Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

NY State's Unicorn Problem

by nb41 Sat Oct 5th, 2013 at 05:22:59 PM EST

from dKos

Normally, renewable energy is really popular - right up there with cute kitten and puppy pictures. For example, here is a survey done about offshore wind energy in New Jersey: (from Sierra Club). Unfortunately, in this survey nobody ever asked if people in NJ were willing to pay for the electricity made in this manner..... and we know that talk can be really cheap....

Based on current events, it is easy to conclude that renewable energy in NY State is only as popular as it is cheap. For example, NYPA hydropower is really popular, as the actual cost to make it is less than 0.2 c/kw-hr, and it tends to retail at around 2.5 c/kw-hr. Of course, most people have NO ideal how much it actually does cost to produce electricity in various ways, and they tend to be pretty oblivious as to what it is actually priced at. And the fact that electricity varies in price by the hour and by day of the year is not very helpful in that regard, or that future predictions of an exact price are just plain impossible using the impossibly convoluted pricing system for electricity in NY State. For the curious, here is where you find the bulk electricity price in various locations  within NY (the price paid to generators of electricity for any given hour, though you actually have to pick the hour/day/month/year - and this does not include connection or transmission expenses/profits).

Here is the daily pricing that was bid in for October 1, 2013 for NY State. To get the prices in the Buffalo, NY region (NYISO WEST, alias Zone A), see this link. For the whole day, prices averaged $30.64/MW-hr (3.064 c/kw-hr), ranging from 2.03 c/kw-hr (2am) to 4.28 c/kw-hr (9 pm). It was a good day to be a consumer, and a bad day to be a generator, as almost all day, generation facility owners lost money, or barely broke even. In some cases, owners get paid money for the ABILITY to generate power upon demand, while the wind farm owners in Lackawanna cannot get those extra funds (ICAP and UCAP payments), so that could help minimize the money pain for some. But that gets complicated.

Now, electricity generation tends not to be a charity system, and at minimum, prices have to cover costs, or eventually the owners will have to stop losing money and stop generating/scrap the business and scrap the generation facility. In fact, if they do not make a sufficient profit from their assets, they will sell off/shut down/scrap the business...... But since NYPA (New York Power Authority, a NY State owned power generation "company") can make money at just about ANY price, well, that's not a big deal for them.... And besides, NYPA is not supposed to make a profit, though it actually does even though their spokespersons will go through the most convoluted strings of logic and iffy language manipulation to insist that no profits are made by NYPA. Those statements put the best satire by Stephen Colbert or Jon Stewart to shame, and those dudes are pro's at tweeking the language for all it is worth..... Anyway, just in WNY (NYISO Zone A) last year, bulk sales were close to $472 million in 2012 for the region covering around 1.5 million people.

In fact, there is little evidence that MOST people care how their electricity is made in NY. So far in this state, about 90,000 people have chosen to purchase "green power" out of about 7 million residential customers (essentially no commercial/industrial customers have picked this option and VERY few municipalities or state governmental entities have done this, either). The "green power" buying option has been in operation for around a decade, and for the wind power option, this costs around 2.5 c/kw-hr. This would cost the average NY residential customer $13.75/month, but if you are not wasteful with your electricity, it should cost around $5/month. So, lets estimate the average green power buyer spends an extra $10/month to "vote with their dollars" for renewable energy and against pollution sourced electricity. That has been done by 1.2% of NY State residential customers after a decade. Or, to put it another way, 98.8% of NY's residential customers will NOT pay 2.5 c/kw-hr (or around $10/month) to buy their electricity from non-polluting sources (generally wind, biomass, biogas and new small hydroelectricity).

Thus, the people have spoken with their spending habits and their dollars. They will NOT spend 2.5 c/kw-hr extra (or more) to have their electricity made via non-polluting and "homegrown" resources - almost all natural gas and all coal used to make electricity comes from out of state, as does a lot of our electricity, too. Odds are, most will spend NOTHING extra to buy renewable electricity. Their renewable energy policy seems to be similar to John Boehner's (Speaker of the US House of Representatives, and rumor has it, significantly impaired person after 9 pm from excessive ethanol consumption) hope that President Obama will fold like a cheap suit on the current budget and debt "problem". Well, that IS a cute unicorn, is it not?

