Puzzle Pieces: The Place of Renewables in an Evolving Energy Landscape

SolarReserve’s 110-MW Crescent Dunes Solar Energy Facility near Tonopah, Nevada is the world’s first utility-scale facility to feature advanced molten salt power tower energy storage capabilities.

By Tim Miser, Associate Editor

Every year-usually in January-the editors of Power Engineering (PE) magazine like to step back and look at renewable energy through a wide-angle lens. It’s a big-picture kind of exercise, not intended to serve as a nuts-and-bolts exposition on any particular technology or innovation. Rather, we try to regain some overall perspective, to get a general feel for where the renewable industry is heading. How will the renewable industry evolve in the coming year? How do renewables fit into conventional fossil-fired portfolios? How do they affect business models and markets? What are their advantages? What are their disadvantages? You get the idea.

Prognostication can be a fool’s errand, particularly when it concerns an industry as nuanced as power generation. But PE called in the experts and asked them the hard questions. However, making large proclamations about the future can be an exercise in humility, so even the experts were rightly cautious about making sweeping pronouncements. Nevertheless, those who immerse themselves in the day-to-day aspects of renewable power, and who do this year after year, are sure to fare better in the fortune telling business than the rest of us. Here’s what they had to say.

“The outlook for renewables over the next five years looks very robust,” says Tim Light, senior vice president of commercial operations at American Electric Power (AEP). Light explains that this trend is driven in large part by the scheduled phase out of the production and investment tax credits for renewables. “These will be phasing out over the next four years or so,” he says, “so if you’re going to invest in renewables, now is the time. If you wait, you’re simply going to pay more.” And the savings are very substantial, he continues. The production tax credit for wind energy is equivalent to roughly $23 per megawatt hour (MWh) produced over the next 10 years. If the market price of energy is $25 to $30, that is a very substantial subsidy that companies will forego if they wait. “For that reason,” Light says, “I see a very substantial buildout in the coming years.” Numbers in the industry have suggested an addition of up to 50 GW of renewable energy over the next five years.

Even as the investment and production tax credits are scheduled to expire, Light says, AEP’s plans will not change. “We continue to have renewables in our plans beyond tax credits,” he explains. “We believe that’s what our investors and our customers want us to do. So we will continue down that path, even when the economics change following the expiration of the credits.

Departing from its previous business strategy of executing power purchase agreements for renewable power, American Electric Power is now investing in renewable infrastructure directly, with the aim of owning its own renewable assets.

Solar is different, says Light. “That’s because the technology and cost profile is declining so fast that it may not be viewed as being quite as significant as wind. Wind is just a much more mature cost profile.” Solar is more expensive than wind today, he says, though that curve is coming down.

Indeed, solar power has made some impressive strides in the last year. If solar power has lagged behind wind power in certain areas, it seems poised to close that gap in short order.

According to the Department of Energy, utility-scale solar capacity is expected to grow to 27,000 MW in 2017, up from 10,000 MW in 2014. That’s an annual growth rate of 39 percent, which makes solar the fastest-growing renewable resource for U.S. electric utilities. The Solar Energy Industries Association (SEIA) also reports that the third quarter of 2016 shattered all previous quarterly solar photovoltaic installation records. Approximately 4,143 MW of solar were installed in the United States during that period, a rate of one megawatt every 32 minutes. But even this record might not stand long, as SEIA estimates the fourth quarter will see even higher solar installations.

Solar, in fact, has been gaining momentum even prior to 2016. In November 2015, SolarReserve’s 110-MW Crescent Dunes Solar Energy Facility near Tonopah, Nevada passed the necessary test to enter commercial operation. It now provides power to NV energy under a 25-year power purchase agreement. The facility is the world’s first utility-scale installation to feature advanced molten salt power tower energy storage capabilities, storing solar energy in the day to generate power after the sun goes down. It can power the equivalent of more than 640,000 homes.

AEP is quick to recognize these trajectories in renewable energy. The utility is looking to acquire more renewables in the near term, Light says. Over the last decade, renewables have primarily been procured by utilities through power purchase agreements. In the past, utilities chose to use their capital to invest in environmental retrofits and a number of other projects. “AEP’s involvement in the renewables space was to buy energy from a third party that built their own facilities,” says Light. “Now that is changing. We are no longer investing money into environmental retrofits of our coal fleet. Instead, we are investing in renewable assets directly, instead of just buying output. We want to own them.”

There are several driving factors that inform a utility’s decision to procure renewables, Light continues. Utilities always want to procure the lowest cost of energy they can, but this does not always culminate in a simple mathematical formula. “Wind and solar resources vary greatly by geographic region,” he explains. “The best wind resources are in the midsection of the country, right down the plains.” But even though this is where the lowest-cost wind energy is generated, it is not where the loads are. “So the challenge is how to get this energy to the load centers,” says Light. This is where transmission infrastructure becomes critically important. Congestion represents a real challenge for renewable power, he says. “It’s kind of like the freeway on a holiday, when you can’t move.” Power generated renewably is of no use if it can’t be delivered to where it is needed. Transmission has to keep pace with the buildout of renewables, says Light, or growth is curtailed.

