Tag: renewables

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Solar II – When Energy Prices Go Negative

Texans should understand that we – despite our reputation for gas guzzling and oil drilling – are at the leading edge of the renewables-plus-battery-storage energy market in the country. We are likely to get to energy abundance here before anywhere else does.

How do we know we are at the leading edge? A few facts.

About half of the new battery storage capacity currently being built in the US is happening in Texas. Texas has 3.5 Gigawatts (GW) of storage capacity now, with the potential for about 10 GW installed by the end of 2024, or soon after. 

The Electric Reliability Council of Texas (ERCOT) manages the flow of electricity in the state and tracks certain records over time. If you’d like to feel optimistic about the energy transition and energy abundance, you can see all that data regarding these records online. 

Literally in mid-July ERCOT recorded its all-time record for solar energy generation.

Also June set the record for maximum wind energy generation. 

Meanwhile power storage usage hit a record in May.

Below I explain a bit about why utility-scale battery storage capacity is the key to tracking and understanding the growth and potential future impact of renewables. 

Texas’ Future Electricity Market – Look to Europe

European markets are ahead of the US in terms of electricity available from utility-scale batteries, with an estimated 36 GW compared to about 15 GW total in the United States at the end of 2023.

European markets have some lessons to teach us about what may happen with pricing and availability of electricity as solar and storage get built. It’s pretty exciting, although it comes with hiccups. 

Negative_electricity_prices_Australia
Electricity Prices Go Negative in South Australia when the sun shines brightly

One fact to know is that wholesale energy prices fluctuate throughout the day.

A second fact to know is that already-installed solar has close to zero marginal cost to generate additional power. You can’t turn off the sun, and electricity produced on bright days has to go somewhere. So producers have a need to offload electricity generated, somehow, into the grid.

Because of this need to offload power, In the middle of the day wholesale electricity prices approach zero or actually frequently turn negative, in certain markets where solar capacity has outstripped storage capacity. The number of observed “negative wholesale energy prices” days is rapidly increasing in Europe as well as in Australia.

This has been happening in Germany – the country with the most solar capacity in Europe – for a few years. It started happening in Spain in 2024. The country had prioritized solar production, but not battery storage. It actually kind of freaks them out. 

A negative wholesale electricity price literally means the producer will offer electricity for free or pay to offload energy. 

Utility-scale Battery Storage: A key to energy abundance

Energy market observers may remember the day on April 21 2020 – early COVID 19 pandemic days – when demand for fuel got so low that a refinery in Oklahoma was paying people to remove their physical oil in barrels. That’s sort of the analogy of negative electricity prices for solar. Somebody’s got to take the energy off the hands of the producer when there’s too much of it.

To be clear, extremely low or negative energy prices for solar producers are not great for the system. If you’ve built a solar plant but then spend many days of the year giving away your electricity for free – or worse, paying others to take it – that’s not good. In the long run this removes incentives to build more solar power generation and it could bankrupt producers.

In the short run, negative wholesale electricity prices are a big problem. In the long run, it’s a huge opportunity. In the long run there’s the possibility of extraordinary energy abundance. 

So who might be willing to be paid to take energy, or can receive free electricity during the middle of the day? Utility-scale battery storage operators. A low or negative wholesale electricity price for battery storage operators is amazing, as long as storage providers can resell that electricity into the grid a few hours later when the sun goes down.

Currently, Spain is scrambling to invest in battery storage. Texas seems to have already figured out the future need, and the buildout is happening now.

So what happens when utilities can access very affordable energy for significant hours of the day during a significant number of days of the year? It can’t help but keep demand and therefore prices for other energy sources in check. Solar and wind plus battery storage is nowhere near sufficient yet in Texas, but rapid growth means we should see some effects soon.

When we learn about this price-arbitrage trade of battery storage operators – store free energy from the sun and sell it a few hours later at a markup – we might be tempted to object: Profiteering! 

That’s probably the wrong response. Our best response is to celebrate those early profits, as they will lead to further solar and battery investment and further downward pressure on wholesale energy prices. Which eventually links to energy abundance as well as dampened consumer energy prices to keep our utility bills manageable.

