Minneapolis is Xcel’s home town, and a much bigger market than Boulder. The city is now talking about allowing their franchise agreement to lapse, in order to pursue more aggressive renewable energy policies than state law will allow if they’re served by the monopoly utility. The article gives a nod to Boulder’s votes over the last two years to explore the alternatives to franchise agreements, including the formation of a municipal utility. It’s great to see another much larger city looking at its options, and as far as pushing the overall utility business model to change, it’s great to see this happening within Xcel’s service territory. There’s a threshold out there somewhere, beyond which the current arrangement is no longer stable, and even the utility will start begging for something different. The faster we can get there, the better.
NREL took a nice long look at different ways to design feed-in tariffs (PDF) in July of 2010, based on the past decade’s worth of experience, both in the EU and several US states. It’s 144 pages long and aimed at policymakers… so, not exactly light reading. But if you really want to know how these things work (or fail), it’s great.
I just finished reading Renewable Energy Policy by Paul Komor (2004). It’s a little book, giving a simplified overview of the electricity industry in the US and Europe, and the ways in which various jurisdictions have attempted to incentivize the development of renewable electricity generation. The book’s not that old, but the renewable energy industry has changed dramatically in the last decade, so it seems due for an update. There’s an order of magnitude more capacity built out now than ten years ago. Costs have dropped significantly for PV, but not for wind (according to this LBNL report and the associated slides). We’ve got a much longer baseline on which to evaluate the feed-in tariffs and renewable portfolio standards being used in EU member countries and US states. I wonder if any of his conclusions or preferences have been altered as a result? In particular, Komor is clearly not a fan of feed-in tariffs, suggesting that while they are effective, they are not efficient — i.e. you end up paying a higher than necessary price for the renewable capacity that gets built. This German report suggests otherwise, based on the costs of wind capacity built across Europe. Are the Germans just biased toward feed-in tariffs because they’ve committed so many resources to them? NREL also seems to be relatively supportive of feed-in tariff based policies, but maybe this is because the design of such policies has advanced in the last decade, better accounting for declines in the cost of renewables over time, and differentiating between resources of different quality and utility.
When people compare the cost of gas-fired electricity and renewables, they usually don’t price fuel cost risks, and at this point that’s really just not intellectually honest. Risk-adjusted price comparisons are very difficult because nobody will sell a 30 year fixed price gas supply contract, and that’s what you’d need to buy to actually know how much your gas-fired electricity will cost. Even a 10 year futures contract doubles or triples the cost of gas. You can’t buy renewables without their intrinsic fuel-price hedge, and that hedge is valuable. The question shouldn’t be “Is wind the absolute cheapest option right now?” it should be “Given that wind will cost $60/MWh, are we willing to live with that energy cost in order not to have to worry about future price fluctuations?” And I think the answer should clearly be yes, even before you start pricing carbon.
In the 2011 annual report to the state legislature on the cost effectiveness of Michigan’s Renewable Energy standard, it was revealed that wind bids have been coming in far cheaper than anyone expected they would. In fact, even without the federal production tax credits, they’re far cheaper than new coal fired generation ($61/MWh for wind vs. $107-133/MWh for new coal). Interestingly, Xcel’s 2011 resource plan lists the cheapest new generation option in Colorado as being natural gas combustion turbines… at $60/MWh. So wind is cheap. It’s also very low risk. So how do we get more of it?
What does a world without fossil fuels look like? There are lots of different options, but none of them look much like the rich developed nations of the world today. David MacKay’s approach in Sustainable Energy Without the Hot Air is to hold our rate of energy consumption constant, and explore the kinds of carbon-free energy systems that could satisfy that demand. The uncomfortable conclusion he comes to is that if we want to run our world on renewables, the energy farms have to be comparable in scale to nations. Comparable in scale to our agricultural systems. This is because all renewable energy is very diffuse, and we use a whole lot of energy.
Just as an example, of all the renewable power sources solar is the most concentrated, and PV farms like the ones cropping up in Bavaria because of Germany’s generous feed-in tariff average about 5W/m2. With better siting (the Sahara, Arizona) you can do a bit better, and there’s a little more efficiency to be eked out of the panels, but for large scale deployments, you’re not going to get above 10W/m2. If you’re an average citizen of the EU or Japan, your 5kW of power thus demands 500m2 of land. Multiply that by 700 million people in the EU, and you get the total area of Germany. An average North American’s 10kW requires 1000m2. Multiply that by 300 million people, and you get an the entire area of Arizona.
Arizona has decided to include externalized costs like water use and pollution in their utility resource planning process, with the predictable result that they’ve selected a resource portfolio heavy on renewables and energy efficiency, and light on coal. Hopefully other states will follow their lead!