Monday, October 14, 2013

Barriers To Scaling Distributed Renewable Energy Resources

There are several barriers to scaling Distributed RE resources.  The first and most significant in my experience as a developer, is an over-reliance on Tax Equity Financing to attract capital to projects.  The cost and availability of this capital is unsuited to funding the sub-megawatt projects which will ultimately be the core of a distributed generation platform.  The limited number of tax equity providers control access to this market and they believe that large scale grid connected projects make the best use of the capital while ignoring the tremendous economies of both scale and scope that can be found with an equivalent pipeline of distributed projects.  As the virtual explosion of Solar DG during the time the 1603 program was converted to a cash grant proved, their judgments are incorrect.

Also stymieing market development, is a general MISCONCEPTION by utilities, regulators and customers that RPS’s and distributed energy resources are a net burden to non-participating electric utility customers.  This is a notion that the recently released paper, A REVIEW OF SOLAR PV BENEFIT & COST STUDIES, by the Rocky Mountain Institute (RMI) should dispel.  As a former electric utility executive, I have long been a proponent of generation resources widely distributed within the distribution and sub-transmission system as a cost-effective solution to the problems facing utilities and their customers.  We have now seen objective proof that high penetrations of renewable resources can be adequately managed so long as the resources are in fact widely distributed and in previous writings and testimony I have given examples suggesting that all customers are in fact benefited by RE DG.  This fact is supported by the RMI report as well as the recent NREL report Renewable Electricity Futures Study. 

Coupled with this general lack of understanding of the value of distributed resources is a seriously balkanized policy regime across the country.  Vertically dis-aggregated utilities in 16 States plus DC and participation in organized wholesale markets in only 34 states has created a disincentive for utilities and IPP’s to make investments in these resources.  And not coincidentally, these same players are unwilling or unable to replace the normal 5-8 GW of generation that retire each year in our country.  This artifact of “Deregulation” has removed access to an important source of securitization for these long-lived utility-like assets since most RE developers are unable to access a more reasonably priced bond market.

It was the ability to access that bond market which led to the creation of the large scale interconnected grid and large central station power sources in the first place.  Unless and until we find a way over or around these barriers, we will struggle to get the kind of scale necessary to establish the grid for the next century-one that has renewable distributed generation, widely dispersed energy storage technologies, and a semi-autonomous “smart” self-healing grid!

Unlike those who suggest the elimination of a rate-of-return model for utilities going forward, I advocate we ought to fix the dysfunctionalities so that these long lived projects can be funded more cheaply over the life of the assets. Using that model over the last 50 years we were able to index electric energy prices to GDP growth making the grid the prime mover of our economy.  That the system is broken is unquestioned, that it has no value should be treated with much skepticism.

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Tuesday, October 1, 2013

Revisiting the Electric Energy System : Leveraging Distributed Generation


The current architecture of the North American Electric System has evolved over 130 years. The current reliance on large thermal, central station power generation is an artifact of both technological innovation as well as environmental and economic forces which developed over much of the last century. The original model was much like the current Independent Power Producer (IPP) model in that a developer would identify an attractive thermal and electrical load and develop a generating station using project financing techniques. Over time, the power generation companies expanded to serve surrounding electrical loads and in several successive waves of business aggregations and roll-ups, larger regulated monopoly utilities grew. As society forced the generators out of the city limits for environmental reasons and utilities found it beneficial to interconnect their contiguous loads, our current model evolved. Higher pressure and temperature super critical boilers made central station economics attractive. High voltage materials science gave us the capability to traverse great distances with the large scale interconnected Transmission System to deliver the power to end use customers remote from the source of production. In the last decade, a shift to renewable generation resources has caused much discussion and concern regarding the role of the current “grid” and the utilities that run them. This paper suggests a potential future architecture which includes significant penetration of distributed renewable resources and a continuing reliance on the interconnected grid and the continuing role for the monopoly utility business model.

Where We Are
A resurgence of the renewable or alternative energy business has taken place over the last decade, fueled in large part by state and federal policy mandates, incentives and significant reductions in project costs. Despite the significant reduction in economic activity beginning with the recession of 2008, growth in the renewables sector accelerated particularly in the deployment of wind and solar PV[i].
What was once a niche has grown to become a business concern for utilities and regulators.  The intermittency and low capacity factors of wind and solar PV relative to base loaded thermal power stations has raised operating concerns.  Revenue erosion as customers use less energy and capacity of the grid or actually generate back into the grid creates concerns for the utility business model and non-participating customers are seen as de facto financial support for those installing renewable energy resources.

How We Got Here
Given the high degree of interconnection in the modern electric grids in the US, it is easy to forget that they did not start out that way.  The advent of the modern electric utility business began with Edison’s Pearl Street Station in New York City in 1882.  The steam engine driven dynamos were located in close proximity to the lighting load they served and that model was adopted and refined even as DC generation was replaced by Westinghouse’s Tesla designed AC generators—generation at the load or what we call today DG.
The early business model looked a lot like the Independent Power Production business model of today except that the generation was located in close proximity to the load it intended to serve.  A new plant required a commercially viable host and relied upon project finance with long term off-take agreements for heat and power.  Over time the generation reached out to serve surrounding loads.  The system as we know it today grew organically, one project at a time until the first wave of industry aggregation.  As utilities grew through organic load growth and merger and acquisitions of adjacent systems they benefitted from interconnection with neighboring units and/or utilities.
Over the early part of the 20th Century technological innovation in electric energy generation, transmission and distribution facilitated the location of larger fossil fueled plants remote from the load centers.  The location of these newer plants was driven to larger bodies of cooling water or nearer to their sources of fuel and so the economics favored the evolution of large super critical generating units which of necessity had to be connected to longer and higher voltage transmission lines serving geographically separated load centers.  According to US EIA data, average energy consumption between 1950 and 1973 grew at an average 5 to 7% Compound Annual Growth Rate[ii].  At that rate, new capacity requirements doubled about every decade.  In the post-oil embargo era, energy consumption dropped precipitously to 1.5% CAGR on average.  Units committed to serve the 7% CAGR growth curve, including many over-cost nuclear units, soon became excess capacity that fueled the State and Federal policy moves to vertically disaggregate utilities in the 1980’s and 90’s.  The effects of PURPA and subsequent deregulation of vertically aggregated utilities marked a return to the IPP model for new generation capacity in most of the United States.