“Energy transition” in 2024 has more to do with renewables making up a larger portion of the energy mix, even while both fossil fuel supply and demand continue to grow. The rapid growth of solar and battery storage is largely a move toward energy abundance and keeping prices low, more than reducing fossil fuel usage outright.

A version of this post ran in the San Antonio Express-News and Houston Chronicle

Please see related post

Solar I – Energy of the Future (and Always Will Be?)

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Solar: Energy of the Future and Always Will Be?

Shortly after I moved to Texas in 2009 I began to hear about the massive discovery of shale-based oil and gas deposits in South Texas and West Texas, plus improved horizontal-drilling technology and techniques. It all pointed to, and indeed was, an American onshore energy revolution. Since then the United States has become the dominant oil and gas producer in the world. This development has been extremely positive for the Texas economy and the US economy. 

Solar_cover_economist
Big claima last month from The Economist

As a markets guy, another thought I had back in 2009 was: “Welp! I guess solar and wind aren’t going to become price competitive for another generation?!” Fifteen years later, I still think that was the correct instinct. 

This is background to a bunch of dramatic claims made in late June from the ordinarily staid The Economist magazine, which declared that exponential growth in solar technology as an energy source is poised to change the world over the next decade.

All things being equal…

I’m not neutral on the issue of renewable solar power versus other sources, although I’m relatively industry agnostic. All things being equal, I like the idea of renewables more than fossil fuels. 

“Solar is the energy source of the future…” sounds like a claim I’ve been hearing since I was a kid in the 1970s and my parents installed some panels on our home’s roof. “…And always will be,” is the kiss-of-death epithet that has described solar since then, as compared to fossil fuels. 

All things have not been equal, and fossil fuels have remained cheaper and more reliable under all weather conditions as our primary energy sources through 2024.

Energy abundance should be the goal

What I really am in favor of is energy abundance, because it spurs economies, innovation, and leads to a wealthier and even more egalitarian society.  Energy abundance is why the simultaneous discoveries of the Eagle Ford shale and Permian shale deposits with improved horizontal drilling were good news (despite their role in delaying the attractiveness of renewables.) The hope for further energy abundance is why it would be amazingly good news if the growth of solar lived up to anything like the recent hype from The Economist. 

Points for techno-optimists on solar power:

So here are some techno-optimist points in favor of The Economist’s dramatic claims about the growth of solar. 

While the US currently depends on fossil fuels for 88 percent of its energy usage, renewables hit an all-time high at 8.8 percent last year, just now surpassing coal (8.7 percent.). 

The Economist further claims that while currently 6 percent of the world’s energy is supplied by solar, in a decade from now it may be the largest source of energy in the world. That’s a big claim for a relatively short time period. It would be revolutionary, if true.

Solar capacity worldwide has grown 23 percent per year for the last five years. Compounding effects at 23 percent make for huge future gains. When you apply high annual compound growth rates like that, mathematically the results over a decade are astonishing. From an admittedly low base, it’s the growth rates of both solar and battery storage that have people jazzed up. 

We should remember that the techno-optimist case for solar (as well as wind) relies on the concomitant growth in battery storage plants and technology. Utility-scale battery storage sites need to be deployed alongside solar and wind generating plants for when the sun don’t shine and the wind won’t blow.

So that is largely why The Economist claims “solar cells will in all likelihood be the single biggest source of electrical power on the planet by the mid 2030s,” just a decade from now. 

Of course continuous compounding growth – aka exponential growth – is hard to do in the real physical world, because of supply constraints. 

But there is some evidence even here in Texas that compound growth is actually happening. 

The evidence, in part, is utility-scale battery storage.

Economist Noah Smith has argued recently that the revolutionary technology of the next decade will not be AI, but rather the staid battery. Batteries – especially utility-scale battery storage of renewable energy – might just change everything.

Energy Information Agency

As of November 2023, Texas had installed utility-scale battery storage of 3.2 gigawatts, the second-most behind California’s 7.3 gigawatts. Texas’ battery storage capacity was roughly equal to all of the next 48 states combined. So that is a good start for the state. But we are getting better.

