolated locations. As we try to get to mountain tops for ridge-top solar, for instance, we have to have a fairly substantial expansion of the grid into areas that in many cases are environmentally sensitive.
PE: Then the question becomes, what is the most efficient use of capital?
Mason: The fundamental underpinning of the California Renewable Energy Transmission Initiative and the Western Governor’s Association Western Renewable Energy Zone Program is to try to identify what are the cost-effective resources, not just at the bus bar but delivered to load areas as well. Focus on those areas where you can get the biggest bang for the buck.
Manning: In this load pocket, there is great political enthusiasm for offshore wind. The New York City government is very interested in exploring opportunities for offshore wind that could serve the city and we also put some funding into water turbineswe call those wet renewablesbecause there are some very strong tidal flows in the New York area. There is a pilot program in construction now to capture some of the tidal.
PE: Which renewable technologies do you think hold the most promise?
Mason: The technologies with the most promise are location-dependent. We see, for instance, great opportunity in Texas for wind resources; in the Southeast, which has fairly poor wind and solar resources, biomass has the potential to provide an awful lot; up in the Northeast, there’s some biomass but much of that has already been mined, so we’re seeing a lot of wind development. In the West, we are seeing a mix of wind, solar, biomass and geothermal. One of the more interesting conclusions in the RETI report* was if the thin film industry is able to deliver panels at the prices they’re promising, which we estimate to be $3,700 per kilowatt on an a/c basis, that could really be a game changing technology that would allow for a likely distributed resource.
(*The RETI report is the stakeholders steering committee report on the California Renewable Energy Transmission Initiative (RETI) process. The report ranks renewable resource potential by area.)
Manning: National Grid’s expertise goes to load balancing and accommodating intermittent power within the grid; we are involved in connecting some significant offshore wind projects in the U.K. There’s a huge amount of enthusiasm for wind in governments in the northeast U.S.; some are already installed and constrained by a lack of transmission. We are working with all levels of governments in New York on potential wind development, including the necessary transmission, and we have made a significant commitment to solar in Massachusetts.
Duncan: Texas has a lot of sun and a lot of wind, but relative to other states we don’t have that much biomass available for energy. We have 12 MW coming from landfills, but you’re talking in the tens of megawatts. You have to do your renewable energy inventory on a regional and local basis.
Bodell: It’s all about the geography and the locality; natural resources vary by region and the transmission may or may not connect. A more interesting question is, what technologies that support renewable resource generation hold the most promise? A lot of research is going into energy storage development because it helps to address some of the constraints related to variable resources. The mobil aspects of storage, like the PHEV (plug-in hybrid electric vehicle), are hitting the news and there are aspects of smart grid technology that complement renewables.
PE: Let’s look into the future. What do you think our power grid will be like in 20 years?
Duncan: Twenty years is too short a time frame for major changes. Even though you have major advances in technology, implementing them is very time-consuming. Photovoltaics could become really cheap in a five- or 10-year timeframe, cheap enough for a mass distribution of onsite generation, but the problem is that people think you won’t need to have power plants. And suddenly, if you have solar on all the rooftops, the distribution system is going to have problems and there’s not a quick technological fix to that. We’re seeing big changes in the industry, but I think it’s going to take a lot longer than people expect, just on the installation side.
Bodell: We’re not going to be destroying the existing system and starting over, so it’s likely to be a constant evolution of new technology put into place next to old technology. In 20 years, we could have a hodgepodge of transmission infrastructure business models and regulatory regimes, regulated utilities might be connected to independent transmission owners, smart grid integration might be next to 70-year-old infrastructure. I would anticipate new types of players providing the needed support services such as software developers, new technology manufacturers, and as we already discussed, storage. The software play is very important. Companies like Google are looking at the whole PHEV set-up and the smart grid and saying, this is not about physical infrastructure, this is about software, we can get into this space.
Duncan: I agree and I think you’ll see levels of frustration rise as you start to put a smart microgridthe new termin the midst of an older, established distribution and transmission system. There’s a vision that we’re going to have a smart microgrid that’s extremely reliable and efficient and my somewhat cynical response is, yes, we will make the electric system as perfect as our computers are.
