August 30, 2017 | By Annalisa Kraft
While coal and nuclear power rapidly dwindle in relevance to the electric power sector, hardly a day goes by without a new utility-scale renewables project announced or a new study published on its growing competitiveness against natural gas. Meanwhile, tax credits and other pro-renewables policies continue to emerge, even as natural gas power stands today as the low-cost, reduced-carbon choice for many utilities. How are those various trends, some seemingly in conflict, balancing out?
In this issue of “Get the Point,” we review the current state of the renewables industry, where leading forecasts say it is headed and how renewables and gas will compete in the future to serve the nation’s power needs.
The natural gas industry is well aware of the edge tax credits for wind and solar have given renewables. The American Petroleum Institute (API) estimates that the most recent Congressional extension will cut natural gas demand by 2.4 billion cubic feet per day (Bcf/d) by 2020. And the U.S. Energy Information Administration (EIA) and others have released report after report that renewables are gaining generation and capacity shares of the domestic power market.
In the U.S. there are 999 wind powered electric plants, contributing to just 6% of electricity generation last year. Although the number of solar plants, at 1,721, is almost double the number of wind plants, solar only generated 1% of the nation’s electricity in 2016.
Currently, natural gas and coal still dominate, with 33.8% and 30.4% of power in 2016, respectively, according to EIA. Solar and wind together still have less than 20% of the pie, but renewables enjoy the fastest growth rate of adoption.
EIA said as of March 2017, wind and solar together accounted for 10% of U.S. electricity generation, their largest share ever. In 2016, together they generated 7% of U.S. power.
More could be coming in the next decades. — and it could take a bite out of growth opportunites for natural gas. Bloomberg New Energy Finance released on July 18 an estimate that natural gas could decline to just 16% of the power mix by 2040 globally — thanks to renewables.
The International Energy Agency stated in its IEA Medium-Term Renewable Energy Market Report 2016, “In the United States, solar PV annual additions doubled, with over 14 GW coming on line in 2016.”
IEA added, “Electricity generation is forecast to triple for solar PV and double for onshore wind over five years, driven by strong policy support and further cost reduction expectations.” China has been the world leader in renewables’ growth, but it’s closely followed by the U.S., where renewables are supported by both federal and state policies.
While utility-scale solar (more than 1 MW) dominates over small-scale solar in terms of power output, both are on the rise. In fact, the U.S. Department of Energy (DOE) will be including small-scale solar in its monthly outlooks from now on.
‘Wind don’t blow, sun don’t shine’
The rise of renewables has both economic and political implications.
The entire power industry waited anxiously this summer for DOE’s release of its electric grid reliability study. Published two months late on Aug. 23, it didn’t really wow any fossil fuel or renewables proponents. It credited natural gas with taking share from coal and nuclear and barely gave a nod to renewables, but it did confirm record levels of penetration in the market of renewables.
As expected environmental groups were offended by the slight to renewables, and natural gas proponents were most displeased that the study didn’t support fuel-neutral electricity market formation.
To some extent, however, it did represent a step back from seemingly stronger DOE support for renewables prior to Rick Perry taking the reins at the agency. DOE issued a study on renewables in 2015 called Revolution…Now. That report concluded, “In the longer term, the potential for solar to eventually provide a much larger share of our electricity portfolio is dramatic: enough solar resource and land area is available for utility-scale PV to generate over 69 times the electricity needs of the nation.”
As renewables have become more prominent, natural gas has been held up as the reliability backup necessary for renewables to work at all. And that was one reason that DOE conducted its reliability report this year.
But the thing is, that argument has less and less power as battery storage and other technology advances emerge as options to back up wind and solar… or so some say. The reliability factor, as well as cost competitiveness, are the two main issues generating quite the heated debate on renewables vs. fossil fuels.
A white paper issued by The Analysis Group in June and funded by the Advanced Energy Economy Institute and the American Wind Energy Association credited both natural gas and renewables for increased reliability in the electric power generation grid.In fact, it’s hard to find a definitive answer to either of these issue questions.
“Advanced energy technologies can and do provide reliability benefits by increasing the diversity of the system. The addition of newer, more technologically advanced and more efficient natural gas and renewable technologies is rendering the power systems in this country more, rather than less, diverse. These newer generating resources are also contributing to the varied reliability services — such frequency and voltage management, ramping and load following capabilities, provision of contingency and replacement reserves, black start capability, and sufficient electricity output to meet demand at all times,” the report said.