Anyway, if people are unwilling to spend some fraction of what it costs or all of what it ACTUALLY costs or what it costs plus the profits to the owners of renewable electricity generation facilities, well, there is no viable business model short of massive governmental (or other sugar daddies) subsidies. So what is the probability that the roughly $80 to $100 billion in needed investment using the "low cost" approach (commercial scale wind turbines) just for NY State will be invested anytime in the near future? Essentially, ZERO PROBABILITY. There presently is no business model for renewable energy in NY State without massive subsidies, because it costs more (and in some cases, a lot more)  than 3 c/kw-hr to generate renewable electricity. And NY customers (especially those in WNY) are paying around 3 c/kw-hr for almost exclusively coal based electricity (made either at Somerset or in Tonawanda or in Pennsylvania/Ohio); even using natural gas to make electricity at the presently less than the cost to produce it (natural gas) prices makes for electricity that is TOO EXPENSIVE for WNY these days. But there ARE ways around this predicament of no viable renewable energy business model(s); it's just that these are NOT being considered by the powers that be in this state at the present time. By the way, there are also models that do not involve raising fossil fuel prices via CO2 pollution taxes/fees or whatever one wishes to call them; such taxes/fees would have the effect of raising ALL energy costs and also the prices of everything that uses electricity, too. And as seen in the recent Australian elections, such "carbon taxes" are often not popular and invite all kinds of conservative backlash, with disastrous consequences for our world.

So what about subsidies? Well, no local governments are willing to do this via taxpayer monies, and NY State will not do that, either. The one "subsidy" used in NY State - the Renewable Portfolio Standard, alias RPS - is actually paid for via a sales tax on electricity called the Systems Benefit Charge, alias SBC, that is all of 0.6595 c/kw-hr for this month. Not even a penny a kw-hr.... But this is simply not cutting it, even with the much more significant Federal subsidies (which amount to an average of 2.8 c/kw-hr as viewed over a 20 year time period) added into the incentive package. The present NY RPS one is around 2.8 c/kw-hr for 10 years (about half of the Federal ones); the Federal subsidies are actually tax avoidance arrangements and really only apply to wealthy individuals and/or corporations. The last decent sized wind array for NY (Orangeville) for some time is presently being installed southeast of Buffalo near Warsaw, and that 94 MW capacity array (costing over $200 million to install) is likely to be the last of its kind in NY for several years. And you can't deal with the disaster that is Global Warming or that is economic stagnation using an approach that makes a turtle look like a fast moving animal on land. On average, the Orangeville array should make at least 34 MW (around 5000 MW-hr per turbine). Here's a picture  of one of the Low Wind Speed Turbines in that array (it has a 100 meter rotor on an 80 meter tall tower for these 1.6 MW capacity units):

It turns out that the actual electricity production cost (as contrasted with the price that can be obtained) before subsidies for these turbines will be around 7.5 c/kw-hr (assuming the money cost was 5%/yr for 20 years, a big assumption). Obviously, that is more than 3 c/kw-hr (for October 1) that was the WNY average price for 2012 or the 4 c/kw-hr that appears to be the average for WNY for 2013. If this wind farm could be owned by NYPA (which can borrow money at a lower price than private corporations or wealthy individuals), the electricity cost would be near 6 c/kw-hr - but that is still more than 4 c/kw-hr.

Strange as it may seem, our present electricity costs in WNY are based on natural gas prices, even if essentially no gas is used to make electricity in WNY. And natural gas is being sold at approximately half of the actual price needed to at least pay the costs to get it out of the shale that it tends to come from these days and put it into pipelines, let alone make the investments in fracking based methane extraction seem almost plausible. Essentially, this would double electricity prices to near 8 c/kw-hr, and subsidies would not be needed (at least for wind turbine based electricity) - in that case, wind sourced electricity would actually pull prices DOWN. But, with subsidies approximately (2.8 + 1.4)/2 = 2.1 c/kw-hr on a 20 year basis, the 7.5 c/kw-hr cost drops to around 5.4 c/kw-hr. On the 10 year basis, the wind turbine electricity cost would be only 3.3 c/kw-hr...