The US Energy Information agency listed the five biggest new construction battery storage projects in the US, of which four are in Texas. Each of these individual deals, bringing new storage capacity online in 2024 and 2025, is larger than any battery project currently operating in Texas. 

Then consider this data: The EIA in May 2024 lists battery projects in Texas currently under construction or completed but not yet operational with a total capacity of 5.4 gigawatts, representing 170 percent growth over our current capacity in the state.

Battery-storage capacity – the key to renewables’ growth – is roughly doubling each year in Texas, in the United States, and globally. 

Meanwhile solar projects in Texas with the same status as those battery storage projects in May 2024 – under construction or completed but not yet operational in 2024 – total 10.6 gigawatts.

Other important signs: According to a report by think tank RMI, battery costs have dropped 79 percent over the past decade. That same report points to global solar generation capacity doubling every 2-3 years for the past decade.

fka the Rocky Mountain Institute

The virtuous cycle needed for exponential growth depends on the simultaneous rapid drop in costs along with economies of scale and improved technology. 

Solar finally cheap enough?

“If it’s cheap, it shouldn’t need a subsidy” is a slogan I mostly endorse. Compared to fossil fuels, for the past few decades, renewables have not been cheap enough, without subsidies.

Of course, it’s theoretically fine to subsidize – and we have been subsidizing – future technologies that need a little extra boost to reach their full potential. But part of a true solar revolution – a 10x increase in usage from here – requires solar costs to beat fossil fuels under most scenarios. “Solar is the energy of the future…and always will be” is the fear of observers like me who think renewables should eventually be much cheaper, without subsidies.

Improved battery technology and massive increases in capacity provide the possibility that solar can finally be cheaper than fossil fuels. Fingers crossed.

A geopolitical cautionary thought: China is the absolute leader in technology and production of solar panels – running 80 to 90 percent of certain parts of the global supply chain. The government of China has, for strategic reasons, subsidized this dominance. 

The Biden administration just increased tariffs in May 2024 on solar cells from China from 25 to 50 percent, which in the best case scenario allows the US, or other Western countries, a chance to build competitive solar manufacturing capacity, but will raise prices on solar panels in the short and medium term. That’s a big potential bump in the road to exponential growth.

“Are we there yet?” is both an annoying question from the back seat during a summer road trip, and also a relevant question for futurists’ hopeful thinking around the rapid development of renewables capacity.

The Economist says we are there, yet. The data on Texas from the EIA says we are there, yet. Energy futurists suggest we are there, yet. With energy abundance as the goal, I hope that over this next decade we are there, yet.

A version of this post ran in the San Antonio Express News and Houston Chronicle

Please see related posts:

Book Review: The Green and the Black by Gary Sernovitz

The Natural Gas Revolution Part I – Mad Max Bizarro World in South Texas

The Natural Gas Revolution Part II- No Dry Wells in South Texas

The Natural Gas Revolution Part III – What a Fracking Site Looks Like

The Natural Gas Revolution Part IV – How Large is Large?

The Natural Gas Revolution Part V – The Labor Market

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Solar Hosting – Free Money

solar_residentialOne of the things I regularly fantasize about is free money. This puts me in line – at least in this small way – with the rest of humanity.

Alongside my free money fantasy, I also have a fantasy of producing surplus solar power that would plug into the smart electricity grid, allowing me to sit back, get paid for my home power-plant, while simultaneously recharging my homemade Ironman jet-pack suit. A boy can dream, right?

The traditional financial model of installing home solar panels – like I plan at my house – is that the homeowner pays money upfront to install solar panels on a roof, collects generous subsidies from local utility companies and the Feds, and then hopes that monthly energy-bill savings over the next two decades justify the original out-of-pocket expenditure.

As I mentioned, I think it will take me a about a decade to make my initial investment back, and to eventually earn the equivalent of an estimated 6.3 percent on my investment over the 25 year life of my panels.

