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With Feb. Service Cuts Still Fresh, Texas Heat Squeezes ERCOT
Electricity Currents A survey of trends and insights in electricity restructuring
Coal Is Bad. Nukes Not So Good. So What Now? Generalizations, like making predictions about the future, are dangerous. Yet recent developments suggest that many countries, certainly those within the OECD block, are making concerted efforts to wean themselves from a heavy reliance on coal-fired generation going forward. The trend is evident even in countries such as the U.S. where there is no coherent – or for that matter incoherent – energy or climate policy. The European Union’s target to reduce its greenhouse gas (GHG) emissions 20 percent by 2020 puts Europe on a similar trajectory. The UK, for example, is in the midst of a debate to modify its electricity market rules specifically to move towards a low-carbon energy mix. The province of Ontario, in sharp contrast to Alberta, is phasing out all its coal-fired generation by 2014 – and it has little to do with climate but driven by health and environmental concerns. Coal, aside from being carbonheavy, is damaging in other ways. Even Australia, a major coal burning and coal exporting country, is making efforts to reduce its overwhelming dependence on coal.
Continued on page 6
In Electricity Currents This Month: Coal Is Bad. Nukes Not So Good. So What Now?. . . . . . . . . . . . . . . . . With Feb. Service Cuts Still Fresh, Texas Heat Squeezes ERCOT. . . . . . . ‘Grid Parity’ Talk Aside, Fiscal Woes Undermine Renewables Subsidies . . . . Keep on Fracking? Criticism Grows, but Impact Not Clear . . . . . . . . . . . . Post-Fukushima Japan Shows How to Save Energy Fast . . . . . . . . . . . . .
. . .. . .1 . . .. . .1 . . .. . .3 . . .. . .4 . . .. . .5
Electricity Currents is compiled from the monthly newsletter EEnergy Informer published by Fereidoon P. Sioshansi, President of Menlo Energy Economics, a consultancy based in San Francisco. He can be reached at [email protected].
With Feb. Service Cuts Still Fresh, Texas Heat Squeezes ERCOT It has been a hellishly hot summer in many parts of America, with temperature records set and broken in quick succession in July and August. Parts of Texas and Oklahoma, for example, suffered over a month of triple-digit temperatures. Coupled with a severe drought and no prospect for relief, the air conditioners have been humming around the clock since July – at least for those who are lucky enough to have them and the financial wherewithal to run them.
October 2011, Vol. 24, Issue 8
1040-6190/$–see front matter
1
The market operator, the Electric Reliability Council of Texas (ERCOT), has not fared well during the unusual heat wave. Demand for electricity in July was 12 percent higher than the prior record for the month. ERCOT announced what everybody in the streets already knew, that July 2011 has been among the hottest in the state’s history, but August did not shape up to be much better. On three hot days in August, ERCOT set successive new records for peak demand, hitting an all-time record of 68,294 GW on Aug. 3, 2011, considerably above the prior record of 65,776 GW set the prior summer. The forecast for this summer’s peak demand, based on summer average highs for the past 10 years, was expected around 63,800 MW. ERCOT did not expect to encounter this high a peak demand until 2014 at the earliest. ERCOT forecasters, it appears, need to go back to the drawing board or training class. ERCOT’s CEO, Trip Doggett, said, ‘‘I think this will go down as one of the hottest summers on record.’’ Meteorologists may beg to differ. Call it climate change or what you may, but weather patterns around the world are changing in noticeable ways. Storms and monsoons are getting fiercer, and hurricanes appear more frequent and have more punch, and droughts are becoming more pronounced – to name a few. If so, ERCOT’s peak next summer may set a new record, also out of line with the historical patterns. The August peak was too close for comfort given that ERCOT’s total installed capacity is around 73,000 MW. But as everyone knows, what is installed need not necessarily be available when you need it. During the peak on Aug. 3, some 5,000 MW were offline. Had as little as another 1,000 MW been unavailable for whatever reason, ERCOT would have had to resort to rolling blackouts. As it was, ERCOT’s operating reserves were down to 1,375 MW at the peak of the crisis, a margin too narrow for any grid operator. ERCOT took the prudent precaution of curtailing service to a number of large industrial customers, most of 2
1040-6190/$–see front matter
whom are on interruptible rates specifically for emergencies like this. Most customers who sign up for interruptible rates, however, are so infrequently interrupted that they are not always prepared to cope with service disruptions. Aside from being too close to running out of juice, literally, ERCOT experienced extremely high wholesale prices, repeatedly hitting the limit of $3,000/MWh, which is three times higher than what is allowed in most other U.S. organized wholesale markets. During such episodes, generators who can deliver juice reap huge profits over a few hours. Normal wholesale prices in ERCOT rarely exceed $50/MWh. Even though most customers are protected from these temporary price spikes, the newspaper headlines can be frightening, just as large price swings in the stock market unnerves investors. Another peculiarity of Texas is that, for historical reasons, the state’s electricity grid operates as a virtual island, with minimal interconnections to the two major North American grids in the East and the West. This leaves ERCOT especially vulnerable at times such as during the recent episode. Moreover, as is common in many regions, wind generation in Texas is negatively correlated with peak demand in the sense that little wind generally blows when it is most needed. The same phenomenon is regularly experienced in California. No exception occurred during the recent episode, when most of the nearly 10 GW of installed wind capacity in West Texas sat idle. Fortunately for ERCOT, a relatively small number of wind farms recently installed along the Gulf of Mexico contributed roughly 2,000 MW to the peak. They may have saved the day. ‘‘Coastal wind accounts for about 13 percent of ERCOT’s wind generation, but it was providing as much as 70 percent of wind generation (during the) week,’’ according to Doggett. ‘‘We’d love to have more development of coastal wind,’’ he said, ‘‘and we’re hoping their ability to generate during the peak hours may encourage more development in that area.’’ Texas has had other close calls, most recently during a cold spell in February 2011, when The Electricity Journal
demand for electricity surged while over 150 generating plants were offline for routine maintenance or could not get started in time due to the freezing temperatures and equipment failures. The February episode was a huge embarrassment for ERCOT when parts of Houston, known as the energy capital of the U.S., suffered service interruptions. One newspaper headline, for example, read, ‘‘The Energy Capital in the Dark.’’ Having suffered another blackout in August would have been devastating. & doi:/10.1016/j.tej.2011.09.012
‘Grid Parity’ Talk Aside, Fiscal Woes Undermine Renewables Subsidies Despite all the talk about renewable energy resources reaching grid parity, they remain expensive, especially with currently low natural gas prices and considering the fact that most renewable generation need considerable backup to overcome their intermittent and unpredictable nature. Take away the financial subsidies, be it generous feed-in tariffs (FITs), tax credits, or mandatory renewable portfolio standards (RPS) and investment in renewable generation falls off dramatically. In 2010, global support for renewable energy peaked at $74.5 billion, according to Bloomberg New Energy Finance (BNEF). But the debt crisis and continuing weaknesses in the financial sector means that governments in many parts of the world cannot afford to be as generous to the renewable sector as they have been in the past – or would like to be. It is a matter of balancing the budget in many cases, most notably in the U.S., which has lived beyond its means for too long. The implications could prove dire for the rapidly growing renewable sector, which has gotten used to the subsidies. BNEF predicts global support for the sector to drop to $68 billion in 2011, and October 2011, Vol. 24, Issue 8
possibly as low as $21.4 by 2013. Renewable developers and investors have to get used to the austerity measures that now appear inevitable in many of the key markets. In the U.S., for example, direct spending, tax breaks, and research funding totaled $14.7 billion in 2010, according to Alan Beamon of the Energy Information Administration (EIA). The support is projected to decline in the coming years due to the pressure to balance the budget and reduce the country’s unsustainable debt. U.S. renewable subsidies are expected to decline beginning this year, falling by as much as 77 percent by 2016 from the all-time record reached in 2010, according to the Office of Management and Budget (OMB) – although these numbers could move in either direction depending on the political debate now raging in the US Congress. Other reasons to be concerned include: Federal taxes: The current tax code includes a number of benefits for the renewable and energy efficiency sector worth an estimated $24.2 billion through 2014, with another $17.9 targeted for the oil, gas, and coal sector. These subsidies will be scrutinized in the coming months; Tax credits: The current production tax credit (PTC) for wind and investment tax credit (ITC) for solar and geothermal energy are due to expire at the end of 2012 and 2016, respectively. There will be increased pressures in extending these for the same reasons; and Stimulus funding: The 2009 bill provided $65 billion funding for clean energy and energy efficiency. This funding is due to run out by mid-2012. The fate of an extension is not assured. While the cost of renewable generation has declined and state-level mandatory RPS targets will remain in effect, direct subsidies will be under pressure – which means that the renewable sector has to work harder to remain viable. It also means that increasingly the utility customers, as opposed to U.S. taxpayers, will have to bear the brunt of any cost increases associated with meeting the RPS standards. 1040-6190/$–see front matter
3
Coal Is Bad. Nukes Not So Good. So What Now? Generalizations, like making predictions about the future, are dangerous. Yet recent developments suggest that many countries, certainly those within the OECD block, are making concerted efforts to wean themselves from a heavy reliance on coal-fired generation going forward. The trend is evident even in countries such as the U.S. where there is no coherent – or for that matter incoherent – energy or climate policy. The European Union’s target to reduce its greenhouse gas (GHG) emissions 20 percent by 2020 puts Europe on a similar trajectory. The UK, for example, is in the midst of a debate to modify its electricity market rules specifically to move towards a low-carbon energy mix. The province of Ontario, in sharp contrast to Alberta, is phasing out all its coal-fired generation by 2014 – and it has little to do with climate but driven by health and environmental concerns. Coal, aside from being carbonheavy, is damaging in other ways. Even Australia, a major coal burning and coal exporting country, is making efforts to reduce its overwhelming dependence on coal.