Where We Are Going
According to the DESIRE database[iii], since 1983, 38 states and the District of Columbia have adopted Renewable Portfolio Standards, 30 of which have mandatory requirements and 8 of which have voluntary compliance requirements.  In addition, 44 States including DC have established Net Energy Metering (NEM) requirements.  The RPS requirements are a patchwork of policies that vary from jurisdiction to jurisdiction.  Some include all forms of renewables, and 10 of them call for set aside requirements for solar distributed generation.
During this same period of time, Utility Deregulation or Restructuring has occurred in 16 states plus DC vertically disaggregating the Utilities in those jurisdictions.[iv] To further complicate the picture 34 states and DC partially or totally participate in organized wholesale markets for electric power transactions through a Regional Transmission Operator (RTO) or Independent System Operator (ISO)[v]. The upshot of these changes in policy and regulation has been a return to reliance on private investment for new or replacement generation assets in most, but not all of the country.
However, uncertainty over future carbon regulations has all but killed coal fired base load construction.  According to the National Electric Technology Lab report Tracking New Coal-Fired Power Plants, there are less than 1 GW of new coal capacity scheduled in 2013 and 2014 and virtually none out to 2020 after that compared to planned retirements of coal plants on the order of 5-8 GW per year.[vi]  Expected capacity will come from natural gas and renewable resources. In fact, just under half of all new generating capacity added in the US last year was classified as renewable. The bulk of the renewable additions last year were grid connected wind.  However, 2013 projections are for wind additions to begin to fall as solar additions grow and the bulk of those contributions to be distributed solar PV according to the Solar Energy Industry Association (SEIA) report titled U.S. Solar Market Insights: Q1 2013.[vii]
Most of the focus by developers through the 2000’s has been on large scale on-shore wind and both grid connected as well as distributed solar PV.  But, grid connected renewables are just a new version of central station power production.  The problems attendant to central station power sources affect the siting and permitting of these projects as well including long distance transport of the energy to the load centers.  As Thomas Edison knew, and we are rediscovering, there are substantial benefits to be derived by placing new renewable sources closer to the load they serve.

A New, Old Model
Solar PV penetration has grown from virtually nothing in 2000 to about 4 GW at the end of 2011[viii].  An additional 3.3 GW of capacity was installed by the end of 2012 and the projection by SEIA/GTM Research predicts an additional 4.4 GW of solar PV in calendar year 2013[ix].  While much of the previous addition has been large scale grid connected projects, the tide has turned toward smaller, distributed solar PV which is expected to make up the bulk of the additions in coming years.
Clearly, the pace of deployment has been driven by the various state and federal incentives available to developers and owners.  However, the continued growth has most recently been driven by solar PV cost reductions.  Since 2007, PV panel prices have fallen over 70%.  Solar panels can be had in volume at about 70 cents/Watt delivered and continued price pressures are expected into the future.
Total installed costs range in the $2.50-4.00/Watt range and not much work has yet been done in reducing the balance of systems or financing costs for PV systems[x].  However, at current developed costs, assuming a 30 year life and a conservative estimate of future O&M, the US Energy Information Administration calculates the Levelized Cost of Energy (LCOE) to be on the order of 13 cents/kWh[xi].  Actual developments I have experience with have come in around 8 cents/kWh all-in, making the LCOE comparable to pre-recession wholesale power pricing.  Even at the higher, more conservative estimate of US EIA though, that LCOE is below current retail rates in high cost states like New Jersey, New York and California.  So the question must be asked, what is holding back even more rapid deployment of distributed solar generation particularly in high cost of service areas of the country?
The barriers are numerous but the most significant, in my experience are the balkanization of markets, uncertainty of policy with regard to the future of incentives, an over-reliance on tax-equity financing and project finance and a general lack of understanding of the value that distributed generation resources brings to the grid.
The balkanization of markets is the artifact of past policy decisions by both state and federal governments taken at different points in time without an overarching strategy, intended to solve then current problems locally or regionally.  There is not likely to be any immediate change in the status quo given that the Congress is divided on the issue of a national energy strategy.  Absent a crisis, we cannot expect any political change in the near term.
Many of the projects sited in the distribution system, of necessity, will be below 1MW of capacity limited by both space and customer load as well as distribution system design.  To date, the prevailing wisdom has been that projects at this size and below cannot scale because the project finance model creates high cost in both acquisition of capital and legal costs making development economically unattractive.  Given the relatively low penetration rates so far and the raging debate over new financing tools, we have to conclude that there is merit to this argument.
Those familiar with electrical design and construction of these projects point out that there can be economies of both scale and scope created once a substantial pipeline of projects is established.  There are economies that come from both the supply chain as well as learning’s that are achieved from replication and most of those economies are yet to be achieved in this market.  Achievement of these benefits though cannot be realized without a better funding vehicle than is currently in place.
Tax equity financing has undoubtedly been an essential tool in the evolution to date.  The explosion in solar deployments in 2010-2012 was, at least in part the result of the conversion of that incentive into a cash payment during the economic stimulus funding which has now expired.  The limited availability of tax-equity investors and the high cost of capital they command will not allow the current trajectory to continue.
The rapid growth of the electric utility industry in the post-World War II era relied upon the ability of utilities to securitize their capital additions.  Access to stable, predictable, long term sources of funding can have a similar impact on the emergence of the distributed generation market.  But the ability to finance future projects with bond proceeds is not available to all but a very few large developers.  Again, utilities are in a position to access those capital markets at a cost and tenor that can make the deployment of distributed generation grow. After all, these resources are long lived, utility like assets with proven predictable operating characteristics and lives.
Most customers do not want to be generation owners and operators. We know this from utility history as large commercial and industrial consumers sold off or closed down their own generation sources in favor of utility supply during the mid-1900’s.  The capital costs of upgrades and replacements coupled with future fuel price volatility convinced many of them that the utility option made the most sense.  Current history in the solar renewable market place suggests that most hosts prefer to acquire solar energy through a Power Purchase Agreement wherein they get stable predictable long term pricing for electricity without the burdens of upfront capital or future O&M costs.  Again, this suggests that those familiar with owning and operating long lived assets are best positioned to take advantage of this market development phase of growth.
In order for this suggested model to work, two critical ingredients are required.  First, the utility must be convinced of the value proposition in moving to a more distributed generation platform.  Secondly, the customer must be convinced in the long term value proposition in allowing the distributed generation on their site/building.
Much of the current policy debate has focused around elimination of incentives including Net Energy Metering driven largely by the concern over utility revenue erosion as market uptake accelerates.  The fact of the matter is that we are going to see the evolution of renewable distributed resources in the interconnected grid.  The only questions are going to be who wins and who loses?  I posit that there need not be any losers.
It has been suggested by some that the intermittent nature of solar distributed generation will cause operational issues in the interconnected grid at even modest penetration levels.  The National Renewable Energy Laboratory (NREL) report Renewable Electricity Futures Study concluded that: “The central conclusion of the analysis is that renewable electricity generation from technologies that are commercially available today, in combination with a more flexible electric system, is more than adequate to supply 80% of total U.S. electricity generation in 2050 while meeting electricity demand on an hourly basis in every region of the United States.”[xii]
Will there be changes and adaptations required?  Certainly.  But the challenges can be met and do not require unknown or unavailable technology for success.  What about customer objections to utility owned and operated assets?  My 33 years of utility operational and executive management experience suggest that customer dissatisfaction stems from two main sources.  They are price and availability.  Customer dissatisfaction over either or both of these issues generally translates into a call for “competition” or “control”.  The calls for competition in energy production during the rate shock years of the 1970’s led to PURPA and partial deregulation as mentioned before.  During those years and in more recent time’s customer aggregation and municipalization were fuelled by concerns over rapidly increasing rates and uncertainty as to future costs by large industrial and commercial customers.
Availability in the utility industry is generally measured as an average for all customers over a year based on 8760 hours/year.  According to a 2012 report from Lawrence Berkeley National Laboratory, the average outage duration and average frequency of outages for US customers is increasing at a rate of approximately 2%/year.[xiii]  A system designed to achieve 99.97% availability is seen as insufficient given the digital age we live in.  While the report is not conclusive as to the cause of the trend, those in the utility industry know that customer perception of reduced reliability/availability has translated into customer and regulatory pressure for change.
That change, in some minds, requires a massive new investment in capacity which of course works against the primary concern regarding price.  By some estimates, upwards of $1.5 Trillion are needed to bring the system to a level of performance that would satisfy customer demands.  What if, instead of spending money to reinforce the Transmission and Distribution Systems we utilized distributed generation resources and semi-autonomous “smart grid” architecture to isolate an outage cause to the smallest possible set of affected customers?  There is likely to always be multiple single points of failure in the T&D system.  Cars careen out of control and strike poles, contractors dig up underground cables, insulators get contaminated and arc over, customer loads or faults can cause equipment failures upstream.  The ideal is not to try to eliminate them but to limit their effect to the smallest group of customers, make their occurrence detectable, rapidly by-passable and easily repaired and returned to service.
The Rocky Mountain Institute’s Electricity Innovation Lab issued a report summarizing the known body of work on the benefits and cost studies of solar PV.[xiv]  In all, 15 cost/benefit studies undertaken by regulatory bodies, electric utilities, national labs or other organizations were reviewed and assessed as to the range of cost and benefits and study methodology.  Differences in methodology and assumptions make direct comparisons of the studies not useful.
However, there were a number of observations that support a view that benefits are net positive.  There is general agreement that energy cost reduction due to less energy production, energy loss reduction and avoided capacity charges are possible and fairly easily quantified.  Likewise it is understood that distributed generation can provide ancillary services to the transmission and distribution system by way of reactive supply, voltage regulation, frequency response and congestion reduction though there is no general agreement as to the value of such services.  Other posited benefits such as elimination of criteria pollutants, water and land use, carbon reduction, jobs and economic growth, national energy security, enhanced reliability and/or resiliency, and fuel price hedging are still being debated and are not easily monetized.
The net value from the NREL study, which is typically in the middle of the pack among the studies, amounted to about 28 cents per kWh for distributed PV.  Of course there continues to be much debate as to the proper methodologies and assumptions to use in making these calculations but it should be clear that there is sufficient benefit from distributed generation resources that, particularly given that solar PV is competitive with new sources of generation, we simply cannot ignore it.
As the various studies acknowledge, it is going to be difficult to unbundle all of these points of value in order to make a truly fair comparison. But, we do not need to if we assume a utility ownership model.  The fact is that the intrinsic value will be released when the utility makes the decision to install distributed generation instead of installing a fossil fueled central station generator or a new Transmission line to eliminate or reduce congestion.  Assuming a utility must make an investment in new G,T or D capacity to serve its load growth or replace retiring facilities, the customers are benefited when that decision is displaced by distributed generation resources.  Of course, this statement assumes significant market penetration of distributed resources are achieved.
Importantly though, this model can be economically attractive in the current grid architecture.  The adoption of widely distributed generation resources is an essential, but not sufficient condition for the establishment of the grid of the future.  The addition of “smart” inverters and distributed energy storage holds promise to take the grid to its ultimate performance.  Smart inverters, capable of autonomous or semi-autonomous operation already have the ability to provide Volt/Var regulation and islanding capabilities in the event of loss of the grid for outage events.  Coupling this capability with distributed energy storage technology, whether collocated with the distributed solar PV or not, effectively makes those resources “dispatchable”.  The distributed energy storage can be used to mitigate or eliminate any intermittency, provide frequency regulation and demand response services, and load shaping to maximize the value of the solar resources.
Finally, in combination distributed solar PV and distributed energy storage coupled with smart grid enabled equipment can provide for significant reduction in both customer outage frequency and duration. Essentially achieving the long sought after “self-healing” grid.
Achievement of these benefits is by no means assured.  The single largest impediment to releasing the value required in order to make the investments worthwhile rely on the development of a business model that will attract reasonably priced capital to accelerate adoption and penetration to the level where these benefits can be achieved.
I argue that model already exists.  Utility ownership of these distributed resources obviates the need to eliminate balkanized policies, provide new or renewed financial incentives or provide new tools to access capital markets all the while ensuring rapid deployment and long term stable ownership and management of the assets for the benefit of the utility, its customers and ultimately the nation.  
This is not a call for utilities to become large scale EPC contractors or to insource the development process.  Just as utilities do not design or construct large central station generation and contract out a lot of the T&D design and construction work, they can rely on the already available pool of developers and EPC contractors for the essential work.  Rather, this is a call for them, in exchange for all of the benefits enumerated, to bring their financing muscle to the task of funding the build out and to utilize their expertise in the integration of these assets into the grid of the future.
No doubt there are those skeptical of such a model but it is relevant to point out that over the last 130 years, the electric utility industry has created one of the greatest machines known to man in the form of the interconnected grid.  Access to readily available and cheap energy has been the engine of the US economy for at least the last 50 years.  A look at US EIA data over that period reveals that the “real” price of electricity delivered at the end of 2010 was the same as it was in 1960!  Over that period of time, electricity prices were effectively indexed to GDP growth and the data are irrefutable that productivity improvements brought about through electrification of work were the reason.  There is every reason to believe that the next 100 years can achieve at least the same benefit, all the while securing the nation’s economic, energy and environmental security.
Utilizing a Rate Base, Rate of Return approach eliminates many of the barriers presently preventing rapid scaling of renewable distributed resources.  Providing the utility a reasonable return of and earnings on its investment over the asset life in return for using its balance sheet to access cheap capital markets is the model that built the current grid and provided the energy that fueled our economic growth.  Utilization of this model to build renewable generation and eventually storage technologies will allow us to unlock the value of distributed energy resources in a way that benefits all constituencies- Utility, Customer, Regulator-through stable and affordable energy supply, a more resilient and capable grid for this next century, and a safer, cleaner and more secure world.

