A detailed discussion about the successes, failures, and intent of these two federal programs.
The renewable energy market has been in upheaval since the collapse of the financing sector in 2008. The withdrawal of easy money and uncertainty over federal tax policy has increased perceived risk. Large firms have been shedding renewables subsidiaries and promising newcomers have dropped high-profile projects. Waste Management just sold Wheelabrator, exiting the waste-to-energy market. Brightsource suspended its Hidden HIlls solar thermal project. Much of this activity is driven by the perception that wholesale electricity market prices are falling and the underlying fundamentals will lead to further declines.
This perception is misplaced, however. Short run electricity market prices are falling as natural gas becomes cheaper, and more importantly, fossil fuel generation is squeezed out by increasing renewables and falling demand. However, the electricity marketplace hasn’t yet adjusted to the fact that natural gas generation is no longer the only marginal generation resource. In California, the renewables portfolio standard (RPS) makes at least 33% of the marginal generation from renewable resources. When capital costs are correctly figured in, and more long-term contracts are offered to match those deferred resources, power purchase agreement (PPA) prices for the right types of resources should increase, not decrease.
The problem is that the industry hasn’t been able to adjust its procurement model to reflect this new reality. I think this is coming from a combination of utilities continuing to maintain their monopsony (single buyer) position, risk averse regulatory agencies still relying on an obsolete procurement regulatory process, and those agencies enforcing the monopsony power of the utilities in the name of protecting ratepayers. This may not change until there is public acknowledgement that this situation exists. The difficulty is finding the right stakeholders with enough sway to raise the issue.
Technologies and policies that enhance the development of decentralized energy resources have generated increasing interest over the last couple of years. I’ll write more in the future about what are the underlying drivers, both technological and institutional.
I’ve been interested in the question of where do we stand, and how long might it take for diffusion of these new technologies. We can look back and see how technology transformed lives in just a couple of decades. Compare kitchens from 1900 and 1930; if we walked into the earlier kitchen, most of us would be lost, but we could whip up a meal in 1930.
Or the rapid adoption of autos. In 1909, people could stand in the middle of Pike Street in Seattle and talk:
Not so safely in 1930:
Do we stand today at a point just at the onset of a new technological evolution?
One question to be answered is whether our institutional settings will allow these new technologies. In one case, it appears that Germany has already chosen its road. But in the US, whether we rely on central power stations using transmission lines may still be a question in play. That deserves a separate post of its own.
If we assume that we choose the decentralized path, what might we expect in when these technologies are adopted widely. A couple of graphics illustrate historic diffusion rates. This is one from VisualEconomics via The Atlantic:
Another one from Forbes via The Technium shows the parallel development paths (however, I don’t like starting at the year of invention instead of a threshold adoption level):
One might interpret the upper graph as showing accelerating adoption rates. But I interpret the lower chart as illustrating at least two factors that drive diffusion: the relative importance of network infrastructure and the expense relative to individual wealth. Autos, telephones and electricity all required construction of a large network of roads or wires, often funded with public investment. Individuals can’t choose to adopt the technology until a larger public decision is made to facilitate that adoption. As to expense, refrigerators and dishwashers were large household investments for many years, and cars are still a large single expenditure. On the other hand, cell phones, radios and televisions quickly became inexpensive which lubricated diffusion. We need another graphic showing how diffusion rates relate to these two different axes.
We are still unsure where decentralized energy technologies will fall among these characteristics. They may seem small and inexpensive, but enough solar panels to power a house will still be several thousand dollars for the foreseeable future. And the how much electric network investment is required to integrate these resources is the center of the debate over technology policies.
Too often studies making forecasts and policy recommendations don’t consider what adoption rates are feasible or probable. However a study comes along and incorporates this concept as its centerpiece. A good example is the Clean Energy Vision Project’s Western Grid 2050 report. Lead by a former colleague Carl Linvill, who’s now at the Regulatory Assistance Project, it looked at several different scenarios for technology diffusion. Such studies give us a better understanding of what’s actually possible rather than what we wish for.
Sunil Paul of Side Car wrote on LinkedIn about how the emergence of the “peer economy” has allowed the emergence of new economic transactions. Side Car uses a smartphone app much like Uber and Lyft to connect riders with drivers to connect for quickly arranged trips.
Paul writes: “The peer economy is the growing business segment of transactions between individuals – one person to another – without a middleman to manage and package it. Think eBay for everything. ” He goes on to say, “(t)o win in the emerging peer economy, it’s important for companies and organizations to listen to what is possible with the technology and connect that with the needs of consumers and businesses. ”
The electricity industry appears to be on the verge of entering the transition to the peer economy with self-sustaining households and neighborhood microgrids. The single largest barrier is institutional, not technological, from the incumbent utility industry. We need to consider innovative strategies and policies to have them embrace this transition rather than resist it.
At M.Cubed we’re working on those solutions–the objective is not to try to bull over the utilities because that is a sure loser in the political world. There are ways for change the perspective so that the the utilities can see their advantage. We did that for the mobilehome park industry in California when we got PG&E to back conversion of aging master-metered electricity and gas systems to utility ownership. Look for more from us on this topic in the near future.
Two blog posts of interest on how climate change policy needs to focus on the much bigger picture and not just on local, or even statewide, strategies. If local and state policies are not attractive and readily transferable to other jurisdictions then we’re wasting our time (, California…) Getting the last ton can be counterproductive if it creates too much complexity or becomes politically unpalatable.
Severin Borenstein from UC Berkeley on California’s policies.