Category Archives: Electric Power

Renewable Power Gains, Costs, and Fantasies

01 Thursday Jul 2021

Posted by in Electric Power, Renewable Energy

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“Modern” renewable energy sources made large gains in providing for global energy consumption over the ten years from 2009-19, according to a recent report, but that “headline” is highly misleading. So is a separate report on the costs of solar and wind power, which claims those sources are now cheaper than any fossil fuel. The underlying facts will receive little critical examination by a hopelessly naive press, nor among analysts with more technical wherewithal. Of course, “green” activists will go on using misinformation like this to have their way with policy makers.

Extinguishing Dung Fires

The “Renewables Global Status Report” was published in mid-June by an organization called REN21: Renewables Now. Francis Menton has a good discussion of the report on his blog, The Manhattan Contrarian. The big finding is a large increase in the global use of “modern” renewable energy sources, from 8.7% of total consumption in 2009 to 11.2% in 2019. The “modern” qualifier is critical: it distinguishes renewables that made gains from those that might be considered antiquated, like dung chips, the burning of which is an energy staple in many underdeveloped parts of the world. In fact, the share of those “non-modern renewables” declined from 11.0% to 8.7%, almost fully accounting for the displacement caused by “modern renewables”. The share of fossil fuels was almost unchanged, down from 80.3% in 2009 to 80.2% in 2019. Whatever the benefits of wind, solar, and other modern green power sources, they did not make much headway in displacing reliable fossil fuel energy.

I certainly can’t argue that replacing dung power with wind, solar, or hydro is a bad thing (but there are more sophisticated ways of converting dung to energy than open flame). However, I contend that replacing open dung fires with fossil-fuel or nuclear capacity would be better than renewables from both a cost and an environmental perspective. Be that as it may, the adoption of “modern renewables” over the ten-year period was not at the expense of fossil fuels, as might be expected if the latter was at a cost disadvantage, and remember that renewables were already given an edge via intense government efforts to subsidize and even require the use of wind and solar power.

The near-term limits on our ability to substitute renewables for fossil fuels should be fairly obvious. For one thing, renewable power is intermittent, so it cannot be relied upon for baseload generation. The chart at the top of this post demonstrates this reality, though the chart is “optimistic” in the sense that planners have to consider worst-case intermittency, not merely average production by time-of-day. Reliable power sources must be maintained in order to prevent the kinds of disasters like we saw in Texas last winter when demand spiked and output from renewables plunged. This is an area of considerable denialism: a search on “intermittent renewables” gets you an unending list of rosy assessments of energy storage technologies, and very little realistic commentary on today’s needs for meeting base-load or weather-induced demands.

While renewables account for about 29% of global electricity generation, there is another limit on adoption: certain jobs just can’t be done with renewables short of major advances in battery technology. As Menton says:

“Steel mills and tractor trailer trucks and airplanes powered by solar panels? Not happening. … I think these people really believe that if governments will just do the right thing and require airplanes to run on solar panels, then it will promptly happen.”

Cost and Intermittency

Again, we’d expect to see more rapid conversion to renewable energy, at least in compatible applications, as the cost of renewables drops relative to fossil fuels. And major components of their costs have indeed dropped, so much so that the U.S. Energy Information Administration (EIA) now says they are cheaper than fossil fuels in terms of the “levelized cost” of new electric generating capacity. That’s the average cost per megawatt-hour produced over the life of a new installation. The EIA’s calculations are distorted on at least two counts, however, as Willis Eschenbach ably explains here.

The EIA’s cost figures reflect a “capacity factor” that adjusts the megawatts produced to presumed “real world” conditions. It’s more like a utilization adjustment made necessary by a variety of realities (intermittency as well as other technical imperfections) that cause output to run lower than the maximum under ideal conditions. Eschenbach reports that the factors applied by the EIA for solar and wind, at 30% and 41%, respectively, are overstated drastically, which reduces their cost estimates by overstating output. For solar, he cites a more realistic value of 14%, which would more than double the levelized cost of solar. For wind, he quotes a figure of 30%, which would increase the cost of wind power by more than a third. That puts the cost of those renewables well above that of a “combined-cycle gas” plant, which uses exhaust from gas turbines to generate additional power via steam.

The true costs of renewables are likely much higher than nuclear power as well, based on earlier comparisons of nuclear to combined-cycle gas. The EIA does not report a cost for nuclear power, however, because the report is for new capacity, and no additions of nuclear capacity are expected.

The Cost of Back-Up Capacity

Eschenbach notes a second major problem with the EIA cost comparisons. As discussed above, the intermittency of solar and wind power means that their deployment cannot provide for base loads. Other “dispatchable” power technologies, on which production can be ramped up or down at discretion, must be available to meet power needs when renewables are off-line, as is frequently the case. The more we attempt to rely on renewables, the more significant the intermittency problem becomes, as Germany, Texas, and California are discovering.

