Technological innovation and government policy will affect clean energy project development in 2010. To find out how, Power Engineering magazine senior editor Nancy Spring spoke with Ralph Izzo, chairman of the board, president and CEO, Public Service Enterprise Group (PSEG); Blair Loftis, vice president and national director of alternative and renewable energy, Kleinfelder; Ron Kenedi, Americas vice president, Sharp Solar; and William DiCroce, senior vice president and COO, Veolia Energy North America.
PE: Is there a technology “rising star”?
Ralph Izzo, Chairman of the Board, President and CEO, Public Service Enterprise Group (PSEG). Photo, Bergen Record
Izzo: No, what I would say is we’ve been pleased by the steady improvement in fairly traditional technologies, solar and wind primarily. We have noted a rising star in advancements in inverter technology, which did allow us to put very small pole-mounted solar throughout our service territory, literally on utility poles. I’m seeing some star power in energy efficiency, not so much because of breakthroughs in technology, more because of the recognition that investments in energy efficiency are simply smart things to do.
Blair Loftis, Vice President and National Director of Alternative and Renewable Energy, Kleinfelder
Loftis: Investors are favoring traditional technologies, wind and solar, and I would say they are favoring solar over wind. It’s easier for them to run the economics on solar projects—the incentives are great for solar projects, the technology’s proven, especially with the photovoltaics. Right now solar is king.
Ron Kenedi, Vice President for the Americas, Sharp Solar
Kenedi: The best technology that I’m seeing for utility uses is thin-film solar photovoltaic technology. Sharp has been working on this for 30 years and we’re just at the point of completing a 1 GW factory in Japan. It’s gigantic. The opportunity to reduce the cost of the actual module is amazing but also the energy harvest is really good off thin film. We’re just finishing our first utility-scale project, a 6.5 MW project in Fresno (Calif.), and we’re quoting that product on hundreds and hundreds of megawatts now. We’re seeing some opportunities for grid parity with this product.
William DiCroce, Senior Vice President and Chief Operating Officer, Veolia Energy North America
DiCroce: There’s some interesting stuff going on in the concentrated solar technologies. When you look at rooftops and smaller applications, they’ve pretty much been owned by PV (photovoltaic) and we haven’t been able to get these concentrated solars into that space. But some of these emerging technologies, particularly some of the dish technologies, may break that barrier. As the production comes up, the cost will come down. It’s not based on underlying raw materials, it’s just a scale issue. They’re still in test phase, but they’re very close to popping to the forefront.
PE: Without renewable portfolio standards, will utilities continue to invest?
Izzo: Now I think you are really striking at a core issue. While there has been tremendous progress in terms of the cost associated with various renewable technologies, for most parts of the country there remains a gap between renewable electricity costs and conventional power supply given the fact that currently we don’t have a price for carbon or other externalities reflected in electricity. That gap will close if we get comprehensive climate change legislation. But I do predict it will remain for some parts of the country, which means that you need some kind of a subsidy stream to continue the progress we are making in deploying renewable technology. I am a believer that if you allow utilities to invest in renewables and put them in rate base then the subsidy stream will become something that has a lower discount rate applied to it and overall will be less expensive to customers and will truly result in a greater deployment of, in particular, solar technology.
Kenedi: One of the things that utilities have to pay attention to is what their ratepayers want. It’s become more and more evident that ratepayers want clean power and specifically, they want solar power. The true cost of electric generation over a long period of time is going to be uncovered—the kind of things we deal with when we burn fossil fuels, the effect on the population and the money we have to pay out; it’s deficit energy spending and that won’t be able to continue that much longer.
PE: Will wind power installations slow down in 2010?
Izzo: We are not heavily into onshore wind at PSEG. We are moving ahead, cautiously, with off-shore wind. There are numerous challenges there. But at the risk of being a bit of a broken record, until we get climate change legislation or a national RPS (renewable portfolio standard) or some clarity around the policy framework, you are going to be challenged to find people who are willing to make sizeable investments in wind or other renewable technologies going forward. We just have to close this gap between the understated cost of electricity today—understated because it doesn’t reflect externalities—and the cost of renewables.
Loftis: Wind is going to slow down, unfortunately, because of access to capital. Kleinfelder will cross the 9,000 MW threshold by the end of 2009, which puts us at 29 percent of the market share in terms of contribution to installed capacity as it relates to consultative and engineering design services. Right now, we have six active wind projects. Two years ago, we would have had 18 or 20 we were working on simultaneously.
PE: Wind advocates talk about siting transmission lines but that’s one of the hardest projects any utility ever undertakes.
Loftis: [One] advantage to solar is locating your assets proximal to existing substations and existing load centers. It doesn’t have that requirement for enhanced transmission infrastructure; you’re using the distribution network.