The Analysis Group recounted that CAISO and California’s electric utilities are meeting renewable portfolio standards currently through natural gas, but renewable options are expected to increase. “In general, load following is typically accomplished through the dispatch of fast-ramping combustion turbines and natural gas combined cycle (NGCC), although load following can increasingly be met through well-designed and cost-effective storage, optimized energy efficiency programs, demand response, and wind and solar plants,” it said.
Growing adoption of renewables
Ironically, fossil-fuel friendly Texas is an early adopter of wind and solar. In 2017 so far, the state installed 90 MW of solar, a 32% gain from all of 2016. In a presentation at the NCSL Solar Workshop in June, CPS Energy of San Antonio noted it was number one in Texas for installed solar capacity with 446 MW of utility scale solar as of December 2016.
Across the nation, utilities are touting renewables more and more. Some examples:
- Xcel Energy announced July 17 it has developed a ‘low-income solar garden’ for the St. Paul Railroad Island community in Minnesota.
- Florida Power & Light (FPL) has predicted solar will outstrip oil and gas combined as a generation option by 2020. FPL is planning to build eight solar plants, beginning with 600 MW capacity and with capability to upsize to 2,200 MW (2.2 gigawatts). The company stated on its second quarter earnings release, “Furthermore, FPL has secured land for more than 4 gigawatts of solar expansion and is developing an additional 1,600 MW of new solar generating capacity planned for beyond 2018.”
- FPL parent NextEra Energy is the self-proclaimed largest wind and solar generator in the world. The company’s June investor presentation showed it had more wind capacity than all but six nations and more than France, Canada and Brazil.
- In the Mid-Continent region, Arkansas boasts its Clarksville Light and Water is building a solar plant capable of meeting 25% of its needs.
But two Southeast states are bucking the trend to encourage renewables. North Carolina, finding that wind has hidden costs, considered an 18-month moratorium on new wind turbine construction. Tennessee recently enacted a pause on wind farm construction until July 2018 in counties that don’t regulate existing wind farms.
Cost relative to natural gas
Not only is a debate raging on whether renewables achieve reliability to the point where natural gas is irrelevant as a backup, but there is also the question about if or when renewables can be competitive cost-wise to baseload natural gas-fired generation.
A 2014 Brookings Institute study on the cost of renewables found that solar and wind were considerably more expensive than baseload natural gas, but that paper immediately got blowback from renewables advocates. “It requires an investment of approximately $29 million in utility-scale solar capacity to produce the same output with the same reliability as a $1 million investment in gas combined cycle,” it said.
As for wind, the paper stated, “Taking account of the lack of wind reliability, it takes an investment of approximately $10 million in wind plants to produce the same amount of electricity with the same reliability as a $1 million investment in gas combined cycle plants.”
And even those costs (and environmental impacts) could be understated, some have argued. Committee for a Constructive Tomorrow Senior Policy Analyst Paul Driessen wrote on July 1 that many recent studies do not take into account the not-so-hidden costs of super-long transmission lines, the vast amount of land needed and the costs of turning raw materials into wind turbines and solar panels.
“Generating 20% of U.S. electricity with wind power would require up to 185,000 1.5-MW turbines, 19,000 miles of new transmission lines, 18 million acres, and 245 million tons of concrete, steel, copper, fiberglass and rare earths – plus fossil-fuel back-up generators for the 75-80% of the year that winds nationwide are barely blowing and the turbines are not producing electricity,” he wrote. Not to mention Driessen’s citation of an ironic necessity of fossil-fueled tanker voyages to move these raw materials around the globe.
In August, the National Renewables Energy Laboratory, run by DOE, released its third annual Annual Technology Baseline, which compares the costs of a wide variety of power generation options (see report summary here). The Annual Technology Baseline took into account the decrease expected in the renewables production tax credit and investment tax credit through 2020. It then modeled three scenarios, of a high “limit of surprise” in which technological advances or market conditions drive down the cost of solar and/or wind, a “likely or not surprising” scenario with less R&D investment or tech advances and an “as is” scenario.
What is interesting is that natural gas in 2015 generated the lowest calculated “levelized cost of energy” (LCOE) at a minimum $36/MWh and $42/MWh at a maximum. Looking out to 2030 to both dispatchable and non-dispatchable technology, natural gas maintains its cost advantages at $47/Mwh (min.) and $53/MWh for combined-cycle plant, with the exception of $32/MWh for photovoltaic on utility scale in 2030.
Even further out to 2050, photovoltaic utility continues to beat out gas, but so does does commercial photovoltaic at $49/MWh and, more significantly, residential photovoltaic comes in at $53/MWh compared to natural gas at $51/Mwh. (See chart below for outlook in 2050.)