How to account for the extra cost of dispatchable power required to smooth production or meet peak demand? Renewables are simply incapable of doing so reliably, and back-up capacity ain’t free! Meeting demand at all times requires equivalent dispatchable capacity in the power mix. It requires not just dispatchable baseload capacity, but surge capacity! Meeting long-term growth in demand with renewables implies that new back-up capacity is required as well, and the levelized cost should reflect it. After all, those costs won’t be saved by virtue of adding renewable capacity, unless you plan on blackouts. Thus, the EIA’s levelized cost comparisons of wind, solar and fossil fuel electricity generation are completely phony.

Conclusion

Growth in wind and solar power increased their contribution to global energy needs to more than 11% in 2019, but their gains over the previous ten years came largely at the expense of more “primitive” renewable energy sources, not fossil fuels. And despite impressive declines in the installation costs of wind and solar power, and despite low variable costs, the economics of power generation still favors fossil fuels rather substantially. In popular discussions, this point is often obscured by the heavy subsidies granted to renewables. 

In truth, the “name-plate” capacities of wind and solar installations far exceed typical output, so installation costs are spread over less output than is widely believed. Furthermore, the intermittency of production from these renewable sources means that back-up capacity is still required, almost always from plants fired by fossil fuels. Properly considered, this represents a significant incremental cost of renewable power sources, but it is one that is routinely ignored by environmentalists and even in official reports. It’s also worth noting that “modern” renewables carry significant external costs to the environment both during the useful life of plant and at disposal (and see here). It’s tempting to say all these distortions and omissions are deliberate contributions to the propaganda in favor of government mandates for renewables.

Texas Cold Snap Scarcity: Don’t Blame Markets!

18 Thursday Mar 2021

Posted by in Electric Power, Price Mechanism, Renewable Energy, Shortage

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People say the darnedest things about markets, even people who seem to think markets are good, as I do. For example, when is a market “too efficient”? In the real world we tend to see markets that lack perfect efficiency for a variety of reasons: natural frictions, imperfect information, taxes, subsidies, regulations, and too few sellers or buyers. In such cases, we know that market prices don’t properly reflect the true scarcity of a good, as they would under the competitive ideal. Nevertheless, we are usually best-off allowing market forces to approximate true conditions in guiding the allocation of resources. But what does it mean when someone asserts that a market is “too efficient”.

Not long ago I posted about the failure of Texas utility planners to maintain surge capacity. Instead, they plowed resources into renewable energy, which is intermittent and unable to provide for reliable baseline power loads. That spelled disaster when temperatures plunged in February. Wind and solar output plunged while demand spiked. Even gas- and coal-fired power generation hit a pause due to a lack of adequate winterization of generators. The result was blackouts and a huge jump in wholesale power prices, which are typically passed on to customers. The price to some consumers rose to the ceiling of $9/kwh for a time, compared to an average winter rate of 12c/kwh. A bill in the Texas Senate would reverse those charges retroactively.

I cross-linked my post on a few platforms, and a friendly commenter opined that the jump in prices occurred because “markets were too efficient”. For a moment I’ll set aside the fact that what we have here is a monopoly grid operator: “market efficiency” is not a real possibility, despite elements of competition at the retail level. There is, however, a price mechanism in play at the wholesale level and for retail customers on variable rate plans. Prices are supposed to respond to scarcity, and there is no question that power became scarce during the Texas cold snap. Higher prices are both an incentive to curtail consumption and to increase production or attract product from elsewhere. So, rather than saying the “market was too efficient”, the commenter should have said “power was too scarce”! Well duh…

If anything, the episode underscores how un-market-like were the conditions created by the Texas grid operator, the ironically-named Electric Reliability Council of Texas (ERCOT): it allowed massive resources to be diverted to unreliable power sources; it skimped on winterization; it failed to arrange interconnection agreements with power grids outside of Texas; and it charged customers on fixed-rate plans too little to provide for adequate surge capacity, while giving them no incentive to conserve under a stress scenario. ERCOT can be said to have created a situation in which power supply was highly inelastic, which means that a normal market force was short-circuited at a time when it was most needed.

ERCOT‘s mismanagement of power resources is partly a result of incentives created by the federal government. The installation of wind and solar power generation came with huge federal subsidies, which distort the cost of the energy they produce. Thus, not only were incentives in place to invest in unreliable power sources, but ERCOT forced electricity produced by fossil fuels to compete at unrealistically low prices. This predatory pricing forced several power producers into bankruptcy, compromising the state’s baseline and surge capacity.

There are plenty of distortions plaguing the “market” for electric power in Texas, all of which worsened the consequences of the cold snap. This was far from a case of “market efficiency”, as the comment on my original post asserted.