[i] 2011 Renewable Energy Data Book, US DOE,Energy Efficiency & Renewable Energy (EERE),

[ii] Annual Energy Outlook 2013, Market trends-Electricity, US EIA,

[iii] DESIRE Database, operated by the North Carolina Solar Center at N.C. State University,

[vi] Tracking New Coal-Fired Power Plants January 13, 2012, National Electric Technology Lab,

[vii] Solar Energy Industries Association/GTM Research Solar Industry Data Q1 2013 Report,

[viii] Interstate Renewable Energy Council, 2012 Update & Trends Annual Report, http://www.irecusa./publications

[ix] Solar Energy Industries Association/GTM Research Solar Industry Data Q1 2013 Report,

[x] News Release US DOE Lawrence Berkeley National Lab,

[xi] U.S. Energy Information Administration, Levelized Cost of New Generation Resources in the Annual Energy Outlook 2013,

[xii] Renewable Electricity Futures Study (Entire Report)  National Renewable Energy Laboratory. (2012). Renewable Electricity Futures Study. Hand, M.M.; Baldwin, S.; DeMeo, E.; Reilly, J.M.; Mai, T.; Arent, D.; Porro, G.; Meshek, M.; Sandor, D. eds. 4 vols. NREL/TP-6A20-52409. Golden, CO: National Renewable Energy Laboratory.

