Fuzzy Thinking at the Top

Woolly headed

Woolly headed

by James A. Bacon

Governor Terry McAuliffe views the implementation of the Clean Power Plan as a great opportunity for Virginia to create “green” jobs in solar energy and energy-efficiency while also reducing carbon emissions and head off global warming. “I am working hard with Virginia businesses and environmental leaders to seize this moment to lead for our planet and for our economy,” he wrote in an op-ed piece published in the Richmond Times-Dispatch today.

That’s a fine sentiment. Virginia does need to create more jobs. And McAuliffe correctly perceives that the commonwealth faces momentous decisions regarding its electric system. But there was so much platitudinous thinking in the op-ed that I found it thoroughly discouraging. At the highest level of Virginia government, banalities have replaced substantive thought. Let’s take a look at some of the assaults on reason in the piece.

Job creation. Yes, if Virginia builds more solar plants, installs more solar panels on roofs, and builds more wind-powered turbines, it will create jobs related to the construction and operation of wind and solar power. However, the State Corporation Commission staff said last year that implementing the Clean Power Plan could drive electric rates 20% higher. Higher electric rates would discourage industrial development and take money out of the pockets of business and residential customers, all of which would result in job destruction. The difference is that the new energy jobs would be highly visible while the lost jobs, distributed in dribs and drabs across economy, would be largely invisible. Which effect would outweigh the other? Nobody knows, and anyone who pretends to is just making stuff up.

Environmentalists claim that, if implemented properly, the Clean Power Plan would nudge rates only a little higher, and ratepayers would save enough money through energy conservation that their bills actually would be a little lower than today. Perhaps that’s so. It certainly would be a much more desirable income than a 20% increase in electricity rates. So… let’s see the plan! What combination of programs and strategies will lead to this ideal outcome? How would the McAuliffe administration propose implementing the Clean Power Plan differently than the SCC would, while taking care to ensure a reliable supply of electricity, to avoid that 20% rate increase?

There was no hint in McAuliffe’s op-ed that such hard-nose thinking is even necessary. Chanting, “Rah, rah, green jobs,” is not a plan.

Norfolk flooding. If I hear one more invocation of rising sea levels and increased flooding in Norfolk as justification for spending billions of dollars overhauling Virginia’s energy infrastructure, I think my brain will explode. Here’s what the governor had to say on the subject:

Even before the hurricane headed toward Virginia’s coast, the city of Norfolk was bracing for a greater number of nuisance flooding days over the next year due to higher sea levels and more frequent storm surges. Because Norfolk houses the largest U.S. naval station in the world, this is also an issue of national security.

The Clean Power Plan is recognition of the need for action.

This logic is so woolly headed that if we could shave it, we could put the world’s sheep farmers out of business. The increasing incidence of flooding is a justification for building flood walls, hardening infrastructure, upgrading building codes, eliminating subsidies for flood insurance and reforming land use — not for restructuring Virginia’s electric grid.

The reality is that anything Virginia does to re-engineer its electric grid to reduce CO2 emissions will have an impact on global warming and rising sea levels too small to measure. According to estimates using the National Oceanic and Atmospheric Administration’s MAGICC/SCENGEN climate model, the Clean Power Plan will reduce global temperatures about one-one hundredth of a degree (Centigrade) by the year 2100. Virginia’s implementation would account for roughly 1/40th that amount (based on its proportion of the U.S. GDP). To suggest that Virginia, by reducing global temperatures by 1/4,000th of a degree Centigrade, will slow the rate of rising sea levels enough to reduce the impact upon Norfolk is fantasy thinking.

As it happens, there is an argument for implementing the Clean Power Plan: By making the investment, the U.S. can thereby exercise the moral leadership to induce other countries, particularly China, India, to curtail their greenhouse gas emissions. You can choose to accept that argument or not based upon your own partisan and ideological inclinations. But that’s not the argument that McAuliffe offers for supporting the plan.

The future grid. The Obama administration is imposing the Clean Power Plan upon America at a time when the electric power industry is in extraordinary flux, with new technologies and business models threatening to up-end the regulatory structure that has prevailed over the past 80 or so years. The pace of change, and the uncertainty it brings, is unprecedented during the era of regulated utilities. New technologies show enormous promise for replacing fossil fuels. At the same time, given the inherently intermittent nature of those power sources, there are many issues to work out for ensuring the reliability of the electric system, upon which our entire civilization is built. There is little room for error.

