Tuesday, February 3, 2015


With the New Year, it’s time for an update on what is happening in the ongoing war between renewables and nuclear power.  So much has happened in just the past few months, making it difficult to tie all the complex pieces of economics, technology, policy, and politics together into a concise picture.  But here is my basic summary, with more detailed information to follow.

The bottom line is that renewables (wind and solar) are now economical, cost competitive, and in some cases, cheaper than coal and nuclear.  Natural gas still seems to be a benchmark fuel to gauge electricity generation costs; but we know that the price can change fairly rapidly, as seen with the current fluctuation with the price of oil.  Setting aside “carbon” issues, the actual cost of generation, and what can be charged to the ratepayer, is what is getting most of the electric industry’s attention.

For almost a hundred years, utilities (such as PG&E, Pacific Power, etc) had the role of generating electricity, distributing it, and selling it to consumers.  In order to keep from creating a nightmare of wires, these utilities were set up to run as monopolies in specific areas, and are usually regulated by a state entity.  The price of electricity delivered was determined by how much it cost the company to generate and transmit, and by how much demand there was.  Since there was no competition, the rate of return would be set by a Public Utilities Commission for each state.  If they built a new power plant to meet anticipated demand, that cost would be amortized into the electricity price.  The more electricity they sold, the more money they would make.  The push was to keep building more power plants to meet more demand.  The boom after WWII saw enormous growth of mainly large centralized coal fired plants, and in the 70’s the construction of relatively cheap nuclear plants sprang up around the country.  Then things changed.  The new awareness of the massive environmental problems in the quality of our air, water, and land; plus the necessary increase in safety and regulation of nuclear reactors all contributed to huge cost increases in building power plants.  In the 90’s, along came “deregulation” which mandated utilities to buy electricity generated by someone other than themselves…small sawmills burning wood wastes, communities with small hydro facilities, wind turbines, etc.  Competition would bring in more efficiency and lower costs.  A lot of utilities such as PG&E sold off most of their power plants.  New companies were created which invested in buying up old facilities, and selling their electricity on the “wide open” national grid to utilities thousands of miles away.  It was/is big business, with many serious abuses; but it worked for a while. 

With new concerns about CO2, climate change, and basic air quality, some states ordered that a certain percentage of a utility’s portfolio be comprised of cleaner “green” electricity such as solar, wind, biomass, etc.  Subsidies and incentives were put in place to attract investment into these fledgling, and at the time, more expensive technologies, with the hope that they would eventually become economically mature.  Well, they have!! The big issue today is that solar and wind prices have been dramatically and consistently coming down to where they are now as cheap, or even cheaper, than what those old coal and nuclear plants can produce.  Coal produces huge amounts of greenhouse gases and other pollutants whose regulations are making them less cost effective. The nuclear industry is crying that the old plants can’t compete with the new price of solar and wind…and they can’t!  It’s like driving across country in a 1972 Buick vs. a new Prius.  The industry realizes that they probably won’t build any new nuclear power plants…the several under construction right now are enormously expensive, over budget, and way behind schedule.  The new hope of smaller modular reactors will not solve the cost and other problems, and are years away from commercialization.  The nuclear companies (Entergy, Excelon, etc.) and the nuclear rich utilities (Duke, Southern, etc.) want to keep their old cheap assets going for as long as they can, and the incompetent and political manipulated Nuclear Regulatory Commission is trying to help them along by issuing dangerous license extensions. 

All this is coming to a head, as the renewable (mostly the solar) revolution is in full swing.  In 2014, solar installation in the US alone was the equivalent of 8 nuclear power plants.  We now have as much solar capacity as almost half the nuclear capacity in this country.  As the renewable industry exponentially expands, the nuclear industry is beginning to shrink, with 5 large reactors retired in 2014 (San Onofre, Vermont Yankee, Kewaunee, ++) and another 12 very close on the chopping block.  It doesn’t look good for the nukes, especially since they are getting old and needing costly upgrades to keep them running.  Another major issue, which will be covered in a later blog, is the realization that huge amounts of money will need to be spent to decommission these plants, and deal with the spent fuel wastes, for which there is no solution in the foreseeable future, other than putting it in casks, and safeguarding it for years (forever)…a very expensive endeavor.

The most interesting aspect in all this is the “state of solar energy” today.  Ten years ago, solar was expensive, and relegated to places where grid electricity was not readily or economically available.  The industry plugged along, lowering cost with new manufacturing technology, while “big business” screamed that is was still too expensive.  The big break came from the Chinese, who broke the 50cent/watt dream a couple of years ago, with the enormous help (subsidy) from the Chinese government.  Our industry, with just a little help from our federal government, and a lot of negative political push from the likes of the Koch brothers, struggled, but stayed the course.  What has now developed, is the solar is cheap and cost effective, and is no longer viewed as just an alternative way to generate one’s own electricity.  It is now a pretty good financial investment.  And what must be added is the reality that thousands of good local jobs have been created, and those numbers will continue to grow.