[xiii] Joseph Eto, et al., An Examination of Temporal Trends in Electricity Reliability Based on Reports from U.S. Electric Utilities, Lawrence Berkeley National Laboratory

[xiv] A REVIEW OF SOLAR PV BENEFIT & COST STUDIES, Rocky Mountain Institute, Electricity Innovation Lab, 
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Friday, December 14, 2012

NYT Op-Ed: Solar Panels for Every Home


Solar Panels for Every Home

By  and 
Published: December 12, 2012

WE don’t think much about pitch pine poles until storms like Hurricane Sandy litter our landscape with their splintered corpses and arcing power lines. Crews from as far away as California and Quebec have worked feverishly to repair or replace those poles as utility companies rebuild their distribution systems the way they were before.

·         Times Topic: Solar Energy       Opinion Twitter Logo.  Connect With Us on Twitter For Op-Ed, follow@nytopinion and to hear from the editorial page editor, Andrew Rosenthal, follow@andyrNYT.
Residents of New Jersey and New York have lived through three major storms in the past 16 months, suffering through sustained blackouts, closed roads and schools, long gas lines and disrupted lives, all caused by the destruction of our electric system. When our power industry is unable to perform its most basic mission of supplying safe, affordable and reliable power, we need to ask whether it is really sensible to run the 21st century by using an antiquated and vulnerable system of copper wires and wooden poles.
Some of our neighbors have taken matters into their own hands, purchasing portable gas-powered generators in order to give themselves varying degrees of “grid independence." But these dirty, noisy and expensive devices have no value outside of a power failure. And they’re not much help during a failure if gasoline is impossible to procure.
Having spent our careers in and around the power industry, we believe there is a better way to secure grid independence for our homes and businesses. (Disclosure: Mr. Crane’s company, based in Princeton, N.J., generates power from coal, natural gas, and nuclear, wind and solar energy.) Solar photovoltaic technology can significantly reduce our reliance on fossil fuels and our dependence on the grid. Electricity-producing photovoltaic panels installed on houses, on the roofs of warehouses and big box stores and over parking lots can be wired so that they deliver power when the grid fails.
Solar panels have dropped in price by 80 percent in the past five years and can provide electricity at a cost that is at or below the current retail cost of grid power in 20 states, including many of the Northeast states. So why isn’t there more of a push for this clean, affordable, safe and inexhaustible source of electricity?
First, the investor-owned utilities that depend on the existing system for their profits have little economic interest in promoting a technology that empowers customers to generate their own power. Second, state regulatory agencies and local governments impose burdensome permitting and siting requirements that unnecessarily raise installation costs. Today, navigating the regulatory red tape constitutes 25 percent to 30 percent of the total cost of solar installation in the United States, according to data from the National Renewable Energy Laboratory, and, as such, represents a higher percentage of the overall cost than the solar equipment itself.
In Germany, where sensible federal rules have fast-tracked and streamlined the permit process, the costs are considerably lower. It can take as little as eight days to license and install a solar system on a house in Germany. In the United States, depending on your state, the average ranges from 120 to 180 days. More than one million Germans have installed solar panels on their roofs, enough to provide close to 50 percent of the nation’s power, even though Germany averages the same amount of sunlight as Alaska. Australia also has a streamlined permitting process and has solar panels on 10 percent of its homes. Solar photovoltaic power would give America the potential to challenge the utility monopolies, democratize energy generation and transform millions of homes and small businesses into energy generators. Rational, market-based rules could turn every American into an energy entrepreneur. That transition to renewable power could create millions of domestic jobs and power in this country with American resourcefulness, initiative and entrepreneurial energy while taking a substantial bite out of the nation’s emissions of greenhouse gases and other dangerous pollutants.
As we restore crucial infrastructure after the storm, let’s build an electricity delivery system that is more resilient, clean, democratic and reliable than the one that Sandy washed away. We can begin by eliminating the regulatory hurdles impeding solar generation and use incentives like the renewable energy tax credit — which Congress seems poised to eliminate — to balance the subsidies enjoyed by fossil fuel producers.
And as we rebuild the tens of thousands of houses and commercial buildings damaged and destroyed by the storm, let’s incorporate solar power arrays and other clean energy technologies in their designs, and let’s allow them to be wired so they still are generating even when the centralized grid system is down.
We have the technology. The economics makes sense. All we need is the political will.
David Crane is the president of NRG, an energy company. Robert F. Kennedy, Jr. is a senior attorney for the Natural Resources Defense Council and president of Waterkeeper Alliance.
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Monday, July 23, 2012

Installation Photos of Solar Tracking Tree at General Motors

Envision Solar Tracker as viewed from the West

 Envision Solar Tracker - Closeup of column with Electric Vehicle Charging Stations

 Envision Solar Tracker - as viewed from the East

Envision Solar Tracker - as viewed from the North
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Governor Christie Signs the new Solar Bill

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Monday, August 29, 2011

Renewable energy, regulatory framework among energy hearing topics

By Bill Mooney, journalist for a NJ State House news bureau
August 24th, 2011 - 2:41pm

TRENTON – The importance of renewable energy programs, energy efficiency, and infrastructure location were among the topics at today’s hearing into Gov. Chris Christie’s proposed Energy Master Plan.

The final planned hearing – actually a continuation of an earlier hearing – featured a schedule of more than two dozen registered witnesses supporting, criticizing and analyzing aspects of the governor’s draft energy master plan.

Martin Kushler, a senior fellow with the Washington, D.C.-based American Council for an Energy Efficient Economy, raised a cautionary flag regarding the plan’s proposal to move from a societal benefits/certificates philosophy to a self-sustaining revolving loan fund.

He warned that their national research has shown that such loan programs are plagued by low participation, benefit a “niche’’ customer, and “decimate’’ energy efficiency.

“The cleanest kilowatt hour is one you never have to generate,’’ he told the BPU committee, and said he fears this draft plan will cost New Jersey energy efficiency rather than promote it.

Steve Morgan, CEO of N.J.-based solar-power developer American Clean Energy, said a good solar-energy policy with a sound renewable energy certificates program “has the ability to take the operational grid to the next level of reliability.’’

But for the recession, New Jersey’s already solid solar energy achievements would have advanced even further, he said, adding he is concerned the governor’s plan does not understand the importance of a solar energy set-aside program.

He said a critical issue concerns where critical energy infrastructures, such as power plants, will be located, and he urged some state agency be given authority over siting issues and the power to override local control. Zoning boards can be overridden, he said, but it is a costly and contentious process rarely invoked.

“Market forces won’t work until siting concerns are met,’’ he said.

Bruce Burcat, executive director of wind-energy supporter the Mid-Atlantic Renewable Energy Coalition, said the plan fails to consider the potential benefits of regional onshore wind energy.

And Chris Tomasini, vice president for business development at Ice Energy, said their company, which deals in the field of energy storage to improve grid load factors and enhance the value and efficiency of intermittent sources such as wind and solar, would like to shift manufacturing into New Jersey from New York.

He said their company sees some fertile ground in New Jersey for expanding and helping to relieve congestion and would like to see a regulatory framework put in place.

