Tag Archives: solar

How much should utilities pay for distributed solar power?

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Close-up of completed project - Gibbs Dairy goes solar

In the energy and climate circles, there is a lot being written lately about the threat to the traditional utility model from distributed, renewable energy sources.  David Roberts has been running a series describing the problem and looking for solutions.  Chris Nelder also has a good read on the topic.

One of the key issues is the idea that utilities want to avoid “stranded assets”, or infrastructure they still have to pay to maintain with a shrinking pool of customers.  As some customers get more power from solar, sales of electricity shrink, leaving utilities with the same distribution infrastructure to maintain using less revenue.  Some utilities, the latest being a municipal utility in San Antonio profiled by David Roberts, argue they shouldn’t pay customers the “market” rate for electricity their customers generate with rooftop solar, but instead should pay them a wholesale rate, or the same as they pay for other electricity on the grid.

The thinking here is that paying the wholesale price will put renewable energy on an even playing field, and help keep the old utility model more financially whole, since wholesale prices are typically much lower than market prices.  For example, the 5-year average wholesale price for electricity in the grid area that serves Minnesota was $53.62 per MWh for the period ending in 2010, according to FERC.  This is for the “peak” time of day, meaning the afternoon, which is also the time solar is most productive.  That’s equal to roughly 5 cents per kWh, which is the unit at which typical household sales are measured.  Last month I paid about 11 cents per kWh to Xcel before taxes, fees and other charges like WindSource.

At 5 cents/kWh, rooftop solar would take a very long time to pay off.  Many fewer people would likely choose to install it.  However, those in the renewable energy world will tell you that 5 cents/kWh doesn’t pay the owner of a system for some of the benefits solar energy has over wholesale electricity.  We should actually be looking at a “value of solar” that includes not just the wholesale energy price, but reimbursement for other values.  There is movement right now in Minnesota to legislate that a true “value of solar” be computed for future projects.  So what other value does solar energy have that utilities might value?

For one, it can be more efficient.  Whenever you transmit electricity or long distances, you lose some due to resistance (heat).  EIA estimates these loses at 7% nationally and 7.4% in Minnesota.  That means utilities are generating more kWhs than are needed to make up for the losses, and thus the customer is paying more for each kWh.  If you’re generating power very close to where you use it, you minimize these losses and the extra generation.  Distributed solar energy should actually be valued 7% above wholesale prices by a utility if you think it will reduce these line losses.  If you include that 7% bump, 5 cents becomes almost 6 cents per kWh.

The other value is the reduced environmental cost of solar generation.  There is plenty of discussion about what the optimal cost of carbon should be, and it all depends on what you adopt as your discount rate.  Here is a must-read on discount rates, also by David Roberts.  If you think that climate change will have a net drag on the economy in the future, your discount rate is likely low, and the optimal cost of carbon gets up into the $50 to $100/ton range.  Carbon levels per unit of electricity produced vary quite a bit across the county, but in Minnesota and parts of the upper Midwest, they averaged 0.738 metric tons per MWh in 2009 (the latest year for which EPA has data).  At that rate, a high carbon tax might add between 3.5 and 4.5 cents per kwh.

If you add all this up, (an economically optimal price on carbon, savings from transmission losses, and a wholesale price consistent with the 5-year peak average), you get a value of solar energy between 9.5 and 13 cents per kWh.  That’s at or above the market rate I’m paying in Minnesota right now.  Check out my extremely messy spreadsheet if you want to see the math.

Keep in mind there are other values of solar energy I haven’t considered in my calculus.  The Minnesota House legislation includes the savings from delaying capital investments in distribution infrastructure, savings from not having to build more generation, fuel price hedge value savings (not having to bet on fuel costs), and the value of local employment generated by manufacture and installation of solar energy.

How much would a 10% solar standard reduce Minnesota’s greenhouse gas emissions?

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Presenting Curt Tosh's farm-based solar project - Solar Works in Central Minnesota!

This week a bill was introduced to the Minnesota legislature to establish a 10 percent solar energy standard by 2030.  This would be on top of the existing requirements for utility renewable energy, bringing the total amount of energy coming from renewables in the state to at least 35 percent in 2030.

This bill is being promoted for it’s job creation aspects, but clearly a key benefit is the reduction in greenhouse gas emissions from the electricity generation sector (which currently produces 32% of the state’s greenhouse gas emissions).  So, by how much would a 10% solar standard reduce Minnesota’s emissions?  Would it allow us to meet our greenhouse gas reduction goals?

The first (and easier) part of trying to put some numbers to this is estimating how much electricity Minnesota will use in 2030.  EIA summaries tell us that Minnesota consumed a little under 68 million megawatt hours in 2010.  Power projections produced for the Annual Energy Outlook tell us that in MRO West (our electricity grid region), the annual growth in electricity consumption will be very modest through 2030, typically under 1% annually.  If you assume these growth rates apply to Minnesota, we may consume over 73 million MWh in 2030, or 8 percent growth over 20 years.