There are many profound questions to ponder. Should we invest in large nuclear- and gas-powered power plants with 40-year life spans when solar technology might produce electric power more cheaply within a 5- to 10-year time frame? Should we invest in the current generation of renewable fuels today when the next generation could well cost far less? In either case, we risk saddling Virginia’s electric power system with antiquated and uneconomic capacity. Do we want a big-is-better power system built around large power plants and a robust transmission system, or do we prefer a decentralized, small-is-beautiful approach that may not be as efficient but could be less vulnerable to catastrophic failure? What trade-offs are we willing to make between cost, reliability and the environment?

What path would McAuliffe urge us to take? We don’t know. The Governor offers no clue in his op-ed. Indeed, there are no simple answers to these questions. One way or the other, either we decide what future we want, or we will have a future thrust upon us.

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24 responses to “Fuzzy Thinking at the Top

  1. re: jobs “created” for “green” are really jobs traded for other jobs lost.

    I agree if it turns out that green costs more and it may well… but isn’t that true of ANY spending for something else – not just “green”?

    couldn’t you say the same thing about having to pay to upgrade the ports because of higher sea levels?

    isn’t that also going to divert money from some existing spending – reduce that spending and consequently the jobs that spending “created”?

    can’t you also say the same thing about having to retire older power plants and build new ones that require “riders” on the electric bills?

    how about that new pipeline? Isn’t that also going to “divert” money from other spending?

    how about when we raise gas taxes to pay for more roads? new jobs to build new roads – with money diverted from other spending and job “destruction”?

  2. If these economics are right and the trend continues, McAuliffe is right:

    http://fortune.com/2015/10/06/wind-cheap-coal-gas/

    • DonR, I am open to persuasion that Bloomberg’s analysis is basically correct but I’m far from persuaded. There are so many ways to add up the costs!

      • It’s more the trajectory than the absolute number I think. If we wait until the answer is proven then the opportunity will be lost. All investments require a certain gambler’s instinct – even investments in state economic development. The carbon fuels industry has had a century to become efficient. Further progress is likely to be slow. The green energy industry has had effectively a decade to become efficient. Further progress is likely to be fast.

        I think McAuliffe is right – time to place a bet here.

        In 1985 there were 342,000 cellular phone subscribers in the United States. The phones were big, unreliable, expensive and had terrible voice quality. Growth was dependent on the build out of a vast infrastructure of towers, networks, etc. But the growth was visible and the trend was clear. That was the time to get into the cellular business.

        The trend is clear. The build out has begun. Jim Bacon and his socialite friends in Richmond can spend a few more years downing bourbons with branch water on the porches of their Victorian homes. The rest of Virginia needs to get in gear. The gold rush has begun.

        Or, should I tell the sad story of banking deregulation, the rise of Charlotte and the continued stagnation of private sector growth in Virginia?

    • They are saying on-shore wind energy is cost-competitive, which has been true for some years (until natural gas cost plummeted). Basically the T. Boone Pickens plan was to go full-out on wind power, and divert natural gas to cars and trucks. Low natural gas prices (and other issues) thwarted the plan. Virginia doesn’t have good wind resources, so we’d have to go to WV or something. That’s OK but not the promised panacea for in-state jobs and economic windfall profits to the public.

      The EPA Clean Power Plan is in some ways similar to the Pickens plan. Maybe with gov’t subsidies, we do get a huge amount wind energy build-out in the mid West wind belt.

      Off-shore wind is ultra-expensive, although I must admit elected officials like ultra-expensive projects, and it might be better than nuclear if we have to go 100% carbon-free. But I am not in the 100% carbon-free camp yet.

      • TBill,

        Wind energy in the great plains is still the lowest cost of new generating capacity (about $.03 – .04 /kWh) which is about 50% less than gas-fired combined-cycle prices even with low gas prices. Low gas prices have not slowed down wind development, it is the difficulty and delays in getting transmission to the high wind resource areas.

        None of the states in the southeast are good wind resource areas (WV not too bad). The Virginia energy plan has identified about 800 MW of economic onshore wind resources in the state.