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Monday, August 1, 2011

Commentary to State Leadership on Latest Energy Master Plan

August 1, 2011

Comments of American Clean Energy, LLC
Re: The New Jersey Energy Master Plan Draft 2011
Written and presented by Stephen E. Morgan

We commend the Christie Administration and the Board of Public Utilities for taking up the timely review and amendment of the New Jersey Energy Master Plan.  As the plan itself points out in several ways, we are at a critical cross road for energy supply security, cost effectiveness and reliability.  Much has changed in the economic landscape since the original plan was published in 2008 including significant reductions in both electric energy consumption and demand.  We are pleased to note that the Administration and the Board recognize that these short term reductions will not be permanent and in fact, once economic recovery begins we should expect a return to pre-recession trends made all the more serious by a looming generation capacity shortage that will attend that recovery.

American Clean Energy, LLC is a New Jersey based solar PV developer. We are focused on the development of net-metered solar projects for commercial, industrial and public sector customers.  We are in this business because we believe that Solar Distributed Generation represents one of the most viable forms of distributed generation which, when integrated with the interconnected grid, and eventually coupled with widely distributed energy storage technologies has the ability to take the operation of the grid to the next level of reliability and make it viable for the coming century.

Our belief is founded on over three decades of experience in the construction, maintenance and operation of the electric T&D infrastructure in this country and state.  The electrification of this country which has occurred over the last century has largely been responsible for fueling our economic growth.  In fact, according to US EIA data, the average Real price of electricity at the end of 2010 was the same as it was in 1960—for 50 years our electric energy prices have been indexed to GDP growth!

The promise of distributed generation technologies is not the replacement of the large scale interconnected T&D system in this country rather the enhancement of its performance.  Once energy storage technologies mature and are coupled with widely dispersed forms of alternative energy production, it is our belief that consumers will in fact see improved reliability, cost effective and secure sources of energy well into the future.  Distributed generation technologies are necessary but not sufficient to bring us to the next level of performance.  Nor is it likely that widely dispersed renewable energy generation will supplant or replace central station generation that relies on fossil and nuclear fuel cycles anytime soon.  However, as we move forward into this next century of electric energy production and transportation, there are real issues regarding security, cost, siting and societal benefits that favor the adoption of widely dispersed renewable generation.

American Clean Energy has a number of comments which are offered in the spirit of strengthening the Energy Master Plan.  We appreciate the opportunity to make those comments and have input into the process.  We have keyed our comments to the draft EMP goal to which they pertain.  Wherever possible, we have cited sources of data or analysis that we believe helps support our position on a particular item or point.

EMP Goal 1:  Drive down the cost of energy for all customers – New Jersey’s energy prices are among the highest in the nation. For New Jersey’s economy to grow energy costs must be comparable to costs throughout the region; ideally these costs should be much closer to U.S. averages.  

The implications of this statement are that NJ has the highest cost of energy in the US and as a result it is not competitive. Here are the facts.  According to US EIA data, at the end of 2009 the aggregate average retail price of energy in NJ was 14.52 cents per kWh ranking no 7 in the US.  New York ranked no.3 at 15.52 c/kWh and PA was 18th at 9.60 c/kWh.  But this does not tell the whole story.  Pennsylvania has just finally removed the retail caps that they placed upon the EDCs following deregulation in the late 90’s.  For over a decade, Pennsylvania maintained artificially low prices through regulatory initiatives.  Despite an avowed desire to let markets regulate energy prices, Pennsylvania intervened to prevent the market price from rising after they required the vertical disaggregation of the utilities in the state.  The expiration of these caps has come at a time when the wholesale power market price of energy in PJM has crashed as a result of the economic recession.  Once that recession is over and economic activity rebounds, we will experience a capacity shortage that surely will drive wholesale prices higher.  The question then will be what regulatory strategies will Pennsylvania have at its disposal?

Chart 1

In the case of NJ pricing, there was a clear decrease in pricing for all classes of customers as a result of the passage and enactment of EDECA.  That price decrease sustained prices below historic levels for most of the decade.  As a matter of fact, as measured in 2009 dollars-the dashed lines in the chart below- our prices for commercial customers did not increase above the prior level until 2007.  A similar trend exists for the other classes of customers.  That those prices increased is an artifact of the underlying cost of energy production.  The increase in BGS auction supply in 2006 through 2008 as a direct function of market price increases has been largely responsible for those increases and those energy price increases are more attributable to congestion and capacity constraints in our zone.

That trend has reversed during the recession as excess capacity in the generation market exists in PJM, indeed much of the country.   This needs to be seen as proof that markets work not the contrary.  We can’t aspire to open markets when it drives prices down and then close them as market forces drive them up.  We need to take a longer view of the problem.  It is not my aim to defend the deregulation of the generation market but now that it is deregulated, it will work as it is designed to.  When all of the tinkering and artificial controls are removed, prices will settle where needed to assure that new capacity will be built as older units are retired and load grows.  In that scenario, eastern PA should look a lot more like NJ in terms of energy pricing and that artificially imposed disparity will remove any incentive to move across the river.

Chart 2

This data simply does not support the thesis that the state and its consumers are at a significant disadvantage to the rest of the region simply due to energy prices.  But for the artificial cap on rates in PA, the price disparity would not exist and NY pricing always has been significantly higher than NJ for all classes except Industrial customers.  Industrial customers as a total portion of load share are less than 11% and Industrial rates, as typical, are well below both commercial and residential rates in New Jersey.

No one would dispute that consumers desire lower prices in all commodity purchases, including energy.  However, this relentless pursuit of low energy prices has led to a perverse outcome.  Comparing the typical residential consumer in New Jersey to those in Pennsylvania and New York demonstrates the case.  The average consumption in kWh in PA is 21% higher than the consumption in New Jersey and not coincidentally, the rate per kWh in PA is 18%below that in New Jersey.  For New York residents, the opposite is the case.  They pay 19 % more per kWh and use 17% less on average. A look at International energy Agency data shows the similar consumption vs. price trends when comparing the US as a whole to Western European countries.  As an economy, the US average electricity rate is about 1/3 to ½ that of Western European nations and our consumption per capita is two to three times higher.  This is not a coincidence. There is a direct correlation between price and consumption.  In the US and in NJ we use more because it is relatively cheap.  And, considering the US EIA data, in real prices it has been getting cheaper for most of the last two decades.

This is not an argument to increase price or to argue against the state’s aspiration.  Rather it is simply a reminder that some of our goals are in direct competition with each other.  We cannot expect to both reduce price and voluntarily reduce demand and consumption.  Anyone who believes otherwise is ill informed at best.  Unconstrained energy consumption and peak demand are the significant drivers of capacity expansion expenditures and the related ongoing O&M expense associated with the facilities built.  Whether we are talking Generation, Transmission or Distribution, increases in consumption and demand must necessarily result in increased cost of energy and delivery.  To think otherwise is to ignore the obvious facts.

Setting a goal to artificially reduce costs does not further any of the state’s other EMP goals and in fact it works against them.  For example, lowering price, or alternatively holding it below the true costs results in increased energy consumption and demand that drives the need for increased G,T and D investments. Likewise, it holds off the adoption of alternative sources of energy and should be seen as a direct subsidy of traditional energy.   Conversely, increasing the efficient use of the energy consumed accomplishes the same amount of work without requiring any incremental increase in CapEx.or  O&M.

