solar Archives - Bankers Anonymous

August 8, 2024August 8, 2024

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.

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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July 23, 2024July 23, 2024

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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June 6, 2016February 9, 2018

Solar Hosting – Free Money

One 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:

Upfront costs limit the program to wealthier households and businesses. We are not all Tony Stark.
A limited amount of subsidy dollars at a utility can run out, after being taken up by those same wealthier households.
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.
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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May 31, 2016May 31, 2016

Solar Industry: Love it, Hate it

I plan to install a solar array on the roof of my house.

Prior to installation, I asked a local solar expert guy to provide specific architectural plans, for my house. He provided estimates on monthly savings I could expect, based on my past energy usage as well as the specifics of my roof.

I love my spreadsheets (who doesn’t?) so I had fun calculating my ‘return on investment’ for a planned solar panel installation. I’ll mention the financial ‘return on investment’ I expect to receive a little further on in this column.

Having mentioned that I plan to install solar panels, there’s a real grumpy part of me that kind of hates the solar industry. Let me explain.

Solar Subsidies

I don’t know how much sense these industry subsidies make.

I start with an aversion to public subsidies for private gain, especially when the private gain will probably be captured by higher-income homeowners, because they are the ones who can afford to make multi-thousand dollar optional improvements to their home. Solar proponents will reply that the public gains broadly when we move toward sustainable energy and away from non-renewables. Financially, however, private households capture the monetary gain from the public subsidy, so it rubs up against one of my principles of private gain on the public dime.

Maybe even more worryingly, I have a pet theory that all the local and federal subsidies over the decades are actually inhibiting solar innovation. It’s relatively easy to read about all the ‘innovative’ solar technology coming down the pipeline. But I also kind of feel like we’ve been hearing about all this innovation since the Nixon administration, and residential solar still isn’t a good financial choice for households, if we removed all the government subsidies.

Some industries over the past forty years – think of advances in telephony, software, or computing power in that span – relentlessly innovate in a competitive market and produce stunning breakthroughs and extraordinary cost reductions. Solar power was not-quite-competitive with non-renewables in the 1970s and it’s still not-quite-competitive with non-renewables in the 2010s. Why is that? I can’t prove this, but I have a sneaking suspicion that an industry built around government subsidies will attract a different set of talents and mindsets than an industry built around market competition.

Which kind of begs the question: Are all the subsidies – in the long run – helping or hurting a faster shift to renewable energy?

I don’t mean to be overly harsh on solar power. Obviously, I’m installing it at my house. In general, I’m in favor of boosting our mix of renewable energy usage versus non-renewables, because that just makes sense. A billion years of future solar power versus even a few remaining centuries of oil & gas certainly argues for using more of the former and less of the latter.

Sustainable?

I’m a markets guy, however, and when an industry can’t become market-competitive over the years, it tends to just remain a niche player. Solar power is not yet – in a real markets sense – “sustainable.” As a markets guy I want to put on my Inigo Montoya accent to remind solar proponents who talk about solar power as “sustainable” to say “You keep using that word. I do not think it means what you think it means.”

The punchline

Ok, but can I make money installing panels at my house? I estimate that the annual return on my initial investment, after twenty-five years, would reach 6.3 percent. Theoretically, I could earn more than that, if I kept the panels installed for more than twenty-five years. On the other hand, I’ve learned the expected lifespan of the system is about twenty-five years, so it doesn’t make much sense to expect it to last longer than that, in my model.

Is that enough?

What do I think about a 6.3 percent return personally on investment in renewable energy?

It sounds about right, as a private incentive to invest my money. 6.3 percent easily beats what I can earn in a wholly ‘safe’ investment, like a bond or a money market account. It’s also a return on money above what I pay on my mortgage, so that it makes theoretical financial sense to outlay the money for solar panels, rather than just pay down my mortgage principal faster. 6.3 percent is below historical long-term returns from stock investments, but that seems ok too. With any more federal and city subsidy, my “private return on capital” might seem excessive.

Like any model, a large number of assumptions go into calculating a financial return on solar panel installation.

Assumptions

These assumptions include the following:

I get my local utility rebate following installation as promised, which looks right now to total about 30% of the cost of installation.
I get my 30% federal income tax rebate next year, as promised by the IRS.
The solar production of the panels I install generate as expected.
I use similar amounts of electricity in the future as I do now. Specific to my model, my energy needs only increase 1% per year.
The price of energy (essentially the rates my utility charges me) only increases by 1% per year.
The effectiveness of the panels in generating energy only degrades at 0.5% per year
My costs of maintenance on the panels only runs about $120 per year.
I stay in my house enough years to reap the benefits of installing panels. Specifically for my ‘annual return’ estimate, I stay in my house for twenty-five years.

If all those assumptions hold true – admittedly a pretty large set of ‘ifs’ – I’ll reap a pretty good private return on my capital.

A version of this appeared in the San Antonio Express News

Please see related posts:

Turtles All The Way Down

Natural Gas Revolution in South Texas

Oil companies – This Makes No Sense

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