Izzo: The temptation might be to say, just because New Jersey doesn’t have the sun, doesn’t mean we can’t get the stuff from Arizona. Your point is a very important one: there are costs of transmitting electricity—economic and social/political costs—that cannot be removed from the calculation. We’ve been proponents of renewable energy being an increasing part of the electricity supply mix and we recognize that you need to do that in the near term through a mandated renewable portfolio standard. But we have not been proponents of a grossly subsidized transmission system which then favors the regions that have richness of the national resource at the expense of those regions—like ours—that have less of the natural resource but much lower transmission cost and greater proximity to load. Combined cost of supply plus delivery determines where we put these things, not how much we build.
PE: Ralph, sometimes people sort of laugh about solar in New Jersey.
Izzo: We have more sunshine than Germany and as we all know Germany is an international leader in this regard. The reality is that the electricity that comes out of solar panels in New Jersey is 30- to 35-cents-per-kilowatt-hour electricity. This is not inexpensive electricity; that’s a big gap to current market price, but it comes with some huge benefits, too, not just less CO2, but zero mercury, zero SOX and NOX. The issue right now is can those price points come down fast enough so that those benefits are things that people are willing to pay additional money for on their electric bill? I do worry that if the price point (doesn’t) come down, people would not be willing to pay, in this particular environment, anywhere from five to eight times more on their electric bill. But I do think electric bills are going to go up as we price carbon in. And technology costs will come down. Then you are getting to the point of asking people if they are willing to pay 10 percent more for cleaner air and a healthier planet for our kids and grandkids. I have confidence they will say yes.
PE: What do you think of biomass or co-firing biomass?
Izzo: We have looked at it for co-firing and for technical reasons we have backed away. We do have a 15 MW strict biomass generator that we operate in New Hampshire. While we like the carbon footprint, we have had some challenges with consistency both in quality and deliverability of the fuel supply. For the time being at least our emphasis is on solar and energy efficiency and offshore wind and not in the biomass area.
Loftis: Investment in biomass is slow but it’s coming. We’ve done some anaerobic digesters, conversion of dairy manure to methane gas and converting methane gas to electricity. It takes about 10,000 head (of dairy cows) to make 2.5 MW of electricity but you put a consortium of farms together and you bring it up to utility scale. We’ve done that in the Pacific Northwest and we’re exploring doing it elsewhere. In the southeastern part of the U.S. there’s tremendous opportunity for biomass. It’s really their only viable option.
DiCroce: We’ve had great success in Europe on straight biomass, co-fired or co-combustion biomass. We have several facilities where we have our own farming fuel stock set-up, where we have short-growth-cycle trees that we farm and harvest and use as the primary feedstock for small biomass applications. The fuel supply is always the issue with biomass. We’d like to see better support from the policymakers for biomass. We think closed-loop biomass makes sense. It’s a significant part of our portfolio worldwide.
PE: Which utility renewables programs show the most promise?
Izzo: One of the two programs that have taken off for us is our solar loan program, where we lend customers U.S. dollars and they repay their loan in solar REC (renewable energy credits). We ascribe a value to that renewable energy credit that allows them to monetize their loan. Now that tends to favor customers who can pay half of that upfront capital cost and therefore the benefits are limited to people of those means. So we created a second program, our Solar-for-All program, whereby we rate-base solar projects throughout our service territory that range from pole-top installations to on-ground installations at switching stations and substations. The key in both cases is we are able to achieve financial benefit for our shareholders.
I would suggest that utilities have historically been a very efficient vehicle for deploying capital to achieve social policy objectives. And that is what we are doing here. We are saying we need to act. Given the confusing set of incentives and subsidies that nuclear and coal and wind get, a rational person might conclude that renewables are not economically competitive. But over the long term that’s not the case and that’s an important social policy objective so we will use the same mechanism we used in the past. There is just no way we would have had universal access to telephony, to gas, to electricity if we had decided to just let the markets work based on short-term price signals. And the same can be said about investments in renewables—and everything I’ve just said applies to energy efficiency as well.
Loftis: I share the same thoughts with Ralph in terms of policy but I look at it more broadly. The market has a tendency to take care of itself. If something makes sense for business, business will go behind it and utilities are nothing but a business. If they can implement these programs under a structure that makes economic sense—and, more importantly, makes sense to the ratepayer—then they will do it. It’s driven by innovation. There’s more innovation in the solar sector than any other part of the portfolio. And that innovation will bring the cost down to grid parity. And when it brings that cost down to grid parity, it will make sense for utilities.