But not everyone can reap that benefit. The limiting factor here is that not everyone has money to spend today, in the hopes of making it back over the coming decades. The point of the Solar Host is to provide all the upfront money for a homeowner who does not really “own” the roof panels, but rather serves as a ‘host’ for energy-producing panels.

Problems

Here are a few of the problems with existing solar programs in a nutshell:

  1. Upfront costs limit the program to wealthier households and businesses. We are not all Tony Stark.
  2. A limited amount of subsidy dollars at a utility can run out, after being taken up by those same wealthier households.
  3. Households choosing to purchase their own panels may have sub-optimal roofs, in terms of shading, angles, and direction, but they collect the same level of subsidy from their local utility and the Feds. Which kind of wastes the subsidy.
  4. Owning one’s roof panels means future maintenance costs are the responsibility of the owner, whereas ‘hosts’ do not bear those costs.

Enter Solar Host SA

In return for hosting – and zero upfront money – the homeowner or business owner gets a monthly rebate on future energy bills for 20 years at a fixed price.

The Financial Gains

The Solar Host program promises to reimburse solar panel hosts 3 cents per kilowatt hour, which – translation – means that a typical household panel array could produce $20 in savings per month on an energy bill.

Businesses – selected for their larger roofs and higher energy production – might expect to achieve savings on their bill of a few hundred dollars per month.

ironman
I’d rather have a solar-powered jetpack than boring old roof panels

None of this is going make any rooftop host Tony Stark level-wealthy but hey – free money is still free money.

Capacity Limits

One of the recurring problems of free money, however, is that the line for it can be long.

Because Solar Host is a pilot with local utility CPS Energy, the program caps out at about 450 households and business. Currently, Solar Host SA is not accepting new applications for the program.

The program selects for the most advantageous roofs – South-facing, the best angles, no shading – that will produce the most power over the next two decades. When completed, the rooftop arrays will act like a distributed solar power plant. Local utility CPS Energy has already agreed to pay a fixed price per unit for the energy this distributed power plant will produce.

Private financing

One of my ongoing pet peeves about the solar industry – previously expressed – is that it wouldn’t exist in a market system. Take away all the subsidies and the industry collapses to a niche. It’s ‘renewable’ in terms of energy production, but not ‘sustainable’ in a market economy.

Within that context, the following may matter more to me than anyone else, but I was pleased to learn these sort of elegant financing facts about Solar Host SA.

First, homeowners and businesses, as previously stated, do not pay upfront to host.

Even more interestingly, CPS Energy also doesn’t pay up-front money. They simply agree to buy solar-produced energy over the next 20 years.

Thirdly, the capital providers aren’t ‘green’ in any particular way except the green of money. Private investment finances the purchase and installation of rooftop panels. Private capital then finances the long-term running of the hosted panels and the ‘distributed solar plant.’

The only big subsidy employed here comes from the Federal government, in the same form of a tax break that all renewable-energy investment generates.

Not Just Money

People tell me that non-monetary considerations come into play with solar panels (really, there’s more to life than money?), so I should acknowledge that participants in Solar Host SA could also enjoy the happy feeling of contributing to the planetary movement toward renewable energy. That’s not exactly the same as recharging my Ironman jet-pack suit, but I understand different people have different priorities.

 

A version of this appeared in the San Antonio Express News.

 

Please see related post

My Solar Panel Installation

Solar Subsidies – Like “Turtles All The Way Down”

 

 

 

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The Natural Gas Revolution Part VI – Has It Killed Renewables In Our Lifetime?

Here’s my hypothesis[1]: The abundance of cheap domestic natural gas – what I’m calling the Natural Gas Revolution – makes “renewable” energy sources like wind and solar financially untenable, and possibly unnecessary, for the next 90 years.[2]

I can’t prove my hypothesis because energy pricing is complicated.

Figuring out the ‘price’ of energy derived from traditional fuels such as coal, natural gas, and nuclear is not as straightforward as it may seem.  I’ve made an attempt based on a conversation with an official at my local utility company.  But every financial assessment depends on a series of assumptions: from the future price of input fuels, to regulatory changes, to models that take into account the depreciation of assets such as a nuclear or coal plant.