Continued on page 6
In Electricity Currents This Month: Coal Is Bad. Nukes Not So Good. So What Now?. . . . . . . . . . . . . . . . . With Feb. Service Cuts Still Fresh, Texas Heat Squeezes ERCOT. . . . . . . ‘Grid Parity’ Talk Aside, Fiscal Woes Undermine Renewables Subsidies . . . . Keep on Fracking? Criticism Grows, but Impact Not Clear . . . . . . . . . . . . Post-Fukushima Japan Shows How to Save Energy Fast . . . . . . . . . . . . .
. . .. . .1 . . .. . .1 . . .. . .3 . . .. . .4 . . .. . .5
Electricity Currents is compiled from the monthly newsletter EEnergy Informer published by Fereidoon P. Sioshansi, President of Menlo Energy Economics, a consultancy based in San Francisco. He can be reached at [email protected].
With Feb. Service Cuts Still Fresh, Texas Heat Squeezes ERCOT It has been a hellishly hot summer in many parts of America, with temperature records set and broken in quick succession in July and August. Parts of Texas and Oklahoma, for example, suffered over a month of triple-digit temperatures. Coupled with a severe drought and no prospect for relief, the air conditioners have been humming around the clock since July – at least for those who are lucky enough to have them and the financial wherewithal to run them.
October 2011, Vol. 24, Issue 8
1040-6190/$–see front matter
1
The market operator, the Electric Reliability Council of Texas (ERCOT), has not fared well during the unusual heat wave. Demand for electricity in July was 12 percent higher than the prior record for the month. ERCOT announced what everybody in the streets already knew, that July 2011 has been among the hottest in the state’s history, but August did not shape up to be much better. On three hot days in August, ERCOT set successive new records for peak demand, hitting an all-time record of 68,294 GW on Aug. 3, 2011, considerably above the prior record of 65,776 GW set the prior summer. The forecast for this summer’s peak demand, based on summer average highs for the past 10 years, was expected around 63,800 MW. ERCOT did not expect to encounter this high a peak demand until 2014 at the earliest. ERCOT forecasters, it appears, need to go back to the drawing board or training class. ERCOT’s CEO, Trip Doggett, said, ‘‘I think this will go down as one of the hottest summers on record.’’ Meteorologists may beg to differ. Call it climate change or what you may, but weather patterns around the world are changing in noticeable ways. Storms and monsoons are getting fiercer, and hurricanes appear more frequent and have more punch, and droughts are becoming more pronounced – to name a few. If so, ERCOT’s peak next summer may set a new record, also out of line with the historical patterns. The August peak was too close for comfort given that ERCOT’s total installed capacity is around 73,000 MW. But as everyone knows, what is installed need not necessarily be available when you need it. During the peak on Aug. 3, some 5,000 MW were offline. Had as little as another 1,000 MW been unavailable for whatever reason, ERCOT would have had to resort to rolling blackouts. As it was, ERCOT’s operating reserves were down to 1,375 MW at the peak of the crisis, a margin too narrow for any grid operator. ERCOT took the prudent precaution of curtailing service to a number of large industrial customers, most of 2
1040-6190/$–see front matter
whom are on interruptible rates specifically for emergencies like this. Most customers who sign up for interruptible rates, however, are so infrequently interrupted that they are not always prepared to cope with service disruptions. Aside from being too close to running out of juice, literally, ERCOT experienced extremely high wholesale prices, repeatedly hitting the limit of $3,000/MWh, which is three times higher than what is allowed in most other U.S. organized wholesale markets. During such episodes, generators who can deliver juice reap huge profits over a few hours. Normal wholesale prices in ERCOT rarely exceed $50/MWh. Even though most customers are protected from these temporary price spikes, the newspaper headlines can be frightening, just as large price swings in the stock market unnerves investors. Another peculiarity of Texas is that, for historical reasons, the state’s electricity grid operates as a virtual island, with minimal interconnections to the two major North American grids in the East and the West. This leaves ERCOT especially vulnerable at times such as during the recent episode. Moreover, as is common in many regions, wind generation in Texas is negatively correlated with peak demand in the sense that little wind generally blows when it is most