Kenedi: I think utilities need a little bit of a push. It’s pretty easy to continue doing what you’ve been doing, so we need to put a little perspiration with the inspiration to move things in a new direction. But I do have to commend what utilities have been doing. PSE&G is on top of my list because I think their approach is unique. It’s amazing that New Jersey is the No. 2 state in the country for the use of solar; it’s attributable to strong leadership in that state. I think there will be a continual increase of utility adoption of solar power and other renewables as the ratepayers start voicing their opinions and as prices start moving toward the mainstream.
DiCroce: One of the issues we’re watching very closely is related to co-generation and distributed generation. When we’re trying to manage climate change, a significant piece of that future picture is efficiency. We need to see a lot more “negawatts” to help make up that future fuel mix and a big chunk of that we think can come from co-generation. It’s clearly an efficiency play as compared to the conventional method of providing heating, cooling, electrification. This is a proven technology where we can take a 20 to 30 percent bite out of efficiency. We have district energy schemes in 15 cities. Each one is an opportunity to make a more sustainable product by firing it with large-scale co-generation. In a district network in a downtown, that can touch 200 or 300 major customers with a sustainable product—waste heat recovery from a cogeneration.
As for policy barriers—first of all, there is a total lack of homogeneity. You go state to state and in each location the rules are different. Massachusetts for instance passed the Green Communities Act, which specifically incents CHP (combined heat and power); it’s created a new credit called an alternative energy credit. The flip side is still the utilities. Until they can find a way to accept cogeneration and distributed generation, most likely through decoupling, we’re still going to see significant barriers to entry.
PE: What about power engineers—are they engaged in the “greening” of utilities?
Izzo: Our power engineers on the transmission and distribution side are always looking for opportunities to smarten up the grid and put more efficient assets in our network operation. Some of our engineers at our nuclear or coal or gas plants are focused on simply maximizing the output from the existing assets. I’m glad they are doing that but we then carve out separate groups and say [renewables are] the future of the company and the future of our society and we can’t not pay attention to this. So we had power engineers on a barge that were looking at the results from drilling into the outer continental shelf [for an offshore wind project] and we have a handful of engineers right now looking at the next set of circuit locations so we can put up more solar panels. You have to find the people who are enthusiastic and have religion. This is where the growth opportunity in the company exists and where the growth opportunity in the industry exists.
Kenedi: When we have openings for engineers in our company, 30 people apply for every job; and for our intern program, 60 people apply for each opening. There are a lot of people out there who want to be part of this operation.
Loftis: The shortfall within the industry is that there are good engineering practitioners but they’re not good energy practitioners. They don’t understand the market dynamics. If the power engineers don’t understand the market dynamics in renewable energy, they’re not going to be able to provide as much value to the developer. What we’re trying to do to enhance renewables from the utility perspective is co-location projects: co-location of wind with solar. That speaks directly to energy quality, helping to broker those projects that have the best combined solar and wind resource so each technology will stand on its own merit but you can make up for the intermittency of the wind with the solar resource.
DiCroce: With co-generation, it’s pretty simple. If you take the policy barriers out of the way, it stands on its own two feet. Sometimes you have skeptics that say you need a solar feed-in tariff or a wind subsidy or otherwise it doesn’t fly on its own. But gas-fired co-gen flies on its own and if you look at biomass-fired co-gen, again, it flies on its own. To integrate a co-gen plant into a utility, the power engineers are at the core of that. When they can see that a third less fuel is burned, it’s real. What’s kept the power engineers out of the co-gen space is the frustration with all the barriers that have been up, whether utility or policy barriers.
PE: What can the utility industry accomplish in 2010?
Izzo: I would say at a macro level the utility industry has to get behind a climate bill. We have to start more accurately reflecting the true cost of electricity. Beyond that we have to educate state regulators that if you want utilities to be enthusiastic proponents of renewable energy and energy efficiency then you have to create incentives for us that are no different from the incentives we have to build gas or coal plants and allow us to put these environmentally progressive alternatives into our rate base. And doing that at a parity to the things we’ve done for the past 100 years. Because if we keep doing what we’ve been doing for the past 100 years, I’m concerned about the outcome for our planet.
Loftis: We will see continued progress. Utilities are going to be a strong player—they will drive the market.
Kenedi: It’s the beginning of the utility era of solar—2010 is the beginning of the larger utility systems.
DiCroce: How do utilities make money? They make money on volume. When we ask them to reduce demand by 10 percent that is a big bite. Decoupling says we want to decouple volume from revenue. If you’re going through your efficiency measures and your volume goes down “x” gigawatts and you can attribute it to that type of project, we’ll let you collect that revenue at a pre-agreed rate and socialize it. We all know that many of these new technologies will take some level of socialization and society has to bear some of those costs. For the utility, if they can decouple it, they are now incented to drive efficiency. We need that to work. If the utilities are fundamentally disincented, it just will stagger along for another decade with policy barriers and issues.