Rather than setting a goal to lower the price of electric energy, the EMP should strive to seek a balance that stabilizes the price of energy and returns to a point where energy pricing is indexed to real growth.  In that way we offer the opportunity for new technology and processes to develop in competition with the tried and true solutions while providing energy and delivery services at pricing customers can afford without incenting the perversity of overconsumption due to artificially low prices.

EMP Goal 2:  Promote a diverse portfolio of new, clean, in-State generation – Developing efficient in-State generation while leveraging New Jersey’s infrastructure will lessen dependence on imported oil, protect the State’s environment, help grow the State’s economy, and lower energy rates. Energy diversity is essential. Concentrating New Jersey’s energy future on any one form of energy is ill-advised. Picking “winners” and “losers” should not be the State of New Jersey’s job, but formulating incentives to foster the entry of both conventional and renewable technologies is required when market based incentives are insufficient 
We agree that the broadest possible energy and fuel mix will be essential to our energy security and reliability going forward.  We also agree that the State should not be in the business to pick winners or losers.  The passage of EDECA was intended to put all traditional sources of generation directly under market control. That this market has not yet delivered the pricing signals and certainty necessary to entice investors to build new fossil fired units is a complex problem to be solved.  It is clear however that part of that uncertainty is due to environmental regulations proposed or in the offing at the Federal level. Additionally, a partial reason for high marginal cost of electricity generation is the reliance on older less efficient units and gas fired generation that runs for only a few hours per year to satisfy the peak demand.  Finally, the Transmission congestion that affects the NJ region is exacerbated by our native peak demands as well as through flows to other states.

New Jersey ratepayers have experience paying for non-optimal generation solutions.  For years they have been paying artificially high Non-Utility Generation (NUG) charges that were mandated under PURPA.  We have deregulated the traditional energy generation business and determined to let the market forces work to set price and fix capacity.  The market is not doing so for a reason-or a series of reasons.  We would be best served by working to resolve those underlying problems and letting the PJM capacity market determine the solution.

Just as history with NUG contracts should guide us, our previous experience with Natural Gas supplies in the 70’s, 80’s and 90’s should temper our belief in an abundant and cheap supply of natural gas well into the future.  Perhaps, there will be an ample supply of cheap gas but we should not bank on it.  The country experienced gas shutoffs and moratoriums on new connections in the 70’s catching everyone by surprise.  In the 80’s and 90’s it became the fuel of choice when the electric generation capacity was in short supply amid speculation that there would be long term access to stable and cheap supplies.  Those expectations in every case were not realized as the price of Natural gas virtually double or tripled in a matter of months.

We need to understand that the state and the nation no longer control access to the world’s fossil fuel resources.  Natural Gas is a natural substitute for coal and oil and as the developing nations’ appetites drive those commodities up the price of natural gas will follow.  Barring some federal proscription on coal, and natural gas exports, having those commodities in great supply in our backyard is no assurance of access to that supply at a low cost in the future.

This is not to say that we should not enjoy the benefits of new generation high efficiency combined cycle combustion turbine generation.  It is simply a reminder that the future proves very difficult to predict and at least three of the last four decades we have seen those hopes dashed by different market realities.

If the market is willing to develop these sources of generation then it should be driven, at least regionally by the PJM capacity rules.

On the other hand, the issues regarding siting of critical infrastructure facilities necessary to relieve congestion in the New Jersey Zone are well within the ability of the state to manage.  Rather than focus attention on what facilities need to be built, we should focus on streamlining the siting approval process itself.  While the BPU has the authority to over-rule local zoning and planning bodies it proves to be a lengthy, contentious and costly proposition.  We believe that the State should overhaul this process by creating a State level approval authority which replaces local zoning and planning authorities for critical Generation, Transmission and Distribution infrastructure projects. Following the Administration’s successful lead in the area of economic development, the state should convene a body composed of the heads of the major environmental and developmental authorities already in place such as Pinelands and Highlands Commissions, EPA and chaired by the BPU that alone is vested with the decision making authority for the siting and permitting of these facilities.

With regard to the siting of renewable energy facilities, particularly solar distributed generation on a net metered basis there is opportunity to help speed up that process as well.  The determination that solar is an inherently beneficial use has certainly helped eliminate some of the bottle necks and local opposition.  However, as the market starts to experience more penetration, we should expect more local opposition to projects that can stifle deployment or at least impede it.  There is an opportunity to standardize the planning, zoning and permitting process across the state and remove personal biases and prejudices from the approval process for all alternative energy projects.

EMP Goal 3:  Reward energy efficiency and energy conservation and reduce peak demand – The best way to lower individual energy bills and collective energy rates is to use less energy. Reducing energy costs through conservation, energy efficiency, and demand response programs lowers the cost of doing business in the State, enhances economic development, and advances the State’s environmental goals. 
We agree that insufficient attention has been paid to energy efficiency in the state and the nation as a whole.  The problem here is not the rate of growth in consumption since that rate has been modest since the oil embargos of the 70’s-less than 2% Compound Annual Growth Rate according to US EIA data.  The CAGR in consumption in NJ has likewise been restrained and in fact since the recession has fallen back to 2000 levels as shown in chart 3 below.  The problem is that it is simply wasted energy and that waste is a burden transferred to consumers around the world not just New Jersey and it has ramifications well beyond just price and reliability of supply.

Chart 3

The correlation between price and consumption has been discussed above and will not be repeated here other than to say it is a real issue demanding real attention.

We have decades of attempts and failures in this state and others to incent people to conserve energy.  There are more straightforward solutions than creating an energy efficiency utility that do not involve draconian rate changes but that do tie high consumption and demand to prices that make alternative choices economically attractive.

Apart from price of energy, there are other factors that drive the inefficient use of energy.  First, a typical building in the US has an economic life of 75 years on average.  The building developers, both residential and commercial, have a vested interest in keeping their investment costs low.  We all know that energy efficiency is most economically built into the structure from the outset.  They are much harder and more expensive to retrofit into a building after the fact.  Building codes must require new or major retrofit construction to bring the building envelope up to Energy Star ratings or better.  By making the code changes non-by passable, there will not be disparity created in the market and that should satisfy builder and developer concerns as to fair market competition for their buildings.  While it seems impractical to solve this problem retroactively, we can start now to ensure the problem does not continue to propagate into the future.

In the case of industrial, commercial and residential equipment, appliances and machinery,  the focus of purchasers is typically on first cost not life-cycle cost.  This trend is as difficult to overcome in the business place as it is in the home where capital expenditures are rarely viewed in terms of their effect on ongoing cost of operating the equipment or if they are, the short term need to conserve capital today outweighs the incremental future O&M impacts.  The solution to this problem is not to incent the purchase of higher efficiency equipment through direct grants or rebates.  Rather the solution is to cause the price of low efficiency appliances or equipment to rise through an energy efficiency tax levied on their manufacturer/distributor.  Assuming the baseline to be Energy Star rating, the market will eventually bring us more quickly to that level for all future purchases and do so in a way that does not waste resources incenting people to do what they already intend to do in their purchasing decision.  The consumer still will have freedom to select from an open market but the choice on a first cost basis will be more directly comparable and should lead to election of the more efficient appliance or piece of equipment.