There are three major players in the solar game.  First, there is the large-scale utility grade solar farms being built, supplying 5, 10, 100, 500+MW of electricity for sale to utilities, at a cost that is competitive with other generation sources. These plants are constructed in a very short period of time…year or two; and once on-line, they operate with no fuel cost and very little operation and maintenance expense.  Most do qualify for a 30% federal tax credit, which is scheduled to be reduced to 10% at the end of 2016; but regardless, as the cost of equipment and construction decreases, the value of the electricity produce over 20-30++ years far outweighs the burden of the current economic investment.  Today, we are seeing Germany offering Saudi Arabia a 15% return on their money invested in German solar technology throughout the world.  The Saudis have the money, the Germans have the technology.  The US could have been in this position today had it not been for the shortsightedness of our so-called energy policy.  Throughout the world, this renewable, emission free electricity is put out on the open market, purchased by utilities, and sold to consumers.  A good basic economic model.

However, there is a huge problem facing the utilities, which they are just beginning to realize, and which threatens them and their “old school” business model.  Enter the individual homeowner.  People are installing small solar systems on their rooftops, generating some (not necessarily) all their electricity, and selling back excess during certain times of the day to their utility.  Since most of these systems are still grid connected, the homeowners save money by not purchasing expensive electricity during the peak hours of the day, and buying less expensive electricity at night.  In most situations, the KWHs sold back into the grid spin the meter backwards, so that the cost received is the retail utility price, and not what the utility would pay for wholesale KWHs.  Unfair, say the utilities…the solar folks are not paying the true, full price for the grid and all that it entails.  Some utilities are trying to add a surcharge to solar customers, removing incentives…all kinds of ways to protect their profits.  One of their concerns, though, is that with the coming of energy storage, whose price is rapidly falling like the cost of solar equipment, they would eventually lose more and more customers as their rates go up.  The issue is similar to the phone landline vs. wire-free cell phones.  ATT still has to maintain the land phone lines to fewer and fewer customers.  The utilities will have to adapt to a new model.  Some suggestions are to segregate the cost of service from the price per KWH.  Typically, about one third of a KWH charge is for the cost of the electricity; one third for moving it around; and another third for the business of doing all this, including profit. They could charge a flat rate for customers to be hooked to the grid ($20-30 per month) and then consumers could opt to buy electricity from whoever they want…the utility, a wind farm, a nuclear power plant (if there is still one), or a community solar system.  This would create a true “free market” which fiscal conservatives argue so much for.  It is a serious and complex issue, and where it goes is anybody’s guess…but there will be a lot of politics involved!

But the biggest threat to the electricity industry, and the biggest boon to consumers, is the growing recognition that investing in solar is a moneymaker!  Not everyone has a great “solar window” on his or her roof. 
Location, vegetation, structures, etc can block full access to the sun.  Some people rent, or live in a place for a limited time and don’t/can’t invest in a long-term solar system.  There are new financial vehicles coming into play that will allow anyone to invest in a solar project…be it on you’re their own roof, or their neighbors roof, or a local church roof…anywhere the sun shines.  You can invest in a recently advertised solar project to put PVs on 2000 rooftops in a new military housing development in San Diego…the return would be about 10% with today’s costs, etc…the financing entity gets 5% and you get 5%.  As long as the sun shines, you make money.  My system here in foggy Humboldt County is estimated to give me a 4% (tax-free) return on my investment…as long as the sun shines.  The solar equipment is almost foolproof (25 year warranty), no maintenance aside from washing the panels down a few times a year, and no worry over the market falling, banks failing…the economic crunch that could happen again.  An exec from Goldman Sachs said that they really weren’t interesting in loaning you money for your rooftop, but 1 million rooftops sure gets their attention.  Solar mortgages…pretty safe!  The cost of solar is estimated to come down another 40% in the next year or so.  Compare this investment with buying General Motors, PG&E, IBM, or any other blue chip stock that pay dividends under 4% taxable…it’s a whole new financial ball game.

One last caveat is the coming of cheap electricity storage…both for large-scale commercial and small scale residential and community applications.  Whether it is batteries, natural gas fuel cells, or whatever, this will phase in over the next few years, and will virtually change the whole electricity market.  Large businesses (Apple, Google, VW etc.) are already on board with their own large facilities; and with storage, the entire grid can be smoothed out over the course of a day, and even into the night.  We most likely won’t be 100% renewable, at least for a long time; but there is no reason to be.  We have sufficient resources of natural gas, hydro, biomass, etc., which if utilized appropriately, efficiently, and economically, can meet our electricity demands.  Things will change, just like computers and cell phones revolutionized our communications.  What will change in electricity is the modernization of the national and local grid, with more small-scale local generation, and a shift away from massively large centralized power plants.  That, along with increasing energy efficiency and using less electricity, will occur over the course of the coming years, as we move towards a more environmentally friendly and sustainable future.

These next few years will see enormous political turmoil where the large “powers” of the traditional energy industries will continue to do everything they can to suppress renewables.  The bottom line is profits…less of which there is with wind and solar…because the fuel is free.  But there are huge profits to be made supplying electricity to meet our demands, and the huge economic and environmental benefits of providing good jobs to our economy.

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