We know that energy produced from nuclear and coal plants has relatively low prices, partly because, in the case of my local utility, it bore the cost of building the nuclear and coal plants long ago.  As a result, we can afford that energy.  We also like the price of natural gas, because both plant construction and current market prices are low.

On the other side of the ledger, my local utility in recent years added solar- and wind-derived energy to its energy portfolio, both of which cost considerably more.  At a free-market price, wind power would be about 50% more expensive than natural gas energy, but a federal government Production Tax Credit (PTC)[3] brings the wind-energy price within the range of natural gas-derived energy.

Solar power is even more expensive than wind.  Solar may cost three times as much per KW hour as natural gas – assuming current technology – but with a federal subsidy through tax credits,[4] solar energy can be priced at a cost about twice as expensive as natural gas.

The energy provider of my home city targets a ‘portfolio mix’ by 2020 of 20% ‘renewables’ – at this point primarily wind and solar energy.[5]

As a retail consumer, I pay 9 cents/Kilowatthour on my energy bill.  This retail price reflects a blend of energy costs from the utility’s primary sources of nuclear, coal, natural gas, and renewables, plus the cost of administration and delivery to my house.  The price per KWhour could be brought down, somewhat, by prioritizing energy sourcing purely on a cost basis, which would favor coal and nuclear, and increasingly – given the natural gas revolution – natural gas.  Wind and solar make less sense on a pure cost basis without the federal taxpayer subsidies that make them feasible for the local utility.

My local utility has chosen to build a portfolio to include wind and solar energy; as a person with environmental sensibilities, I see the benefits of this and I feel good.  In addition, from a risk-mitigation perspective, the utility wants to stay ahead of regulatory changes which may make coal production more costly[6], or periodic events that make nuclear untenable[7], or market prices that would increase the cost of energy from natural gas.

So the local utility embraced wind and solar in part as a reasonable portfolio hedge against the risk of high natural gas prices.

But the future price of natural gas, and the likely range of prices for gas[8], just shifted massively with this natural gas revolution.  Folks I’ve spoken to in the natural gas sector forecast 90 years’ worth of known, accessible, cheap natural gas in shale rock formations.  All of this natural gas we really had no way of bringing to market just 4 years ago.

As a result, from a purely financial perspective I fear we’re locked into paying extra for renewables in a way that makes much less sense than it did just a few years ago, before the natural gas revolution started.

Fans of renewable energy are not going to like this message, I know.  In the largest sense, however, it should be seen as good news, and I’ll explain why.

It’s a huge economic boon to the entire country.

So why is cheap natural gas such good news?  For the majority of consumers the natural gas revolution will benefit their pocketbooks in subtle but important ways.

A drop in the price of energy impacts the price of nearly everything, keeping goods and services cheaper than they otherwise would be.  Just as expensive oil during the Oil Embargo of the 1970s kicked off a round of intense inflation, cheap natural gas will act to keep inflation contained in the future.

To ask people to throw away cheap energy and adopt expensive energy is a lot like asking everyone to throw away cheap food to consume expensive food.

The closest analogy I’ve come up with for renewable energy is the organic food movement.

Organic food works on a small scale, with a dedicated group of true-believers who eat food as an expression of their values.  It’s interesting to think about, but I’m not betting on widespread adoption.

Of course I’m in favor of organic food, and I serve it to my daughters whenever I can.  I’m happy to pay a little extra for the pleasant feeling of using fewer chemicals on the earth, or to support happy, free-range chickens.  The vast majority of food consumers in this country, and the world for that matter, however, do not have the luxury of paying more for food today for some intangible or unvalued long term benefit, even if it ‘costs’ more in terms of health or environmental impact in the long run.  The organic food movement pushes against the immutable logic of the wallet.

Similarly, renewable energy has required people to express their values through their energy consumption, paying more for something that impacts the earth less.

I’m generally in favor of renewable energy, and I would love for more things to be powered from solar and wind generated energy.  Unfortunately renewable energy is a luxury, and it just became even more so with the natural gas revolution.  The risk of future natural gas price spikes decreased dramatically with this revolution, making a portfolio including renewables less financially relevant than it was until recently.