        I agree that offshore wind is not worth the expense at this time. Dominion should not spend any more than the grant money they have received to investigate it. An entire offshore platform and transmission industry needs to be developed before that could be feasible (if then).

        The carbon issue can be dealt with least expensively in Virginia using energy efficiency and solar (and some onshore wind). If Virginia builds too many new gas plants they could be faced with extra expenses later to reduce that carbon.

        Pickens’s plan to convert the over-the-road truck fleet to natural gas is already partly underway. UPS and other large fleets have a number of trucks using compressed and liquefied natural gas. However, the significant increase in natural gas prices coming after 2020 will likely derail that plan.

        Many more passenger vehicles will become electric, but batteries are currently too heavy to use in the big trucks. We’ll have to see how that develops.

  3. I’m still a skeptic. I feel that when places like Hawaii an Puerto Rico , etc – i.e. islands start switching form diesel generators at 50 cents KWH to wind/solar – that I’ll become a believer.

    However – if someone asked if by 2030, Hawaii, and other Islands would have large installs of wind/solar – I’d take that bet.

    and that’s the timeframe that folks who use 30 year timeframes to estimate facility costs – probably would be using.

    and it’s also a legitimate part of the “jobs created” / “jobs destroyed” discussion.

    When you replace a older coal plant job with a newer gas plant job – you’re adding a “new” job and yes, you are destroying the old job.

    it works the same way whether you characterize the new job as ‘green’ or not.

    we destroy jobs moving coal on trains and we replace them with jobs moving gas via pipeline.

    and certainly – not only McAuliffe will claim “new” jobs but so will the folks who want to build the pipeline. they will cite “new” jobs “created”.

    and the truth is – that if the new job is more productive – it actually is not a net new job gain. this is how automation and robots are creating “new” jobs that, are also destroying old jobs – not on a one for one basis.

    • Larry,

      You don’t have to wait until 2030. Kaua’i, the island on which I lived for five years, produces 95% of its daytime energy demand with solar power. SolarCity (owned by Elon Musk, his brother and cousin) recently built a 12 MW solar array on the island and are scheduled to install a 52 MW battery system that would allow the island to be solar powered 24 hours a day!

      The island co-op just signed a 20 year power purchase agreement with SolarCity for 14.5 cents per kWh for the solar and battery storage system. This is considerably cheaper than their current cost of generation. They can shut off their diesel peakers and even idle the combined-cycle plant built about 12 years ago. Before I left 10 years ago, I advised the co-op to embark on a renewable distributed energy program, because I thought the prices were beginning to come down and distributed generation provided them with many benefits. They would have much less transmission loss and higher reliability (a hurricane blew down their entire transmission network 25 years ago). I did not expect that they would go fully solar by 2015, however.

      This doesn’t mean that we could do that here economically just yet. Their rates are more than double ours. The fact that they have a co-op makes it easier to do what is best for the customers because they are the owners too. Fuel prices are high and supplies can be unreliable, so generation without fuel has a special benefit there. Steady declines in solar and battery costs have made this possible. Continued cost reductions are projected for these technologies so we should see more of them in our energy system over the next several years.

      Solar is cheaper than residential rates in Virginia today, in the right setting. Commercial users with lower rates are also realizing savings with solar (Amazon, GW University & Hospital, etc.). Dominion will have more than 400 MW of utility scale solar on line by 2017 (they signed over 300 MW of power purchase agreements in May 2015). So it is economic in the right applications today and will be increasingly competitive as prices fall by perhaps another 50% over the next 5-6 years.

      Utility systems are complex and their operators take their job of keeping the lights on very seriously, so power company executives are always a little conservative. Renewables would come on faster if the SCC and Dominion made it more welcoming to customers and third-parties to develop distributed generation and easily connect it to the grid.

      But that cuts into Dominion’s revenues and we have to find a way to keep utilities financially healthy using modern policies and new rate structures so that they can develop a robust and open access distribution grid, which will be the backbone of it all.

      Renewable generation does produce more jobs than other types because they are almost entirely capital costs (no fuel) and that has a high percentage of labor.