The very idea that markets and the price mechanism are “ruthlessly efficient” is a concession to those who say high prices are always “unfair” in times of crises and shortages. We hear about “price-gougers”, and the media and politicians are almost always willing to join in this narrative. Higher prices help to ease shortages, and they do so far more quickly and effectively than governments or charities can provide emergency supplies (unless, of course, a monopoly grid operator leaves the state more vulnerable to stress conditions than necessary). Conversely, price ceilings only serve to exacerbate shortages and the suffering they cause. So let’s not blame markets, which are never “too efficient”; sometimes the things we trade are just too scarce, and sometimes they are made more scarce by inept planners.

Everything’s Big In Texas Except Surge Capacity

01 Monday Mar 2021

Posted by in Electric Power, Price Mechanism, Shortage

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The February cold snap left millions of Texas utility customers without power. I provide a bit of a timeline at the bottom of this post. What happened? Well, first, don’t waste your time arguing with alarmists about whether “climate change” caused the plunge in temperatures. Whether it was climate change (it wasn’t) or anything else, the power shortage had very nuts-and-bolts causes and was avoidable.

Texas has transitioned to producing a significant share of its power with renewables: primarily wind and solar, which is fine across a range of weather conditions, though almost certainly uneconomic in a strict sense. The problem in February was that the state lacks adequate capacity to meet surges under extreme weather conditions. But it wasn’t just that the demand for power surged during the cold snap: renewables were not able to maintain output due to frozen wind turbines and snow-covered solar panels, and even some of the gas- and coal-fired generators had mechanical issues. The reliability problem is typical of many renewables, however, which is why counting on it to provide base loads is extremely risky.

Judith Curry’s web site featured an informative article by a planning engineer this week: “Assigning Blame for the Blackouts in Texas”. The Electric Reliability Council of Texas (ERCOT) is the independent, non-profit operator of the state’s electric grid, with membership that includes utilities, electric cooperatives, other sellers, and consumers. Apparently ERCOT failed to prepare for such an extreme weather event and the power demand it engendered:

“… unlike utilities under traditional models, they don’t ensure that the resources can deliver power under adverse conditions, they don’t require that generators have secured firm fuel supplies, and they don’t make sure the resources will be ready and available to operate.”

ERCOT’s emphasis on renewables was costly, draining resources that otherwise might have been used to provide an adequate level of peak capacity and winterization of existing capacity. Moreover, it was paired with a desire to keep the price of power low. ERCOT has essentially “devalued capacity”:

“Texas has stacked the deck to make wind and solar more competitive than they could be in a system that better recognizes the value of dependable resources which can supply capacity benefits. … capacity value is a real value. Ignoring that, as Texas did, comes with real perils. … In Texas now we are seeing the extreme shortages and market price spikes that can result from devaluing capacity. “

Lest there be any doubt about the reliance on renewables in Texas, the Heartland Institutes’s H. Sterling Burnett notes that ERCOT data:

“… shows that five days before the first snowflake fell, wind and solar provided 58% of the electric power in Texas. But clouds formed, temperatures dropped and winds temporarily stalled, resulting in more than half the wind and solar power going offline in three days never to return during the storm, when the problems got worse and turbines froze and snow and ice covered solar panels.”

Power prices must cover the cost of meeting “normal” energy needs as well as the cost of providing for peak loads. That means investment in contracts that guarantee fuel supplies as well as peak generating units. It also means inter-connectivity to other power grids. Instead, ERCOT sought to subsidize costly renewable power in part by skimping on risk-mitigating assets.

Retail pricing can also help avert crises of this kind. Texas customers on fixed-rate plans had no incentive to conserve as temperatures fell. Consumers can be induced to lower their thermostats with variable-rate plans, and turning it down by even a degree can have a significant impact on usage under extreme conditions. The huge spike in bills for variable-rate customers during the crisis has much to do with the fact that too few customers are on these plans to begin with. Among other things, Lynne Kiesling and Vernon L. Smith discuss the use of digital devices to exchange information on scarcity with customers or their heating systems in real time, allowing quick adjustment to changing incentives. And if a customer demands a fixed-rate plan, the rate must be high enough to pay the customer’s share of the cost of peak capacity.

Price incentives make a big difference, but there are other technological advances that might one day allow renewables to provide more reliable power, as discussed in Tyler Cowen’s post on the “energy optimism” of Austin Vernon”. I find Vernon far too optimistic about the near-term prospects for battery technology. I am also skeptical of wind and solar due to drawbacks like land use and other (often ignored) environmental costs, especially given the advantages of nuclear power to provide “green energy” (if only our governments would catch on). The main thing is that sufficient capacity must be maintained to meet surges in demand under adverse conditions, and economic efficiency dictates that that it is a risk against which ratepayers cannot be shielded.

Note: For context on the chart at the top of this post, temperatures in much of Texas fell on the 9th of February, and then really took a dive on the 14th before recovering on the 19th. Wind generation fell immediately, and solar power diminished a day or two later. Gas and coal helped to offset the early reductions, but it took several days for gas to ramp up. Even then there were shortages. Then, on the 16th, there were problems maintaining gas and coal generation. Gas was still carrying a higher than normal load, but not enough to meet demand.