Most people live in a resource-limited world, where cheap food or cheap energy is not a choice, but a necessity.  In my city, San Antonio, for the 25% of residents and 30% of children who live with daily food insecurity, the organic food movement exists in a parallel, irrelevant universe.

Most people I talk to don’t seem aware that the natural gas revolution of the past 4 years has made renewable energy untenable, financially. for the next century.

I see two reasons not to mourn the financial marginalization of renewables right now.

The first is purely financial since the tax subsidies needed to close the gap between wind and solar and more ‘market-based’ energy sources such as natural gas would have to grow in the future rather than shrink.

The second is more political.  This next point is more my instinct than provable fact.  But here goes: Whenever you have an important business – like renewable energy – wholly dependent on government subsidies, the opportunity for power-brokering by public officials and ex-public officials becomes extremely tempting.  More than tempting, it’s inevitable.

I have a real issue with ex-government employees who go out and create ‘green energy’ investment companies, which fund companies whose major source of income is government guaranteed contracts for expensive energy in the form of wind and solar.  Since it’s all divorced from market prices, there’s a huge opportunity for influence peddling and government favors for former public servants.

There may be some of this going around in my city of San Antonio, but there are also big national examples of this.  Yes, I’m looking at you Terry McAuliffe and your GreenTech Automotive.  Most egregiously, I’m looking at you, Al Gore, and your New York Times-reported net worth over $100 million, largely built on this power-brokering technique,[9] earned in just 12 years since leaving office.  I’m very sorry you weren’t president, but your way of making money since then disgusts to me.

As the gap between the cost of natural gas energy and government-subsidized renewables grows in the coming years, one of the main externalities of the renewable energy sector is the opportunity for government graft.  So I’m not just concerned that we’ll pay more than necessary for energy, but I’m also convinced some of our public servants will make sure that the green energy industry pays them back handsomely for their support.

 

See also Part I – Mad Max Bizarro World

Part II – Big, Corporate, Well Capitalized

Part III – The Drilling and Fracking Scene

Part IV – How Big Is This?

Part V – The Labor Market

 


[1] I can’t prove this with data, hence it’s only a hypothesis to be tested over time.  But I still think I’m right.

[2] The natural gas revolution is happening mostly in the United States right now, in the Eagle Ford area of Texas, as well as the Bakken in North Dakota, and the Marcellus Shale of the Eastern US.

[3] Created by the Federal Government’s Energy Policy Act of 1992, which allows energy providers an income tax credit of 2.2 cents/KW hour.  Assuming a current natural gas energy derived price of 4 or 5 cents/KW hour, we can estimate the ‘market’ price (before PTC subsidy) of wind energy for the local utility at around 7 cents/KW hour.

[4] Solar tax credits tend to be Investment Tax Credits (ITC), providing 30% of the cost of development of a solar plant.

[5] With a minimal amount of ‘landfill’ gas supplying a third alternative source of renewables.  My local utility’s published description of their mix of energy sources now and in the near future can be found here.

[6] If environmental regulation made utilities pay out of pocket for ‘carbon offsets’ for example, coal could become much more expensive.

[7] Like periodically happens, e.g. 3-Mile Island, Chernobyl, Fukushima.

[8] At the risk of stating the obvious, I believe the natural gas revolution means low natural gas prices at low volatility for decades, perfect if you’re a utility company forecasting your energy portfolio needs.

[9] No, I don’t have a breakdown between fees he’s earned on his movie, speaking fees, and his income from serving on the board of private equity firms that value his power-brokering to the ‘green-energy’ industry.  Kleiner Perkins made him a partner in 2007 and it wasn’t really for his investing acumen.  I just don’t think he’s rethinking the entire private equity business with his Generation Investment Management Fund, the way he describes in this WSJ Op-Ed.  Instead, I think he’s probably doing the same old power-brokering that becomes available anytime a big industry becomes completely dependent on government contracts and subsidies.

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