      I wish policy makers would mention that saving energy rather than making it is the cheapest option of all ($.02 -.03/kWh) – cheaper than wind, cheaper than solar, gas, coal or nuclear. It also produces lots of jobs, emits no CO2, and lowers everyone’s bills because it reduces the peak.

      We are in a time of great transition and we need to develop a system which is flexible and rapidly responsive to change. Many of the old ways don’t offer that. We should be open to new ideas, but also be sure that they prove themselves in real applications. Other states (especially NY) have many demonstration projects underway to test multiple options. This is spurring economic activity and innovation, creating jobs, and giving them a clearer picture of the way forward. With a bit of leadership, we could be doing the same in Virginia.

  4. So if Solar IS cheaper – why are Hawaii’s rates still high? Fair question?

    There are hundreds, perhaps thousands of islands and virtually all of them (that lack native fossil fuels – which is most) – rely on diesel generators and electricity rates are in the area of 50 cents kwh.

    I would think that these situations would be the most ripe for solar – and for that matter – wind – as many islands have both significant sun and wind.

    and the next most ripe would be remote areas. where for any number of reasons even with continental fossil fuel resources but apparently no adequate road/rail/transportation they either use diesel or they have none. Rural/remote places on the planet – can’t even have cell towers if there is no 24/7 power available.

    Even a place like the Va Eastern Shore – you’d think – would be a place where Solar – like Amazon’s facility but instead for the Eastern shore itself – would be a good candidate.

    so that’s my real-world validation test. W hen I see solar become the most cost-effective choice – I’ll consider it ready for prime time.

    • I guess I don’t understand your question. It is because the rates are high in Hawai’i that solar is cheaper there. If an entire population is depending on it, isn’t that a real world validation? Because it is cost-effective (for them) they are using it.

      That does not mean it is cost-effective everywhere yet. Even where it is – the other islands and remote places that you mention do not have the infrastructure, qualified installers, or the capital to develop solar which obviously makes sense in their situation.

      I am sure there are residential solar panels installed on homes on the eastern shore. More will come and to businesses too. But Virginia is not a solar friendly state. So far SolarCity has declined to set up shop here. North Carolina, New Jersey, New York, Massachusetts, Vermont – all states with equal or less sunshine than Virginia have a much greater percentage of solar than Virginia because of their state policies and the cooperation of utilities.

      Do you think Dominion is developing over 400 MW of solar over the next year or two because they want to be “hip”? They are doing it because they have determined that it is the most cost effective choice to deal with the CPP standards. The lowest cost option in the 2015 Integrated Resource Plan involves over 3000 MW of solar to be added to their system over the next 15 years, beginning now. This is coming from conservative engineers, developing a diverse portfolio of generation, deciding that a significant amount of solar is the most cost-effective choice to meet specific needs.

    • Larry,
      Upon re-reading, perhaps I misunderstood your question. By installing the solar and battery system, the rates on Kaua’i will be less than what they would have been if they had continued with peakers and the combined-cycle unit (which uses naphtha because it is the cheapest fuel because it is a waste product from making jet fuel).

      Kauai’s rates were already less than the other islands which are served by investor owned utilities. Kaua’i continued to allow customer solar installations while the other islands stopped allowing new solar connections in order to protect their existing assets. These other islands are in disarray right now with rates of about $.35 /kWh. The utilities are looking for merger or takeover options, while Kaua’i is sailing forward. It’s interesting to see how similar regions make different choices which result in far different outcomes. It is much the same with various state utility commissions dealing with the transition in our energy system. Some states will make good choices, others will not. A few states are definitely making headway and will become the centers for innovative new companies, more vibrant economies and a cleaner environment. At this time, Virginia is not one of those leaders and time is running out. Other states have a several year head start and we don’t appear to be willing to get started yet.

  5. If anyone wants to comment to the Va. DEQ about the EPA Clean Power Plan, October 13 is the email comment deadline. Yesterday was the last public “Listening Session”. I agree with Jim we are getting a lot of political rhetoric about how easy it will be for Virginia to meet the CPP targets, but I’m from Missouri. Well OK not really from MO, but please *show me* how we can do it? In other words, tell me what coal plants are we shutting down, and when? and then tell me what are we replacing the shut down coal plants with, and when?

    • TBill,

      What you are looking for is in Dominion’s 2015 Integrated Resource Plan (available on their site). They admit it is an approximation because it was published before the final CPP regulations were released.