Demand Reduction is a much thornier problem from an operational point of view.  Since the capacity has to be in place before the peak demand exists, there are tremendously uneconomic decisions being made every day in the Generation, Transmission and Distribution businesses around this country.  Contrasted to energy consumption that has grown for the last 35 years at less than 2%, peak demand has grown three to four times as fast.  At a 7% CAGR we need to double the G,T, and D infrastructure every 10 years or witness major adverse impacts on system reliability. 

 Enormous capital expenditure is made to build delivery capacity that is used very few hours of the year.  The kW in capacity that is built is paid for by the kWh delivered over those hours.  The simple fact is that those facilities are really never paid for but they must be placed in service before they are ever required.  The current approach has been to pay consumers to curtail demand with limited success.  As the economic recession has amply shown us, cost avoidance is a much stronger motivator for consumer behavior than we are led to believe.  However, as we can also see in comparing Chart 3 with chart 4, though total energy throughput has continued to fall from the peak in 2006, Peak demand is on the rebound.  In fact, a recent PJM announcement indicates that the total system peak demand surpassed the all-time record of 2006 this past week. Fewer kWh’s are being expected to pay for increasing peak kW.

There are ways to set rates that do not disadvantage smaller, poorer consumers using nominal amounts of energy with reasonable demands while causing larger consumers of energy or those with higher demands to modify their consumption behaviors. Those methods do not require complicated metering initiatives, don’t require an energy efficiency utility and don’t require us to reward an inefficient building or process with incentive payments to curtail energy or demand.

We believe that many of these structural issues can best be addressed by focusing on the following areas:

Improve building codes for new or major retrofits to bring the building up to Energy Star requirements
  • Replace appliance rebates with efficiency tax levied on appliances and equipment with energy efficiency ratings below Energy Star baseline level
  • Adjust utility tariffs to ensure that large commercial and industrial customers pay an appropriate penalty for Power Factor correction required by the utility.  Phase in a requirement for high usage/high demand customers to achieve a minimum power factor of 98%.
  • Implement increasing tail block pricing structures for high consumption/demand customers that create a real incentive for consumers to alter consumption patterns similar to the JCP&L pilot that was begun but abandoned in 2008.
Chart 4
EMP Goal 4: Capitalize on emerging technologies for transportation and power production – New Jersey should continue to encourage the creation and expansion of clean energy solutions, while taking full advantage of New Jersey’s vast energy and intellectual infrastructure to support these technologies.   

We are pleased that the Administration and the Board continue to support the need to develop clean energy solutions.  Given that transportation fuels account for between 40 and 60% of the total energy consumed-depending on which source you look at-there is obviously an opportunity to achieve environmental and societal aspirations through the transformation of the transportation infrastructure.

There are a number of Federal and market driven initiatives underway that are likely to result in more electrification of the transportation sector.  Obviously the Board needs to carefully follow these trends and ensure that major market shifts don’t result in increased demand on the electrical system beyond the economic capacity to carry it.  There may be an opportunity to increase the economic utilization of the T&D system by shifting EV charging to off peak times of the day and week.  This area needs careful monitoring to ensure that an otherwise beneficial change in the market place doesn’t drive unintended costs and consequences in the interconnected electrical system.

EMP Goal 5:  Maintain support for the renewable energy portfolio standard of 22.5% of energy from renewable sources by 2021– New Jersey remains committed to meeting the legislated targets for renewable energy production. To achieve these targets, New Jersey must utilize flexible and cost-effective mechanisms that exploit the State’s indigenous renewable resources.  

We are pleased that the Administration and the Board continue to support the Renewable Energy Portfolio Standard as an essential ingredient to the future of a safe, reliable and reasonably priced energy source that also accomplishes the state’s economic development, environmental and energy security aspirations.  We also agree that all policy decisions need to be well grounded in the cost and benefits as well as have a good understanding of likely consequences-both intended and not intended.

However, the suggestion that the cost of the SREC program is too rich or that non-participants are unfairly subsidizing participants is patently wrong.  The solar set aside under SEAFCA amounts to a little over 2,500 GWh of energy to be supplied by solar by the year 2020.  That translates into a requirement to have installed, and operational by the end of 2020 of about 2.2GW of solar capacity.  To date about 330 MW have been installed.  That amounts to only 13% of the requirement and really only about half of that amount was installed under the SREC program.  We have only 9 years left to achieve the solar generation target for 2020.  If the program were too rich, we would be much further along that development curve. 

As to the argument that the SREC market has closely followed the SACP declination schedule, we can only point out the obvious.  The value of the SREC was and is intended to be a function of demand and supply.  As long as the solar development lagged (precisely because the program was not rich enough to incent developers to develop or investors to invest) the market drove the price toward the ceiling.  This is exactly what one would expect.  As recent events have demonstrated, SREC prices fall dramatically when there is an oversupply of SRECs expected.  Now that it seems the energy year 2012 will more than fill the required quota, prices have plunged to about 30 to 40% of the previous spot market price.  Again, clear objective proof that this market-based incentive can and does work.  As I suspect we will shortly see, now that SREC prices have crashed, a number of marginal projects that were predicated upon long term high SREC prices will be delayed or not built.  That may result in the requirements for 2012 not being fully met leading to a dramatic pop-up in SREC prices. We should expect the value of SRECs to be volatile going forward and to oscillate up and down around some trend line below the SACP declination schedule.

The EMP draft does address the one existing flaw in this design in the extension of the SACP declination schedule.  The uncertainty around what that schedule would look like should now become settled.  Although the jury is still out as to whether or not there will be sufficient investor interest in developing the total solar generation required at the stepped down level, at least that uncertainty has been resolved and now we can work on finding ways to attract necessary capital to viable projects.

I want to address one other point that seems to drive a belief that solar energy generation is too expensive to be a viable form of energy production.  The comparison that is most often made is the cost per Watt of installed capacity as between solar generation and fossil generation.  I see it from a totally different perspective, largely from my utility operational and engineering experiences.   The true value of distributed generation, in this case solar DG, is not its ability to offset fossil generation.  Rather it is the ability to rapidly deploy a widely distributed generation asset that provides energy to host consumers while simultaneously reducing the cost of G,T and D components for all other consumers.

Everyone clearly understands that the solar generation profile closely mirrors the peak load demand profile since most of our peak demand is air conditioning load driven and the peak solar insolence leads peak electrical load by about 2 hours each day.  But apart from displacing high marginal cost generation (largely gas fired as noted in the EMP) solar DG has the ability to provide immediate benefits in the form of loss reduction, voltage regulation, VAR support and improved reliability.  While I believe from my operating experience that these are significant, they are hard to quantify and to my knowledge no one has done the work necessary to attempt that quantification since it is very much a function of the circuit topology and the electrical load as well as DG penetration.  Whatever these benefits are, they are not trivial and they inure to all consumers even those non-participating consumers.

An even larger potential benefit can be derived from solar DG.  As was mentioned previously, utilities build delivery capacity to serve peak demand for a few hours of the year.  From my experience, the top 10% of the demand exists for only about 1% of the total hours of the year.  That means that the capital investment made to support those 80 hours per year are sitting idle for the other 8,680 hours of the year.  In fact the load factor for the EDC’s in New Jersey ranges from a low of 44% to a high of 54% when comparing peak to minimum demand by utility.  It only improves to at best 60% if we look at the numbers prior to the recession.