needed. The same phenomenon is regularly experienced in California. No exception occurred during the recent episode, when most of the nearly 10 GW of installed wind capacity in West Texas sat idle. Fortunately for ERCOT, a relatively small number of wind farms recently installed along the Gulf of Mexico contributed roughly 2,000 MW to the peak. They may have saved the day. ‘‘Coastal wind accounts for about 13 percent of ERCOT’s wind generation, but it was providing as much as 70 percent of wind generation (during the) week,’’ according to Doggett. ‘‘We’d love to have more development of coastal wind,’’ he said, ‘‘and we’re hoping their ability to generate during the peak hours may encourage more development in that area.’’ Texas has had other close calls, most recently during a cold spell in February 2011, when The Electricity Journal
demand for electricity surged while over 150 generating plants were offline for routine maintenance or could not get started in time due to the freezing temperatures and equipment failures. The February episode was a huge embarrassment for ERCOT when parts of Houston, known as the energy capital of the U.S., suffered service interruptions. One newspaper headline, for example, read, ‘‘The Energy Capital in the Dark.’’ Having suffered another blackout in August would have been devastating. & doi:/10.1016/j.tej.2011.09.012
‘Grid Parity’ Talk Aside, Fiscal Woes Undermine Renewables Subsidies Despite all the talk about renewable energy resources reaching grid parity, they remain expensive, especially with currently low natural gas prices and considering the fact that most renewable generation need considerable backup to overcome their intermittent and unpredictable nature. Take away the financial subsidies, be it generous feed-in tariffs (FITs), tax credits, or mandatory renewable portfolio standards (RPS) and investment in renewable generation falls off dramatically. In 2010, global support for renewable energy peaked at $74.5 billion, according to Bloomberg New Energy Finance (BNEF). But the debt crisis and continuing weaknesses in the financial sector means that governments in many parts of the world cannot afford to be as generous to the renewable sector as they have been in the past – or would like to be. It is a matter of balancing the budget in many cases, most notably in the U.S., which has lived beyond its means for too long. The implications could prove dire for the rapidly growing renewable sector, which has gotten used to the subsidies. BNEF predicts global support for the sector to drop to $68 billion in 2011, and October 2011, Vol. 24, Issue 8
possibly as low as $21.4 by 2013. Renewable developers and investors have to get used to the austerity measures that now appear inevitable in many of the key markets. In the U.S., for example, direct spending, tax breaks, and research funding totaled $14.7 billion in 2010, according to Alan Beamon of the Energy Information Administration (EIA). The support is projected to decline in the coming years due to the pressure to balance the budget and reduce the country’s unsustainable debt. U.S. renewable subsidies are expected to decline beginning this year, falling by as much as 77 percent by 2016 from the all-time record reached in 2010, according to the Office of Management and Budget (OMB) – although these numbers could move in either direction depending on the political debate now raging in the US Congress. Other reasons to be concerned include: Federal taxes: The current tax code includes a number of benefits for the renewable and energy efficiency sector worth an estimated $24.2 billion through 2014, with another $17.9 targeted for the oil, gas, and coal sector. These subsidies will be scrutinized in the coming months; Tax credits: The current production tax credit (PTC) for wind and investment tax credit (ITC) for solar and geothermal energy are due to expire at the end of 2012 and 2016, respectively. There will be increased pressures in extending these for the same reasons; and Stimulus funding: The 2009 bill provided $65 billion funding for clean energy and energy efficiency. This funding is due to run out by mid-2012. The fate of an extension is not assured. While the cost of renewable generation has declined and state-level mandatory RPS targets will remain in effect, direct subsidies will be under pressure – which means that the renewable sector has to work harder to remain viable. It also means that increasingly the utility customers, as opposed to U.S. taxpayers, will have to bear the brunt of any cost increases associated with meeting the RPS standards. 1040-6190/$–see front matter
3