      They include the list and schedule for retiring plants. The Brunswick combined-cycle plant will be finished next year. A new combined-cycle plant (Greensville) is scheduled for 2019. These two plants will release as much CO2 as one coal plant of similar capacity, so over 3000 MW of solar will be installed by Dominion in the next fifteen years to meet the CPP requirements (this is the lowest cost option of four considered). A possible North Anna Unit 3 is in the distant planning horizon, but with nuclear costs currently 4-5 times greater than an equivalent combined-cycle plant, this appears to be an unlikely choice.

      • OK thank you TomH I did hear some speakers at the DEQ Listening Sessions reference Dominion future plans, but I did not know where they got the information. I am aware of the public info on coal plant retirements, but so far I do not think it matches EPA’s Va. utility model which shows us down to 959 lbs CO2/MWhr by 2020, before the CPP starts.

  6. not getting email notifications of new comments so I have to come back and am not doing that on a timely basis sometimes.

    re: solar on islands

    I was not clear.

    I was speaking in terms of Utility Solar.

    In other words – SOLAR makes it to prime time when the utilities on the world islands find it cheaper than burning imported diesel oil.

    that’s a simple standard because on most islands without native fossil fuels or hydro – that’s what they do. They buy a tanker full of bunker or diesel oil put it into a bunch of storage tanks and then generate electricity with the oil .. and it generally ends up costing about 50 cents a KWH… give or take.

    When I see utilities on islands start to install solar and using it instead of diesel oil – then I’ll believe that SOLAR actually is cheaper …..

    off now to read about electricity in Hawaii…

  7. Larry,

    I’m not sure what your definition of Solar making it to “prime time” is.

    Dominion Virginia Power signed agreements for over 300 MW of utility scale solar in May 2015 – to be completed by December 2016. They believed this was in the interest of their customers and their system.

    Many factors contributed to this including some GA legislation. Their 2015 Integrated Resource Plan identified the option that includes 3000 MW of utility scale solar over the next 15 years as the most cost effective plan. This would seem to qualify as prime time.

    • I’ve been reading lately (eg; former Exelon CEO) about how much the utilities dislike wind energy. Solar they like better because it goes off at night, and does not kill the economics of the base load plants. Wind continues to produce power at night (when the public is sleeping) and this is killing say existing nuclear plant economics due to lousy payback at night. With our pumped storage in Virginia one would think we could buffer that wind load batter than most.

      3000 MW of solar gotta be a tons of solar, all over the state, right? But that was before the final CPP rule (need less now).

      • when I see solar co-located with gas plants so that they use solar when available – as the more economical fuel and use gas to top it off.

        • The first utility scale solar installations in Dominion’s plan will be located at existing power plants to use the existing substation and transmission lines to lower the overall costs. The existing units co-located with the solar will not cover the variations in solar, peakers at other locations will.

      • The pumped storage, of which Dominion owns 1800 of the 3000 MW, is used primarily for the North Anna and Surrey nuclear units. I don’t know how much excess capacity is left for other types of energy contribution to storage. I don’t know what the expected energy costs are for wind in Virginia. We have less sustained and slower winds than in the Texas panhandle, but I expect wind would still be cheaper than existing nuclear – so it would be the low cost provider and the first to be dispatched. This gives the nuclear plants problems because they cannot easily adjust their output.

        The pumped storage arbitrages the low cost night time power and turns it into high cost peak power, so even with the 20-25% losses to pump the water, it still makes economic sense. If the nuclear units are bumped from filling the pumped storage by lower cost wind – and if there is not alternative night time demand to fill (which often happens in the spring and fall) then the nuclear units have a problem.

        3000 MW of solar seems like a lot, but it compares with the 4300 MW of gas-fired combined-cycle units that Dominion will bring on line between 2014 and 2019. The solar units will be spread over 15 years instead of five. With a lower capacity factor the solar units do not compare 1:1 with the CC units.

        The amount of solar will depend on load growth and the capacity factors of the other units. The new gas-fired units do not meet the CPP standards, but the EPA has a higher standard for new units than for the mix of the old. Dominion is trying to get clarification on that.