But what about the upper boundary cost for renewable - in this case, solar PV in NY State? There has been a lot of talk that the "price" for PV modules is down to $0.70/watt of capacity, and of "grid parity" that is coming soon..... But there is a catch or two. PV modules actually have to be installed, and apparently PV module manufacturers are still losing money manufacturing these systems (also not a charity business, also unsustainable as a continual money loser in the short and long term...). It turns out that installed costs can actually be found for the entire US) as well as for NY State, so actual installed costs for PV units is not a complete mystery. If we just concentrate on the 2709 systems installed in NY from Jan 1, 2012 to Oct 1, 2013, it turns out that a total of 38.38 MW of capacity was installed at a cost of $219 million ($5.70/watt of capacity). Using the NYSERDA estimate for PV performance in NY State (10.6% of rated capacity as average output), this $219 million investment will make around 4.1 MW on an average basis, and at on unsubsidized basis a cost (no profits included) of 58.3 c/kw-hr. Ouch, as solar PV is very popular, since the average PV unit size in NY was only 14.2 kw capacity, costing around $80,844. Compared to $4.05 million per GE turbine (Organeville), PV sized investments seem open to quite a range of people. But they will need around 65 c/kw-hr to "justify" these investments, and that represents a yield that is truly pathetic by corporate standards, and barely $884/yr in profits before tax avoidance arrangements kick in. If we as a society want more PV, a 1%/yr ROA won't cut it.....

Meanwhile, in Japan, PV installations are going on at a prodigious rate as a result of their Feed-In Tariff that was made law following the FUBAR at Fukushima. Japan finally pulled the plug on nukes, which were making around 25% of their electricity. PV generation owners are getting paid 53.4 c/kw-hr (which is also a lot) ) for any electricity put onto the grid that they make, and the estimates are that close to 9 GW/yr of installations will take place in 2013 . But, this is being done on a "no-subsidy basis", and evidently pretty much ONLY made in Japan PV systems are being installed, which maximizes local economic benefits and minimizes "economic leakage". Japan's electricity customers are seeing this electricity folded into their rates, and prices ARE rising. Of course, as the saying goes, necessity can be a real mother..... and no electricity, no civilization. So far, Japan is choosing both civilization and expensive electricity; I guess they don't like unicorns very much.  

And it's SUCH a cute unicorn..... As for NY State, it appears we really love our unicorns, and our ultra cheap coal based, fracking gas based and nuke based (= pollution based) electricity. So, we sort of like civilization (well, we have electricity, even if getting it trashes the climate control system of the planet via the pollution made to get it), though it appears that employment for lots of people does not appear to be a desired aspect of "NY civilization". Because making wind turbines and pumped hydroelectric energy storage systems at a scale needed to replace our pollution based electrical sources in a rapid manner would employ a lot of people and create a lot of business opportunities, such as with making tall wind turbine towers, like this one installed in Hamburg, Germany (it also has a 100 meter rotor diameter, but has an 80 meter lower concrete tower section plus an upper 60 meter steel tower (hybrid tower)):

Oh well, call it NY's "Unicorn Problem" - it bears a striking resemblance to the "monkey on our back" analogy used to describe opiate and ethanol addicts. But it's such a cute unicorn...

Cross posted from wagengineering.blogspot.com

Well, I would say that looking at electricity pricing on an instantaneous basis is like looking at the fuel injection system of your car on an instantaneous basis, or the contents of some register in your computer. It's almost meaningless unless you take into account all of the surrounding context.

So there are two things that need to be changed here. First off, consumer pricing needs to have an option to engage in the instantaneous marketplace. I want my refrigerator motor to know the price of electricity before it decides to turn on. And my car battery charger, lights, and everything else.

Second, the rates and regulations need to support net metering, so my PV cells or car battery or private windmill can feed into the grid when it is to my advantage.

The current system is unfair because the consumer is saddled with a fixed price while the industrial consumers and the suppliers can optimize their use and production in a marketplace.

by asdf on Mon Oct 7th, 2013 at 08:19:11 PM EST
The conjunctural low price of gas (the shale thing is probably peaking now) and the structural low price of coal, will certainly not deliver a "pure market"-based solution for going renewable in east coast US electricity markets.

Luckily, American electricity markets have generally been very heavily "managed". As I understand it, during the period when the nuclear build was happening, in any market where a nuke station was envisaged, the regulator asked the utility how much they needed to charge for the electricity in order to be profitable, and that turned out to be the price fixed by the regulator (the UK is going through this process at the moment).

This is a rational way to enable the planning that any electrical system needs. You need to have some goals, and policy instruments to achieve them. Oddly, even after ENRON, this idea doesn't seem too popular in the US...

The two main instruments available in NY's case to scale up wind would be guaranteeing cheap finance, and a feed-in tariff.

The other obvious necessity is to address carbon pricing. I don't know how many dollars per ton you would need to tax CO2 in order to make wind competitive with gas and coal, in the case of NY. I don't know, also, if the state could levy such a tax (on electricity generated out of state, in particular?)

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Tue Oct 8th, 2013 at 06:01:05 AM EST

Go to: [ European Tribune Homepage : Top of page : Top of comments ]