No other business would make a capital investment in equipment that was idle 40 to 50% of the time.  To date though the electric utility industry has had no choice but to make that investment or face the totally undesirable position of watching the system cascade into blackout. Distributed generation, particularly solar distributed generation, promises to allow us to eventually increase that load factor by avoiding future high capital investments to serve just a few hours of peak demand per year.  If that benefit can be realized, it flows directly to every consumer whether they participate in solar DG or not.

Likewise, the elimination of the need to generate some portion of the energy during peak periods of time when typically high marginal cost units are running should have an overall positive impact on reducing BGS prices benefitting all consumers.

Part of the problem here is that we are doing an apples to oranges comparison between generation sources.  We need to understand the value to the interconnected T&D system that solar DG represents and do a more equitable comparison.  As chart 5 indicates, New Jersey’s electric utilities have about $21 B in Plant In Service.  The replacement cost for those facilities if built today is several times higher than the original cost.  The depreciated book cost is just under $15 B and growing.

I cannot credibly  argue how much of that investment is required to serve only peak load hours but again, relying on my utility experience I can say that I believe it is significantly more than the 10% represented by the peak.  More importantly what this chart points out is the perpetual nature of this investment and one that necessarily grows over time.  We do not have a onetime capital expenditure in utility plant in service that can be compared to a onetime capital expense for a solar DG investment.  Rather we have investments in perpetuity compared to (essentially) a onetime investment in solar.  Of course this is the magic value of regulatory compact that has allowed the industry to build the machine that has fueled our economy while keeping prices artificially low for consumers. 

Chart 5

Chart 6 shows the cost of those investments versus the peak demand being satisfied.  The aggregate cost is just under $1,100 per kW of load to make sure the system keeps on working even under heavy peak conditions.  With solar prices coming in around $3.50 to $4.50/Watt solar is thought to be 3 to 4 times the equivalent of the utility T&D investment.  That is only part of the story however.  T&D capacity exists only to deliver kWh not kW and any investment in those facilities to prepare for and satisfy peak demand is an investment that sits idle for 99% of the year.

Chart 6

Chart 7

In an attempt to put these two investments on a more comparable basis let’s try a thought experiment by comparing the traditional T&D solution as a onetime cost compared to the equivalent solar onetime cost.  Obviously, that is not the way the regulatory framework treats these costs but it does allow us to rate these dissimilar investments directly.

Assume that the highest 10% of the peak delivers 20% of the annual energy for this scenario.  The 2010 system peak was about 20 GW. Ten percent of that peak is about 2 GW. Using the historical T&D investment requirement of $1,100 per kW for that 2 GW translates into a total cost of $2.2 B to deliver 20% of the 66 M MWh delivered last year.  That means the traditional investment would cost about 16.6 cents per kilowatt hour delivered during that peak period of time.  Obviously this calculation is a function of how much energy is actually delivered during that 1% of hours that the 10% peak exists.  There is insufficient public information for me to determine it precisely but we know anecdotally that consumer bills typically increase and an assumption that 20% of the energy delivered during that period would translate into a bill roughly 2.5 times the nominal bill and that seems to be a conservative high assumption.  Anything less would make the equivalent price just that much higher.

The solar RPS requirement for 2020 is 2.5 GWH which requires about 2.2 GW to generate.  Subtracting out the 330 MW already in place and we are amazing close to the 2 GW peak so let’s assume we’re building 2 GW of solar DG.  That solar DG can be built for between 3.5 and 4.50 per watt today and prices are declining steadily but we’ll use the higher number to be conservative.  Construction of 2 GW of solar at $4.50/W requires an investment of $9 B.  Most people look at this and conclude that the solar is therefore 4 times more expensive than traditional solutions.

What is forgotten in that conclusion is that the solar solution is not just a delivery vehicle like the T&D system; it is a generator of electric energy. That 2 GW of solar DG reduces the peak on the system by displacing the kWh that would otherwise flow through at peak creating the potential of $2.2B in avoided T&D costs as well as $ 792 M in the avoidance of the energy that does not have to be provided into the system to satisfy that peak. Finally, the annual energy produced by the solar DG provides direct savings to the host of between 5 c per kWh for a PPA customer to the fully loaded cost of 14.5 c per kWh for those who own their own system.  That translates into an additional value of between $ 115 M and $ 333 M.

A total of between $ 3.1 B to $ 3.3 B in value is created by solving the problem in this manner. That value ultimately finds its way into the pockets of all consumers to varying degrees. Of course the solar solution has a societal cost in the form of SRECs that have to be covered.

The 2 GW of solar DG will generate 2,300,000 SRECs per year until that program runs its course.  At current market prices of $250/SREC we’d expect to pay $575 M which would represent just under a penny per kWh -0.9 cents actually that would be paid for by the remaining kWh delivered through the T&D system, resulting in a net benefit to consumers of $2.5 B.

So, which investment really makes the most sense?  The traditional T&D solution will continue to increase the book value of Utility Plant In Service-a cost that ultimately borne by rate payers.  It is a delivery capacity solution only and it sits idle in economic terms for 99% of the year and has an equivalent cost per kWh delivered of almost 17 cents.  The solar investment works every  hour the sun shines.  It solves the peak dilemma while delivering value every day on average 5 hours per day for a onetime investment and costs the equivalent of 13 cents per kWh delivered.

Now, to be fair there are issues not factored into the discussion.  For example what happens due to intermittency caused by clouds on a peak load day?  Some of this value is lost but provided the generation is widely dispersed the issue becomes minimal since it will not all go off- line simultaneously.  Is 2 GW enough to make an impact that will provide sufficient penetration to allow the load factor to increase by eliminating utility capex investments in the future?  I am not certain and I believe more work is required here but the point is the promise exists; we simply need to figure out how to tap into it.

Solar Distributed Generation can provide the following benefits to all consumers:

  • Improve reliability during peak load periods 
  • Improved voltage regulation on heavily loaded circuits
  • Improved VAR control on heavily loaded circuits 
  • Reduce future capital investments in utility plant in service necessary to serve only peak demand 
  • Improve the economic efficiency of the T&D infrastructure investments on non-peak load days
  • Reduce future energy costs by avoiding or delaying Generation capital expenditures 
  • Establish the necessary conditions to enable widely deployed energy storage once that technology matures further enhancing the benefits listed above 

These benefits are derived while the host customer saves money on energy, reduces their carbon foot print and helps the nation secure its energy independence. So quite to the contrary of the bias expressed by the Energy Master Plan, sufficient potential benefits are available to all consumers and the state that we need to continue pursuing this option in an aggressive way.

We again want to commend the Christie Administration and the Board of Public Utilities for taking up the timely review and amendment of the New Jersey Energy Master Plan and for soliciting input from the stakeholders.  Questions or inquiries regarding our comments can be addressed to:

Stephen E. Morgan
CEO, American Clean Energy, LLC
250 Pehle Ave, Plaza 2 - Suite 200
Saddle Brook, NJ 07663
[email protected]
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