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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