Friday, November 13, 2015

Energy: Big Electric versus Big Oil

Most nations of the world take seriously the need to minimize the burning of fossil fuels if an eventual climate disaster is to be avoided.  Alternate sources of power include solar, wind, hydroelectric and geothermal.  These renewable sources produce energy in the form of electric power.  Much of our energy consumption is via electric power and the substitution of renewable sources for fossil fuel sources is straightforward—at least for the consumer.  The area in which the conversion to renewable power sources is most difficult to deal with is in transportation where oil burning vehicles dominate.

The obvious solution is to convert to electric vehicles powered by renewable sources of electricity.  Tesla is the most prominent proponent of this path with a growing array of all-electric automobile options.  Most, if not all, major automotive companies are now producing hybrid or all-electric vehicles.  These vehicles are expensive, mainly because of the cost of the required batteries, but the trend in cost is downward and more affordable models are becoming available.  The biggest unresolved problem for common use of all-electric vehicles is the lack of convenient recharging options.  That may be about to change, and, as usual, California is planning to take the lead.

An article was provided by Bloomberg Businessweek with the intriguing title: Big Electric Shocks Big Oil.  In addition to a slew of aggressive targets for reduction of fossil fuel burning, new legislation specifically aims at improving the infrastructure necessary to assist the acceptance of electric vehicles.

“SB 350 envisions cutting greenhouse gas emissions to 40 percent below 1990 levels by 2030 and 80 percent by 2050. Language in the bill directs regulators to help reach those ambitious goals by making it easier for the state’s 23 million drivers to opt for vehicles that run on electricity instead of gasoline. The law requires the California Public Utilities Commission to solicit proposals from electric companies for ‘multiyear programs and investments to accelerate widespread transportation electrification to reduce dependence on petroleum’.”

Thus far, the impact of renewable energy sources has been negative for the big public utilities.  Rooftop solar is growing rapidly in California and is draining income away.  Providing electricity to charge electric vehicles is a way to increase demand for their product.  Up until now, they have been kept out of the market in an attempt to avoid having a few big players control technology and access.  This recent legislation has changed that and invited the power utilities to jump in—and they have.

“The electric companies see a chance to grab a piece of the $55 billion the state’s drivers spend each year filling up. ‘We really need to have a big push for charging,’ Tony Earley, chief executive officer of PG&E, said in an Oct. 15 appearance at San Francisco’s Commonwealth Club. ‘The charging station ought to be part of our grid infrastructure’.”

“PG&E has proposed installing thousands of charging stations in Northern and Central California over the next three years.”

“….[Southern California Edison] hopes to install 30,000 electric vehicle chargers in office buildings, apartment complexes, and parking lots in the next four years at a cost of $355 million.”

The big utilities are not yet committed to doing everything they can to meet California’s energy goals.  For example, they are trying to discourage the competition that comes from rooftop solar.  They are still wedded to their traditional business model, which must become obsolete.

“Despite the electric companies’ new passion for greener cars, they aren’t cozying up to rooftop solar, which eats into their bottom lines. California, which accounts for half the installations in the U.S., already gets 5 percent of its power from rooftop solar. The state’s utilities ‘are trying to smother that in its crib,’ says Michael Brune, executive director of the Sierra Club. PG&E, SCE, and San Diego Gas & Electric have all petitioned the utilities commission for rules changes that would make solar installation less attractive. Homes and businesses with rooftop solar panels would pay an extra fee to connect to the grid. They’d also pay more to buy power and earn less for selling their excess electricity back to the utilities. That would make converting to solar power two to three times more expensive for the consumer, according to Bernadette Del Chiaro, executive director of the California Solar Energy Industries Association.”

The power companies have two functions: the production of power, and the distribution of power.  As the amount of renewable energy increases and the multiple energy efficiency initiatives take hold, the demand for the power companies’ energy will decrease significantly.  On the other hand, the distribution of energy will become more important and more challenging.

Instead of trying to block progress, the power companies have the opportunity to focus on their distribution function as they develop a new business model.  One of their major functions is providing a reliable source of energy when energy usage changes dramatically within the daily cycle.  Typically, the company will have multiple energy sources that can be brought to bear as demand increases.  That requires bringing in new generation capability to meet peaks in demand.  This adds to the cost of energy delivered when demand is high compared to the cost when demand is low.  They already know how to do this, and they know how to share energy with other producers when power plants go down for maintenance or because of malfunction.

The growth of the renewable component of available power will make the distribution of energy more complicated.  Both wind and solar energy follow daily cycles that are not identical.  Plus, short-term changes in those cycles due to weather variations make for an even more complex situation.  Many cynics have made the claim that it is not possible to have more than about 30% of energy from renewable sources and still provide a stable distribution system.  Others dispute these claims, including Amory Lovins and the Rocky Mountain Institute in Reinventing Fire: Bold Business Solutions for the New Energy Era.  There the claim is made that, in principle, there is no identified limit to the fraction of energy that can come from renewable sources.  In fact, some utilities have already reached over 50% renewable energy on an annual basis.

“Integrating ever higher levels of renewables is being successfully demonstrated in the real world.  In 2009, eight American and three European authorities, writing in the leading electrical engineers’ professional journal, didn’t find a ‘credible and firm technical limit to the amount of wind energy that can be accommodated by electrical grids.’  In fact, not one of more than 200 international studies, nor official studies for the eastern and western US regions, nor the International Energy Agency, has found major cost or technical barriers to reliably integrating up to 30% variable renewable supplies into the grid, and in some studies much more.”

There is a future for power companies in which they embrace renewable energy and take as their responsibility the provision of a newer, smarter grid that that can accommodate the inevitable movement to a greater number of variable power sources, and the situation where every site for energy consumption can also be an energy source.

There is also a future for the power utilities that leads to obsolescence and irrelevance.  Consider this article from Bloomberg: Why the U.S. Power Grid's Days AreNumbered

“There are 3,200 utilities that make up the U.S. electrical grid, the largest machine in the world. These power companies sell $400 billion worth of electricity a year, mostly derived from burning fossil fuels in centralized stations and distributed over 2.7 million miles of power lines. Regulators set rates; utilities get guaranteed returns; investors get sure-thing dividends. It’s a model that hasn’t changed much since Thomas Edison invented the light bulb. And it’s doomed to obsolescence.”

“Crane, 54, a Harvard-educated father of five, drives himself to work every day in his electric Tesla Model S. He gave his college-age son an electric Nissan Leaf. He worries about the impact of warming on the earth his grandchildren will inherit. And he seems to relish his role as utility industry gadfly, framing its future in Cassandra-like terms. As Crane sees it, some utilities will get trapped in an economic death spiral as distributed generation eats into their regulated revenue stream and forces them to raise rates, thereby driving more customers off the grid. Some customers, particularly in the sunny West and high-cost Northeast, already realize that “they don’t need the power industry at all,” Crane says.”

That conclusion may be a bit of a stretch.  It seems likely that homeowners will need to be on some sort of a grid.  But if they are already generating a good deal of the power they need, that grid need not be the one that is currently distributing electricity in the neighborhood.

If the power utilities are smart, they will join the program, not try to torpedo it.

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