Manning: What we have today for the most part is large central power stations, connected through the grid, which is of uncertain age, and the customer is at the bottom of the page. Where we are headed is the customer now moves to the top of the page and will want and demand various alternative ways to manage energy consumption and the source of that energy. You now have a customer connected through a smart meter to a smart grid and the customer will be able to be more efficient and facilitate and stimulate more renewable sources of all types. It’s a ways off and it’s not cheap, but every step we’re taking should take us closer to that goal.
Mason: Our policy makers are starting to implement that kind of vision, a real integration of not only generation, but energy efficiency and alternative resources. In terms of what it will physically look like in 20 years, we will start to see more distributed energy, we will see use of the smart grid. But at the end of the day, one of the things we really need to focus on is balancing resources. Bringing on this many renewables is going to have intermittent implications, where having a strong interconnected grid is going to be extremely important to maintain reliability.
PE: How do federal and state policies affect renewables? Does one have more of an impact than the other?
Duncan: At Austin Energy, we’re not impacted perhaps as much as other utilities. On the federal level, everyone is looking at climate change legislation and as a community, Austin has decided to voluntarily develop a CO2 cap-and- reduction plan. Affecting us more are the state’s decisions, revolving around transmission and nodal pricing and the ERCOT market decisions. It is not affecting our overall desire for renewables, but as I mentioned earlier, we’re moving ahead with a 30 MW solar facility here in Austin because of transmission issues. And, because of the state policies for dealing with the ERCOT market, that 30 MW is on our side of the ERCOT connection.
Manning: We have what I think is a watershed in the election in this area. And we’ve seen an interesting flip in Congress, as the chairmanship of the Energy and Commerce Committee has gone from John Dingell from Detroit to Henry Waxman from California. It’s likely that there will be greater emphasis on these issues in the next Congress and it’s more likely that the White House will be collaborating with Congress to get something done. The state regional programs have been evolving in the absence of federal leadershipwe’ve been very focused on RGGI (the Regional Greenhouse Gas Initiative) here in New Yorkand I think that’s an issue for all of us, because the industry would like one set of rules.
Mason: There are a variety of state programs driving a lot of the resource procurement but that said, very little is being done without federal tax credits. The tax credits are really driving the development of the renewable resources, so unless we have continued federal tax credits, I think we are going to see a very thin renewable market. People think with the new administration it’s plausible that we may see some CO2 targets coming in very quickly and that may overshadow RPS (renewable portfolio standards) in terms of renewable development.
Bodell: Investors in renewable resources are looking at the total package. I’ve seen estimates that the combined effect of the federal PTC/ITC (production tax credits/investment tax credits) and accelerated depreciation is sometimes 60 percent of the total capital cost. I think it’s not coincidence that the bailout bill had significant inclusions of renewable incentives, because the economy and investment in renewables are related. I’ve heard that some people view RPS as an interim measure until there’s a carbon tax in place, but I think once you go down the path of an RPS, it’s going to be hard to pull it back.
Duncan: I’ll add another thing: workforce development. There’s more talk now in Congress about green collar jobs and packages to develop the renewable energy workforce. In fact, that’s a very critical need. Even if you passed legislation on an RPS and energy conservation requirements, the workforce, from certified welders to building commissioners, is simply not there.
Mason: President Obama has mentioned a works progress administration as part of the recovery package and targeting many more dollars toward renewable development could be a great incentive for the industry and a great thing for the economy. From the renewables perspective, we’re seeing the confluence of customer demand and energy needs and public policy.
Manning: I think we now have a very different world from where we’ve been in the last several years. Now you have interest in renewables because of concerns about energy security and cost as well as the environment. I don’t think it matters which one of those is the strongest driver, the reality is the stars have aligned and it’s a superb time for renewables. They still have to be paid for, and the transmission has to be built, but we’re in a better place now than we were just a few months ago.
The opportunity is, we are investing in infrastructure and if it includes renewables and access to renewables, then you can create new jobs, help drive the U.S. economy out of this recession and lower the carbon footprint.
No offense to those that need to restore their bridges, but bridges and roads and building new access to suburbs, that’s not where this administration is coming from.