ElectricitySalesThru2030

10 percent of that is 7.3 million MWhs in 2030.  Figuring out exactly how much greenhouse gas this would save is trickier.  In 2010, electricity generation accounted for 32% of the total 155.6 million metric tons of CO2 equivalent emissions.  Rough math using EIA consumption figures provides a greenhouse gas coefficient for Minnesota electricity of 0.73 metric tons of CO2e per MWh.  However, this figure will surely go down over the next 20 years as utilities work to meet the existing renewable energy mandates already on the books.  Xcel Energy, which has to meet a more aggressive renewable energy standard then the rest of the state, already has a coefficient closer to 0.5 mt/MWh, which will be declining (see slide 17) to something like 0.42 mt/MWh by 2025.

So, assume the state’s net greenhouse gas coefficient for electricity is somewhere around 0.5 mt/MWh in 2030 (assuming other utilities and imported electricity are both dirtier than Xcel).  If 10% of our electricity demand is met by solar energy, this would be a savings of 3.6 million metric tons of CO2e.  3.6 m metric tons is about 2.3% of our 2010 emissions total, or about 7% of emissions from the electricity sector in 2010.

Using an net coefficient average emissions factor for calculation may be too simplistic, but it’s the best I’ve got right now.  Those more in the know say that renewable energy like solar will most frequently replace natural gas production, rather than coal or nuclear, as gas is easier to cycle on and off.  I’m not sure whether this would increase or decrease the benefit of this level of installed solar (but I’m working on it).

Update: I was pointed to this journal article by Carbon Counter, which attempts to calculate “marginal emissions factors”, rather than average factors. It turns out, since the Midwest is coal-heavy, usually an “intervention” (adding solar, for example) would displace coal power first, rather than gas.  The marginal emissions factor they calculate for the Midwest is about 13% higher than the 0.73 mt/MWh I mention above.  The Midwest is somewhat unique in this regard, as most regions show gas as the most common “marginal fuel source”.  It also has the highest marginal emissions factor of all the regional electricity generators looked at in the study.  A 12% increase over 3.6 million mt is 4.03 million mt.

At something near 3 or 4 million metric tons of emissions saved, would a 10% solar standard help us meet our state emissions reduction goals?  Nowhere near on its own, but it would be a significant step in the right direction, especially when combined with strong action in other sectors like transportation and agriculture.  Think of it as part of the Minnesota version of the wedge game.

Solar access, land use and 30-year planning

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Over at streets.mn, I wrote a piece about the mostly unknown requirement that cities in the metro address solar access in their comprehensive plans, and how we could improve to address the purpose of the requirement.

By law, every community in the seven-county metro is supposed to adopt a comprehensive plan that includes “an element for protection and development of access to direct sunlight for solar energy systems”.  This requirement dates back to 1978, when there was anoil crisis and gasoline was $1.30 per gallon (or, close to what it was in 2011inflation-adjusted).  In 1979, Jimmy Carter put solar panels on the White House.  Reagan took down the solar panels in ’86 and oil got a lot cheaperthrough the late 90′s.

The requirement remains however, even if few communities have ever done anything related to solar after they developed some language for their comprehensive plan.  As we enter this season of plan updates, perhaps it’s time for another look at how solar access, land use, energy and other issues are interrelated, and what are vision is for our energy systems.  Solar power is cheaper than ever, and the message is pretty clear on the need to start decarbonizing our energy system.

Thinking about backup power

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The New York Times reports that post-Sandy “a chimpanzee could sell generators by the truckload.” From their story on the disaster-preparedness economy:

Ms. Giangeruso, who notes that last year, after the “Snowtober storm” on Halloween, her house was powerless for six days. “If we are talking in the neighborhood of $6,000, it is worth every dollar. If I could get it right now, I’d write a check,” she says. “The wives in this area don’t want jewelry for Christmas. They want generators.”

I was curious why this article didn’t mention renewables as a backup at all. Unlike generators, they can be used in non-emergency times to offset some of your utility costs. They also don’t require you to have a large tank (or pipe) of fossil fuel on-site at all times in case of power outage.

On Amazon, you can know purchase a 255 watt solar panel for $334. A 75 ah heavy duty battery will cost you $200. If I’m doing my math correctly, two of these batteries could run an efficient refrigerator for almost two days. You’d never have to worry about your mobile phone (a modern lifeline) running dry.

Given my household’s usage, just four solar panels would offset 30% of our annual electricity usage. A very rough ballpark estimate puts the installed cost, with batteries, at $4,000. Using current electricity prices, that system would have a 23 year payback without rebates, and 8 years with Xcel and federal rebates. Peace of mind during extended outages (however rare) should also add some value.

Depending on your willingness to accept risk, $4,000 or so for such a system might make sense. Does it make sense for a utility? Many mobile data/phone providers are starting to back up their towers with batteries specifically in response to emergency outages. New Jersey also apparently has 200,000 solar panels installed on utility poles throughout the state. Certainly large installations like this could have a climate benefit, but do they make a dent when it comes to emergency power? It seems liked they would have to be paired with distributed battery storage and some way to curtail per-unit usage in an affected area (no plasma screens during emergencies).