Wednesday, November 2, 2016

Energy cost, energy usage and price trends

1. Change in markets:

One of the more interesting aspect of the energy complex is how things change over time.  If I had written two years ago that solar energy would be cheaper to operate than a natural gas power plant, most would have found this comment as crazy; when in fact the cost of operating (including building and decommissioning) a gas fired power plant is about 3 cents per Watt per hour.  A few months ago, in Dubai, a new solar power plant was build and it sells its power at 2.99 cents per Watt per hour. Now the two are NOT equivalent; gas power station work 24/7, whereas solar plants only work during day time -- so the cost/benefit analysis is somewhat false.  Still this is a huge milestone.

The aggressive installation of solar panels in Australia and in certain other parts of the world has had a massive impact on energy prices.  In certain cities in Australia (where the power market is deregulated) power prices durning the summer at 2 pm in the afternoon (5 years ago that was peak price) went negative for weeks on end.  Homes were net sellers of power and even industry was incentives to build solar farms so that demand for "classic" power infrastructure was negative.  You actually had to pay people to buy your power...Today, even without subsidies the payoff for installing solar panels is in the order of 48 to 60 months.  A simple calculation for both households and industry.  They have begun to change the power map across the world.

2. Consumption timing

Consumption has always been the biggest issue, the variation on consumption by time of day and overall consumption and where that consumption takes place is even more interesting.

The vast majority of energy (electricity) is now being used by industry.  Certainly, during a commercial break during the hockey playoff  (use whatever televised national sport fits) there may be a spike in demand, but these figures are always used to give a sense of how energy demand changes over very brief periods of time.  The fact is that for most utilization 98% of the electricity used is produced immediately, and not stored -- only 2% of energy is stored (hydro mostly).  It gives a sense to the size of the challenge faced by the green energy movement, because in reality its not at 2 pm that we have a problem its at 11 pm -- when the sun is not shinning.

In the very near future, the arrival if the electric car as a consumer product (not yet) is certain to change demand loads -- right now you get home plug your car into the wall -- maybe even your new Powerwall 2, and you recharge your car batterie.  But what happens when 20,000 of your fellow electric car owners -- who count on the grid instead of their powerwall do the same thing?  In fact, the issue for electric cars is that they may actually not be that green, if the power that is used comes from a gas/oil or coal power station -- you have only shifted demand to the electric grid -- you have not reduced overall pollution.

What happens when the average American decides to buy a battery system because the price that the utilities offer for his electricity is simply not worth it anymore.  The impact of wider installation of household solar systems will be to reduce the price utilities pay for that electricity -- which is available at times when the utility may have surplus capacity!  The utilities dilemma is not that they don't want the household generated power, its that they may not need it when its available!  The installation of battery system opens the door

3. Peak load and demand

Never mentioned by green energy proponents is this time shift problem; years ago discussing wind generation in a meeting a guy from GE said:  "You know when wind generation works the worse its when its really really cold or really really hot", and he's right.  Very often green energy is simply not available when its most needed.   Therefore, energy providers need to increase dramatically the availability of gas power stations for when green energy cannot provide -- thereby increasing system costs. Time shifting is the solution; it has two issues -- energy density and costs.

There are three types of power plants that can vary their production level quickly:  Gas, Hydro and Nuclear.  That's it!  Coal power station are becoming less interesting to utilities because they either produce at their full capacity or they are off.  Gas can be increased and decreased in increments over a short period of time, hydro can be turned on or off in instant, the same for nuclear power plants.

4.  Pie in the sky:  The arrival of storage

The fourth solution is dramatically increasing storage availability, and green energy providers need to address this problem head-on and immediately.  Whereas the Chinese have been leading the field in the production of solar panels (they own 95% of global production), the battery technology (storage) is driven by Americans (Tesla) and German (Schwerin and others) companies.  This is where the biggest innovation (and where all the money will be made) will occur and insure that costs, density and availability (when need) milestones are reached.  The efforts of Tesla and its founder are going in the right direction.  The size of the market makes it that Tesla (and now solar city) don't have to worry about competition -- the market is simply too large to worry about that.

The first step was to create storage technology that was built for the average consumer at heart -- the iPhone solution; its plug and play.  The new Tesla batteries come with a pre-installed inverter, the system can be monitored from your cell phone, and all the software is on the web.  It means a simple solution that is affordable for the average consumer.  The cost is still not really there; at US$ 5,000 for 14kw its still pricey -- what I mean is that if you compare the cost of a Gas fired power plant and then consider the equivalent number of batteries the gas fired power plant still wins!

However, one battery in one house is not worth much to a utility, but 1 million batteries will help in meeting peak load demands.  By the way, this will bring interesting change on the power market, because once you consider selling at peak load then the universe of power producers changes... the policy impact (and regulatory impact) are certain to create debate.

5.  Solution & Outcome

In reality, for solar to be really considered a replacement for most standard power plant the cost per Watt/h will have to drop by an order of magnitude.  Already its amazing that solar power that 10 years ago was 20/30 times more expensive than gas is now on par in terms of installed operating costs.

Utilities have for years in the US and elsewhere been forced to buy Green energy from domestic solar installation, but this offering could not be time shifted.  Granted a huge chunk of overall electricity demand comes from industry, but that provides no help to power companies that have to supply for peak load.  The trick is to shift this supply to different times.

Although Dubai bought power at 2.99 cents per Watt/hr its not as valuable to the utility as the nearby gas power station because of this 24/7 availability.  This is the reason that solar has to become cheaper; only when its priced at 0.50 cents per Watt/hrs will the cost be low enough to justify (on a large scale) the implementation of battery technology in a way that provides the grid with sufficient excess reserves to meet its peak demands 24/7.

The green revolution is here to stay, assuming that most will not change their way of life -- they will go home at 6 pm will have dinner (of sort) and will watch TV, then any new solution has to adapt to how people live.  The strength of apple is that you didn't have to bend to technology, the technology worked so that it made your life easier.  If you purchase a Television the remote has dozens of buttons that you cannot figure out what use they have.  You may use them only once when you first install the equipment (and then even less).  The idea for the green energy sector to take over the world is for it to adapt to our needs, or at the very least give us the signal to change our behavior.

The first issue is that equipment cost and efficiency has to rise further -- solar panels are already operating at 15% efficiency -- and there are new panels that are near 21% efficiency (its very good).  Battery system have to be easy to install and require minimal maintenance (and not catch fire).  Solar (and wind) will take over the world once their installed costs is lower than 1 cents Watt/hour -- a third of today's price

Economic signals have to normalize, and the subsidies that solar producer have must disappear (granted they also have to go in the oil& gas sector).  The information age is upon us, and the incentive and date to optimize our energy consumptions are available right now!  However, they are rarely used.  Most utility who have installed smart meters have the data available -- and yet it is neither used or shared.  This metadata is unused.

Certain countries have made an objective that 35% of their energy production has to be green -- that's high, on the other hand it also includes nuclear... gas powered stations are here to stay.  Ideally, already well depreciated they can become the peak providers that the system requires.

Anyway these are a few of my thoughts

Note:  Oil prices are on the slide again, apparently the excess draw of last week was not only a misunderstanding but bad calculation all around.  The world is awash with cheap oil...

P.S.  No position on Telsa or Swering


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