    • “prime time” to me is when Solar is the fuel of choice for daytime power generation…

      • Larry,

        After the scheduled completion of the Greensville combined-cycle plant in 2019, solar will be Dominion’s primary choice for new sources of daytime generation. The CPP has a lot to do with this but the declining price of solar could make it the low cost choice regardless of CO2 emissions.

        Dominion forecasts that North Anna 3 could be available in 2027, but continued delays and cost overruns for other nuclear projects make that an unlikely option.

  8. re: pump storage at North Anna/Surry.

    Either I have a problem with a different concept or folks don’t know how North Anna and Surry are configured.

    Neither of them have an upper and lower reservoir like what is found at Dominion’s pump storage facility in Bath County or APCO has at Smith Mountain.

    The pump-storage concept as currently operated uses excess base load power at night to recharge the upper reservoir so that it can be released during peak demand periods.

    It actually uses MORE power but because it’s using excess base load – it basically saves having to run peaker plants or buy power from PJM at peak demand.

    If you COULD have enormous reservoirs where solar could be used to refill them instead of baseload – it would be out of phase with peak demand as you’d be using solar during the day – to recharge the reservoir and the stored reservoir water would not be needed at night unless in the winter during cold snaps.

    during the summer – using solar to pump water to the upper reservoir would be diverting solar from being able to supplement power for peak daytime demand.

    so the idea of using solar tied to pump-storage is sorta out of phase with summertime demand periods.

    • Larry,

      “Either I have a problem with a different concept or folks don’t know how North Anna and Surry are configured.”

      I think you misunderstood what you read. It was written that “The pumped storage, of which Dominion owns 1800 of the 3000 MW, is used primarily for the North Anna and Surry nuclear units.” The pumped storage facility is located in Bath County. Energy used to pump the water up comes from the lowest cost sources in PJM wherever they are located. Currently, the nuclear units are Dominion’s lowest cost source of dispatchable generation. The conversation related to TBill’s comment about what happens if wind energy (usually highest from sunset to sunrise) is cheaper than nuclear. It could give the nuclear units a problem if they could not store their surplus energy for later use at the peaks. Nuclear units run at full capacity whenever possible and it is not easy to vary their output.

      “It actually uses MORE power but because it’s using excess base load – it basically saves having to run peaker plants or buy power from PJM at peak demand.”

      You are exactly right. Even though there is a 20-25% loss of efficiency to pump the water up and then have it come back down to generate electricity again, the lower cost of the base load power, plus the cost of the efficiency loss, is still cheaper than the cost of operating combustion turbines which are typically used to deal with the peaks. PJM will always dispatch the next lowest cost source of generating capacity to deal with the next incremental increase in load.

      “If you COULD have enormous reservoirs where solar could be used to refill them instead of baseload – it would be out of phase with peak demand as you’d be using solar during the day – to recharge the reservoir and the stored reservoir water would not be needed at night unless in the winter during cold snaps.”

      Solar, wind or energy from any generation source can be stored by the pumped storage facility. It is just a matter of which is the lowest cost source. Within five years, solar is likely to be the lowest cost source on Dominion’s system (except for a bit of wind). However, the peak production for solar is near the time of the peak load (in summer) so it is serving the peak directly and there is no need to suffer the transmission losses and efficiency losses to store its energy in the pumped storage facility. The summer peak usually occurs between 3 pm to 7 pm. Solar panels oriented more to the southwest or west will produce more energy later in the day, when it is more valuable to service the peak. Some of Dominion’s utility scale units will use tracking technology to follow the sun to produce the most possible energy each hour of the day.

      Winter poses more of a challenge because there are fewer hours of sunlight and the peak occurs later in the evening (Virginia has a high percentage of electric home heating – heat pumps).

      “during the summer – using solar to pump water to the upper reservoir would be diverting solar from being able to supplement power for peak daytime demand.
      so the idea of using solar tied to pump-storage is sorta out of phase with summertime demand periods.”

      Yes, in the period 2020 – 2030, solar will be the primary and lowest cost method of dealing with the peak directly. It is exactly in-phase with summer peaks. The old nuclear plants will probably continue to be used for the pumped storage facility at night. The plants are paid for and fuel costs would be less than for the gas-fired combined cycle plants. New nuclear plants would not be a cost-effective choice.

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