Light continues: “Markets typically try to manage this congestion through price signals, by telling the generator when supply has exceeded demand. They say, we don’t really need all this power, so if you’re going to send it, we’ll have to pay you less for it.” This can create a number of issues. If the problem becomes significant enough, regional transmission organizations (RTO) may even stop accepting power. “This isn’t always the case,” says Light, “but in isolated geographic areas, under certain seasonal variations in demand, these sorts of challenges can arise.” The wind continues to blow even in the shoulder months when air conditioners don’t run as much. Energy storage technologies like chemical batteries, compressed air energy storage, or pumped hydro can allay some of these bottlenecks, but Light contends that the financial cases for such technologies do not always add up.

Renewables notwithstanding, AEP continues to plan for new gas builds. Light explains that the grid has to maintain enough capacity-either online or available for quick start-to fill the void when renewables aren’t flowing. As renewable penetrations increase, he says, baseload capacity may be utilized at a minimal level. “The market is driven by economics. If renewables are cheaper than fossil generation at a particular point in time, that fossil generation will rightly be displaced, as long as you continue to have enough capacity online to meet peak demand.” Utilities can forecast what they think the wind will do, but they better have some contingency plans, says Light, who also says that fossil units will probably be ramped up and down more to accommodate the intermittency of renewables.

Of course, wind and solar are not the only renewables in town. There’s biomass, which despite its renewable nature, does produce greenhouse gases. And there’s geothermal power, which relies on the earth’s own thermal properties to generate power. Though AEP has not invested much in either of these technologies, in the past the utility has invested substantially in hydropower, which represents a huge portion of the country’s renewable assets. Nevertheless, the utility has no new plans for hydropower installations. “It comes down to economics and permitting issues,” Light says, “which are more restrictive than they are for wind or solar power.”

LeRoy Coleman acknowledges this problem. He’s the senior manager of strategic communications at the National Hydropower Association (NHA). The organization has been working on licensing reform, bringing more timeliness, collaboration, and coherency to the licensing process. “Right now it takes a decade or more to get through the licensing process,” he explains. “If two investors are sitting around deciding what to spend money on, they are likely going to choose a natural gas-fired plant, which can be permitted in two years, unlike a hydropower installation, which has a much more exhaustive licensing process that takes a long time.” Coleman says the industry can’t grow unless its licensing processes are “brought into this century”.

That isn’t to say that the future of hydropower is restricted, though. In fact, Coleman cites a recent (and first of its kind) report published by the U.S. Department of Energy in July 2016 about the future of hydropower. “People have a misguided view of hydropower-that it’s been tapped out, that we can’t do anymore, that there’s no room to grow,” he says. “But this is absolutely not true. In 2016 we hit the reset button on how we approach hydropower.” Today hydropower is right around 100 GW in capacity-80 MW conventional, 20 or 22 MW pumped storage, Coleman explains. “But this number can grow by another 50 GW by 2050,” he asserts.

NHA’s Jeff Leahey says hydropower makes a great partner for solar and wind. Technologies like pumped storage can be utilized to smooth peak demand, reduce bottlenecks in transmission infrastructure, and minimize intermittency issues-all problems that affect renewables.

It’s no surprise hydropower maintains such a presence; it’s comprised of so many sub-categories of technologies. In addition to conventional hydropower-these are the dams we’re used to seeing-hydropower also includes pumped storage, marine energy technologies like wave and tidal generation, and small-scale hydro in which irrigation ditches and municipal water supplies are leveraged to generate power from small amounts of water using micro-turbine technology.

Another boon to hydropower is its good working relationships with both wind and solar power. Jeff Leahey, deputy executive director of NHA, explains that the grid services and operational capacities which hydropower brings to the electric system enable greater penetrations of renewables across the landscape. “While we are different industries for sure,” says Leahey, “we work together very well.” Technologies like pumped storage, which are enormous energy storage facilities, can be utilized to smooth peak demand, reduce bottlenecks in transmission infrastructure, and minimize intermittency issues-all problems that affect wind and solar power. While hydropower can experience some seasonal variability in capacity and output, says Leahey, it does not suffer the intra-day, or even intra-hour, intermittency issues incumbent to wind and solar power. Additionally, insofar as there exist century-old hydropower installations in the United States, the industry is a mature one, depending on technologies that have been well tried and proven true.

That’s not to say that hydropower doesn’t face some challenges. There are the aforementioned issues of licensing and permitting, which right now take too long and cost too much. Because of this, hydropower is losing share to investors who prefer to put their money into projects that can be completed more quickly and for less money. Additionally, hydropower equipment is itself very expensive. That’s because every project is a one-off, explains Leahey. “Hydropower projects are always unique,” he says. “They are projects unto themselves which must be custom designed and manufactured to fit particular purposes, geographies, and geologies. Nothing is off-the-shelf.” Technologies, for instance, must be developed which are specific to the particular flow of a portion of a river, he continues.

Like all forms of power generation, hydropower is also susceptible to political winds. There’s some good news though. “Hydropower has always been a bi-partisan issue,” says Leahey. “I think there will be opportunities in the coming administration. They may look different than those in the old administration, but there has been a discussion in the Trump administration and in Congress about some sort of infrastructure package in 2017. We believe hydropower should play a role in that.”

There’s also been discussion about comprehensive tax reform. “Over the course of the next five or 10 years,” says Leahey, “we are trying to ensure that the value proposition for hydro is recognized and compensated for.” Too often, energy policy debates undervalue hydropower for the services it provides, he explains. “We will be looking at these issues in the coming year.”

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