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.
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.