Several white papers released by the University of Texas at Austin Energy Institute in December 2016 also used the LCOE methodology and came to slightly different conclusions than NREL. “Researchers analyzed data for the most competitive sources of new electricity generation. Wind proved to be the lowest-cost option for a broad swath of the country, from the High Plains and Midwest and into Texas. Natural gas prevailed for much of the remainder of the U.S.; nuclear was found to be the lowest-cost option in 400 out of 3,110 counties nationwide,” they said.
Those studies were funded by renewables and fossil fuel companies as well as by environmental groups and utilities and such unlikely bedfellows as Chevron and the Environmental Defense Fund.
But there are other studies that come up with other trends to watch. By 2025, according to analysis by Photon Consulting and IRENA, utility-scale solar projects costs are expected to decline by a stunning 84% from 2009 levels. GTM Research, which presented at a solar workshop for local legislators in June, predicted that solar costs could go as low as $0.75/W in the Southwest by 2022.
Source: University of Texas at Austin Energy Institute
Renewables may have seemed to suffer a setback with the new administration’s focus on bringing back two almost defunct industries, coal and nuclear, but that is not how they are seen by many state and local governments.
In fact, a large swath of the U.S. has renewable portfolio standards which mandate the percentage of electric sales coming from renewables.
Source: National Conference of State Legislatures
While one might expect California, with its 100% renewables goal by 2040, and cities like Portland, Ore. (unofficial motto-Keep Portland Weird-look it up on Wikipedia) to be rah-rah on renewables, many more staid cities and states are jumping on the renewables bandwagon. In May, the Meister Consulting Group released a white paper for municipalities wishing to move towards zero-carbon energy systems. It details how to work with state regulators and politicians as well as electric cooperatives, municipal utilities and investor-owned utilities and regulated and deregulated state environments.
In fact, so hot is the topic that The National Conference of State Legislatures (NCSL) and the National Association of State Energy Officials (NASEO) held two-day Solar Workshop & Lab in early June to help local decision-makers try out solar scenarios in a consequence-free atmosphere, (much like paper trading of equities).
Industry and corporate reaction
When it comes to renewables, tax breaks and subsidies continue to be an issue. API has opposed extending credits to renewables, but many companies in the power industry support them as part of the transition to a lower-carbon future.
In a May report released by the Advanced Energy Economy Institute (a 501c charitable institution whose mission is to raise awareness on renewables) the organization gave a nod to natural gas as part of a shift away from ‘baseload’ coal and nuclear. “The transition to a more diverse resource mix is driven primarily by consistently low natural gas prices, followed in order of significance by flat electricity demand and competition from renewables. With operational techniques and technologies currently available and in widespread use today, the grid can continue to reliably integrate much higher levels of natural gas, variable renewables, and demand-side re-sources,” it said.
The report was quick to note the role played by wind energy in a much-covered Polar Vortex emergency. “During the 2014 Polar Vortex, extreme cold caused onsite coal piles to freeze, power plant control equipment to fail, and natural gas pipelines to become constrained. But grid operators were able to turn to demand-side resources and wind energy to keep the lights on during the emergency,” it said.
On July 18, DOE Secretary Rick Perry asked and answered his own question at a National Press Club press conference: “Would the Department of Energy be a participant in putting regulations into place to protect a particular energy sector? The answer is no.”
Despite a lack of administration support, trade groups for renewables are growing more bold and those for gas, coal or nuclear are understandably nervous. Utilities, meanwhile, have been hedging their bets, with majors like Duke Energy and Dominion not only getting involved in natural gas pipelines but also almost daily announcements of more wind and solar projects. Just on Aug. 29 Duke announced it will build a sixth solar plant in Florida, adding the Hamilton County solar plant would add 74.9 MW of energy to its Florida renewables portfolio.
The aforementioned Analysis Group report detailed utilities’ commitments to emissions reductions through renewables. “Duke Energy is investing $11 billion to reduce carbon emissions 40 percent from 2005 levels by 2030; Dominion Energy plans to reduce the carbon footprint of each of its customers by 25 percent over the next 8 years; DTE Energy announced a plan to reduce carbon emissions by 80 percent by 2050; AEP plans to invest $1.5 billion in renewables in the 2017 through 2019 period; and MidAmerican Energy has committed to a 100-percent renewable energy vision,” it said.
As said before, dueling studies, conflicting reports, state and federal differences on support of renewables make the renewables vs. gas debate as murky as it could get, with no consensus except that renewables are taking share, pushing aside reliability and cost competitiveness concerns in the meantime.
Stay tuned with PointLogic Energy as we continue to monitor the short-term and long-term impacts of renewables penetration in the electric power market.